Companies will have to bear interest on any cenvat credit wrongly taken even if it is not utilised, according to the Central Board of Excise and Customs, the apex indirect tax body. Cenvat credit is the set-off for levies paid on inputs. In other words, for every rupee of service tax or manufacturing tax (excise duty) paid by the company on inputs, it earns a credit that can be used against setting off its liability.
Credit can be set off against duties paid on capital goods used by manufacturers. Giving credit against duty paid arrests the cascading effect of tax at every stage of manufacturing a product. A firm can accumulate credits and use them later to set off its liabilities.
The CBEC has issued a circular (Given Below) clearing the air on interest liability where cenvat credit was wrongfully taken but reversed before utilisation. “As per rule 14 of Cenvat Credit Rules, 2004, interest would be recoverable, when credit has been wrongly taken, even if it is not utilised,” the CBEC said in a circular.
The directive comes after the Supreme Court recently dismissed an appeal by revenue department in a case involving Maruti which had taken cenvat credit but not utilised it. The appeal was against a high court ruling that the assessee was not liable to pay interest on the credit taken but not utilised.
Field officials had represented before the board seeking a clarification on the issue. The Central Board of Excise and Customs in its circular said the high court judgement was delivered in context of an erstwhile rule of the Central Excise Rules and the Supreme Court order “is only a decision and not a judgement”.
Tax experts opine that the circular has wider ramifications for companies. “Companies which had earlier availed cenvat credit and reversed on their own may also face litigation as the department is likely to demand interest in all these cases. Also now the companies will have to be very careful in claiming credit,”
Some tax experts also pointed at another high court decision where the court had specifically analysed the rule 14 and held that interest would be payable only from the date when credit has been (incorrectly) utilised and not from the date when credit has been (incorrectly) availed.
The department may appeal against the high court ruling and till the time Supreme Court finally decides on the issue, the matter is likely to be litigative.
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Circular No. 897/17/2009-CX, New Delhi, dated the 3rd September, 2009.
Subject: Liability of interest where CENVAT credit was wrongly taken but reversed by assessee before utilization–reg.
Representation has been received from the field formation stating that the decision of Hon’ble High Court of P&H in the case of CCE, Delhi III V/s Maruti Udyog Ltd. [2007(214) ELT173 (P&H)], has upheld the order of Tribunal wherein it was held that assessee is not liable to pay interest in the case where credit was only taken and not utilized. The SLP against this order has been dismissed by the Hon’ble Supreme Court. On the other hand, Rule 14 of The CENVAT Credit Rules, 2004, provides for recovery of credit taken or utilized wrongly with interest. In view of this conflict in legal provisions and the decision of Hon’ble Supreme Court, a clarification has been requested from the Board.
1. The matter has been examined. It is seen that the Tribunal decision and the High Court judgement referred to above, was delivered in the context of erstwhile Rule 57I of the Central Excise Rules, 1944 and that the Supreme Court order under reference is only a decision and not a judgement. Since, the Rule 14 of the CENVAT Credit Rules, 2004, is clear and unambiguous in the position that interest would be recoverable when CENVAT credit is taken or utilized wrongly, it is clarified that the interest shall be recoverable when credit has been wrongly taken, even if it has not been utilized, in terms of the wordings of the present Rule 14.
2. Trade & Industry as well as field formations may be suitably informed.
3. Receipt of this circular may kindly be acknowledged.
4. Hindi version will follow.
Yours faithfully,
(Amish Kumar Gupta)
OSD (CX-8)
F.No.267/83/2009-CX-8
Issued by: Government of India, Ministry of Finance, Department of Revenue,(Central Board of Excise & Customs)
