CAPITAL GOODS SEIZED BY FINANCE COMPANY-CENVAT CREDIT

[MANDAVILLI RAMAKRISHNA]

Dear Experts,

My client ( A )  purchased    stone crusher and installed by taking cenvat invoice from

the manufacturer ( B ) . but before starting production, the finance co. ( C ) seized the machinery and sold to third party ( D ) who in turn given the machinery

on rent basis to fourth party ( E ) Please advise who is eligible to take credit of the cenvat paid and against which documents and whether the D can set off his service tax liability for renting the tangible goods to E.

Kindly advise with deep concern as the  A party is in severe financial crunch and the tax bore by him if get back as refund it will be greatest help to him.

Regards

RK

 

[Viswanathan Nemmara]

It is not clear from the query as to whether the Stone Crusher itself was purchased under Finance and for want of repayment, it was seized by the Finance Co.  Or whether the stone crusher was offered as collateral for business loan taken by A.  The reply will vary depending on the above.  Further it is also mentioned as to when the Crusher was seized by C, i.e. after how many quarter of procurement.

As regards Input Service Credit for D against letting out the asset to E, since the seller here is the Finance Co. who may not be a registered dealer under C.E. Act, D is not likely to get the credit if he has purchased the capital goods without a proper Excise Invoice u/Rule 11 of the CE Rules.

AI Summary

Cenvat credit entitlement depends on transaction facts; transferee cannot claim credit without a proper excise invoice. Entitlement to Cenvat credit after a finance company seizes and sells capital goods depends on whether the goods were financed or offered as collateral and on timing; a subsequent purchaser is unlikely to obtain credit if the transferor did not issue a proper excise invoice or is not a registered excise dealer, so documentary compliance governs eligibility to claim credit or set off input service credit.