Payment of arrears from CENVAT Credit earned at a later date - Board Clarifies
"CAN the arrears of duty be paid by utilizing the CENVAT credit, which has accrued subsequent to the period to which the arrears pertained?" This is the question from the field to the Board.
As per the First proviso to rule 3(4) of the CENVAT Credit Rules, 2004, "while paying duty of excise or service tax, as the case may be, the CENVAT credit shall be utilized only to the extent such credit is available on the last day of the month or quarter, as the case may be, for payment of duty or tax relating to that month or the quarter, as the case may be."
Doubts have been raised whether these restrictions will be applicable to duty payable in terms of Section 11A or duty paid after due date in terms of rule 8 of the Central Excise Rules, 2002.
Board explains:
A harmonious reading of rule 8 of Central Excise Rules 2002 and first proviso to rule 3 (4) of the CENVAT Credit Rules, 2004 indicates that the restriction with regard to the utilization of CENVAT credit is relating to the normal payment of duty in terms of rule 8 of the Central Excise Rules, 2002, where duty for a particular month or quarter is to be discharged by the 5th of the next month. For this proviso, the CENVAT credit allowed to be used is what was in balance on the last date of that month or quarter and not what accrued thereafter. Even in case of duty paid late in terms of rule 8, the credit available for utilization will remain same i.e. the credit in balance on the last date of month or quarter, as the case may be.
Further duty payable under rule 8 is on a different footing from duty payable under Section 11A. Duty under Rule 8 is paid after self determination by the assessee unlike Duty payable under Section 11A where generally the duty is determined by the Central Excise officer and the payment is mandated after such determination. There is no time limit prescribed under Section 11A i.e., monthly or quarterly unlike the date prescribed under Rule 8 (i.e., 5th of the next month).
And Clarifies:
Therefore, the restriction on the utilization of the CENVAT credit accruing subsequent to the last date of the month or quarter in which the arrears arise, is not applicable to the demands confirmed under Section 11A of the Central Excise Act, 1944 .
The CESTAT had in the Arjay Apparel Industries case - 2008-TIOL-1446-CESTAT-MAD had held that there is no prohibition in the assessee paying the short paid/unpaid/defaulted amount using the CENVAT credit.
Circular No. , Dated: March 28, 2012