REVERSAL OF CREDIT

[Mr. M. GOVINDARAJAN]

                        CENVAT Credit Rules, 2004 ('Rules' for short) allows to avail credit on the central excise duty, service tax etc., paid on capital goods, inputs, input service against the excise duty, service tax paid to the credit of the Central Government.   The assessee is to maintain documents for such availement of credit.  In case the credit is wrongly availed for whatsoever reason the same is to be reversed and the duty/service tax is to be paid along with interest.  In cases the Department may issue show cause notice to the assessees to reverse the credit availed wrongly.   Some assessees immediately reversed the credit on the direction of Central Excise Officers voluntarily or under protest.  This article will highlight under which circumstances the credit availed is to be reversed and not to be reversed.

                        When inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory or the premises of the output service provider the manufacturer of the final products or provider of output service, as the case may be, shall reverse the CENVAT credit availed and pay an amount equal to the credit availed and such removal shall be under the cover of an invoice referred to in Sec.9.  Such payment shall not be required to be made where nay inputs or capital goods are removed outside the premises of the provider of output service for providing output service.  If the capital goods, on which CENVAT credit has been taken, are removed after being used, the manufacturer of provider of output service shall pay an amount equal to the CENVAT credit taken on the said capital goods reduced by 2.5 % for each quarter of a year or part thereof from the date of taking the CENVAT credit.

                        If the value of any input or capital goods on which the CENVAT credit has been taken is written off fully or where any provision to write off fully has been made in the books of account, then the manufacturer shall reverse the credit and pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods.

                        Where on any goods manufactured or produced by an assessee the payment of duty is ordered to be remitted under Rule 21 of the Central Excise Rules, 2002, the CENVAT credit taken on the inputs used in the manufacturer or production of said goods shall be reversed.

                        The CENVAT credit is allowable even if any input goods are sent as such or being after partially processed to a job worker for further processing, testing, repair, re-conditioning etc., on the condition that the input goods are received back within 180 days of their being sent to a job worker.  In case such goods are not received back within 180 days the credit is to be reversed and pay an amount equal to the CENVAT credit attributable to the inputs by debiting the CENVAT credit or otherwise.

                        Some decided case laws on reversal of CENVAT credit are furnished as below:                

CASE LAWS:

1. Laxindco Steel Pvt. Ltd., V. Commissioner of Central Excise, Chennai - 2008 (10) STR 527 (Tri. Chennai)

Assessee is filing their returns ER-1 form periodically during the disputed period showing details of duty paid on final product as well as details of CENVAT credit availed and utilized.   Duty payment on final product was accepted by the department and availement/utilization of CENVAT credit was not objected to.   The Department could not have asked the party to reverse the credit taken during the period of dispute.

2. Veena Diecasters & Engineers Pvt. Ltd., V. Commissioner of Central Excise, Thane-I - 2008 (11) STR 104 (Tri. Mumbai)

Reversal of credit has been erroneously done without knowing the legal position.   Later it was taken back credit and that any formal permission is required since the matter has been already informed to the Department.   The same cannot be denied, the tribunal held.

3. Commissioner of Customs & Central Excise, Rajkot V. Intricast Pvt. Ltd., - 2008 (11) STR 103 (Tri. Mumbai)

The respondent reversed the credit taken by him at the instance of the Central Excise Officers.   He found that no further action has been initiated against him in so far as the reversal of credit is concerned.   He, therefore, applied for the refund/recredit of the credit reversed by him at the instance of the Officers.  The lower authority denied the recredit on the ground that the assessee voluntarily reversed the credit and therefore is not entitled for refund.   The tribunal held that the original reversal is only a kind of deposit of the disputed amount.   It needs to be confirmed by a final order which is appealable under such an order is specifically waived by the affected person.

4. Kedia Electricals Ltd., V. Commissioner of Central Excise, Hyderabad - 2008 (11) STR 197 (Tri. Bang)

It is on record that the appellants availed CENVAT credit only on the basis of invoice which indicated the actual duty paid by the supplier.   If at a later stage the appellants received certain discounts, the department cannot compel them to reverse the credit on account of the reduction in price.   If on investigation it is found that the supplier of inputs had obtained refund then it is open to the department to take action against the appellants for reversal of excess credit taken.  But in the present case, no such exercise has been done.   Therefore, no action can be taken against the appellants in the absence of any investigation.   The appeal is hence allowed.   However the department is free to initiate any action against the appellants on the basis of investigation which may be conducted at the suppliers end, in accordance with law.

5. Commissioner of Central Excise V. Gupta Steel - 2008 (12) STR 101 (Guj HC)

Interest is not to be levied on amount of credit directed to be reverted when such credit is not availed by assessee but lying unutilized.

6. Oudh Sugar Mills Ltd., V. Commissioner of Central Excise, Allahabad - 2008 (9) STR 577 (Tri.Del)

Reversal of credit was done by appellant on mere letter of Superintendent of Central Excise without any protest.   Suo motu recredit of reversed credit without the permission of Assistant Commissioner is not permissible.

7. Commissioner of Central Excise, Nashik V. Chetra Cement Private Ltd., - 2007 (5) STR 25 (Tri. Mumbai)

Assessee reversed CENVAT credit availed prior to issue of show cause notice.   There was no intention to evade payment of duty which is basic requirement of CENVAT credit rules.   Adjudicating Authority has discretion in imposing penalty.   Penalty is rightly reduced by Commission (Appeals).

8. Commissioner of Central Excise, Vadodara - II V. Interplex (India) Private Ltd., - 2007 (6) STR 53 (Tri. Ahamedabad)

100% of credit was taken in the first year itself.   Credit was reversed on being pointed by the department.   No misutilisation was alleged.   The proceedings for demand, penalty and interest were thereafter dropped after verification.   Impugned order upheld especially as there was no revenue loss.

9. Modern Petrofils V. Commissioner of Central Excise, Vadodara - II - 2007 (6) STR 175 (Tri. Ahamedabad)

The appellants reversed the credit obeying the Board's circular.   The Apex Court subsequently set aside the circular.   The appellant preferred the refund claim of credit originally reversed.   The stand of the Adjudicating Authority was that the 'protest' has not been made in the prescribed manner.   The tribunal held that a person who has effected reversal of the credit obeying the Board's circular cannot be dubbed by saying that the reversal was voluntary one.

10. Pandi Selvi Industry V. Commissioner of Central Excise, Pondicherry - 2007 (6) STR 265 (Tri. Chennai)

The prime allegation of the department is that after 01.03.05 during which the final product was exempt of duty, it was not open to the assessee to avail input service tax.   Consequently the course of action for the Adjudicating Authority was to direct the assessee to reverse the above credit.   This was not done.   In the event of this have been done, it would not be open to the Adjudicating Authority to raise a demand under rule 6(3) of CENVAT Credit Rules, 2004.

Discussions to this article

[Amitava Banerjee]

We have taken credit on the Invoices where in by mistake seller put our corporate office address in place of factory address whereas they delivered goods in the factory and also they have certified that. Moreover rather than the address they have put other things like as ECC No., Range & Divn. etc. all are as per factory. So such situation what we will be my stand,- need your valuable opinion in this matter

[MARIAPPAN GOVINDARAJAN]

This is with reference to the submission of Shri Amitava Banerjee. I hope that no problem will be there in the availment of credit though there is a mistake of incorporating the corproate office address instead of factory address but correctly incorporating the other particulars.