Optional exemption scheme

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MADHUSUDAN KUMAR PODDAR

CHARTERED ACCOUNTANT

33 Points Joined May 2009

Dear Freinds,

This is regarding optional exemption under noti-01/2011-CE.

Please suggest on facts given below:-

1) Assessee is a hard coke manufacturer. Notification no. 02/2011-CE as well 01/2011-CE both are applicable on him.

2) Whereas noti. 02/2011 CE allows to take cenvat credit on input but require to pay 5% duty on the output. On the other hand noti. 01/2011 CE do not allow cenvat credit but charge output at lower rate of 1% only.

3) Noti 02/2011 CE became almost an industry standard for hard coke manufacturer. Almost every manufacturer (including the Assessee) pays 5% duty on output and take credit of cenvat. (Considering the heavy cenvat available on input & capital goods)

4) Excise return for those following noti. 02/2011 is monthly ER-1 while for those following noti. 01/2011 is ER 8.

5) Assessee (Company) was following noti. 02/2011 filled ER 1 till augest 2011. However filled nil ER 8 in September 2011 by mistake. As a rectification measure, it filled ER-1 also for September 2011, and intimated the excise authority about wrongly filling of ER-8.

The excise department is now interpreting it as that since it’s the assessee who has filled ER 8 hence they would take interpret it as assessee following noti 01/2011. Hence no cenvat credit would be allowed to assessee and credit lying in the books will be rejected now.

Assessee has the contention that assessee used to file only ER 1 till augest 2011 and hence interpretation should be that assessee is following noti 02/2011. Filling of ER 8 was just a bonafide mistake for which it has even informed the department. Hence no cenvat credit should be disallowed taking filled ER 8 as null.

Kindly suggest whether assessee contention is right and can be established??

Thanking You

CA Madhusudan Kr. Poddar, ACA, ISA (ICAI)

Replies (5)

CA Prabhat Gupta

Manager (Indirect Taxes)

821 Points Joined January 2011

Dear Mr. Poddar,

Assessee’s contention seems to be correct and filing of ER – 8 also seems to be a bonafide mistake on the part of Assessee on the basis of details provided by you. The only thing that supports your case is the intimation given to the department for wrongly filed ER - 8. You may preserve the received copy of the intimation letter given to the department and while replying to the Show Cause Notice you may give reference of the letter and attach a copy of the same with the reply.

sandhya

Senior Assosciate

65 Points Joined June 2011

but the case of Ispat Industries Ltd(2007), larger bench held that Rule 4 overrules Rule 8.

Another doubt, if an intermediate product is partly consumed and partly sold, is notification no 67/95 applicable?

U S Sharma

glidor@gmail.com

21068 Points Joined January 2010

ER-8 is quarterly and can not be filed for sept 11 only, but it covers period jupyu to sept 11

so if the assesee has filed ER-1 til aug ( 2 months coverfing from the period of sept ended quarter) ER8 has to be rejected by the department on request by assessee.

CA Prabhat Gupta

Manager (Indirect Taxes)

821 Points Joined January 2011

Agree with you Mr. Sharma, but I think Mr. Poddar meant ER - 8 for the quarter ended September 2011 by saying - filled nil ER 8 in September 2011 by mistake.

Moreover, ER - 8 is a return in respect of Goods cleared on 1% duty. As per Notification 15/2011 - CE (NT) ER - 8 is, "Return of excisable goods cleared @ 1% duty for the quarter"

Further Para 2 of Notification No. 1/2011 - CE is produced below:

"Provided that nothing contained in this notification shall apply to the goods in respect of which credit of duty on inputs or tax on input services has been taken under the provisions of the CENVAT Credit Rules, 2004."

Hence it seems that only that part of credit on inputs & input services should not be availed that is used in manufacture of goods cleared @ 1%. As in above case a nil return has been filed, it only shows that no goods were cleared @ 1% duty. Hence the whole credit should be allowed. Filing or non filing of a NIL ER - 8 does not effect the eligibility of CENVAT Credit.

I am also not very clear on the above facts. Your suggestions are valuable.

U S Sharma

glidor@gmail.com

21068 Points Joined January 2010

true findings by CA prabhat gupta

nowhere its mentioned that a person can not avail simaltenous benefit of notification 01/2011 and 02/2011, so the assessee can avail benefit of 02/2011 in regular manner, and if he want to sell some goods without taking input credit, then he can file ER-8 ( notification 01/2011) for only that portion, denial of input credit and other facts are not governed by the notification no 01/2011, but its part of CCR 2004, however if any clearance is shown in ER-8, then input credit of that portion has to be reversed by the assessee without hamper to ER-1 already filed and to be filed in future.

we have to note that notification 01/2011 is not an option alike 8/2003, but its limitation of duty payment only, departmental view of ranking the notification 01/2011 at par with 08/2003 looks wrong.