Treatment of cenvat on inputs in case of duty under protest

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CA Prabhat Gupta

Manager (Indirect Taxes)

821 Points Joined January 2011

Assessee proposed to avail benefit of an Exemption Notification (Condition that no CENVAT Credit will be availed on inputs). The department has objected on the ground that the assessee is not an eligible unit as per the Exemption Notification. Assessee is still of the view that it is an eligible unit, and hence, duty was paid under protest.

For this purpose, the assessee has neither availed the Credit on inputs nor has he charged the CENVAT portion to P&L Account, rather the CENVAT Credit is kept in a separate account.

There may be two cases:

Case 1: Where finally Exemption is allowed after litigation, this credit would not be available.

Case 2: Where finally Exemption is disallowed even after litigation, this credit would be available.

Question - 1: In case 1 above, whether it is possible to treat the above CENVAT portion as an expense of prior period in P&L Account?

Question – 2: In case 2 above, whether it would be possible to avail the benefit of CENVAT credit on receipt of the final decision?

Please suggest as per the provisions of Central Excise Law.

Replies (2)

praveen

Chartered Accountant

6971 Points Joined September 2007

If the department says that the assessee is not an eligible unit then the CENVAT credit which is not claimed by the assessee can be taken as credit before discharge on any liability raised by the department.

CA Prabhat Gupta

Manager (Indirect Taxes)

821 Points Joined January 2011

Mr. Praveen,

Where duty is paid under protest the final decision lies with appellate authority. Department has already objected on availability of exemption, as they are of the opinion that we are not eligible unit. Due to above objection only we are paying duty under protest. Hence the final decision referred above is that of Appellate Authority and not of the department.

As we are paying the whole duty under protest, there won't be any demand from the department.

So, whether there are any specific provisions in Central Excise Law in respect of payment of duty under protest & availability of Cenvat Credit referred above on passing of the final decision.

Rule 233B of Central Excise Rules, 1944 contained provisions relating to payment of duty under protest, but the same has not been carried over in Central Excise Rules, 2002. I cannot find any specific provisions in this regard. So any Rule, Section, Circular or case law on above subject would be helpful.