Is reversal of cenvat credit required due to price revision

[Guest]

Dear Sir, Is reversal of cenvat credit required due to price variation resulting in reduction in price,pls give us any reference regarding and under which rule,thanks and regards.

[YAGAY andSUN]

Dear Sandesh,

If, only basic price is reduced retrospectively, then, there is no requirement, but, if basic price along with C.E. Duty is reduced, then, it is required to be reversed. Please check the factual position in this matter and then act accordingly.

Regards

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

[Mahir S]

Yes, it is required to be reversed in such cases.

The excise auditors do check the credit and debit notes for such transactions.

[Guest]

Thank you Sirs but reversal under which rule ,pls specify the rule and any case law

[Vinay Sharma]

Dear Mr. Pradeep Khatri

I would request you to kindly let us know the legal reference in support of answer that If, only basic price is reduced retrospectively, then, there is no requirement to reverse the CENVAT credit. This will help us substantiating our stand during excise audits.

With best Regards

[YAGAY andSUN]

Dear Bhuwan,

If prices are reduce retrospectively, then, the buyer of good may reverse the proportionate CENVAT credit. This position is legally valid, if the prices are reduced retrospectively within one year from the date of removal of such goods, as seller will be entitled of seeking refund under Section 11B of the Central Excise Act, 1944 as amended from time to time.

In CCE v Mahavir Cylinder(2013 (6) TMI 509 - CESTAT, NEW DELHI), the Tribunal has held that refund of excess in a situation where assessments were not made provisionally but the price of excisable goods are revised downwards restrospectively after clearance of goods due to price variation clause in the contract.

But the problem shoots up, when such reduction occurs retrospectively beyond the prescribed limit as mentioned under Section 11B of the C.E. Act. In such situation seller is not entitled to get the refund of excise duty paid in excess. Hence, only way out is basic price should be reduced.

Further, though not required, but providing intimation to the C.E. Department can cope any unwarranted situation in near future.

This is for your kind information.

Regards

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

[Rajagopalan Ranganathan]

Sir,

Please see circular No. 877/15/2008 - CX dated 17.11.2008 in this regard which is reproduced below: -

Circular No. 877/15/2008-CX

F.No.267/54/2008- CX- 8

Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise and Customs)

New Delhi, dated 17^th November 2008.

Subject: -Clarification regarding reversal of Cenvat Credit in case of trade discount -reg.

Representations have been received from trade and industry seeking clarification on the issue whether proportionate credit should be reversed in cases where a manufacturer avails credit of the amount of duty paid by supplier as reflected in the excise invoice, but subsequently the supplier allows some trade discount or reduces the price, without reducing the duty paid by him.

2. The issue has been examined. Since, the discount in such cases are given in respect of the value of inputs and not in respect of the duty paid by the supplier, the effect of reduction of value of inputs may be that the duty required to be paid on the inputs was less than what has been actually paid by the inputs manufacturer. However, the fact remains that the inputs manufacturer had paid the higher duty. Rule 3 of Cenvat Credit Rules, 2004 allows credit of duty "paid" by the inputs manufacturer and not duty "payable" by the said manufacturer. There are many judgements of Hon'ble Tribunal in this regard which have confirmed this view.

3. In view of above, it is clarified that in such cases, the entire amount of duty paid by the manufacturer, as shown in the invoice would be available as credit irrespective of the fact that subsequent to clearance of the goods, the price is reduced by way of discount or otherwise. However, if the duty paid is also reduced, along with the reduction in price, the reduced excise duty would only be available as credit. It may however be confirmed that the supplier, who has paid duty, has not filed/claimed the refund on account of reduction in price.

4. Trade and field formations may be suitably informed.

5. Hindi version will follow.

6. Receipt of this Circular may kindly be acknowledged

 

Yours faithfully,

(Rahul Nangare)

Under Secretary to the Government of India

AI Summary

Reversal of cenvat credit required when excise duty is reduced retrospectively; basic price reductions alone do not require reversal. Reversal of Cenvat credit depends on whether excise duty is reduced: if only basic price is reduced retrospectively but the supplier paid the higher duty shown in invoice, no reversal is required under Rule 3; if the supplier's excise duty is also reduced, the buyer may only take credit of the reduced duty and must reverse any excess, subject to the supplier's entitlement to refund under Section 11B and related administrative circulars.