Wire Drawing – AG does not allow an issue to die.
As everyone will remember, Board had issued a circular in 2001 that drawing of wire amounted to manufacture, which it withdrew in 2003. Now CAG says that the original Board circular was ab initio wrong and because of the delay in withdrawing it, huge amounts of revenue are lost! How? The units have paid duty, when they were not required to pay and downstream units took credit when they were not eligible! So what? The credit taken cannot be more than the duty paid (which was not required to be paid). The department replied that the so called revenue loss was notional. AG doesn’t agree. The report says,
Reply of the Ministry is not tenable as issue of Board’s circular of February 2001 enabled the assessees to avail credit on wire rods and to pass it further on clearance of wire which was not other wise available.
The report says that test check of twenty assessees were conducted, which means at least 200 Show Cause Notices are already issued. Does the CAG remember that in the 2004 Budget a section note was inserted to make wire drawing, manufacture? And if the AG’s office had done a little go through of reported cases, they would have found that judicial opinion is that even if duty is not payable, credit cannot be denied if duty is paid.
In CCE & CUSTOM (APPEALS), AHMEDABAD Vs NARAYAN POLYPLAST - , the Apex Court upheld the Tribunal’s order allowing credit of duty paid on exempted inputs, on the ground of revenue neutrality. The Supreme Court took a similar view in CCE v Narmada Chematur Pharmaceuticals Ltd - 2004-TIOL-113-SC-CX-LB.
The Madras High Court recently gave a similar judgement-
After the Madras High Court judgement, in February 2005, the Supreme Court had another occasion to deal with an identical case in Punjab Tractors v CCE, Chandigarh- 2005-TIOL-66-SC-CX-LB. In this case the Tribunal had upheld demand of duty and penalty. In spite of the earlier two orders of the Supreme Court, the Revenue pleaded that this might amount to condoning violation of excise rules by assessees with impunity. The Supreme Court made it clear that for the violations, the assessee was liable for penalty, but CREDIT CANNOT BE DENIED. Who will tell the AG?