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CENVAT Credit is ‘as good as tax paid’ and its utilization indefeasible

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In a first of a kind judgment, Gujarat HC in the case of Advance Surfactants India Ltd. [TS-212-HC-2017(GUJ)-EXC] quashed the first proviso to Rule 3(4) of CENVAT Credit Rules, 2004 (CCR) restricting CENVAT credit utilization up to the balance available on last day of the month / quarter for purpose of discharging excise duty relating to that month / quarter, as being ultra vires the CENVAT Scheme.

Ms. Poonam Harjani (Partner, Nitya Tax Associates) and Ms. Neha Jain (Associate) analyze the possible effects of the said judgment in different scenarios. According to them, “…the rendering of the said proviso as invalid and unconstitutional to the scheme of Credit Rules would make the utilization of the Credit related to the subsequent month to the month to which duty payable was related as indefeasible.” This will allow utilization of credit available from the first day up to 5th / 6th day of the subsequent month against the tax liability of preceding month, and no interest and duty demand would get attracted upon the tax-payer. Moreover, in case of delayed payment of duty or demand pursuant to departmental proceedings, duty demand to the extent of Credit utilized post due date can be defended/adjusted on the basis of this ruling; however, same may be subject to interest liability. 

However, the authors point out that this judgment will have limited ramifications upon the past pending dispute related to credit utilization, late payments, and defaults in payment of duties. On the other hand, the recently introduced GST law remains unimpacted, which is based on the matching concept.

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