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Tuesday, Jul 13, 2004

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Cenvat credit amendment — Tyre cos may have to repay Govt Rs 180 crore

K.R. Srivats

New Delhi , July 12

DOMESTIC tyre companies may collectively be required to repay about Rs 180 crore to the Central Government on account of the latter's proposed move to amend the rules on utilisation of credit of additional excise duty (AED) paid on inputs for the payment of Cenvat duty on finished goods.

The Finance Bill 2004 of the UPA Government proposes to amend the Cenvat Credit Rules, 2002, with effect from March 1, 2003, to stipulate that only AED (Goods of Special Importance) paid on inputs on or after April 1, 2000 would be eligible for utilisation of payment of Cenvat duty.

This Budget proposal comes as a rude shock for the tyre industry, which was a beneficiary of the National Democratic Alliance (NDA) Government's move in Budget 2003 to allow the credit of AED (GSI) paid on inputs to be utilised for the payment of Cenvat duty.

Prior to the NDA Government's decision, AED (GSI) paid on inputs could be taken as credit only against AED, if any, payable on the finished goods. For tyre companies, there was no AED (GSI) on tyres and therefore the AED (GSI) paid on nylon tyre cord fabric (NTCF) could not be utilised for payment of Cenvat duty on tyres.

With a bonanza coming their way in the Budget 2003, tyre companies utilised the AED (GSI) that had been paid on NTCF and accumulated as credit since 1995 towards the payment of Cenvat duty on tyres.

Informed sources said that in all about Rs 350-400 crore of AED (GSI) on NTCF were utilised by the tyre companies last year (2003-04) for payment of Cenvat duty.

"If one were to apply the new cut off date of April 1, 2000 proposed in the Budget presented by the UPA Government, then tyre companies would have to repay about Rs 180 crore. What is now being proposed is not fair, as the tyre companies have already paid their income taxes and dividends on the basis of this adjustment," a senior tyre industry official said.

A senior Finance Ministry official, however, defended the proposed move, claiming that there was no intent on part of the Government to give such a benefit to the industry for those five years (1995-2000).

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