Reversal of Cenvat Credit amounts to not taking credit. A Gracious Board bows to Apex Court.
Long years ago in the famous CHANDRAPUR MAGNETS case, the Supreme Court had held that the condition of not availing Modvat credit would be satisfied by reversing the credit availed. But all these years, a reluctant Revenue refused to accept the proposition and there are hundreds of cases routinely coming up in Tribunals and courts even a decade after the Apex Courts decision.
As per notification No. 30/2004 dated 09.07.2004, several textile articles are exempted from the excise duty subject to the condition that no Cenvat credit is taken. CBEC vide circular no 845/2007 dt 01.02.2007 clarified that non availment of credit is a pre condition and if credit is availed, the manufacturer would be ineligible for the exemption. "Reversal of credit on a later date would not suffice to make them, eligible for this exemption." asserted the Board.
While discussing this Circular, DDT 544 asked “What is the difference between taking credit proportionately for the consumables used in the dutiable goods as directed by the Board and taking full credit but reversing the proportionate credit of the consumables used in the exempted goods as is being done by certain manufacturers?”
Recently, we reported another Supreme Court order in the case of Bombay Dyeing - , wherein the Apex Court held that the reversal of credit amounts to not taking credit at all, which had been the judicial view all through.
In a refreshingly welcome step, instead of retrospectively amending the law to undo the effect of the Apex Court judgement, the good Board has decided to accept the Supreme Court verdict and has amended the Circular no 845 accordingly to allow the exemption, if the credit is reversed before utilisation. Now what will happen if the credit is reversed after utilisation? Another round of litigation culminating in the Supreme Court will hopefully solve the problem one day.
Incidentally, as this column has been repeatedly mentioning, Board is terribly shy of making public its good deeds. This is an amendment to a circular and should have been properly issued as a circular. But this is contained in a Private letter from the Board to the Chief Commissioners.
Or is it that the board wants this information to be known only to the departmental officers and not to the industry, for whose benefit this clarification has been given.
CBEC F.No.267/01/2006-CX8 dated 8th Nov 2007.