“AS IF MANUFACTURED” – SCOPE FOR CONTROVERSY

“AS IF MANUFACTURED” – SCOPE FOR CONTROVERSY

The new CENVAT Rules, introduced from April 1, 2000, contain provision for clearance of inputs or capital goods as such on which credit is taken by the assessee. The explanation of to Rule 57AB(b) says that the inputs or capital goods should be cleared as if manufactured in factory of assessee. This provision has given rise to many controversies which may lead to litigation. Some of those points of disagreement between assessee and department are highlighted below: -

(a) Paper Formalities: - This will again lead to voluminous paper formalities like filing declaration under Rule 173B, amendment in registration under Rule 174, change in option letter under Notification No. 9/2000, maintain separate daily stock register for this product etc. Any lapse on this count will lead to booking of offence cases against the parties.

(b) Clearance From SSI Units: - The small scale units, clearing goods under exemption Notification No. 9/2000-CE, dated 28.02.2000 will take credit on inputs and clear the goods at concessional rate of duty under the Notification. They will take full credit on procurement from large scale manufacturer but pay lesser duty on as such clearances. This will result in accumulation of credit with them. The department will not accept this view in light of larger bench decision of CEGAT in the case of Collector of Central Excise Vs. American Auto Services [1996 (63) ECR 131(T)] and will ask them, to pay them the duty equal to credit taken by them.

(c) Procurement From SSI Units: - The large scale manufacturer will take credit paid by SSI units but will have to pay duty at full rate of duty if the strict interpretation of aforesaid explanation is taken. But the assessee will take shelter of larger bench decision and department will take action against it. It will again lead to litigation.

(d) Removal of Capital Goods: - The most difficult position is in respect of capital goods wherein the credit taken will be 50% of duty paid as per provisions of Rule 57AC(2)(a) and rest of Cenvat will be taken in subsequent year. But they have to pay duty at full rate if capital goods are cleared as such. Moreover, the credit will not be available in subsequent year because the capital good is not in existence and Rule 57AC(2)(b) prohibits the same. The manufacturer will again feel it convenient to pay duty equal to credit taken as per aforesaid larger bench decision of Hon’ble Tribunal. But it will not be acceptable to the department.

(e) Aggregate Value of Clearance: - These clearances will be taken into consideration for computing aggregate value of clearance under Notification No. 9/2000-CE, dated 28.02.2000. The factories will contend that the department has already taken a stand vide Mumbai Commissionerate Circular No. 157/88, dated 18.11.1988 that these will not be taken into consideration. But department will not accept it saying that the provision prevailing at that time were different when circular was issued. The provision at that time demanded duty payment not less than the credit taken by manufacturer. This will again be a source of litigation.

(f) Effect of Clearance to Inter-connected Undertakings: - If these inputs or capital goods are cleared to inter-connected undertakings, relative, holding or subsidiary companies etc. then department will demand duty @ 115% of the cost of manufacture or production. This will be very difficult because the cost of manufacture will not be available with the manufacturer. The reason being he has procured the same from outside. Moreover, deeming provision of manufacture under Rule do not change the actual definition of manufacture under Central Excise Act. Also, section has overriding effect on Transaction Value under Section 4. But this will not be acceptable to the department. The outcome will be endless litigation.

Therefore, the Board should reconsider this provision and restore the previous provision of reversal of credit on clearance on inputs and capital goods. This will be a step in the direction of object of reducing litigation expressed be the Finance Minister in his Budget speech.

--------------------------------------------------------------------------

Comments

“AS IF MANUFACTURED” – SCOPE FOR CONTROVERSY

Post a Comment

Query