Revenue Neutrality?
CAN there be evasion and undervaluation in case of inter unit transfer of excisable goods, when the duty paid at one unit can be taken as CENVAT credit at the other unit? Why should a unit suppress its value when the entire duty can be availed as credit at the other end?
A CESTAT Member had some interesting observations to make on this issue in a recent order.
"It has to be noted that even when there was no BSNL and Telecom Department of Government of India used to provide telephone services, all the other departments of Government of India were required to pay telephone bills just like any other customer. This would mean the government was paying for the telephone services to itself.
Secondly if we take the example of postal service even today every Government Department of Central Government is required to affix stamps on envelops and pay for other services just like any other customer. Government of India prints stamps specially for this purpose, postal department collects money for the stamps and releases the same to government departments who affix such stamps and send envelopes. Elaborate accounts of expenditure incurred on stamps and other postal expenses are maintained by all government departments. Even though this results in putting money from one pocket of the same person to another pocket of the same person, government continues to do this.
A government which does not exempt its own department for payment for the services rendered on the ground of revenue neutrality and on the ground that there cannot be payment by the person who is receiving the service to the same person who is providing the service only because they happened to be two parts of the same person, question arises whether we can justify revenue neutrality when payment is made by a person to the government and when other person takes credit and uses it only because situation becomes revenue neutral.
When such is the situation, I am unable to understand why the government should not recover the amount from one unit when goods are cleared to another unit of the same factory when as per law, central excise duty is required to be discharged after payment of duty on the value determined at the time and place of removal. A relief from the statutory liability on the ground that the credit is available to the other unit and the government would be collecting the money and putting it in one pocket and putting the same money in another pocket later does not appear logical.
Further we have to take note of the fact that there is no guarantee that the goods which have been cleared would reach the other unit definitely. Once the duty is paid, the appellant would be free to dispose of the goods whatever way he deems fit. There is no rule that goods should be sent to the same person to whom the same is invoiced and a fresh invoice can at any time be prepared and goods diverted so long as there is no violation of any law and in central excise once full duty is paid, the appellant has no obligation whatsoever as regards disposal unless he has availed a conditional exemption notification. Under these circumstances just because credit is available to the other unit, there cannot be a general principle that when credit is available to the other unit and duty paid is more than the credit taken, the situation would be revenue neutral.
There is another possibility also. Even after the goods have reached the unit, the goods may be disposed of without utilizing in further manufacture which is permitted as per central excise law. As of now the only requirement is the credit taken has to be reversed. Therefore under the present legal situation, even after receipt of the goods by the second unit, the second unit could dispose of the goods by simply reversing the credit taken. In this case the revenue neutral situation would not be valid."