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CENVAT CREDIT

Yagnesh Desai & Co.

CENVAT Credit - Six months limit Whether


prospective or retrospective ?
CA. Abhay Desai
1. Let us take a scenario where a manufacturer has not claimed CENVAT
credit on accrual basis on input services (not covered under reverse
charge mechanism) received from 01.04.2011 to 31.08.2014 as
payments against the same were likely to be made after a period of three
months. Manufacturer wants to claim CENVAT Credit of the same at the
time of making the payment but after the period of six months from date
of invoice. Can he claim the CENVAT credit ?
HISTORY
2.1 Sub-rule (7) of Rule 4 of CENVAT Credit Rules, 2004 is applicable to
the present question. Relevant portion of said rule is reproduced for the
ready reference:
Rule 4(7) The CENVAT credit in respect of input service shall be allowed, on or after the
day on which the invoice, bill or, as the case may be, challan referred to in rule 9 is
received:
Provided that in respect of input service where whole of the service tax is liable to be
paid by the recipient of service, credit shall be allowed after the service tax is paid:
Provided further that in respect of an input service, where the service recipient is liable
to pay a part of service tax and the service provider is liable to pay the remaining part,
the CENVAT credit in respect of such input service shall be allowed on or after the day
on which payment is made of the value of input service and the service tax paid or
payable as indicated in invoice, bill or, as the case may be, challan referred to in rule 9:
Provided also that in case the payment of the value of input service and the service tax
paid or payable as indicated in the invoice, bill or, as the case may be, challan referred
to in rule 9, except in respect of input service where the whole of the service tax is liable
to be paid by the recipient of service, is not made within three months of the date of the
invoice, bill or, as the case may be, challan, the manufacturer or the service provider
who has taken credit on such input service, shall pay an amount equal to the CENVAT
credit availed on such input service and in case the said payment is made, the
manufacturer or output service provider, as the case may be, shall be entitled to take
the credit of the amount equivalent to the CENVAT credit paid earlier subject to the
other provisions of these rules:

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CENVAT CREDIT
Yagnesh Desai & Co.
Provided also that CENVAT credit in respect of an invoice, bill or, as the case may be,
challan referred to in rule 9, issued before the 1st day of April, 2011 shall be allowed, on
or after the day on which payment is made of the value of input service and the service
tax paid or payable as indicated in invoice, bill or, as the case may be, challan referred
to in rule 9:
Provided also that the manufacturer or the provider of output service shall not take
CENVAT credit after six months of the date of issue of any of the documents specified in
sub-rule (1) of rule 9.

2.2 Before 01.04.2011, i.e. prior to amendment thereof, said sub-rule


allowed CENVAT Credit on input services on payment basis. W.e.f.
01.04.2011, said sub-rule has been amended vide notification no.
13/2011-C.E.(N.T.) which provides that CENVAT credit shall be available
on accrual basis. Proviso to said sub-rule provides that if the payment of
input service and the service tax mentioned in the invoice is not made to
the service provider within the period of three months from date of
invoice, the manufacturer is required to reverse the said credit and the
same shall be granted on making payment to the service provider.
2.3 W.e.f. 01.09.2014, sixth proviso has been inserted vide Notification
no. 21/2014-C.E.(N.T.) dated 11.07.2014 which prohibits claim of
CENVAT Credit after six months from date of invoice. Hence w.e.f.
01.09.2014, a procedural change has been made which prescribes the
limitation period of six months from date of invoice for making such
claim.
2.4 In our case, manufacturer has not claimed input service on receipt of
the invoice as per the amended Rule dated 01/04/2011 as it was not in a
position to make the payment to the service providers within statutory
period of three months. Hence, it thought it fit to claim the credit only
after making payments to the service providers rather than first claiming
and reversing the same after a period of three months.
2.5 Suppliers have been paid after September 2014 and the manufacturer
intends to make claim thereof as per Sub-Rule (7) of Rule 4. In response
to same, CBEC came out with a circular No.: 990/14/2014-CX-8 dated
19.11.2014 stating that limitation of six months shall apply only to fresh
credits and not to re-credit of already reversed credit on the ground of
non-payment to the suppliers.

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CENVAT CREDIT
Yagnesh Desai & Co.

ANALYSIS
3.1 In our case, facts are slightly different as manufacturer has not
claimed the credit on accrual basis and then reversed it on expiry of
statutory period. Hence, it is specifically not covered under the above
clarification of CBEC.
3.2 Hon. Supreme Court in case of Osram Surya Pvt. Ltd. v.
Commissioner 2002 (142) E.L.T. 5 (S.C.) while dealing with similar
amendment for claiming CENVAT credit of inputs within period of six
months from the date of invoice, has held that this procedural
amendments in the rule will apply to all the pending claims made for the
first time. The said judgment will not apply in this case as per below
reasoning.
3.3 Hon. Chennai Tribunal in decision of COMMISSIONER OF CENTRAL
EXCISE, CHENNAI-III Versus FORD INDIA LTD. 2012 (284) E.L.T. 202
(Tri. - Chennai) has distinguished the above referred decision of Hon.
Supreme Court. In this case, credit was claimed by the assessee after the
expiry of six months from the date of invoice. Hon. CESTAT held that said
amendment shall not apply to the case as credit was not initially claimed
due to a procedural objection only. It held that amendment prescribing
the limitation period of six months has been introduced with the sole
objective of negating belated claims which cannot be cross checked due
to time factor. Relevant para of the decision is reproduced:
Para 11. It may happen in a number of cases that the inputs might be
received by the assessee but on account of loss of documents or
otherwise of some procedural objections, he is not able to take the credit.
For removal of such objections raised by the Revenue, it may take a
period longer than six months. The credit will not become deniable to the
assessee on the said count, though the period of six months might have
been passed by that time. At this stage, we also take note of the proviso
to sub-rule (10) of Rule 57G, which empowers the Assistant
Commissioner to condone the delay in filing the declaration. However,
clause (i) of sub-rule 10 is to the effect that Assistant Commissioner will
not condone the delay if the inputs are received in the factory prior to the
period of six months. This means that he can condone the delay in filing
the declaration in respect of the inputs received upto a period of six

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CENVAT CREDIT
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months back from the date of the condonation application. Such


condonation is likely to take some time in the hands of the officer and is
likely to be sanctioned after a period of six months, in which case, an
assessee would be entitled to take the credit even after a period of six
months. The reference to all these provisions has been made by us to
only show and reflect upon one fact that the time-limit of six months in
availing the credit has been introduced with the sole objective of avoiding
the evil of taking the credit in respect of inputs which has been cleared by
the input manufacturer more than six months back. The said provision
cannot be pressed into service to deny the otherwise available
substantive benefit of credit, to an assessee who had received the goods
within the period of six months from the date of clearance from the input
manufacturers factory and has duly made entries in RG-23A Part-I
record.
3.4 Above decision is squarely applies in our case as initial claim was not
made as the manufacturer was well aware that it would not be in a
position to make the payment thereof to the service provider. Hence, a
substantive right of availing credit cannot be denied on such technical
grounds. By introducing this proviso, the intention is only to deny belated
claims, which were otherwise available to the company, thus, where the
service providers are already paid and the claim is not preferred within
this time span, such claim can be rejected relying on this proviso. In the
instant case, the claim accrued only on making payment to service
providers after August, 2014. Hence, all the claims, otherwise eligible,
cannot be rejected relying on this proviso. Even support can be drawn
from the CBEC Circular referred above.
3.5 Claim of CENVAT credit is a substantive right of the manufacturer.
Reliance is placed on the decision of Hon. Uttrakhand High Court in case
of COMMISSIONER OF C. EX., MEERUT Versus INDICA CHEMICALS
INDUSTRIES (P) LTD. 2008 (224) E.L.T. 41 (Uttarakhand). In this case,
the company had claimed the credit one month prior to receipt of full
consignment. Hon. High Court took a lenient view that a lapse in
procedural compliance cannot deny the substantive right.
3.6
Reliance
is
also
placed
on
the
departmental
circular
F.No.267/23/2002-CX-8 dated 13.03.2003 (copy attached as per
Appendix C) wherein department has taken a view that a substantive

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right cannot be denied merely because the procedure was issued later. In
this case, law was amended to provide for refund of unutilized deemed
credit on grey fabrics from 01.07.2001. However procedure to claim the
refund was prescribed on 01.03.2002. In our case, at the time of
receiving the invoices one could not visualize the insertion of sixth proviso
stated above. Thus, the amendment so made is in fact substantive in
nature and not procedural and hence, it can only take effect
prospectively.
CONCLUSION
4. In view of above analysis, we are of the opinion that CENVAT credit is
available on the referred transactions provided the same is otherwise
eligible under the Rules and thus the amendment shall be applied
prospectively.

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