IN ELIGIBLE CENVAT CREDIT AVAILED BUT NOT UTILISED –LAW TODAY

[jayaprakash gopinathan]

So much had been and is being written on this subject. As expressed by different indirect tax experts, the controversy continues even after silver jubilee celebrations of introduction of CEN (MOD) VAT credit. UOI and Ors. Versus Ind-Swift Laboratories Ltd. (2011 (2) TMI 6 - Supreme Court) case appeared to have settled the issue.

But issuance of Notification No. 18/2012 – Central Excise (N.T.) dated 17th March, 2012 created a conundrum and further confused the issue.

Different publications, in their pre budget columns, placed before the authorities the necessity to replace OR with AND occurring in Rule 14 of CCR, 2004. The authorities not only ignored it but vociferously defended ‘OR’ and refused to acknowledge ‘AND’ as suggested.

It appears a mystery why suddenly there was a change of heart when apex court approved the contention put forth by Revenue. This paper is an attempt to analyse the impact of Notification No. 18/2012 – Central Excise (N.T.) dated 17th March, 2012 for cases to be decided in future. Post Notification No. 18/2012 – Central Excise (N.T.) dated 17th March, 2012, when an assessee avail irregular credit but not utilised to discharge duty/Tax liability or other liabilities, interest need not be paid for accounting such erroneous credit as a valid credit. There need not be two different opinions on this issue. But what is the consequence for such erroneous accounting of Cenvat credit prior to 17.03.2012.

The Apex Court in the case of PRATIBHA PROCESSORS Versus UNION OF INDIA reported in 1996 (10) TMI 88 - SUPREME COURT OF INDIA, explained the term interest in Fiscal Statute as; “ Interest is compensatory in character and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable. The levy of interest is geared to actual amount of tax withheld and the extent of the delay in paying the tax on the due date. Essentially, it is compensatory and different from penalty –is which penal in character” (emphasis added). When the consequence of a penal provision is abolished, its impact on cases for earlier period for which such penal provisions were applicable before its annulment is no more res-integra. Modified penal provisions, if favourable to the delinquent assessee, the same are applicable for pending cases and earlier provisions are no more applicable.

By virtue of issuance of Notification No. 18/2012 – Central Excise (N.T.) dated 17th March, 2012, the UOI and Ors. Versus Ind-Swift Laboratories Ltd. (2011 (2) TMI 6 - Supreme Court) case does not have any precedential value in as much as no court of records had nullified the amendment carried out to Rule 14 of Cenvat credit Rules, 2004 by the said Notification. The declaration of CESTAT that the Karnataka High Court’s decision is per incuriam is a different subject because the Hon’ble Court’s order is after the Ind-swift judgment and before issuance of Notification 18/2012-CE-(N.T).

However the finding that the Supreme Court Judgment in Ind-Swift is applicable in the case in re:M/s DR REDDY'S LABORATORIES LTD Vs THE COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX HYDERABAD (2013 (3) TMI 86 - CESTAT BANGALORE) does not appear to be the true declaration of law and hence need to be corrected in an appeal for the simple reason that modified penal provisions are applicable for pending cases also as explained above.

Hope, the legal team with M/s. Dr. Reddy Lab will do the needful.