CAN A 100% EOU TAKE CENVAT CREDIT?

 

by

 

VIJAY. K. KUMAR

MA, B.Ed,BL,MBA

Superintendent of Central Excise, Hyderabad

 

 

 

Recently a friend of mine, who teaches Law, asked me this question. I was taken aback for a minute. They can get their raw materials without payment of duty, then where is the question of credit? But the unit can also get duty paid goods. Suppose they did not get CT – 3 certificates or the supplier did not want to supply duty free goods for fear of action by department later. There is absolutely no bar on getting duty paid raw materials. Then is credit available? I found this question quite interesting and asked several colleagues of mine. No body had a proper answer. Obviously the question is not all that simple. In fact it was quite clear in the earlier rules.

 

As per Rule 57 AB of the old Central Excise Rules 1944, a manufacturer of the final products was allowed to take credit of the duty paid on the inputs or capital goods. There was no distinction between an EOU and other units. But Rule 100 H stipulated that Rule 57AB shall not apply to a manufacturer who produces or manufactures excisable goods in a free trade zone or an EOU. So this rule clarified the position that EOUs were not eligible for credit.

 

As per rule 3 of the Cenvat Credit rules 2002, a manufacturer or producer shall be allowed to take the credit of duty paid on inputs and capital goods. There is no bar on EOUs. The new Central Excise Rules 2002 also does not impose any bar on taking credit. There is no provision similar to the old Rule 100H, excluding the credit to EOUs. However there is a provision under Rule 17 of the CE Rules 2002, that clearances to the DTA shall be on payment of duty by
debiting the account current required to be maintained for this purpose. From this, it would be obvious that when EOUs clear goods they have to pay duty only in the PLA. So there is no point in taking credit. In the simplification process, certain unnecessary words have been removed.

But what if the unit takes credit? As there are no prescribed registers for taking credit, the taking of credit is not immediately controlled. What is the unit going to do with that credit? Obviously it is useless and no purpose would be served by that credit. Is it so? The issue may lead to certain ridiculous situations.

 

Suppose the unit chooses to pay duty while clearing the goods for export. Can it use this credit for payment of duty and later claim rebate? As per Rule 5 of the Cenvat Credit rules, the credit which can not be utilised is granted as refund. Can an EOU claim this refund because it could not utilise the credit? Can the unit use this credit when they de-bond and come out of the EOU scheme?

 

No answers as of now.

EXCISE LAW TIMES – 15.06.2002– A 223