GST is intrinsically based on the system of input tax credit. If we have clumsy Rules for input credit, it will give a bad legacy to start with the GST. Unfortunately the Cenvat Rules are getting clumsier by the day. There are numerous Supreme Court and High Court judgements.
So many judgements and so many instructions which are not incorporated in the Rules themselves make it too difficult for officers and taxpayers to decide on the correct position.
One, an important issue of credit of duty paid on capital goods recently the Supreme Court judgement has delivered a judgement in the case of CCE Jaipur vs Rajasthan Spinning and Weaving Mills Ltd 2010 (255)ELT 481 (SC) upholding the decision of the Tribunal. It is a case of steel plates which are used to make chimney which in turn are used to make diesel generating sets. These steel items have to be taken as capital goods for allowing input tax credit, held the Supreme Court. Though this decision is on the basis of Rule 56 Q, there is corresponding Rule 2 (a)A in the new Rules of 2004. The Supreme Court held that steel plates used in the fabrication of chimney would fall within the ambit of capital goods as contemplated within the Rule 56Q. The matter is so simple and yet when the Tribunal has given a correct decision, the Department chose to go the Supreme Court. It is only natural that the Department is notorious for losing by far the largest number of cases, particularly in regard to Cenvat.
In yet another issue, more complication has been created by the latest instruction 267/11/2010 — CX 8 dated 8.7.2010 which says in the end of para 3 that"credit shall also not be admissible on inputs used for repair and maintenance of capital goods." This goes directly against the Rule 3 of the Rules which allows credit. There is no specific Rule which debars giving credit for repair and maintenance. Rule2 definition of input has talked of use in or in relation to manufacture of final products. Certainly inputs used to repair or maintenance of capital goods which are used for making final products can be said to be used in relation to manufacture of final goods. In fact the Bangalore Tribunal has held that Rule 2(a) and (k) allow this in the case of CCE Tirupati vs S Ispat Ltd. I also give below the extract of the Rajasthan High Court in Union of India v. Hindustan Zinc Ltd, 2007 (214) ELT 510 (Raj) held thus: '... goods once brought in factory for use in up-keep and maintenance of plant andmachinery, which are directly used in manufacture of excisable articles, are the capital goods... there is no impediment for the goods in question qualifying as capital goods eligible for Modvat credit.' Repair and maintenance may not be manufacture but the issue is not of manufacture of the capital goods but the manufacture of final products.
The following must be done to simplify the Cenvat Rules before the GST comes.
1. Abolish the separate concepts of input and capital goods. This distinction is the root cause of the controversies galore. There is no reason to make a distinction between the two since capital goods have been brought in the Cenvat net in 1994 Budget.
Such distinction does not exist in countries like Can-ada where GST is working successfully. Several com-mittees have recommended this but the Government is lending a deaf ear to this for long. Abolish the distinction and we shall get a far less clumsy Rule.
2. Revenue should not go to Supreme Court again and again to contest cases where the Court has already settled the issues. It is necessary to develop more respect for Tribunal judgements.
3. Make a clear Rule that even if the input is used in intermediate goods which is exempt which are used in the final product which pays duty, the credit is still available.
Conclusion is that unless the Cenvat is simplified now, when the GST comes, it will be difficult to make out a proper Rule for the GST with such a clumsy Rule as it exists now.
Email: smukher2000@yahoo.com
