Amnesty Scheme under CER, 1944 and Cenvat Credit Rules – Clarifications woefully needed

By TIOL News Service

NEW DELHI, MAR 02, 2010: IN our earlier Budget analysis, we narrated the “Good” thing about the retrospective amendments proposed by the Finance Bill, 2010. The relevant clauses are 68 to 72 of the Finance Bill, 2010 and the corresponding Schedules Fourth to Eighth .

This is what we mentioned -

“The Good:

Rule 57CC and Rule 6 of the CENVAT Credit Rules are proposed to be amended retrospectively to allow the manufactures of dutiable and exempted goods to reverse the Credit attributable to the exempted goods. The corresponding rules are proposed to be amended retrospectively with effect from 1.9.1996 to the effect that where dutiable and exempted goods are manufactured, the assessee can pay the amount of credit attributable to the inputs (and input services with effect from 10.09.2004 used in the manufacture of exempted goods along with interest of 24%.

Within six months from the date of assent of the Finance Bill, 2010 he shall make an application to the Commissioner with documentary evidence and a certificate from the Chartered Accountant or Cost Accountant certifying the amount paid. On receipt of the confirmation of the correctness of the amount from the Commissioner, the amount shall be paid within a period of 10 days from the date of receipt.”

Needless to mention, this amount is to be paid along with the interest specified of 24% in the respective Schedules.

But before an assessee opts for this “ beneficial retrospective legislation ” that would come into effect after enactment of the Finance Bill, 2010, the first issue that requires a clarification is what is meant by a pending dispute?

Since the term “pending dispute” has not been defined, answers to the following questions need to be addressed on priority basis. They are -

1. Will it mean a Show Cause notice lying un-adjudicated or an appeal pending before the Commissioner(Appeals) or the CESTAT or before the High Courts and the Supreme Court?

2. Will a yet-to-be filed appeal before any of the Appellate authorities or Court be also treated as a pending dispute?

3. Last but not the least, will an application before the Settlement Commission, Customs & Central Excise also be termed as a pending dispute?

4. Is an assessee required to withdraw his appeal/petition if he chooses to opt for the scheme?

Going back to the scheme as it is proposed, a query that would arise is what if the amount computed by the assessee is found to be less than the amount payable.

The answer is provided in sub-section (3) of the respective Schedules. It reads –

“The Commissioner of Central Excise shall, on receipt of an application under sub-section (2), verify the correctness of the amount paid within a period of two months from the date of receipt of the application and in case the amount so paid is found to be less than the amount payable, he shall call upon the applicant to pay the differential amount along with interest , which shall be paid within a period of ten days from the date of receipt of the communication from the Commissioner in this regard.”

In the aforesaid context, more doubts arise and which need to be clarified before the so-called ‘amnesty scheme' comes into force.

1. Will the Commissioner of Central Excise do the verification on his own or will he be employing the services of the nominated Chartered Accountant or a Cost Accountant relying upon the provisions of Section 14AA of the CEA, 1944?

2. What is the rate of interest to be paid on the differential amount? As the sub-section (3) does not employ the words “specified thereunder”, one may contend that it cannot be 24% but the quantum prescribed in section 11AB of the CEA, 1944 and which is 13%. Preposterous, one may say, but then it is not too late to make the necessary amendment in sub-section (3).

3. What if the assessee does not pay the “differential amount along with interest” within the prescribed period of ten days – will the department resort to any coercive action OR will the case go back to its original pending position?

4. Can this order of the Commissioner seeking payment of differential duty be appealed against?

Admitted that the ‘amnesty scheme' would be welcomed by almost all the assessees but to make it a successful one the CBEC should look into these serious issues lest it turns out to be another hotbed of litigation!