Pradeep Jain - Chartered Accountant

Case Study

Prepared by: - CA. Pradeep Jain

Sukhvinder Kaur, LLB(FYIC)

Introduction: -

Rule 3 (7) (a) of the Cenvat Credit Rules, 2004 prescribes the formula for taking credit of excise duty paid on the supplies made by 100% EOU/EHTP/STP. The Cenvat credit is admissible as per the formula which it as under: -

50% of [X multiplied by {(1+BCD/200) multiplied by (CVD/100)}]

Whether credit of Education Cess and SHE Cess will also be available to an assessee who has received supplies of goods from a 100% EOU, when as per the said formula only central excise duty and basic customs duty has been considered? This was the issue raised before the Tribunal in the case under study.

Relevant Legal Provisions: -

Rule 3 (1) of the Cenvat Credit Rules, 2004: -

(1) A manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of -

(i) the duty of excise specified in the First Schedule to the Excise Tariff Act, leviable under the Excise Act;

(ii) the duty of excise specified in the Second Schedule to the Excise Tariff Act, leviable under the Excise Act;

(iii) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act,1978 ( 40 of 1978);

(iv) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 ( 58 of 1957);

(v) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001);

(vi) the Education Cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004);

(via) the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007);

(vii) the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v) (vi) and (via;)

(viia) the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act:

Provided that a provider of taxable service shall not be eligible to take credit of such additional duty;

(viii) the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003);

(ix) the service tax leviable under section 66 of the Finance Act;

(x) the Education Cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004),and

(xa) the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007); and

(xi) the additional duty of excise leviable under section 85 of Finance Act, 2005 (18 of 2005 );

paid on-

(i) any input or capital goods received in the factory of manufacture of final product or premises of the provider of output service on or after the 10th day of September, 2004; and

(ii) any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004,

including the said duties, or tax, or cess paid on any input or input service, as the case may be, used in the manufacture of intermediate products, by a job-worker availing the benefit of exemption specified in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 214/86- Central Excise, dated the 25th March, 1986, published in the Gazette of India vide number G.S.R. 547 (E), dated the 25th March, 1986, and received by the manufacturer for use in, or in relation to, the manufacture of final product, on or after the 10th day of September, 2004.

Provided that the CENVAT credit shall be allowed to be taken of the amount equal to central excise duty paid on the capital goods at the time of debonding of the unit in terms of the para 8 of notification No. 22/2003-Central Excise, published in the Gazette of India, part II, Section 3,sub-section(i),vide number G.S.R. 265(E), dated, the 31st March,2003.”

Explanation.- For the removal of doubts it is clarified that the manufacturer of the final products and the provider of output service shall be allowed CENVAT credit of additional duty leviable under section 3 of the Customs Tariff Act on goods falling under heading 9801 of the First Schedule to the Customs Tariff Act.

Rule 3 (7) (a) (b) of the Cenvat Credit Rules, 2004: -

7) Notwithstanding anything contained in sub-rule (1) and sub-rule (4),-

(a) CENVAT credit in respect of inputs or capital goods produced or manufactured, by a hundred per cent. export-oriented undertaking or by a unit in an Electronic Hardware Technology Park or in a Software Technology Park other than a unit which pays excise duty levied under section 3 of the Excise Act read with serial numbers 3,5, 6 and 7 of notification No. 23/2003-Central Excise, dated the 31st March, 2003, [G.S.R. 266(E), dated the 31st March, 2003] and used in the manufacture of the final products or in providing an output service, in any other place in India, in case the unit pays excise duty under section 3 of the Excise Act read with serial number 2 of the notification No. 23/2003-Central Excise, dated the 31st March, 2003, [G.S.R. 266(E), dated the 31st March, 2003], shall be admissible equivalent to the amount calculated in the following manner, namely:-

Fifty per cent. of [X multiplied by {(1+BCD/100) multiplied by (CVD/100)}], where BCD and CVD denote ad valorem rates, in per cent., of basic customs duty and additional duty of customs leviable on the inputs or the capital goods respectively and X denotes the assessable value:-

Provided that the CENVAT credit in respect of inputs and capital goods cleared on or after 1st March, 2006 from an export oriented undertaking or by a unit in Electronic Hardware Technology Park or in a Software Technology Park, as the case may be, on which such unit pays excise duty under section 3 of the Excise Act read with serial number 2 of the notification no. 23/2003-Central Excise dated 31st March, 2003 [G.S.R. 266(E), dated the 31st March, 2003] shall be equal to [X multiplied by [(1+BCD/200) multiplied by (CVD/100).

(b) CENVAT credit in respect of -

(i) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978);

(ii) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001);

(iii) the education cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004);

(iiia) the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007) ;

(iv) the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under items (i), (ii) and (iii) above;

(v) the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003);

(vi) the education cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004); and

(via) the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007); and

(vii) the additional duty of excise leviable under section 85 of Finance Act, 2005 (18 of 2005 ),

shall be utilised towards payment of duty of excise or as the case may be, of service tax leviable under the said Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 or the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001), or the education cess on excisable goods leviable under section 91 read with section 93 of the said Finance (No.2) Act, 2004 (23 of 2004), or the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007) or the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003), or the education cess on taxable services leviable under section 91 read with section 95 of the said Finance (No.2) Act, 2004 (23 of 2004), or the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007), or the additional duty of excise leviable under section 85 of the Finance Act, 2005 (18 of 2005) respectively, on any final products manufactured by the manufacturer or for payment of such duty on inputs themselves, if such inputs are removed as such or after being partially processed or on any output service:

Provided that the credit of the education cess on excisable goods and the education cess on taxable services can be utilized, either for payment of the education cess on excisable goods or for the payment of the education cess on taxable services:

Provided further that the credit of the Secondary and Higher Education Cess on excisable goods and the Secondary and Higher Education Cess on taxable services can be utilized, either for payment of the Secondary and Higher Education Cess on excisable goods or for the payment of the Secondary and Higher Education Cess on taxable services.

Explanation.-For the removal of doubts, it is hereby declared that the credit of the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) paid on or after the 1st day of April, 2000, may be utilised towards payment of duty of excise leviable under the First Schedule or the Second Schedule to the Excise Tariff Act;

(c) the CENVAT credit, in respect of additional duty leviable under section 3 of the Customs Tariff Act, paid on marble slabs or tiles falling under tariff items 2515 12 20 and 2515 12 90 respectively of the First Schedule to the Excise Tariff Act shall be allowed to the extent of thirty rupees per square meter;

Explanation. - Where the provisions of any other rule or notification provide for grant of whole or part exemption on condition of non-availability of credit of duty paid on any input or capital goods, or of service tax paid on input service, the provisions of such other rule or notification shall prevail over the provisions of these rules.

M/s Emcure Pharmaceuticals Ltd v/s Commissioner of Central Excise, Pune-I

[2008-TIOL-625-CESTAT-MUM]

Brief Facts of the Case: -

- Appellant availed cenvat credit of education cess paid on the clearances made by a 100% EOU during the period November, 2005 to February, 2006.

- Revenue issued show cause notice on the ground that credit of education cess was not available as the supplier of goods was a 100% EOU.

- The matter reached the Tribunal.

Question for Consideration: -

The question for consideration before the Tribunal was-

“Whether appellant was eligible to avail credit of entire Education Cess paid by a supplier who is 100% EOU?”

Respondent’s Contentions: -

Revenue contended that appellant is not eligible to take credit as there was no formula fixed for availing the credit of the education cess paid on the clearances made by a 100% EOU. It was further submitted that the provisions of Rule 3 (7) (a) would indicate that the credit of the Cenvat includes Education cess, hence credit disallowed is in accordance with law.

Judgment of the Tribunal: -

The Tribunal has placed reliance on the judgment given by the co-ordinate bench of the Tribunal on an identical issue and in respect of the same appellant. The said case related to the period 16.06.2005 to 19.10.05 reported in 2008-TIOL-226-CESTAT-MUM.

In the cited decision it was held that Rule 3 (1) was applicable to all manufacturers or producers of final products or providers of the taxable services including 100% EOU. Rule 3 (7) (b) allows utilisation of cenvat credit by all categories of manufacturers or producers of final products or providers of taxable services, including 100% EOU, in respect of AED for payment of AED, NCCD for payment of NCCD, education cess for payment of education cess etc. Rule 3 (7) (b) opened with the non-obstante clause. And citing other judgments it was held that a non-obstante clause was used where contrary provisions exists. Thus, if the contentions of the Revenue were accepted there would have been no question of utilisation of education cess for payment of education cess if the taking of credit itself, according to the Revenue, is barred by Rule 3 (7) (a) and the provisions of Rule 3 (7) (b) would, therefore, be rendered redundant. It was held that credit of education cess was admissible to the appellants therein and impugned orders were set aside.

The Tribunal in the present case have set aside the impugned orders by following the above-cited judgment of the Co-ordinate Bench as the same was on identical issue and was passed in respect of very same appellant.

Decision of the Tribunal: - Appeals allowed.

Comments & Conclusion: -

The Tribunal rightfully held that credit of education cess was available on supplies received from 100 % EOU. Just because no formula was prescribed in the Cenvat Credit Rules in respect of Education Cess was not reason enough to deny credit of education cess. Moreover, if it was held that credit of education cess was not admissible, then the provisions of Rule 3 (7) (b) prescribing that education cess is to be used for payment of education cess, would have become unnecessary.

Now it was very much clear from the above that the credit of education cess and SHE cess is allowed when the goods cleared by 100% EOU. But the Board has amended the Cenvat Credit Rule 3(7)(a) by Notification no. 22/2009-C.E.(N.T.) dated 07.09.2009 and said that the credit of the education cess and SHE cess will be available on invoice of 100% EOU. But it has clarified the things for future but it has created many problems for the past. The department has started saying that when the credit is allowed now then it was not available earlier. The manufacturers should reverse the credit already taken. There is no mention in the notification that it has retrospective effect. Although it is clear from the aforesaid decisions that the credit was already available. As such, the notification has clarified the things which were already there. But another round of litigation has already started and it will not settle before the decision of tribunal on the issue.

******

Comments

PJ/CASE STUDY/2009-10/016
31 October 2009

Post a Comment

Query

Comments

PJ/CASE STUDY/2009-10/016 31 October 2009

Post a Comment

Query

PJ/CASE STUDY/2009-10/016
31 October 2009