Stimulus to Economy - CENVAT Rate reduced to 10% - effective from many hours before issue of the notifications
On a lazy Sunday evening, the Government has attempted to stimulate the Indian economy. To boost the sale of manufactured goods, the excise duty rate has been reduced from 14% to 10%, 12% to 8% and 8% to 4% (other than petroleum products) These reduced rates will be with immediate effect. We received many calls asking for clarification whether the notifications were effective midnight of 7th December or 8th December. As 8th December did not figure in any notification, we had to clarify that the notifications were effective 0000 hrs of 7.12.2008.
Now, all the invoices issued till yesterday's evening (the Notifications were available around 8 PM) would have been raised with 14%. The buyers will pay only 10% on these clearances as they insist that the rate of CENVAT is only 10% from 7.12.2008. The manufacturer will not get any refund from the department as subsequent credit notes will not make him immune from the doctrine of unjust enrichment since the invoice was issued by the manufacturer at 14%.
4% is not a small amount and in the days to come; we assure you that there will be a number of Breaking News stories on this issue as a result of various disputes that may arise.
Why can't the Government implement the new rates from tomorrow? How much revenue they will lose if the manufacturers postpone the clearances by a few hours till tomorrow? How do they expect a manufacturer to know this morning that he has to pay duty at 10%?
And we may have even Audit objections that the extra 4% CENVAT paid on the clearances effected from 7th morning till night will not be available to the buyers as CENVAT Credit. The Audit Report could read thus "illegal passing of CENVAT Credit to downstream manufacturers"
The Press note issued by the PM's Media Advisor reads "As an immediate measure to encourage additional spending, an across-the-board cut of 4% in the ad valorem CENVAT rate will be effected for the balance part of the current financial year on all products other than petroleum and those where the current rate is less than 4%.
So, there are no assurances that the reduced rates will be applicable even for the next financial year and the manufacturers should exercise caution in this regard.