The government has made some helpful and some not very helpful amendments to the Cenvat Credit Rules, 2004. Exporters can hope to get refunds without much hassle and input service distributors can expect some nuisance in distributing the credits.
Rule 5 now allows refunds on the basis of a prescribed formula. The new scheme does not require the correlation needed at present between exports and input services used in such exports. Duties or taxes paid on any goods or services that qualify as inputs or input services will be entitled to be refunded in the ratio of the export turnover to total turnover. This is subject to the condition that the same duties or taxes should not have been claimed through the drawback route. The conditions, procedures and safeguards for grant of refund will be notified later. The new dispensation will apply for exports made from April 1. Refunds under the existing dispensations must be claimed before March 31.
In the case of Ind-Swift Labs [2009 (240) ELT 328 (P&H)], the Punjab and Haryana high court had said interest could not be claimed from the date of wrong availment of Cenvat credit; it is required to be paid from the date of such wrong utlilisation. In the departmental appeal, the Supreme Court (2011 (265) ELT 3 (SC) held interest was payable from the date of taking credit, not utilising it. The latest amendment to Rule 14 ensures that interest is not chargeable for taking wrongful credit if the credit is reversed without utilising it.
Rule 10A now permits transfer of unutilised Cenvat Credit of four per cent additional duty of Customs (known as SAD) from the unit of a manufacturer to another, other than a unit availing area-based exemption. This can be done every quarter on the basis of a transfer challan. Rules 3(5) and 3(5A) have been amended to prescribe that in case the capital goods on which Cenvat credit has been taken are cleared after being used, what is payable shall be either the amount calculated on the basis of Cenvat credit taken at the time of receipt reduced by a prescribed percentage or the duty on transaction value, whichever is higher. Presently, credit on goods can be taken only after they are brought to the premises of the service provider. Sub-rules 4(1) and 4(2) have been amended to allow credit without bringing these into the premises, subject to due documentation regarding their delivery and location.
Rule 7 allowed input service distributors to transfer the credit to any of the manufacturing units or premises of a service provider. The latest amendment now says credit of service tax attributable to a service wholly in a unit/premises shall be distributed to that unit/premises only. Also, credit of service tax attributable to service used in more than one unit/premises shall be distributed proportionately, on the basis of turnover of the unit/premises concerned, to the sum total of turnover of all the units to which the service relates. This new restriction can demand stringent scrutiny of records by the department and audit parties and can result in litigation. Such changes should be made after inviting comments from the parties who may be affected.
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