Draconian provisions for Manufacturers - New Rules Introduced by CBEC - Old Wine in New Bottle?!
BY virtue of Notifications 30/2006-CE(NT) and 31/2006-CE(NT) both dated 30.12.2006, Rules 12CC and 12AA were inserted in Central Excise Rules, 2002 and CENVAT Credit Rules, 2004 respectively.
Rule 12CC read as follows:
"12CC. Power to impose restrictions in certain types of cases.- Notwithstanding anything contained in these rules, where the Central Government, having regard to the extent of evasion of duty, nature and type of offences or such other factors as may be relevant, is of the opinion that in order to prevent evasion of, and default in payment of, excise duty, it is necessary in the public interest to provide for certain measures including restrictions on a manufacturer, first stage and second stage dealer or an exporter, may by a notification in the Official Gazette, specify nature of restrictions including suspension of registration in case of a dealer, types of facilities to be withdrawn and procedure for issue of such order by an officer authorized by the Board".
Rule 12AA read as follows:
“12AA. Power to impose restrictions in certain types of cases.- Notwithstanding anything contained in these rules, where the Central Government, having regard to the extent of misuse of CENVAT credit, nature and type of such misuse and such other factors as may be relevant, is of the opinion that in order to prevent the misuse of the provisions of CENVAT credit as specified in these rules, it is necessary in the public interest to provide for certain measures including restrictions on a manufacturer, first stage and second stage dealer or an exporter, may by a notification in the Official Gazette, specify nature of restrictions including restrictions on utilization of CENVAT credit and suspension of registration in case of a dealer and type of facilities to be withdrawn and procedure for issue of such order by an officer authorized by the Board.”
Exercising the powers under these two Rules, the Central Government notified the detailed provisions with regard to nature of restrictions that could be imposed and the type of facilities that could be withdrawn by issuing Notification No. 32/2006-CE (NT) dated 30.12.2006 as amended by Notification No. 15/2009-CE(NT) dated June 10, 2009. While commenting on these draconian provisions, in TIOL-DDT 523 dated 02.01.2007, we asked,
Perhaps, Board has forgotten that we still have Courts in this country! Board wants a recommending officer to give a hearing, but he need not pass any order and the officer who will pass the order need not hear. Will this strange system pass even initial judicial scrutiny? As no adjudication or appellate mechanism is prescribed, assessees will have to run to the nearest High Court. Does the CBEC plan to clog our High Courts completely?
Subsequent actions on certain assessees did generate litigation. While a few of them mounted challenges on the legality of these provisions, others aggrieved by overzealous CBEC orders challenged the same in High Courts and in one such case in Vinay Wires and Poly Products Pvt Ltd vs. Member, CBEC & Anr , the Delhi High Court, while highlighting the importance of the requirement of adhering to PNJ while imposing restrictions or withdrawing facilities to assessees observed,
“…… the said notification itself stipulates that the noticee has to be given an opportunity of being heard and that his representation must be considered before the recommendation is made to the Director General. Opportunity of hearing means an effective opportunity of hearing and in this case it means that the petitioner ought to have been supplied with the documents so that he could have made an effective representation against the contemplated action” (emphasis supplied).
A special leave petition filed by the Union of India against this judgment of the High Court was dismissed by the Supreme Court.
While it is not clear statistically as to how effectively these provisions were employed by the CBEC over the years to deter erring assessees, a few days before Budget 2012, the Central Government has issued a few notifications replacing the above mentioned Rules in CER 2002 and CCR 2004 while coming out with detailed guidelines for imposing restrictions or withdrawal of facilities. Rule 12CC of CER 2002 is substituted by Rule 12CCC which reads as follows:
"12CCC: Power to impose restrictions in certain types of cases.- Notwithstanding anything contained in these rules, where the Central Government, having regard to the extent of evasion of duty, nature and type of offences or such other factors as may be relevant, is of the opinion that in order to prevent evasion of, and default in payment of, duty of excise, it is necessary in the public interest to provide for certain measures including restrictions on a manufacturer, first stage and second stage dealer or an exporter, may by a notification in the Official Gazette, specify the nature of restrictions including suspension of registration in case of a dealer, types of facilities to be withdrawn and procedure for issue of such order by an officer authorized by the Board".
Rule 12AA of CCR, 2004 is substituted by Rule 12AAA which reads as follows:
"12AAA: Power to impose restrictions in certain types of cases.- Notwithstanding anything contained in these rules, where the Central Government, having regard to the extent of misuse of CENVAT credit, nature and type of such misuse and such other factors as may be relevant, is of the opinion that in order to prevent the misuse of the provisions of CENVAT credit as specified in these rules, it is necessary in the public interest to provide for certain measures including restrictions on a manufacturer, first stage and second stage dealer or an exporter, may by a notification in the Official Gazette, specify the nature of restrictions including restrictions on utilization of CENVAT credit and suspension of registration in case of a dealer and type of facilities to be withdrawn and procedure for issue of such order by an officer authorized by the Board".
And the all important Notification No. 32/2006-CE (NT) dated 30.12.2006 which provided for detailed guidelines to be followed by the officials while imposing restrictions or withdrawing facilities is now superseded by a new notification. And surprisingly there is no significant change in the procedure to be followed by the officials. So, it is a simple case of pouring old wine into a new bottle!
At least, they could have provided some appellate mechanism for the orders passed by CBEC, which was absent in the earlier provisions. Because every time an assessee is aggrieved by an order he has to rush to the nearest High Court and the cost of litigation has become dearer by the day. Unfortunately, Government does not have to bother about the litigation costs because ultimately the burden falls on us – the taxpayers!
And by virtue of these new notifications, the only change we can foresee is a further depletion of green cover in our country because reams of paper will be used to circulate these notifications from Delhi to Galli!