Who will audit THE AUDIT?
THE CAG Audit has the consistent habit of not accepting the judicial verdicts and raising objections against the settled case laws. In respect of Rule 6 of the CENVAT Credit Rules, 2004 there are umpteen numbers of orders wherein it was held that once the credit attributable to the inputs used in exempted goods is reversed, there is no case for demand of 10% amount on the exempted goods. In some cases, the demand had reached such a ridiculous stage where the 10% amount would run into Crores while the credit taken was only a few thousand rupees. However, the Audit continued to raise such objections and provided much needed source of revenue for the consultants at the cost of material / manpower resources of the Government in handling such cases. A recap of these objections raised in earlier reports of CAG .
2006:
10.5.1 Six assessees in Bhopal, Kolkata III, IV, VII, Pune I and Raigad Commissionerates, availed Cenvat credit on inputs and used them in dutiable as well as exempted finished goods. No separate inventory was kept in respect of exempted category of goods. Assessees were therefore liable to pay sum of Rs. 10.94 Crore representing eight per cent of value of exempted goods cleared between April 2000 and June 2005. Three assessees had, however paid a sum of Rs.42 lakh , Rs.3 lakh and Rs.10 lakh representing reversal of actual credit availed on such inputs. This did not absolve assessee from responsibility of making payment of duty of Rs.10.94 crore . Differential amount of Rs.10.39 crore was required to be recovered.
2007:
10.1.1 M/s. Rashtriya Ispat Nigam Limited, M/s. Sponge Iron India Limited in Visakhapatnam I and Hyderabad III Commissionerates respectively and M/s. Tata Sponge Iron Limited, M/s. Orissa Sponge Iron Limited both in Bhubaneswar II Commissionerate, engaged in manufacture of iron and steel products, produced electricity in their captive power generation units and utilized it partly in the manufacture of their final products and partly sold it to Transmission Corporation of Andhra Pradesh Limited, residential colony, NESCO etc. The assessees availed cenvat credit on inputs such as water treatment chemicals, greases, lubricants, caustic soda, max treat, maxquat , alum etc., but did not maintain separate accounts. Assessees were liable to pay amount equivalent to eight per cent/ten per cent on the value of electricity sold. Instead assessees reversed proportionate credit on inputs. This led to short payment of Rs 12.27 crore during the period between April 2000 and March 2006.
2008:
3.1.6 M/s Ahlcon Paranteral (India) Ltd., in Jaipur I Commissionerate, availed of cenvat credit of excise duty of Rs. 22.52 lakh on furnace oil which was used in the production of dutiable as well as exempted products. Separate accounts were not maintained. Therefore, the assessee was required to pay Rs. 60.90 lakh being an amount equal to ten per cent of the assessable value of Rs. 6.09 crore of exempted goods cleared between July 2005 and March 2006. The assessee, however, reversed the cenvat credit of Rs. 7.80 lakh on a proportionate basis. Reversal of cenvat credit on proportionate basis was not correct as there was no provision in the Cenvat Credit Rules allowing reversal on this basis. This resulted in short payment of duty Rs. 53.10 lakh .
The report for 2009 also contained such objections at Para 3.4.1, 3.4.2 and 3.4.3. The report also contained non-payment of 10% amount on electricity cleared for having availed credit on inputs like lubricants and paints.
Perhaps in a move to put an end to such demands, Rule 6 has been amended in 2008 to provide for allowing proportionate reversal of credit which was not accepted by the CAG .
STRANGELY, in 2009 CAG report, the audit claims as if this amendment in 2008 was an achievement by the audit, though all along they were against such proportionate reversal!
Further, we all remember how the Audit was the reason for scores of show cause notices denying the 75% exemption for persons liable to pay service tax on Goods Transport Agency Service, which ultimately did not yield a single rupee to the exchequer. Further to curtail further menace, the Government issued a 37 B order, making the intentions clear and not to deny the exemption INSPITE OF THE CAG objections. Finally the exemption has been made unconditional.
Now, in 2009 report for Service Tax, the Audit claims the amendment as the “IMPACT OF AUDIT” as if it is their achievement. In fact it should have been other way round “NEGATIVE IMPACT OF AUDIT”!
Source – CAG's Audit Report No. 20 of 2009-10 - Union Government (Indirect Taxes)