As per Rule 12(1) of the Central Excise Rules an assessee who is registered with the Central Excise department is mandate to file the ER-1 periodically. Though, every registered assessee is not mandate to file ER-5 and ER-6. ER-5 and ER-6 is to be filed by one of those rare assessees whose payment of Central Excise duty in a financial year will be more than Rs. 1 crore, either from PLA or Cenvat or both [Notification No. 39/2004-CE(NT)]. Up till 29.09.2008 [omitted vide Notification No. 41/2008- CE(N.T.)] those who paid Central Excise duty of Rs. One Crore or more through PLA were only required to file ER-5 and ER-6. Apart from the threshold of duty payment, there is also a set of chapter headings, falling under which assessees are only liable to file ER-5 and ER-6. These chapter headings are 22, 28 to 30, 32, 34, 38 to 40, 48, , 72 to 74, 76, 84, 85, 87, 90 and 94, 54.02, 54.03, 55.02, 55.03, 55.04.
As per Rule 9A(1) and 9A(2) of Cenvat Credit Rules, 2004 an assessee is to file ER-5 which is related to the information about the principal inputs of an assessee and is to be filed in the beginning of a financial year i.e. on or before 30th April. ER-6 (as per Rule 9A(3) of Cenvat Credit Rules) is in regard to the information of receipt and consumption of principal inputs and is to filed by those who are liable to file ER-5. ER-6 is filed on 10th day of every following month.
Issue here arises that the assessee who has never paid Central Excise duty of Rs. One crore or more in its previous financial years, how will it predict that in a current financial year it will cross the threshold of Rs. One Crore duty payment and shall accordingly file the ER-5 in the beginning of the year, along with the monthly ER-6?
This article intends to highlight the flaws in the time limit of filing the ER-5 and ER-6 which inevitably makes an assessee a defaulter in filing ER-5 and ER-6.
An assessee predicts the performance of its business in the current financial year usually on the basis of its performance in the previous financial year. Similarly, an assessee can evaluate the amount of duty payment in the current financial year on the basis of the duty it has paid in the previous financial year. As the ER-5 is to be filed in the beginning of a financial year i.e. on or before 30th of April, an assessee can evaluate its liability to file the ER-5 only on the basis of the duty payment made in its previous financial year. In that scenario, if an assessee has made the duty payment of way less than Rs. One Crore in its previous financial year, it is very obvious that the assessee will not file an ER-5 in its current financial year, under a bonafide belief that it will not cross the threshold of Rs. One crore duty payment in its current year aswell. In view of which, if by any chance an assessee crosses the threshold of Rs. One Crore of duty payment in the current financial year, it will automatically become a defaulter in filing ER-5 and ER-6.
The department has recently published an instruction in its official gazette vide F.No. 267/117/2010-CX-8 dated 14.01.2011 (Central Excise) in regard to enforcement of penal provisions against the assessees defaulted in filing ER-5, ER-6 and ER-7. All such defaulters are directed to be penalised under General Penalty clause of Rule 27 of the Central Excise Rules and Rule 15A of the Cenvat Credit Rules. Under both the rules a maximum penalty of Rs. Five Thousand can be imposed on an assessee. The quantum of penalty may seem to be negligible but the timing of filing these returns always keep an assessee in a dilemma of whether to file these returns or not. With the above said published instruction the department is not going to fill the government revenue as much as it will harass an assessee, without actually considering the bonafide belief of such assessee, as the said instruction does not propose a liberal view between the regular defaulters and a first time defaulter.
In view of the above discussions it is concluded that the department shall first amend its Rule for the time limit of filing the ER-5 and ER-6 returns, rather than being harsh on such innocent assessees who unintentionally default in filing the ER-5 and ER-6, that too under a bonafide belief.
LL.M. (UNITED KINGDOM)
CENTRAL EXCISE & SERVICE TAX