Rule 6 of the CENVAT Credit Rules 2004 - 'optional' tamasha
1ST September 1996. Rule 57CC of the Central Excise Rules, 1944 was born. This rule stipulated that if the assessee is manufacturing both dutiable and exempted goods and taking credit on common inputs, he shall maintain separate accounts and take credit only on those inputs which are used in dutiable goods or pay 10% amount on the price of the exempted goods.
From the day one, the rule had created a variety of problems for the assessees. Demands running into crores of rupees were raised for the sin of taking credit of only a few thousand rupees on the common inputs. Even when the entire credit was reversed, the revenue was insisting on collecting 10% amount. Many cases were settled in favour of the assessees on the ground that paying back the credit is as good as not taking credit, the most important one to date being Chandrapur Magnet Wires (P) Ltd - 2002-TIOL-41-SC-CX. The fact that this rule has been creating more problems than it solved has been realised in 2008 and an amendment was made to the CENVAT Credit Rules, 2004 in Budget 2008, making a provision to allow the assessee to reverse the credit attributable to the inputs used in exempted goods.
But rules 6(3) and 6(3A) of the CENVAT Credit Rules, 2004 stipulate that the assessee has to exercise his option of either paying 5%/6% amount or paying back proportionate credit and such option shall not be withdrawn during the remaining part of the Financial Year. The assessee is required to intimate the Superintendent in writing with relevant details as mentioned in the rule 6(3A).
It appears that in cases where the assessees have been reversing the credit under Rule 6(3A) on their own without filing any intimation to the Superintendent, the departmental auditors as well as the CAG auditors are denying such benefit to the assessee and insisting on payment of 5%/6% as the case may be.
It is pertinent to note that amendments were made to the Central Excise/CENVAT Credit Rules through the Finance Act, 2010 to extend the benefit of pro-rata reversals retrospectively from the date of insertion of the rule in 1996, to put an end to the disputes and the meaningless demands generated out of this infamous rule. However, the field formations are still raising the demands of 5%/6% on the ground that the assessee did not exercise the option in writing in terms of Rule 6(3A).
It will be interesting to note that payment of 5%/6% or reversal of pro-rata credit are two different OPTIONS provided to the assessees under Rule 6(3). Even assuming for a moment that the assessee has not exercised the option of reversing pro-rata credit under Rule 6(3A) beforehand, how can the department thrust upon him the other OPTION of paying 5%/6%? In the absence of giving any intimation to the department, can the assessee be denied from choosing either of the two options?
After all when the assessee is allowed to choose between two modes of payment at his option, can the department mandate the assessee to follow a particular mode of payment favourable to the Revenue, merely because assessee has not followed the procedural requirement of intimating his choice beforehand? Can a substantive benefit be denied to an assessee for not following a procedural requirement?
Having made a retrospective amendment, it is time the Board makes a suitable amendment to Rules 6(3) and 6(3A) to do away with the procedural requirement of intimation, which is intimidating the assessees.