Govt Must Go Slow On Notifications
Through the Finance Act, 2000, the government has introduced the central value-added tax (Cenvat) scheme replacing the Modvat scheme from April 1. In this context some important notifications have been issued on March 1, on March 31 effective from April 1, on May 3 effective from April 1 and on June 30 effective from July 1.
The frequency with which these notifications have been issued indicate conceptual uncertainty experienced by the issuing authority itself. Obviously such notifications have led to various complications in implementation. The Cenvat Rules have been renumbered as Rules 57AA to 57AK.
Cenvat is basically an input duty relief scheme under central excise designed to reimburse the user-manufacturer with the duty paid on the input which he has absorbed, as part of the purchase price when buying the same for producing finished products. This system is evolved on the lines of the International Value-Added Tax System. Cenvat provides relief to a manufacturer on the duty element borne by him in respect of the raw materials (inputs) used by him. Under the Cenvat scheme, a manufacturer can take credit of the duty paid on the input materials purchased by him and which are further used by him in the manufacture of final products. This credit of duty can be used by him for payment of duty leviable on such final products.
Some issues which lack clarity are summarised below:
Cenvat Credit Rules 57AB:
l Under this rule (concerning rejected goods), when capital goods are removed from the factory as such, the manufacturer of final products is required to pay appropriate excise duty on the goods as if such capital goods have been manufactured in the factory from where removal takes place. Rule 57AB prima facie, shows that 100 per cent excise duty is required to be paid on such goods whereas the credit initially availed by manufacturer is only 50 per cent thereof as only 50 per cent credit is available as first instalment. This obviously puts an extra burden on assessees without any value addition as no manufacturing activity is done. Hence, only the actual credit availed need to be reversed.
l When purchases of inputs are made from small scale industry units, such purchases involve Cenvat credit at concessional rates. However, under the new provision, when the inputs/capital goods are removed, duty at normal rates becomes payable as if the inputs/capital goods are manufactured in the factory. This irrationality needs to be removed by providing for reversal of the actual credit taken as in the past.
l Many SSI units operating under Notification No 8/2000 CE dated March 1 also clearly bought out inputs on payment of duty. It is not clear whether while calculating clearances of Rs 50 to 100 lakh such turnover has also to be considered. It needs to be clarified that such turnover is not to be counted for the aforesaid limits as the duty is on manufactured goods not on goods which are merely purchased and sold.
l Explanation to Rule 57AB(1)(b) concerns the payment of duty on manufactured goods under the cover of an invoice prescribed under Rule 52A. However, there is no mention in the explanation about the payment of duty when waste and scrap arising out of inputs and capital goods in respect of which Cenvat credit has been taken are removed. Clarification in this regard is needed.
l The finance minister in his budget speech had announced that the policy in future would be to do away with the statutory records. However, under Rule 57AE(4), the manufacturer of final products is required to submit to the superintendent of central excise a monthly return prescribed vide Notification No 36/2000 CE (NT) dated April 28. This form is mere duplication of records maintained by manufacturers for Cenvat credit for inputs and capital goods. This form should be dispensed with. Cenvat credit should be given on the basis of records maintained for such credit as all statutory records have been dispensed with from July 1.
There are a number of other anomalies and practical problems faced concerning the Cenvat credit. However, in order to avoid such situations, draft notifications should be issued one month in advance of their coming into force for discussion and debates so that the final notifications do not suffer from deficiencies.
Secondly, the notifications issued need not be made applicable retrospectively unless there are very pressing grounds for the same.