CIR NO.700/16/2003-CX, DT. 06/03/2003

Deemed Credit and Credit of Addl. Duty –Some Clarifications

Sub: Budget 2003-04

Kindly refer to my D.O. letter of even no. and dated 28.02.2002 and the budget instructions regarding changes in excise duty structure. In the context of these changes certain clarifications have been sought for. Points raised and comments thereon are given below.

Point No. l

Whether deemed credit is available in terms of notification No. 7/2003-CE or only in terms of notification No. 14/2002-CE or 15/2002-CE.

Comments:

It is to clarify that during the month of March 2003, an assessee can simultaneously avail of the new rates and also the deemed credit or any other concessions, which were available earlier. Therefore, an assessee availing of the new rate (say 10% for fabrics) under notification No.7/2003-CE dated 01-03-2003, is also entitled to deemed credit in terms of existing notifications. However, it may be noted that percentage of deemed credit would be computed on the basis of rate of excise duty being actually paid by the assessee. For example, if on a fabric, deemed credit is equal to two-thirds of excise duty payable and assessee is paying duty at the rate of 10% in terms of new rates (earlier rate being 12%), the deemed credit would be two-thirds of 10% and not two-thirds of 12%. Assessees may accordingly be allowed benefit of deemed credit and new rates as per the above. In this context, it is also mentioned that the deemed credit rates have not been reduced, though the yarn duty rates have been reduced. This is mainly on consideration that the reduction in duty rates on yarn would be reflected in fabric price only after quite some time because of the time lag between the production of yarn and production of processed fabrics.

Point No.2.

Whether credit of additional duty (GSI) accrued earlier (prior to 1.3.2003) can be used for payment of Cenvat duty.

Comments:

In Budget 2003, CENVAT credit Rules were amended to allow credit of AED(GSI) for payment of Cenvat duty. Prior to 1st March, utilization of credit of AED (GSI) was restricted to payment of AED (GSI) only. The said amendment was carried out consequent to the deletion of Article 272 of the Constitution of India vide Constitution (8th amendment) Act 2000 and the issuance of Constitution (Distribution of Revenue) No.5 Order 2000, dated 10-10-2000" by the President. As per this order, 1.5% of the total sharable taxes and duties are to be distributed to the States in lieu of AED(GSI) instead of the earlier system of AED(GSI) being distributed amongst the States as per the pattern recommended by the Second Finance Commission. Under the new dispensation the requirement of separate accounting of the AED(GSI) no longer exists since 10-10-2000. As the reason for the amendment to CENVAT credit rules existed even prior to 1st march, 2003, it was considered appropriate not to put any cap on the use of the AED(GSI) credit accruing prior to 01-03-2003 in the said credit rules. It is accordingly clarified that credit of additional duty (GSI) accrued earlier (prior to 1.3.2003) can be used for payment of Cenvat duty as well as AED(GSI).

3. Field formations and trade may please be informed accordingly. Any further difficulties in implementation may please be brought to our notice.

Sd/-
(Gautam Ray) Joint Secretary (TRU)

F. No. 334/1/2003-TRU

(Please refer CIR NO.751/67/2003-CX, DT. 30/09/2003 - Utilisation of credit of AED (GSI) towards payment of Cenvat duty)

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