Doesn't Rule 4(5)(a) of CCR, 2004 need an Explanation for recovery?
RULE 4(5)(a) of the CCR, 2004 reads –
"(5) (a) The CENVAT credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning, or for the manufacture of intermediate goods necessary for the manufacture of final products or any other purpose, and it is established from the records, challans or memos or any other document produced by the manufacturer or provider of output service taking the CENVAT credit that the goods are received back in the factory within one hundred and eighty days of their being sent to a job worker and if the inputs or the capital goods are not received back within one hundred eighty days, the manufacturer or provider of output service shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods by debiting the CENVAT credit or otherwise, but the manufacturer or provider of output service can take the CENVAT credit again when the inputs or capital goods are received back in his factory or in the premises of the provider of output service ."
We are concerned with the portion shown in red above.
The probable question – What if the manufacturer or provider of output service does not pay the "amount equivalent to the CENVAT credit attributable to the inputs or capital goods"? Let us assume that the said CENVATTED inputs/capital goods do not find their way back to their factory.
Rule 4(5)(a) of CCR, 2004 is unfortunate in the sense that it is not being equipped with any Explanation unlike sub-rule Rules 3(5),3(5A) and 3(5B) of CCR, 2004 which saw an Explanation being added vide notification 3/2013-CE(NT) dt. 01.03.2013 to provide for recovery of the "amounts" in terms of Rule 14 of CCR, 2004.
So, what is the way out?
In a recent case, concerning the above issue, the Superintendent of Central Excise, Pune confirmed a demand of Rs.60,098/- [for the period April, 2008 to March, 2009and appropriated the amount paid by the assessee on 31.03.2009] by invoking the provisions of rule 14 of CCR, 2004 r/w s.11A of CEA, 1944 and imposed an equivalent penalty u/r 15 r/w s. 11AC of CEA, 1944 and interest u/r 14 r/w s. 11AB.
The Commissioner(Appeals) upheld the confirmation of demand. In the matter of imposition of Interest and Penalty he held thus –
+ Whole issue boils down to non–reversal and retention of CENVAT credit beyond the permitted period of 180 days after the input materials had been sent for job work; whether the said non–reversal resulted in its misuse by its utilization for payment of duty;
+ During the entire period Appellant had sufficient CENVAT credit balance (between Rs.2.2 lakhs to Rs.2.95 Crores) and thus no utilization of impugned CENVAT credit of Rs.60,098/- ever took place; no loss to exchequer has occurred in the present case. Interest not recoverable. The decision in CCE& ST (LTU), Bangalore Vs. M/s Bill Forge Pvt. Ltd., Bangalore is relied upon.
+ In view of the fact that the Rule also provides for taking the credit back once the said goods have been received back, it is obvious that the Rule is procedural in nature.
+ Imposition of penalty under Rule 15 of CCR is not warranted. Nonetheless the appellant was cautioned to be more careful in complying with the provisions of the CCR.
Incidentally, we do not know whether this order has been accepted by the Committee of Commissioners but the moot point is should not there be an Explanation to this sub-rule 4(5)(a) of the CCR, 2004 before inputs/capital goods sent for job work start refusing to return!