CENVAT CREDIT OF ADDITIONAL DUTIES OF CUSTOMS [CVD] ON IMPORTED COAL

[Subramanya Rayaprol]

The imported coking coal suffers two types of duties at the time of import as customs duties. Coking Coal is classifiable under CTSH 2701, and is chargeable to 2.5% Basic Customs Duty, and 2% Additional duties of customs, levied under notification 12/2012-Cus at Sl. No. 121B.

This 2% additional duties of customs is the additional duty leviable thereon under sub-section (1) of section 3 of the said Customs Tariff Act 1975 (51 of 1975)

The explanation to the said notification clarifies as below:

Explanation.-(I) For the purposes of this notification, the rate specified in column (4) or column (5) of the said Table is ad valorem rate, unless otherwise specified;

(II) For the removal of doubts,-

(a) “-“ appearing in column (4) means basic customs duty leviable on the goods as per the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) read with any other notifications issued under sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), for the time being in force.

(b) “-” appearing in column (5) means additional duty equal to duty of excise leviable on the goods as per the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) read with any other notifications issued under sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), for the time being in force.

As regards, the importers are charging 2.5% basic customs duties and 2% additional duties of customs per column (4) and (5) of sl. no. 121B of notification no. 12/2012-Cus, and not as per the central excise tariff nor its notification no. 12/2012-CE. It means that the CVD paid is customs duties levied under customs tariff act and is not equal to excise duty leviable under central excise tariff. 

Further, the Rule 3 of the cenvat credit rules, 2004, allows cenvat credit of only the following duties.

(1) A manufacturer or producer of final products or a ²⁸[provider of output service] shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of -

        (i) the duty of excise specified in the First Schedule to the Excise Tariff Act, leviable under the Excise Act;

               ¹⁹[Provided that CENVAT credit of such duty of excise shall not be allowed to be taken when paid on any goods -

                      (a) in respect of which the benefit of an exemption under notification No.1/2011-CE, dated the 1^st March, 2011 is availed; or

                      (b) specified in  serial numbers 67 and 128 in respect of which the benefit of an exemption under Notification No. 12/2012-CE,dated the 17^th March, 2012 is availed;]

        (ii) the duty of excise specified in the Second Schedule to the Excise Tariff Act, leviable under the Excise Act;

        (iii) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act,1978 ( 40 of 1978);

        (iv) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 ( 58 of 1957)

        (v) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001);

        (vi) the Education Cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004);

        ^[1,2](via) the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007);

        ^[3] (vii) the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v) , (vi) and (via);

          (viia) the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act.

Therefore, in view of Rule 3 (1) (vii) of the Cenvat Credit Rules, 2004, only such duty equal to excise duty leviable under the duty of excise specified in the First Schedule to the Excise Tariff Act, leviable under the Excise Act. Whereas, on the other hand, the bills of entry for importing coking coal are filed by paying basic duties of customs and additional duties of customs levied under customs tariff, and hence the same is not cenvatable in terms of cenvat credit rules.

In view of the above, it appears that the cenvat credit of 2% [CVD] levied under customs notification is not cenvatable in terms of cenvat credit rules, 2004. But, as per the industry practice, 2% CVD is being passed on by importers, and dealers, but the credit is ultimately taken by the manufacturers, which use it for payment of excise duties.The CBEC must interfere and clarify the position, else, many of the manufacturers may face reversal of such cenvat credit and penal action for no fault of them.

- R. Subramanya, Advocate