Confusion in CENVAT Credit Rules

The Supreme Court last week stated that litigation on interpretation of CENVAT Credit Rules had arisen on account of conflicting decisions given by various benches of Customs, Excise and Service Tax Appellate Tribunal, the reason being that the rules had not been properly drafted. The court said so while allowing the appeals of Commissioner of Central Excise in several cases, led by Gujarat Narmada Fertilisers Ltd. In this case, fuel was in captive use for fertiliser production. 

However, the excise authorities did not allow credit due to interpretation of Rule 6 of the 2002 Rules. The company was issued two show-cause notices. It moved the tribunal which granted the excise benefit to the company. The excise authorities then moved the Supreme Court. The company argued that inputs “intended to be used as fuel” had been specifically excluded from the obligations. The court rejected the argument, but due to the confusion in law, it quashed the penalty imposed on the company. 

Larger bench to look into excise charges

A bench of the Supreme Court has expressed doubts over the correctness of an earlier decision of the same court on the excise charges recovered from manufacturers of dissolved and compressed industrial gases, post-mix concentrates and similar other products. Therefore, it has asked the Chief Justice of India to constitute a larger bench to reconsider the law after the amendment of Section 4 of the Central Excise Act in 2000 by the Finance Act of that year. 

By that amendment, the government introduced the concept of ‘transaction value’ for goods. The Customs, Excise and Service Tax Appellate Tribunal had held that the charges recovered by the companies from their customers for providing them containers or canisters were not to be added to the price of the goods for determining the assessable value of goods. This ruling was challenged by the Commissioner of Central Excise in several cases like that of Grasim Industries. The court found that the problem deserved to be solved by a larger bench and placed the issue before the Chief Justice.