Recovery of credit taken wrongly but not utilized is possible now - First accrued is first utilized - new Rule 14 of CCR, 2004

TAKE a look at the new rule 14 brought by notification 6/2015-CE(NT) dated 01.03.2015.

It reads -

14. Recovery of CENVAT credit wrongly taken or erroneously refunded. -

(1) (i) Where the CENVAT credit has been taken wrongly but not utilised, the same shall be recovered from the manufacturer or the provider of output service, as the case may be, and the provisions of section 11A of the Excise Act or section 73 of the Finance Act, 1994 (32 of 1994), as the case may be, shall apply mutatis mutandis for effecting such recoveries;

(ii) Where the CENVAT credit has been taken and utilised wrongly or has been erroneously refunded, the same shall be recovered along with interest from the manufacturer or the provider of output service, as the case may be, and the provisions of sections 11A and 11AA of the Excise Act or sections 73 and 75 of the Finance Act, 1994, as the case may be, shall apply mutatis mutandis for effecting such recoveries.

(2) For the purposes of sub-rule (1), all credits taken during a month shall be deemed to have been taken on the last day of the month and the utilisation thereof shall be deemed to have occurred in the following manner, namely: -

(i)  the opening balance of the month has been utilised first;

(ii)  credit admissible in terms of these rules taken during the month has been utilised next;

(iii)  credit inadmissible in terms of these rules taken during the month has been utilised thereafter.

The first thing that hits one is the usage of the words “taken wrongly but not utilized” and “taken and utilized” in two separate clauses in sub-rule (1).

And the reason for this -the earlier rule envisaged recovery of CENVAT credit ONLY IF IT WAS TAKEN & UTILIZED WRONGLY.

This, the TRU letter humbly states as - CENVAT Credit Rules, 2004 are also being amended to Provide for recovery of CENVAT Credit taken but NOT utilized.

Thankfully,the new rule 14 continues to mention that one need not pay any interest if the CENVAT credit wrongly taken is NOT utilized.

And if it is utilized, the credit is deemed to have been taken on the last day of the month &computation of interest in terms of section 11AA of the CEA, 1944 on the utilized amount will be done thus -

+ the opening balance of the month has been utilised first;

+ credit admissible in terms of these rules taken during the month has been utilised next;

+ credit inadmissible in terms of these rules taken during the month has been utilised thereafter.

All these deeming clauses because section 11AA (2) warranting payment of interest on delayed payment of duty mentions -

"…such interest shall be calculated from the date on which such duty becomes due up to the date of actual payment of the amount due."

Whether this is a measure of simplification, only time will tell!