Reversal of Cenvat credit, Central Excise

[srinivasan.K kuppuswamy]

Sir,

We are placing the purchase order on supplier to supply the goods. We do not know whether the ordered material is manufactured by them or the same purchased outside and removed as such.

The invoice as per Rule 11 from the supplier is the base document for Cenvat credit and we availed cenvat credit.

If the supplier has passed on excess cenvat credit through invoice to their buyers, whether the buyers has to reverse the cenvat credit for which all the payments for the supplies made to supplier.

Please provide the favourable orders .

Kind regards

K Srinivasan

Posts / Replies

[PAWAN KUMAR]

Dear Sir,

The Cenvat credit which the supplier has passed on to you in excess, and you have taken the same in your cenvat accounts, please raise an debit note/excise invoice and reverse the excess cenvat credit taken.

[Rajagopalan Ranganathan]

Dear Srinivasan,

If you have paid the duty amount indicated in the invoice of the supplier, then you have a vested right to avail the credit of such duty. If your supplier claimed refund of excess duty paid then his jurisdictional AC/DC will write to AC/DC having jurisdiction over your factory to find out the amount of credit availed by you. If AC/DC having jurisdiction over your factory report after verifying your cenvat records that you have availed the credit of duty paid by the supplier, then, AC/DC having jurisdiction over your supplier will deny the refund on the ground of unjust enrichment. It is for your supplier to prove before the jurisdictional authority that excess duty was not collected from you. For this your supplier has to issue a credit note for excess duty paid. CESTAT has consistently held that even issuing credit note will not help you supplier to obviate the application of doctrine of unjust enrichment. Therefore no action is to be taken at your end.

[srinivasan.K kuppuswamy]

Sir,

Department says the following points to reverse the cenvat credit on the following grounds:-

1. Any person cannot collect amount in guise of excise,where no manufacturing activity was undertaken.

2. The assessee should have paid an amount equal to the credit availed in respect of inputs cleared as such

3. Rule 3(5) of the Rules did not permit collection of higher excise duty from the purchaser.it provides the measure of amount to be paid when inputs or capital goods are removed as such.

4. Article 265of the constitution of India provides that no tax shall be levied or collecte, except by authority of law. As Rule 3(5) o CCR,2004 provides that when inputs or capital goods on which cenvat credit has been taken are removed as such an amount equal to the credit availed in respect of such inputs or capital goods shall be paid.

In view of the above the department issued letter to reverse the cenvat credit taken by the buyers based on the supplier invoice to be reversed.

Please advice with relevant judgement.

Regards

K Srinivasan

[Rajagopalan Ranganathan]

Dear Srinivasan,

My view in respect of the points raised by the Department are as follows: -

1. Any person cannot collect amount in guise of excise,where no manufacturing activity was undertaken.

My view: - Here the excess duty collected is not an amount collected in the guise of excise. It is actually amount of excise but due to mis-calculation collected on the higher side. Moreover, under Section 11D of Central Excise Act, 1944 what ever amount representing excise collected by the assesse must be deposited to the Government Account. Here the department did not make any such allegation against your supplier. When the supplier pays excess amount the department quietly accept the same. Why the department does not come forward to refund the excess amount paid since Article 265 of the Constitution of India provides that no tax shall be levied or collected, except by authority of law. The excess amount paid by the assesse is without authority of law. Hence the Department is duty bound to refund the same on its own. They will not do that on specious ground that if the excess amount is collected from the customer then doctrine of unjust enrichment will be attracted. Even if your supplier had issued a credit note to you i.r.o. the excess duty collected the department will not refund the excess duty paid to your supplier.

2.As Rule 3(5) of CCR,2004 provides that when inputs or capital goods on which cenvat credit has been taken are removed as such an amount equal to the credit availed in respect of such inputs or capital goods shall be paid.

My view: - This provision of CCR,2004 is not applicable to you since you have not removed the input as such.

3. Rule 3(5) of the Rules did not permit collection of higher excise duty from the purchaser.it provides the measure of amount to be paid when inputs or capital goods are removed as such.

My view: - Rule 3 (5) of CCR, 2004 is as follows: -

(5) When inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, or premises of the provider of output service, the manufacturer of the final products or provider of output service, as the case may be, shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in rule 9:

Provided that such payment shall not be required to be made where any inputs or capital goods are removed outside the premises of the provider of output service for providing the output service:

Provided further that such payment shall not be required to be made where any inputs are removed outside the factory for providing free warranty for final products:

It is nowhere stated in this rule that it does not permit collection of higher excise duty from the purchaser This rule is applicable only when you remove cenvat credit availed inputs as such outside your factory. This is not your case since from your narration of facts I understand you have taken as credit the duty indicated in supplier's invoice . You have not deducted the so called excess amount of duty from your payment. therefore the credit taken by you is order and you need not reverse the excess duty paid by the supplier. If the department still insists you should reverse the excess amount you may do so under protest and ask your jurisdiction A/DC to issue a speaking order so that you can pursue appellate remedies available under Cen tral Excise Act, 1944.