When will the Revenue stop disputing everything?
20th August, 2014
Honda Siel Power Products Ltd (HSPPL) were manufacturers of portable water pumps and portable gensets. Portable water pumps were partially exempted (attracting 4% basic excise duty) by Notification No.10/2002 dated 1.3.2002 subject to the condition that no credit was availed on inputs.
Some of the inputs for both exempted and non-exempted goods were common. So they availed Cenvat credit on such common inputs for exempt and dutiable finished goods and reversed the credit on common inputs actually consumed in exempted goods subsequently. The Commissioner following Hon’ble Supreme Court in Chandrapur Magnet Wires (P) Ltd. dropped the notice. In that judgement the Hon’ble Supreme Court held that reversal of credit subsequently will also tantamount to not taking credit.
However, the Revenue in appeal before the Tribunal contended that since HSPPL availed credit initially they did not fulfil the condition of the exemption and therefore would not be eligible for the exemption. The Revenue argued therefore that duty amounting to Rs.72,66,498/- being the differential amount was recoverable.
The Tribunal following the judgement of the Hon’ble Supreme Court held "if the credit taken is reversed the same would amount to a situation as if no credit was ever availed". The Tribunal also observed that the Department is not contesting the fact that the credit was reversed nor is there a dispute about the calculation for the reversal of credit. The only argument is that the reversal of credit happened later after the credit was first availed.
If one was to accept this argument, it would practically limit the exemption seriously. It would mean that no manufacturer who claims such an exemption (with condition that credit should not be availed) and produces both exempted and dutiable goods will be able to claim the exemption. The only way the demand could have been confirmed is by asserting that the notification intends to distinguish between manufacturers who only produce exempted goods and other manufacturers who produce both exempted and non-exempted goods. Such an assertion would amount to an unreasonable distinction and a discrimination. Even from a point of equity, the Cenvat credit was already reversed. The Revenue did not dispute this and therefore there was no revenue implication whatsoever.
Finally, this was not an order passed by the Commissioner advancing his own rationale for the conclusion. He had relied upon a precedent set by the Hon’ble Supreme Court. So unless he choice judicial indiscipline, what was the choice did he have.
In any case, when the department filed an appeal before the CESTAT, New Delhi, did they expect the CESTAT to defy the Hon’ble Supreme Court? What were they thinking? What did they hope for?
It is rather surprising that an appeal was filed against a fairly reasonable order, following the principle set by a reasonable Supreme Court decision in a case where there is no legitimate revenue payable by the tax payer.
This case exemplifies several other avoidable tax disputes in India. Disputes which subject tax payers through litigation and tax uncertainties to get what is rightfully due to them. Legitimate taxes must be collected. No one can or should dispute this. But avoidable tax disputes? They are just impediments to business. Which keep the tax authorities and honest tax payers engaged and distracts the taxmen from paying attention to real tax offenders.
The recent budget proposal to collect a mandatory pre-deposit in this demonstrably revenue biased and charged atmosphere seems flawed! It will punish honest tax payers who follow the rules without getting distracted. Companies should represent strongly against this and seek a more wholesome and durable solution which will compel officers to pass correct and fair orders.