Capital Goods on Rent

[Ashok Chopra]

Respected Forum,

I am registered service provider, procured Machinery and taken credit of CENVAT on capital goods and adjusted against the service tax charged by me from my parties.  Also procured inputs used for the providing output service and taken credit. 

Central excise audit party is of opine that Credit on Input is not allowed to service provider and asking me to debit the credit involved on the inputs.

I have utilized plant and machinery for three years, now i have given entire Land, Building and Plant and Machinery on rent and charging service tax and depositing by Challan.  The present service provider is providing services

Central excise audit party is of opine that i have utilized machinery for three years, hence only 30 percent credit on machinery is allowed to me and balance 70 percent credit i should deposit by Cash, although i am depositing service tax on the rent of that plant and machinery.

Please guide me accordingly and also provide me notification/clarification/circulars etc or any decision of court in the matter.

Thanks and REgards

[Sanjeet Kumar]

Dear 

Through your query it is not cleared what are you asking. 

Either you are asking for the capital goods or input. 

In case of capital goods, as far as i understood your issue on capital goods. Earlier the CG is used for Service 1. now you used the same CG for Service 2. there is no sale/transfer of CG.

So Issue of Rule 3(4) does not arise in this case. 

[Sanjeet Kumar]

Sorry it is rule 3(5) for the capital goods.

AI Summary

CENVAT credit on capital goods: change of use to rental triggers reassessment and possible reversal under reversal rules. CENVAT credit on capital goods and inputs originally used to provide taxable services was availed; after three years those capital goods were let out on rent and service tax charged on the rent. The audit asserts input credit is disallowed to the service provider and that a portion of capital goods credit must be reversed by cash on change of use. No sale or transfer occurred, so transfer provisions do not apply; reversal rules for change of use govern recovery of the balance credit.