New Rule 15 of the CCR, 2004 creates parity in penal provisions for wrong availment of credit in respect of goods and services

By TIOL News Service

NEW DELHI, MAR 03, 2010: THE Rule 15 of CCR, 2004 as substituted by notification 6/2010-CE( NT) dated 27.02.2010 reads as below -

“15. Confiscation and penalty - (1) If any person, takes or utilises CENVAT credit in respect of input or capital goods or input services, wrongly or in contravention of any of the provisions of these rules, then, all such goods shall be liable to confiscation and such person, shall be liable to a penalty not exceeding the duty or service tax on such goods or services, as the case may be, or two thousand rupees, whichever is greater.

(2) In a case, where the CENVAT credit in respect of input or capital goods or input services has been taken or utilized wrongly by reason of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of the Excise Act or of the rules made there under with intention to evade payment of duty, then, the manufacturer shall also be liable to pay penalty in terms of the provisions of section 11AC of the Excise Act.

(3) In a case, where the CENVAT credit in respect of input or capital goods or input services has been taken or utilized wrongly by reason of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of these rules or of the Finance Act or of the rules made there under with intent to evade payment of service tax, then, the provider of output service shall also be liable to pay penalty in terms of the provisions of section 78 of the Finance Act.

(4) Any order under sub-rule (1), sub-rule (2), sub-rule (3) shall be issued by the Central Excise Officer following the principles of natural justice.”

We have shown the manner in which new rule has been constructed – the words in red are the new additions to the old rule; the scored off words, digits and punctuation marks are also indicated below. It should be noted that apart from the fact that the substituted rule seeks to rid the lacunae that existed in the earlier rule 15 of CCR, 2004, it also tries to grammatically correct certain passages.

“15. Confiscation and penalty. - (1) If any person, takes or utilises CENVAT credit in respect of input or capital goods or input services , wrongly or in contravention of any of the provisions of these rules, then, all such goods shall be liable to confiscation and such person, shall be liable to a penalty not exceeding the duty or service tax on such goods or services, as the case may be , on , or two thousand rupees, whichever is greater.

(2) In a case, where the CENVAT credit in respect of input or capital goods or input services has been taken or utilized wrongly by reason of fraud, collusion or any willful mis-statement , or suppression of facts, or contravention of any of the provisions of the Excise Act or of the rules made there under with intention to evade payment of duty, then, the manufacturer shall also be liable to pay penalty in terms of the provisions of section 11AC of the Excise Act.

(3) In a case, where the CENVAT credit in respect of input or capital goods or input services has been taken or utilized wrongly by reason of fraud, collusion or any , willful mis-statement or , suppression of facts, or contravention of any of the provisions of these rules or of the Finance Act or of the rules made there under with intent ion to evade payment of service tax, then, the provider of output service shall also be liable to pay penalty in terms of the provisions of section 78 of the Finance Act.

(4) Any order under sub-rule (1), sub-rule (2), sub-rule (3) shall be issued by the Central Excise Officer following the principles of natural justice.”

The lacunae that existed till 26.02.2010 in the earlier rule 15 of CCR, 2004 can be understood thus –

+ In terms of sub-rule (1) “any person” [and which would include a manufacturer or an output service provider ] takes credit in respect of inputs or capital goods wrongly or in contravention of any of the provisions of these rules then all such goods can be held liable to confiscation and such person can be saddled with a penalty not exceeding the duty on the excisable goods in respect of which any contravention has been committed or two thousand rupees, whichever is greater.

+ Sub-rule (2) caters to a situation where a manufacturer takes or utilizes Cenvat credit on inputs or capital goods by reason of fraud, collusion etc. In such an eventuality, the manufacturer is liable to be saddled with an equivalent penalty in terms of section 11AC of the Central Excise Act, 1944.

+ As per sub-rule (3) if any person [and which includes a manufacturer or an output service provider ] takes CENVAT credit in respect of input services , wrongly or in contravention of any of the provisions of these rules in respect of any input service, then, such person is liable to a penalty which extends to a maximum amount of two thousand rupees.

+ In terms of sub-rule (4) if an output service provider takes or utilizes Cenvat credit on input services by reason of fraud, collusion, willful mis-statement etc., he is liable for imposition of penalty u/s 78 of the Finance Act, 1994.

Thus it can be seen that if a manufacturer takes or utilises Cenvat credit on input services by reason of fraud, collusion, mis-statement etc., the earlier rule 15 of CCR, 2004 did not specifically provide for any deterrent penalty but only a maximum of two thousand rupees in terms of sub-rule (3).

Similarly, if an output service provider takes or utilises Cenvat credit on inputs or capital goods by reason of fraud, collusion, mis-statement etc., the rule did not specifically provide for any deterrent penalty but the penalty that could be imposed was the one laid down in sub-rule (1) and which can equal the duty on the excisable goods in respect of which any contravention has been committed or two thousand rupees, whichever is greater. A discretionary power would seem to exist with the Central Excise officer who will issue the order in this regard.

Either way, the provisions appeared to be imbalanced.

These omissions are sought to be rectified by the new rule 15 that has come on the scene from 27.02.2010. It manages to succinctly segregate the various occasions when a penalty would befall the manufacturer or an output service provider who incorrectly takes/utilises Cenvat credit on inputs, capital goods, input services and provides the quantum of such penalty.

Obviously, the new provisions would be applicable to offences committed on/after 27.02.2010 only.