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Optional exemption under excise

MADHUSUDAN KUMAR PODDAR (CHARTERED ACCOUNTANT) (33 Points)

08 December 2011

Dear Professional Friends,

Central excise provide few optional exemptions where assessee is granted option to avail exemption or not. For example:- for a hardcoke manufacturer Notification No. 2/2011-CE provide for payment of 5% duty on output and availment of cenvat credit on input. On the other hand, notification 1/2011-CE grant option to the hardcoke manufacturer to pay 1% duty on output and not to take cenvat credit on input.

My question is:-

1) How the asessee can excercise his option? does assessee need to intimate excise authority regarding the option he has opted? If yes, then when the intimation need to be given?

2) Can asessee change his option after opting for any one option? If yes, how and when??

Please reply at earliest

Thanking You,

CA Madhusudan Kr. Poddar. ACA, ISA(ICAI)

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4 Replies

CA Prabhat Gupta (Manager (Indirect Taxes)) (821 Points)
Replied 08 December 2011

Dear Mr.Poddar,

Though the notification does not require intimation of the option availed to the Department it is always a good practice to intimate the Department about the benefits of any exemption notification availed to avoid demands & disputes in future. Moreover while filing the monthly/quarterly returns you will have to fill the details of exemption notifications availed by the unit, that could also be considered as intimation to department.

As far as your second question is concerned, here also no specific mention of cange in option is given. Where opting back is restricted department normarlly makes a mention of the fact in the notification itself. In the absence of such specific mention it may be considered that opting back is allowed but in that case necessary adjustments will have to be made in CENVAT Credit.

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MADHUSUDAN KUMAR PODDAR (CHARTERED ACCOUNTANT) (33 Points)
Replied 09 December 2011

Dear Mr Gupta,

Many thanks for the early reply.

I need some more clearification on the facts mentioned below:-

1) Assessee is a hard coke manufacturer. Notification no. 02/2011-CE as well 01/2011-CE both are applicable on him.

2) Whereas noti. 02/2011 CE allows to take cenvat credit on input but require to pay 5% duty on the output. On the other hand noti. 01/2011 CE do not allow cenvat credit but charge output at lower rate of 1% only.

3) Noti 02/2011 CE became almost an industry standard for hard coke manufacturer. Almost every manufacturer (including the Assessee) pays 5% duty on output and take credit of cenvat. (Considering the heavy cenvat available on input & capital goods)

4) Excise return for those following noti. 02/2011 is monthly ER-1 while for those following noti. 01/2011 is ER 8.

5) Assessee (Company) was following noti. 02/2011 filled ER 1 till augest 2011. However filled nil ER 8 in September 2011 by mistake. As a rectification measure, it filled ER-1 also for September 2011, and intimated the excise authority about wrongly filling of ER-8.

The excise department is now interpreting it as that since it’s the assessee who has filled ER 8 hence they would take interpret it as assessee following noti 01/2011. Hence no cenvat credit would be allowed to assessee and credit lying in the books will be rejected now.

Assessee has the contention that assessee used to file only ER 1 till augest 2011 and hence interpretation should be that assessee is following noti 02/2011. Filling of ER 8 was just a bonafide mistake for which it has even informed the department. Hence no cenvat credit should be disallowed taking filled ER 8 as null.

Kindly suggest whether assessee contention is right and can be established??

Thanking You

CA Madhusudan Kr. Poddar

CA Prabhat Gupta (Manager (Indirect Taxes)) (821 Points)
Replied 10 December 2011

Dear Mr. Poddar,

Assessee’s contention seems to be correct and filing of ER – 8 also seems to be a bonafide mistake on the part of Assessee on the basis of details provided by you. The only thing that supports your case is the intimation given to the department for wrongly filed ER - 8. You may preserve the received copy of the intimation letter given to the department and while replying to the Show Cause Notice you may give reference of the letter and attach a copy of the same with the reply.

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 10 December 2011

@ Mr Poddar

notification 01/2011 CE is not applicable when input credit is availed under CCR 2004.

department may ask or issue SCN for your filing of ER-8, but they can not stand on their grounds, as the input credit availment is continued till aug 2011, hence acceptance of ER-8 does not need to be accepted.

also you have mentioned that ER-8 is filed for "sept-11" only . i.e one month, here i differ with your language, as ER-8 is a quarterly return and can not be submitted for a month,

where the return is submitted for 1st 2 months of quarter, department is not likely bound to accept the other mode of return for the same quarter.

attach your dated acknowledgement copy of your letter submitted to department for cancellation of ER-8, DC may take a personal hearing on the issue and would settle the issue.