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Monday, July 10, 2000



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The new set of Cenvat rules -- II

Jayashree Parthasarathy

P. C. Anand

UNDER Rule 57AF(1), if a manufacturer of the final products shifts his factory to another site or the factory is transferred on account of change in ownership or sale, merger, amalgamation, lease or transfer of the factory to a joint venture with the spe cific provision for transfer of liabilities of such factory, then the manufacturer shall be allowed to transfer the Cenvat credit lying unutilised in his accounts to such transferred, sold, merged, leased or amalgamated factory. (Similar to Rules 57F(20) and (21).)

I Rule 57AF(2): Such transfer shall be allowed only if the stock of inputs as such, or in process, or the capital goods is/are transferred and the goods on which credit has been enjoyed has been duly accounted for to the satisfaction of the Commissioner

Rule 57AG -- transitional


W Rule 57AG(1) provides for transitional credit from the erstwhile Rules 57A, 57B and 57Q.

W Rule 57AG(2) states that a manufacturer opting into an exemption scheme from the Modvat (Cenvat) scheme shall pay an amount equivalent to the credit used on inputs lying in stock and in finished goods on the date of exercising the option and forfeit an y unutilised credit lying to his account.

W Rule 57AG(3) provides for transitional credit provisions in respect of an independent texturiser.

Rule 57AH -- recovery

I Rule 57AH(1) provides for recovery of credit wrongly taken or utilised along with interest as per the provisions contained under Sections 11A, 11AA and 11AB of the Central Excise Act, 1944.

I Rule 57AH(2) prescribes mandatory penalty under Sec. 11AC where Cenvat credit is wrongly taken or utilised on account of fraud, collusion, misstatement, suppression or contravention of any of the statutory provisions with intent to evade payment of dut y.

I The rule integrates the Cenvat scheme with the other provisions of the Act, unlike the erstwhile Rule 57I which prescribed an independent procedure for recovery of wrong credit.

Rule 57AI -- SED credit

W The rule allows the manufacturer to take credit of duty of excise paid under the Second Schedule (SED) in relation to the goods falling under the following sub-headings in the First Schedule to the CETA, received in the factory on or after March 1, 200 0: a) 2401.90 and 2404.99; b) 5402.20, 5402.32, 5402.42, 5402.43, 5402.52 and 5402.62; c) 8415.00; and d) 8702.10, 8703.90, 8706.21 and 8706.39.

Rule 57AJ -- N-E region

A The Rule makes a special provision for the North-East region.A According to the Rule, where a manufacturer clears any inputs or capital goods in terms of CE Notification No. 32/99 or 33/99, dated July 8, 1999, Cenvat credit of duty paid on inputs or ca pital goods shall be admissible as if no portion of the duty paid on such inputs or capital goods was exempted under these notifications.

Rule 57AK -- deemed credit

I The Rule gives the Central Government the power to declare by way of a notification inputs on which duties of excise and additional duty shall be deemed to have been paid at such rate or equivalent to such amount as may be specified in the said notific ation and allow such credit subject to conditions, if any.

Inputs not used directly by the manufacturer, but contained in the final product, are liable to be covered under the notification.

The Central Government has issued CE Notification No.s 28/2000, 29/2000, 30/2000 and 32/2000, dated March 31, 2000, under the above rule.

Modvat vs Cenvat

A Simplification of procedures -- no specified documents, expect private documents. No Cenvat declarations prescribed;

Staggered availing of Cenvat credit on capital goods ;

No provision made in cases of loss of transporter's copy of the invoice to take credit;

Provisions similar to erstwhile Rules 57D and 57E absent;

Importance of private records enhanced;

The introduction under Rule 57AB(1) that the inputs or capital goods which were removed from the factory would be treated as though the same were manufactured by the assessee would indeed create certain problems. This rule would ensure that Modvatable inputs which had suffered concessional rate of duty, when despatched by a large-scale unit as such, would suffer excise duty a second time; and based on the wordings of the rule, the duty payable would become the normal rate that the large-s cale unit would have to pay -- which would be much higher than the duty earlier paid by the SSI unit. Conversely, an SSI unit despatching such inputs received from a large-scale unit may be paying less duty as provided for under the exemption lim its (as provided for in CE Notification No. 9/2000);

Inasmuch as the rule does not explicitly state that the credit can be used for payment of duty on waste and scrap (a facility earlier available under Rule 57F(12)/ 57S(3)), such waste and scrap would have to be cleared only on payment of duty through the PLA;

It may be seen that with reference to the utilisation of Cenvat credit on capital goods, certain restrictions have been imposed. The rules provide for despatch of inputs as well as capital goods as such or partially processed, to a job -worker for further processing, testing, repair, re-conditioning or any other purpose (similar to the erstwhile Rule 57F(4)). The earlier requirement of payment of 10 per cent of the value of the inputs at the time of despatch to job-workers has b een removed. Additionally, if permitted by the Commissioner, the finished goods from the job-worker's factory may be despatched directly on payment of duty by the main manufacturer;

The earlier Rule 57CC gave the benefit of expunction of 8 per cent of the value of the non-dutiable final product, and with reference to the list of chapter headings specified, it was the pro-rata value of input Modvat credit which was to be expunged. Under the present Rule 57AD, final products of chapter 39 have been removed from the list and, hence, manufacturers of such products would have to reverse 8 per cent of the product value;

Rule 57AE does not prescribe any accounts to be maintained (like the earlier prescribed RG 23A Part I/Part II or the RG 23C Part I/Part II records). The rule, however, specifies that private records would have to detail the, receipt, disposal, consumption and inventory of inputs and capital goods and other relevant information regarding the value, duty payment, the person from whom the inputs or capital goods have been purchased. Thus, it may be seen that, whatever be the private record, the assessee would do well to continue the RG 23A Part I/Part II as also the RG 23C Part I/Part II so that all the details required by the Department would be available. Moreover, the offices would find it easy to correlate the pur chase of inputs/capital goods and credit taken, as the records are in known formats as followed earlier;

Notification 36/2000-CE (NT) dated April 28, 2000, has prescribed the form of monthly returns to be submitted. Earlier, these details were available from the RG 23A/C Part I/Part II; one may recall gate-pass and the Rule 52A invoice -- when the i nvoice replaced the gate-pass as the statutory document of despatch, the CBEC had prescribed a certain format for the invoice, which incorporated all the details that the excise gate-pass had;

The Rule 57AE specifies the persons to get registered under Rule 174 in order that the buyer of goods is in a position to take Cenvat credit -- sales depots of manufacturers, consignment agents, first- and second-stage dealers, importers and dealers in imported goods have been directed to be registered. They would have to despatch the goods on a Rule 52A invoice analogous to the Rule 57GG invoice.

Modvat has been well-understood and the rules well-explained through a plethora of judgments. Now, manufacturers will take some time to comprehend the new set of Cenvat rules.


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The new set of Cenvat rules

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