Deterrent Measures in case of Misuse of Cenvat Credit and Evasion of Central Excise

[Surender Gupta]

CBEC (Central Excise and customs) has issued a draft circular in the month of November 2006, seeking response from the public with regard to taking deterrent measures in the following situations

i) Removal of goods without documents and without payment of duty

ii) Undervaluation of goods where portion of sale proceeds, in excess of the invoice price, is received separately and remains unaccounted.

iii) Taking of CENVAT credit without receipt of goods specified in the document

iv) Taking of CENVAT credit on invoices which are not genuine

v) Issue of excise invoice without delivery of goods (by a manufacturer or a dealer)

vi) Claiming of refund or rebate based on invoices which are not genuine

Now the concept as envisaged in the draft circular has become a reality. For this purpose the Central Government has issued three notification no. 30/2006, 31/2006 and 32/2006 CE(NT) all dated 30-12-2006. The provisions are as under: -

Insertion of New Rule 12CC to Central Excise Rules, 2002 as Power to impose restrictions in certain types of cases. This rule is read as under:-

12CC. Power to impose restrictions in certain types of cases.- Notwithstanding anything contained in these rules, where the Central Government, having regard to the extent of evasion of duty, nature and type of offences or such other factors as may be relevant, is of the opinion that in order to prevent evasion of, and default in payment of, excise duty, it is necessary in the public interest to provide for certain measures including restrictions on a manufacturer, first stage and second stage dealer or an exporter, may by a notification in the Official Gazette, specify nature of restrictions including suspension of registration in case of a dealer, types of facilities to be withdrawn and procedure for issue of such order by an officer authorized by the Board.

Insertion of new rule 12AA to the Cenvat Credit Rules, 2004 as Power to impose restrictions in certain types of cases. This rule is read as under

12AA. Power to impose restrictions in certain types of cases.- Notwithstanding anything contained in these rules, where the Central Government, having regard to the extent of misuse of CENVAT credit, nature and type of such misuse and such other factors as may be relevant, is of the opinion that in order to prevent the misuse of the provisions of CENVAT credit as specified in these rules, it is necessary in the public interest to provide for certain measures including restrictions on a manufacturer, first stage and second stage dealer or an exporter, may by a notification in the Official Gazette, specify nature of restrictions including restrictions on utilization of CENVAT credit and suspension of registration in case of a dealer and type of facilities to be withdrawn and procedure for issue of such order by an officer authorized by the Board.

Issuance of Notification no. 32/2006 CE{NT) dated 30-12-2006 in exercise of powers under rule no. 12CC of Central Excise Rules, 2002 and 12AA of Cenvat Credit Rules, 2004.

The salient features of the notification no. 32/2006 are as under: -

Who are the effected persons?

1 manufacturer,

2 first stage or second stage dealer, or

3 an exporter including a merchant exporter

Situation where the deterrent steps would be taken:

Where a person knowingly involve in any of the following

1 removal of goods without the cover of an invoice and without payment of duty;

2 removal of goods without declaring the correct value for payment of duty, where a portion of sale price, in excess of invoice price, is received by him or on his behalf but not accounted for in the books of account;

3 taking of CENVAT Credit without the receipt of goods specified in the document based on which the said credit has been taken;

4 taking of CENVAT Credit on invoices or other documents which a person has reasons to believe as not genuine;

5 issue of excise duty invoice without delivery of goods specified in the said invoice;

6 claiming of refund or rebate based on the excise duty paid invoice or other documents which a person has reason to believe as not genuine,

7 an officer authorized by the Board may order for withdrawal of facilities or impose certain restrictions as specified in para 2 of this Notification.

Monetary Limit

Withdrawn of facility or imposition of restriction shall be made only in a case where the duty or CENVAT Credit alleged to be involved in the offences is more than Rs.10 lakhs.

Deterrent Measures - facility to be withdrawn / imposition of restriction

In case of a manufacture: -

- duty shall be payable before  removal of each consignment.

-  duty shall be payable through PLA only without CENVAT credit (however accumulated Cenvat Credit shall be available for future use)

-  Where the offence is committed second time, the removal shall be made under physical supervision of excise officer

-  any other facility provided by a circular or an order issued by the Board may also be ordered to be withdrawn for a specified period.

In case of first stage or second stage dealer

-  the registration granted under rule 9 of the Central Excise Rules 2002 may be suspended for a specified period.

-   For this period he shall be not eligible for issuing Cenvatable document

-   any other facility provided by a circular or an order issued by the Board may also be ordered to be withdrawn for a specified period.

In case of merchant exporter

- the self sealing facility for export consignment may be withdrawn whereby each export consignment shall be examined and sealed by the jurisdictional Central Excise Officer.

-   any other facility provided by a circular or an order issued by the Board may also be ordered to be withdrawn for a specified period.

Procedure

- The Commissioner of Central Excise or Additional Director General of Central Excise Intelligence, shall make a proposal and forward the same to the Chief Commissioner or Director General of Central Excise Intelligence, as the case may be, specifying the facilities to be withdrawn and restriction to be imposed and the period of such withdrawal or restrictions, within 30 days of the detection of the case, as far as possible.

- The Chief Commissioner of Central Excise or Director General of Central Excise Intelligence, may forward the proposal along with his recommendations to the Board.

- Before forwarding his recommendations, shall give an opportunity of being heard to the person against whom the proceedings have been initiated and shall take into account any representation made by such person before he forwards his recommendations to the Board.

-  An officer authorized by the Board shall examine the recommendations received from the Chief Commissioner of Central Excise or Director General of Central Excise Intelligence and issue an order specifying the type of facilities to be withdrawn or type of restrictions imposed, along with the period for which said facilities will not be available or the period for which the restrictions shall be operative.