MARCH 23, 2012

Is CENVAT Credit admissible on 1% duty paid on coal now?

By R Raghavendra Rao

COAL is in news in Central Excise in addition to the wide media attention it is catching up in the light of draft report of C&AG.

In the Budget 2011, 1% excise duty was imposed on around 130 items by issuing the Notification No 1/2011 CE dated 1.3.2011. It was clarified that no CENVAT Credit shall be availed for payment of this 1% duty (these goods are defined as exempted goods under Rule 2(d) of the CENVAT Credit Rules, 2004). As per second proviso to Rule 3(4),

Provided further that CENVAT credit shall not be utilised for payment of any duty of excise on goods in respect of which the benefit of an exemption under notification No. 1/2011-CE, dated the 1st March, 2011 is availed:

Apart from the above, the buyers of these goods are also not entitled to take CENVAT Credit of this 1% duty paid. Vide para 4(3)(b) of the JS(TRU)'s D.O. letter issued in 2011 clarified that:

(b) Credit of duty paid on inputs or input services would not be available to a manufacturer of these goods. Credit of the duty paid on items that are being subjected to the levy of 1% would not be available to a manufacturer or service provider who buys them.

The relevant statutory provision for the above restriction is proviso to Rule 3(1)(i) of the CENVAT Credit Rules, 2004 which reads:

Provided that CENVAT credit of such duty of excise shall not be allowed to be taken when paid on any goods in respect of which the benefit of an exemption under notification No.1/2011- CE, dated the 1st March, 2011 is availed;

All the above provisions remained same in the Budget 2012 except a few items on which duty rate was to be continued at 1% ( in the light of enhancing duty rate under Notification No 1/2011 CE to 2%), have been shifted to Notification 12/2012 CE dated 17.3.2012. One of such items is coal falling under Chapter 2701. The only condition in the Notification No 12/2012 CE against this item is condition No 25 which reads:

If no credit under rule 3 or rule 13 of the CENVAT Credit Rules, 2004, has been taken in respect of the inputs or input services used in the manufacture of these goods.

So, the manufacturer of coal is not entitled to take credit on the inputs or input services used in the manufacture of these goods. But there is no restriction on the buyer of these goods from availing CENVAT Credit on this 1% amount paid. This is because the restriction under proviso to Rule 3(1)(i) of the CENVAT Credit Rules, 2004 is applicable only for goods exempted under Notification No 1/2011 CE and coal is no longer in Notification No. 1/2011 CE.

Perhaps this is not a conscious decision to extend the credit on 1% duty paid on coal, especially when 2% duty paid on all other items under Notification 1/2011 CE is still not allowed. A suitable amendment is required to rectify this anomaly.