CENVAT CREDIT NOT TO BE REDUCED MERELY FOR SUBSEQUENT DISCOUNTS

[C.A. DEV KUMAR KOTHARI]

(Unless there is reduction of liability or refund to the supplier)                                                 

Excise duty is paid at the time of clearance:

Excise duty is paid at the time of clearance of goods and goods are cleared with relevant document in relation to evidence of excise duty paid. The buyer purchases goods with price inclusive of excise duty. Therefore, any entitlement in relation to excise duty paid on such goods is to be based on the amount of excise duty paid. Subsequent events will not affect the amount of excise duty paid. Therefore, any credit or refund in respect of such duty is generally to be on the basis of excise duty paid as indicated in the invoice.

Subsequent events:

In some circumstances the manufacturer or supplier of excisable goods can grant trade discount or cash discount or special discount to the customers. The effect of such discount is that the cost of purchase is reduced in hands of the buyer. However, the manufacturer had already paid excise duty and that amount is not affected by such discount. Therefore, generally the buyer's claim in respect of the excise duty remain unchanged and he will be entitled to claim CENVAT credit or refund of excise duty (e.g. in case of exports or other incentive scheme) on the basis of excise duty paid by him on the input goods.

Excise duty paid under protest:

Only in case excise duty was earlier paid under protest and subject to pending proceedings and the buyer has also purchased goods with such conditions that in case in future liability is reduced the buyer will get credit for excess excise duty paid earlier, then only a contention can be raised by the revenue that the buyer should also avail benefit of refund or CENVAT credit only on the basis of finally assessed excise duty. This is because credit or refund is allowed as per law only in respect of excise duty paid. In case subsequently excise duty recoverable is reduced, and the manufacturer get refund of excess excise duty paid, then there is no justification that the buyer should get refund or CENVAT credit of higher amount paid by him earlier which is refundable by the revenue to manufacturer and in turn by manufacturer to the buyer.

Recent case decided by CESTAT, Chennai:

In case of ADVANCE DETERGENTS LTD. Versus COMMISSIONER OF C. EX., PONDICHERRY 2008 -TMI - 31886 - CESTAT, CHENNAI  a matter came before the Tribunal in respect of revenue disallowing CENVAT credit to the buyer who used goods as input goods because the supplier subsequently allowed discount to the buyer. In the facts of the case as well as from pleadings before the Tribunal it was not the case of the revenue that  such contentions were raised due to reduction in the amount of excise duty payable by the manufacturer. Therefore, author assumes that excise duty payable remains as it was stated in the invoice, and  discount is not due to any reduction in liability of excise duty payable or that there was no case of refund of excise duty to manufacturer and buyer still claiming full CENVAT, in spite of reduction in excise duty payable on the goods bought which are subject matter of CENVAT claim. 

In an expeditious manner the Tribunal had finally disposed of appeal of the taxpayer as after examining the records and hearing both sides, Tribunal took view that the appeal itself requires to be finally disposed of at the stage of hearing on issue of pre-deposit. Therefore Tribunal dispensed with  requirement of  pre-deposit, and heard and decided the appeal.

The taxpayer filed the appeal  against denial of CENVAT credit of total  amount of Rs. 84,47,329/-  for the  relevant period and  also against imposition of equal amount of penalty.

The taxpayer had taken credit of the duty which he paid on inputs received under cover of invoices from the input suppliers. However, subsequently the supplier reduced price of goods and allowed credit for such reduction.

The revenue took view that as the price of the goods was subsequently reduced by the supplier, therefore to the extent (proportionate excise duty) CENVAT  credit was not admissible to the buyer (manufacturer of final products).

(Per author- apparently it is not case of the revenue that the manufacturer ( or supplier/ distributor) has reduction in liability of excise duty on impugned goods. The reasons for price reduction is not reduction of excise duty.)

The  Counsel of tax payer contented that, it is settled law that a manufacturer of final products is entitled to Modvat/Cenvat credit of the duty paid on inputs by the manufacturer/dealer of inputs as evidenced by the relevant statutory invoices. He relied on the following decisions

(i) Creative Poly Ltd. v. Commissioner of Central Excise, Kolkata-II [2008 -TMI - 31904 - CESTAT, KOLKATA].

(ii) Parasrampuria Synthetics Ltd. v. Commissioner of Central Excise, Jaipur [2008 -TMI - 31905 - CESTAT, NEW DELHI]

(iii) Nahar Industrial Enterprises Ltd. v. Commissioner of Central Excise, Chandigarh [2008 -TMI - 31906 - CESTAT, NEW DELHI].

(iv) Kedia Electricals Ltd. v. Commissioner of Central Excise, Hyderabad [2007 -TMI - 896 - Appellate Tribunal, Bangalore].

(v) Commissioner of Central Excise, Jallandhar v. Aggarwal Iron Industries [2008 -TMI - 31907 - CESTAT, NEW DELHI].

(vi) SPIC (HCD) Ltd. v. Commissioner of Central Excise, Chennai-I [2008 -TMI - 31908 - CESTAT, SOUTH CHENNAI].

(vii) Brown Kraft Inds. Ltd. v. Commissioner of Central Excise, Thane-II [2007 -TMI - 1369 - CESTAT, MUMBAI].

On behalf of the revenue learned JDR reiterated the findings of the Commissioner and he relied on a circular of the Board pertaining to valuation of excisable goods under the amended provisions of law and  Maruti Udyog Ltd. [2008 -TMI - 31903 - Supreme Court] wherein the admissibility of abatement of duty from invoice price of excisable goods under Section 4(4)(d)(ii) of the Central Excise Act, to the manufacturer of such goods was examined.

After consideration of all arguments and judgment etc. the Tribunal found, observed and held on the following lines:

       a. neither the circular nor the judgment cited by the learned JDR is relevant to the issue on hand because the  circular and the judgment are relevant only to valuation of excisable goods.

      b.  the question before Tribunal is  whether the CENVAT credit taken by the appellants on the strength of the relevant invoice covering purchase of inputs can be subsequently reduced on the ground that the input-supplier had subsequently reduced the price of the goods.

     c. the settled law on the point is that MODVAT/CENVAT credit of the duty paid by the input- manufacturer/supplier, evidenced by the relevant invoices, is admissible to a manufacturer of final product.

    d. this is the view stated and restated through the decisions cited by learned counsel for assessee.

   e.  Following the settled law on the point, the Tribunal set aside the impugned order and allowed the appeal of assessee/ taxpayer.

Discussion of some earlier judgments in context of this article:

In KEDIA ELECTRICALS LTD. versus CCE, HYDERABAD 2007 -TMI - 896 - Appellate Tribunal, Bangalore. The supplier subsequently allowed  cash discounts after about a month or so on each invoice raised by Supplier.  However, the taxpayer /appellants had not reversed the proportionate Cenvat credit which it had availed immediately on receipt of invoices, therefore, the Revenue proceeded against the appellants. The Assistant Commissioner confirmed the demand of Rs. 36,234/- He demanded interest as applicable and imposed equal penalty under Section 1IAC of Central Excise Act, 1944.

On appeal on similar reasoning that the credit is taken on the basis of invoices and subsequent price reduction is not relevant for such credit. And also that  Central Excise authorities in charge of factories receiving inputs have no jurisdiction to re-assess the duty on inputs received.

The learned Jt. CDR fairly conceded that there is no evidence to show that the supplier of inputs claimed refund of excess duty paid on account of reduction in prices due to discount given  to the appellants.

The Tribunal held on the following lines:

a.       It is on record that the appellant's availed Cenvat credit only on the basis of invoices which indicated the actual duty paid by the suppliers.

b.      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.

c.        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 the excess credit taken. But in the present case, no such exercise has been done. ( In fact the admitted position was that no such credit has been taken by the supplier, as conceded by the learned Jt. CDR)

d.       Therefore, no action be taken against the appellants in the absence of any investigation.

e.        Therefore, the Tribunal allowed the appeal with consequential relief.

f.        However, The Tribunal also held that 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.

  Therefore, as per this order, in case the supplier availed any reduction of liability in respect of impugned goods, then naturally the buyers entitlement of credit of duty paid on inputs shall also be reduced.

In case of BROWN KRAFT INDS. LTD.Versus COMMISSIONER OF CENTRAL EXCISE,THANE-II 2007 -TMI - 1133 - CESTAT, MUMBAI also similar view was taken that discounts are commercial aspects of business, if the discounts are not a reason for short payment or for refund of excise duty payable by the manufacturer / supplier, such discounts cannot be a ground to reduce CENVAT credit which is allowed based on excise duty paid invoices. So long there is no loss to the revenue as far as the payment of duty is concerned by the assessee i.e. supplier of the goods on the proper correct assessable value. The Tribunal held on the following lines:

a.       If there is a short payment of duty or refund claimed by the assessee supplier or reduction of sale price of the goods, there is some meaning in the action of the department to demand the appellants to reduce or reverse the credit equal to short payment of duty or refund claim. 

b.      There is no such exercise by the authorities concerned at the suppliers end.

c.        Duty is paid on the basis of regular practice which is as per trade practice or on mutual agreement.

d.      the trade discounts/cash discounts and other discount are the normal practice, which cannot be quashed by the department as long as they receive the correct quantum of duty, on correct assessable value.

e.       Therefore, the department cannot direct the appellant to reverse the credit or to disallow the credit as the Appellants had paid the duty and taken credit which is equivalent to duty shown in the invoice issued by the supplier.

f.       Therefore, the confirmation of the demand for excess credit is not sustainable and penalty imposed thereof along with interest is not sustainable.

g.      Both the authorities had erred in demanding reversal of credit.

h.      Therefore, both the impugned orders were  set aside and the appeal was allowed with consequential relief, if any.

Conclusion:

CENVAT credit or refund on input goods or services is to be allowed on the basis of invoices of the supplier of goods or provider of services. However, in some circumstances, if the supplier of goods or provider of taxable services avails refund or reduction of liability in respect of goods or services covered by such invoices, then the revenue can take action against buyer also. This is because it cannot be permitted that the supplier pays lesser amount on net basis (earlier paid less refund received) and the buyer get credit on gross basis.

Care required by buyer:

The input user should keep himself aware as to whether the supplier has made any dispute as to duty paid on goods purchased by him and used as input. In case the supplier gets any refund against such input goods from revenue, then the buyer should claim refund from the supplier, and in his record he should reverse credit for the same, if already availed or reduce the amount of claim for such credit if not yet availed.