Machinery on Rent - status of CENVAT

[Ashok Chopra]

Respected Forum,

Machinery received in the factory and CENVAT taken and utilized

Machinery used for three years.  both dutiable and exempted final product manufactured.

My queries:-

1. If i give entire Plant i.e. Land, Building, Machinery on Lease and charge Service Tax on Lease Rent, Am i required to reverse CENVAT taken on Machinery?  if yes, whether from CENVAT or PLA?

2. If i do not sell the machinery and keep it as it is then what will be the status of CENVAT?

Please guide me accordingly, also please provide me copy of notification/clarification/decision of any court to satisfy my excise authorities and management

Thanks and regards

1. No need to reverse the CENVAT credit availed on Machinery as you will be giving the machinery on lease and paying Service Tax on leasing activity.
2. If you are just going to keep the machinery as it is in the premises then also there is no need to reverse the Credit provided manufacturing license is not surrendered by you.

[Rajesh Nathoo]

Dear  Ashok .,

  I am in  very much agreement with Mr. Joglekar,s reply ,  as  credit is to be reversed  only when capital goods  are removed from factory . 

[Ashok Chopra]

Dear Mr. Joglekar,

I do not have manufacturing licence, i am registered with Service Tax Only.  Once i have given entire Land, Plant and Machinery on lease, i surrendered providing B.A.S.   What is legal status now?

Your new query is not clear, please further elaborate.

Was your activity covered under BAS and you have surrendered the BAS license as you stopped this activity and now would like to lease out entire land, Building and machinery?

[Ashok Chopra]

Yes Mr. Jogalekar,  now i have surrendered BAS and already leased out entire land, building, plant and machinery and charging service tax on rent.   The lessee is providing BAS now on that machinery, but lessee is not charging service tax as final product is dutiable. 

The excise authorities are of the opinion that this is difference service and we should reverse the amount of CENVAT after reducing 2.5 percent per quarter

Since you were service provider and you continue to be a service provider may be under different service , so no need to reverse the CREDIT on capital goods. There is no such provision or requirement under the Finance act  to reverse the CENVAT on capital goods.

Your leasing activities fall under:

1. Renting of immovable property service
2. supply of tangible goods service

Better to have two agreements one for land and Building leasing and another for machinery leasing.

No question of reversal of CENVAT.

[Ashok Chopra]

Dear Sir,

Excise Audit party is insisting me to deposit the amount in cash.  I shall be grateful, if  you will  kindly provide me any documentary evidence like notification/clarification/guideline or any decision of CESTAT in the matter etc. etc. to satisfy audit party.

Thanks and regard

In my opinion there is no rule which requires you to reverse the CENVAT credit under the conditions you have stated in your query.

You may take Show Cause Notice and fight it out., you will surely  get the relief from the courts.

However, you may take final opinion from your advocate on this matter and take further call.

AI Summary

CENVAT credit on capital goods can remain where machinery is leased and leasing service tax is charged.
CENVAT credit on machinery need not be reversed when the owner leases plant and charges service tax on the lease; reversal is generally required only when capital goods are removed from factory for non-taxable use. Leasing the assets after surrendering manufacturing/BAS registration can still constitute a taxable service (renting of immovable property service or supply of tangible goods service), and there is no statutory provision mandating CENVAT reversal under the stated conditions, though auditors may challenge the position.