Availment of Unconditional Exemption Notifications – Board Issues Further Clarification

By Vijay Kumar

BASED on the opinion of the Law Ministry, Board vide Circular No. 937/27/2010-CX dated 26.11.10 clarified that a manufacturer cannot opt to pay excise duty in respect of unconditionally fully exempted goods and also cannot avail the CENVAT credit of the duty paid on inputs in view of the specific bar provided under sub-section (1A) of Section 5A of the Central Excise Act, 1944.

This clarification was issued in the context of assessees availing benefit of Notification No. 29/2004-CE dated 9.7.2004 as amended by Notification No. 58/2008-CE dated 7.12.2008 and Notification No. 59/2008-CE dated 7.12.2008 simultaneously.

Now, the Board further clarifies that:-

(i) In case the assessee pays any amount as Excise duty on such exempted goods, the same cannot be allowed as “CENVAT Credit” to the downstream units, as the amount paid by the assessee cannot be termed as “duty of excise” under Rule 3 of the CENVAT Credit Rules, 2004.

(ii) The amount so paid by the assessee on exempted goods and collected from the buyers by representing it as “duty of excise” will have to be deposited with the Central Government in terms of Section 11D of the Central Excise Act, 1944. Moreover, the CENVAT Credit of such amount utilized by downstream units also needs to be recovered in terms of the Rule 14 of the CENVAT Credit Rules, 2004.

But there are umpteen number of decisions wherein it was held that the buyer of the goods cannot be penalised by denying the CENVAT credit for any irregularities by the supplier of goods, if the goods are received on the strength of an invoice and are used in the manufacture of excisable goods. It seems the Board is in serious business of promoting the business of consultants. They did it with Rule 57 CC which continued till the retrospective amendment in 2010 and they are now doing it with Section 5A.

Does the Board exist for complicating matters and making life miserable for the assessees for no good reason? Why should the Board issue contradictory notifications and then issue contradictory circulars to clarify those notifications and then make the assessees liable for penal action if they follow these notifications and circulars?

Please see DDT 1496 – 29.11.2010 for a detailed analysis of this issue.

Circular No. 940/01/2011-CX., Dated: January 14, 2011