CA Bimal Jain
The Lok Sabha passed the Finance Bill, 2015 which includes various tax proposals presented in the Union Budget, 2015, by a voice vote on Thursday, April 30, 2015. The Hon’ble Finance Minister, Shri. Arun Jaitley made certain announcements in Lok Sabha and promised the required Notifications to be followed soon.
In this regard, the Central Board of Excise and Customs (the CBEC or the Board) has issued various Notifications under the Customs, the Central Excise and the Service tax. The CBEC vide Notification No. 12/2015-Central Excise (N.T.) dated April 30, 2015 (the Notification) has amended the Cenvat Credit Rules, 2004 (the Credit Rules) to allow use of Credit of Education Cess (EC) and Secondary and Higher Education Cess (SHEC) [collectively referred to as Cess] for payment of Excise Duty on or after March 1, 2015.
With the underlying theme of setting the stage for Goods and Services Tax (“GST”), the Union Budget, 2015 had proposed to do away with the Cess. While withdrawal of Cess on Excise duty has been made effective from March 1, 2015, as a parallel change, Cess on Service tax has also been proposed to be withdrawn from the date to be notified after enactment of the Finance Bill, 2015.
The act of withdrawal of Cess presented the Industry at large with a bouquet of concerns in view of the provisions of erstwhile Rule 3(7)(b) of the Credit Rules which permitted utilisation of Cenvat credit of Excise duty/ Service tax for payment of Cess but not vice versa.
Proposed Amendment made in the Credit Rules:
The CBEC vide the Notification has amended the Credit Rules to substitute the following proviso after the second proviso to Rule 3(7)(b) thereof:
“Provided also that the credit of Education Cess and Secondary and Higher Education Cess paid on inputs or capital goods received in the factory of manufacture of final product on or after the 1st day of March, 2015 can be utilized for payment of the duty of excise leviable under the First Schedule to the Excise Tariff Act:
Provided also that the credit of balance fifty per cent. Education Cess and Secondary and Higher Education Cess paid on capital goods received in the factory of manufacture of final product in the financial year 2014-15 can be utilized for payment of the duty of excise specified in the First Schedule to the Excise Tariff Act:
Provided also that the credit of Education Cess and Secondary and Higher Education Cess paid on input services received by the manufacturer of final product on or after the 1st day of March, 2015 can be utilized for payment of the duty of excise specified in the First Schedule to the Excise Tariff Act.”
Certain open issues – Still warranting clarification
Though, the CBEC has tried to address the concerns of the Manufacturer to certain extent as regards utilization of Cess availed on or after March 1, 2015 but at the same time, the Notification fails to amend/ clarify certain other open issues, which are also daunting concerns amongst the Trade:
a) What will be the fate of balance of Cess lying unutilized in Cenvat credit account of the manufacturer as on February 28, 2015?
While the afore stated amendment to the Credit Rules allows utilisation of the credit of Cess on Inputs/ Capital goods/ Input services received on or after March 1, 2015, but the Notification fails to clarify as to what will be the destiny of the amount of Cess lying unutilized in the Cenvat credit account of the manufacturers as on February 28, 2015, which may run into big numbers in case of giant manufacturers.
b) What will be the treatment of balance 50% of the Cenvat credit of Cess when Capital goods were received before 2014-15 and balance 50% is not taken yet?
In case of Capital Goods, 50% of the Cenvat credit is taken in the current year and balance 50% Cenvat credit is taken in subsequent financial year. However, it is not mandatory that the balance 50% should be taken only in the immediate next financial year. Now, in a situation where Capital goods were purchased during the financial year prior to 2014-15 but balance 50% of Cenvat credit of Cess is not taken yet, the amendment made in the Credit Rules fails to provide any clarification. Accordingly, the assessee would confront the problem of utilizing the balance 50% Cenvat credit.
c) The Notification is silent as to the utilization of credit on Cess for payment of Service tax liability after the enactment of Finance Bill, 2015.
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: firstname.lastname@example.org)