The manufacturers of bottled beverages will no more be able to retain the Cenvat credit or the tax set-off paid on inputs, claimed on broken bottles if they have already claimed the excise duty exemption on them. After finding some instances of this sort, the Central Board of Excise and Customs (CBEC) has formally nullified its 1975 instruction, which was being used as the loophole for this malpractice.
As per the 1975 instruction, tolerance of 0.5 percent was allowed on account of broken bottles during movement, storage and clearance for excise duty exemption. However, the instruction was neither removed nor modified after the introduction of the Cenvat credit rules of 2004. The Board said the instruction became redundant with the implementation of the Cenvat credit rules.
The Board said some manufacturers of bottled beverages are claiming the benefit of duty exemption on broken PET bottles up to 0.5 percent, but are keeping the Cenvat credit taken on these.
“In some judicial pronouncements, this benefit has been allowed to the parties on the limited ground that the instruction has not been rescinded or modified by the Board and further the Cenvat credit taken on bottles as input have been allowed to be retained by the assessee,” the CBEC said.
The Board said the introduction of the Cenvat credit rules have now made the old instruction of 1975 redundant. “After the introduction of the Modvat and subsequent replacement of the same with the Cenvat, any circular, instruction or provision inconsistent with the same has no relevance,” it said in a recent circular.
The CBEC emphasised on the point of safeguarding revenue and avoiding any misconception about the issue. “To avoid such disputes in future, it is stated that the instructions … have no relevance in the present Cenvat scheme, and the instructions stand rescinded,” it said.