Recovery of Cenvat Credit - Cenvat Credit - Ready Reckoner - Cenvat Credit

Chapter 20

Recovery of Cenvat Credit wrongly taken or erroneously refunded

Statutory Provisions:

Rule 14 of the Cenvat Credit Rules, 2004

 

Recovery of CENVAT credit wrongly taken or erroneously refunded.-

Where the CENVAT credit has been taken wrongly but not utilised, the same shall be recovered from the manufacturer or the provider of output service, as the case may be, and the provisions of section 11A of the Excise Act or section 73 of the Finance Act, 1994 (32 of 1994), as the case may be, shall apply mutatis mutandis for effecting such recoveries.  (w.e.f. 01^st March, 2015)

Where the CENVAT credit has been taken and utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output service and the provisions of sections 11A and 11AA of the Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.

 

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 Interpretation of Provision

Cenvat Credit Rule, 2004 combines the credit procedure for Service Tax and Central Excise, whereas both are governed by the separate set of Acts and Rules.

Therefore, for the purpose of recovery of Cenvat Credit wrongly taken and utilised or erroneously refunded the respective provisions of the central excise and service tax has been referred to.

For the purpose of recovery of Cenvat Credit wrongly taken and utilised by or erroneously refunded, the same along with interest shall be recovered under the provisions of sections 11A and 11AA of the Central Excise Act, 1944, from the manufacturer.

For the purpose of recovery of Cenvat Credit wrongly taken and utilised by or erroneously refunded, the same along with interest shall be recovered under the provisions of sections 73 and 75 of the Finance Act, from the provider of output services.

Rule14 has been amended w.e.f.01/03/2015 and sub-rules have been provided to include recovery of credit wrongly availed but not utilised. Also the manner of determining utilisation of credit has also been provided. All credits for a month shall be deemed to have been taken on the last day of the month and utilisation shall be deemed firstly from the opening balance of the month, secondly from the admissible credit taken during the month and finally from the inadmissible credit.

• In the absence of any clear provisions in the Rule 14, it may be interpreted that: -

For the purpose of recovery of Cenvat Credit wrongly taken and utilised by or erroneously refunded, the same along with interest shall be recovered under the provisions of sections 11A and 11AA of the Central Excise Act, 1944, in respect of Cenvat Excise.

For the purpose of recovery of Cenvat Credit wrongly taken and utilised by or erroneously refunded, the same along with interest shall be recovered under the provisions of sections 73 and 75 of the Finance Act, in respect of Cenvat Service Tax.

• Show cause notice (SCN) is mandatory:

No amount shall be recovered without issuing a show cause notice.

• Time Limit for issue of SCN

SCN should be issued within one year from the relevant date.

However, SCN can be issued within five years from the relevant date where duty has been taken wrongly or erroneously refunded is due to fraud, collusion or any willful misstatement or suppression of facts, or contravention of any of the provisions of the Act or Rules, with intent to evade duty.

• Meaning of Relevant Date

-   Where return was required to be filed and return has been filed

                  The date on which has been filed

-   Where return was required to be filed but return has not been filed

                  The last date on which such return has to be filed

-   In case of provisional assessment

                  The date of adjustment of duty / tax after the final assessment

-   In case of erroneously refund

                  The date of such refund

-   Any other case

                  The date of payment of duty / tax

• SCN shall be issued by the proper officer only:

Show cause notice issued by the proper officer shall be valid only. Superintend of Central Excise does not have any power to issue show cause notice.

• Payment of Interest when credit was availed erroneously but not utilized

If the assessee has availed the Cenvat Credit erroneously, but subsequently realizes the mistake and suo motu reverses the credit before utilizing the same, no interest is payable.  - Refer Emmellen Biotech 2003 (10) TMI 132 - CESTAT, MUMBAI.