If goods become non-dutiable, credit already taken need not be reversed – New Section 5B
Here is a great piece of beneficial legislation tucked away in some corner of the Budget amendments. The Central Excise Act is amended to include a new Section 5B which is sure to provide great relief to a large number of assessees and which is sure to be a great loss for the consultants. The new legislation provides that if an assessee has paid duty on a final product and has taken CENVAT Credit on the inputs, capital goods or services, and later if a court holds that the process does not amount to manufacture and so no duty is payable, then the Government can by notification order
1. Non-reversal of the credit taken subject to specified conditions.
2. Non-reversal of credit taken by the buyers of the final product.
And of course the non-reversal of credit will not apply if the assessee has claimed refund.
Remember the litigation in respect of drawing of wire from wire rods? The department was of the opinion that it is dutiable. Even though many assessees contested the departmental stand, many others, to buy peace with the department, paid the duty, as they were any way getting the credit. Finally the Supreme Court held that the activity does not amount to manufacture. Now the department turned its guns against those obedient assessees who paid the duty and their customers. Department argued that since the process did not amount to manufacture and no duty was payable, what these manufactures actually paid was not duty and so their customers were not entitled to take credit. Litigation has been going on, and finally the Government, on the request of the assessees amended the Section Note to specify the drawing of wire does amount to manufacture.
Though the amendment to the Central Excise Act is a welcome beneficial piece of legislation, it seems to have been drafted badly. The Section says “if the product is held by the court as not chargeable to duty”, it is not mentioned which court should hold. May be for the Government, court means the Supreme Court as they would ultimately like all cases to reach the Supreme Court.
This Section gives a lot of discretion to the executive. If credit has been taken and duty has been paid, why can’t you just forget the issue and be done with it instead of going around issuing notifications? Now after winning in the court, is the assessee required to make trips to the North Block requesting for issue of the notifications?
Section 106A of the Finance Act, 2007