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CENVAT credit on building materials: – Tax expert or Jyotishi

CENVAT credit on building materials: – Tax expert or Jyotishi

Prepared By: -

Pradeep Jain AC,

Sukhvinder Kaur, LLB [FYIC]

CA Ridhi Anchali

Visit us at: www.capradeepjain.com

Introduction: –

This is the observation more interesting than we have in our article "The amendment of CENVAT building material: Far from solutions" after delivery of the most big decision of the Court in the case of Vandana Global Limited [2010-thiol-624-CESTAT-DEL-LB]. In the room above prepared by myself with Sukhwani Sukhvinder Kaur and Neetu, who have opined that after the change in the definition of "inputs", the previous cases decided in favor of manufacturers amendment is prospective and not retrospective. But our conclusion was wrong and the largest bank has the Delhi Tribunal decision in favor of income. Then comes this interesting comment. Customer reviews on our site are always a source of our inspiration. This observation has prompted us to write this second work on this issue in light of the latest decision of the larger bank.

Controversy involved: –

litigation arises when there are always two ways of seeing the same thing. For this difference, too, the assessee and income were walking on the two shores of the sea that never meet. To have a clear idea on the subject we are discussing the issue in depth.

Before the recent change in Explanation 2 of Rule 2 (k) assessee claimed the credit in Cement and steel items used as inputs in the production of capital goods. In this argument of the assessee is that such points are being used indirectly in connection with the manufacture of finished products and everything that is used in the manufacture of the final product will be available for CENVAT credit.

However, income has its own claims. According to the cement and steel are inputs of building materials and not as they were not parts and components and accessories of capital goods.

So the revenue and the assessee both had their own points of view that is both were thinking of cement and steel, but an assessee will always look at that side of the coin that will allow CENVAT credit use and according to the intrinsic nature the department will look at the sunny side of the coin to dismiss the CENVAT credit assessee. The changes in the environment always act as an antidote to the flames.

Provisions: –

Explanation 2 with article 2 (k) before the amendment to read as under: –

Explanation 2 – Input include goods used in the manufacture of capital goods that are used in the factory of the company;

Thus, the word used in the definition was "good" used in capital goods manufacturing. The PRODUCTS word in the definition includes the definition is the word product had a broad meaning and may include any thing, including cement and steel items used for the construction of the structure or basis on which capital goods to be placed or mounted. This interpretation was given by assessee to take the advantage that the language of the law. Accordingly, the assessee claimed CENVAT credit on cement, steel plates, angles, channels, etc, since they were used for the manufacture of capital goods and indirectly related to the manufacture of final products. Revenue refused to accept the global nature of the definition and what happened to the notices issued to the assessee to show cause to deny the benefit of CENVAT credit on such goods.

There were several judicial pronouncements on this issue. Some were in favor of the manufacturers, while others favored de la Renta. We have already written in the same article above and therefore the matter was referred to the large bank.

Amendment in Explanation 2: –

While the issue referred to the big banks, the department had a different perspective in mind. These decisions were acting like a sword over the intentions of the department. So that the department came forward with a new amendment to the Explanation 2 of Rule 2 (k) of CENVAT Credit Rules, 2004 to specifically exclude cement angles, channels, bars CCD or TMT bars and other items used for the construction of factory shed, the construction or placement or production bases support structures of capital goods. This was done for the 2009 budget introduced July 7, 2009. This explanation is reproduced below for ready reference: –

Explanation 2 – Input include goods used in the manufacture of capital goods are used in factory of the company, but does not include cement, angles, channels, downtown bars twisted deformation (CTD) and thermo mechanically treated Bar items (TMT) and othet used for the construction of factory shed, the construction or placement of manufacturing bases or support structures of capital goods.;

What now? A new amendments always opens the door to a new controversy. The same happened with this amendment. The department already forgot to explain whether the explanation 2 is applied retrospectively or prospectively. So as always with the incompleteness of the training of law a new theme for the applicability of the effect of the amendment had its birth. Each set of incomplete in the law will be judged by anyone according to their benefits. The same thing happened here too the assessee said that the explanation changed 2 has effect for the future and said that the Treasury has made clear Explanation 2 things that were already there. Thus credit not be permissible, even before 2009.The now assessee argued that this amendment only shows that before this change in credit is available leaves angles, channels, joints, cement and steel used errection, construction or installation of capital goods. So a small error in the formation of the legal provision on the head with an interpretation beneficial to the assessee. Even we in the same opinion and wrote on the same line in our article above. But the outcome of the sentence was known by anyone.

The bank last Judgement larger: –

The decision of the Main Hall of the Court in the case of Vandana Global Ltd. and Ors v / s CCE, Raipur [2010-thiol-624-CESTAT-DEL-LB] answered the question in favor of income. The largest bank gave the results that the intention behind the amendment of Explanation 2 to article 2 (k) in 2009 was merely clarifying in nature. He clarified that what will be covered by the term "input" used in the CENVAT Rules Credit, 2004. There was no chance that the amendment was made to change the scope of regulation or to introduce any new measures. The unit was placed on the decision in the case of Synthetic J. K. Ltd v / s CCE, Jaipur [1996 (88) ELT 785].

You said that the clarifying amendment made Explanation2 Article 2 (k) in 2009 to be applied retroactively. It was argued that the explanatory explanation the Parliament alongwith notification amending and contemporary exhibition of the amendment as the department and the public showed clearly that the goods were not intended to be included by the State the authority to take the right "input" the expression of CENVAT credit.

The largest bank also said that "capital goods" the words and the property can not be regarded as synonymous. "Capital goods" The phrase has a broader meaning and would include capital goods and other assets such as real estate, in the form of building, etc. Therefore, the bases and support structures embedded in the earth can be classified as capital goods, but do not qualify as capital goods in terms of the definition contained in the CENVAT Credit Rules. It was argued that the foundations and supporting structures were not parts of machines, spare parts or components or accessories of the machines, or have been referred for inclusion especially in the definition. They are not held to be part of machine accessory. They also carried out to intermediate goods do not arise in the manufacturing process the final product.

So in the earlier decision held that the articles of cement and steel can not be considered as inputs and hence credit would not be available in it.

In addition, the Bank Division decision in the case of Bhushan Steel and Strips Ltd v / s Commissioner [2007-thiol-2306-CESTAT-MUM] unless proper view of the law.

So the largest bank in the Court issued the ruling on the interpretation of laws. But now What about the assessee? The sentence that has broken all expectations assessee Availment of credit at least before the change in the definition. The decision made clear that assessee is the one place in the handicap and has to bear the loss of sitting in this place.

Before you leave: -

However, this controversy does not end here. There Higher forums where this sentence will be challenged and before the Apex Court makes no ruling in this regard, the issue is still at its peak. The assessee should not lose hope because there are still miles to go before bedtime. Therefore, we will wait for another round of litigation and the matter will not end before the apex court. If the matter is settled by the Apex court in favor manufacturers then we can see a retrospective of the amendment by the Government. Thus, the future is uncertain for poor assessee.

But once again must not form an opinion as our reader with clarity and truth that we are not tax experts and Jyotishi. Therefore, we refrain from commenting on the future course action. But then what should we write? Only history and comments are not. This is a vital issue and we believe that only our readers can guide us in this regard.

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