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PJ/CASE LAW/2014-15/2307

Change in government policy is applicable prospectively

Case:- KARUR VYSYA BANK LTD. VERSUS COMMISSIONER OF C. EX. (S.T.), TRICHY
 
Citation:-2014 (35) S.T.R. 363 (Tri. - Chennai)

 
Brief facts:- The applicant is engaged in the business of providing “Banking and Financial Services” and they have been paying Service Tax since 2001 when such service became taxable under the provisions of Finance Act, 1994. When Cenvat Credit Rules, 2004 was notified with effect from 10-9-2004, they claimed Cenvat credit of Central Excise duty paid on various equipments like computers, printers, lockers, etc., purchased by them under cover of invoices dated prior to 10-9-2004. The Revenue took objection for the reason that Rule 3(1) and Rule 9 of the Cenvat Credit Rules, 2004 stipulated therein that credit could be availed under the new Rules for duty paid on or after 10-9-2004 and only on the strength of invoices issued on or after 10-9-2004 which is the date on which said Rules were notified. Therefore, in respect of credit taken against invoices dated prior to 10-9-2004, Revenue issued show cause notice for recovery of Cenvat credit taken. On adjudication and after first appeal, there is a demand of an amount of Rs. 33, 10,612/- confirmed against the appellant by denying Cenvat credit so taken along with interest and penalties. Aggrieved by the order of the Commissioner (A), the appellant has filed this appeal before this Tribunal.
 
Appellant’s contentions:-The ld. Advocate for the applicant submits that when the new Cenvat Credit Rules, 2004, came into force on 10-9-2004, the excise duty paid on these goods were reflected in the books of accounts of the appellant. Therefore, credit should have been allowed. He further argues that on 10-9-2004 the Cenvat Credit Rules, 2002 and Service Tax Credit Rules, 2002 were integrated into one set of Rules as Cenvat Credit Rules, 2004. Since, credit of duty paid on capital goods was available under Cenvat Credit Rules, 2002, the credit should be allowed in respect of disputed items under the new rule though the invoices were raised prior to 10-9-2004. He submits that this new rule is clarificatory in nature and various Courts have decided that such amendments would have retrospective effect. He relies on the following two decisions of the Apex Court:
1.     Allied Motors (P) Ltd. v. Commr. of Income Tax - (1997) 091 TAXMAN 205 (SC)
2.     Commr. of Wealth-tax v. N.M.R. Krishnamoorthy & Sons Pvt. Ltd. - (2002) 123 TAXMAN 398 (MAD.).
 
Therefore, he submits that his appeal may be allowed.
 
Respondent’s contentions:-The ld. AR for Revenue submits that prior to 10-9-2004, the credit schemes that were operated for Central Excise levy and Service Tax levy were distinct and had distinct features. Under Central Excise, credit of duty paid on capital goods and inputs were allowed but no credit of duty paid on Service Tax paid on services used in manufacture was allowed. In the case of Cenvat credit scheme for Service Tax that was operative prior to 10-9-2004 credit was allowed only in respect of specified services used for providing each of specified output service. Further, there was no provision for allowing credit of excise duty paid on any goods used for providing output service. The ld. AR further submits that those old rules were made in exercise of different powers one under the Central Excise Act and the other under the Finance Act, 1994. Only in September, 2004, the Government took a policy decision to grant credit of both excise duty and Service Tax in respect of inputs, capital goods and input services for payment of either excise duty or Service Tax and the two old schemes were merged. She explains that the new Rules is not just a result of redrafting but consequence to change in policy involving revenue outgo. She argues that a new policy decision given for a particular period could not be extended for a past period. She relies on the decision of CCE, Surat v. Electro Mech. Maintenance - 2013 (30)S.T.R.103 (Tri.-Ahmd.), where demand for penalty and interest were upheld.
 
Reasoning of judgment:-The Hon’ble Tribunal have considered the submissions on both sides. There are clear provisions under Cenvat Credit Rules, 2004 that the new credit scheme is applicable only in respect of duties paid on or after 10-9-2004 and against invoices raised dated on or after 10-9-2004, giving a clear demarcation on time-frame based on which the new scheme was to be operated. They do not see any reason for any doubt about the scope of the Rule and the Tribunal should not be deciding new policy by giving effect to such benefits retrospectively contrary to legal provisions and policies of the government. The decisions cited by the appellant were in the context of situations where there could be doubt regarding the scope of the legislation, and the Govt. considered it appropriate to add explanations to clarify disputes. The rule in question in the present appeal is different from explanations considered in the said cases. So, they see no merit in the appeal and the appeal is rejected.
 
Decision:- Appeal rejected.

Comment:- The crux of the case is that Cenvat Credit Rules, 2004 allowing availment of credit of tax paid on inputs, capital goods and input services for provision of output service are not applicable for duty paid prior to 10.9.2004. Therefore, the benefit of said amendment in the credit scheme could not be claimed retrospectively as it would be contrary to the legal provisions and policies of the Government. Moreover, the amendment clearly stated that it is applicable with effect from 10.09.2004 and so extending the benefit for the duty paid in period prior to 10.09.2004 would be against the statutory legal provisions.

Prepared by :- Monika Tak

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