Cenvat reversal on capital goods on sale

[Krishan Gopal]

We have imported a machine from Japan on April 2013 and  we want to sell it in February 2014. Please suggest which date we have to take for cenvat reversal i.e.bill of entry date, factory receiving date or cenvat credit date.

Thanks,

K.Gopal

9911052902

[YAGAY andSUN]

Dear K Gopal,

CENVAT credit would be reversed from the date of availment of CENVAT credit or capitalizing it whichever is earlier.

Follwing Rule 3 (5A) (a) is relevant in the connection.

[(5A) (a) If the capital goods, on which CENVAT credit has been taken, are removed after being used, the manufacturer or provider of output services shall pay an amount equal to the CENVAT Credit taken on the said capital goods reduced by the percentage points calculated by straight line method as specified below for each quarter of a year or part thereof from the date of taking the CENVAT Credit, namely:-

(i)     for computers and computer peripherals:

for each quarter in the first year at the rate of 10 percent

for each quarter in the second year at the rate of 8 percent

for each quarter in the third year at the rate of 5 percent

for each quarter in the fourth and fifth year at the rate of 1 percent

 (ii)   for capital goods, other than computers and computer peripherals at the rate of 2.5 percent for each quarter:

Provided that if the amount so calculated is less than the amount equal to the duty leviable on transaction value, the amount to be paid shall be equal to the duty leviable on transaction value.

(b) If the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty leviable on transaction value.]

Team YAGAY & SUN

(Indirect Tax Consultants)

AI Summary

CENVAT Credit Reversal: Date of Availment or Capitalization Applies, Rule 3(5A)(a) Details Reduction for Capital Goods A query was raised regarding the appropriate date for reversing CENVAT credit upon the sale of a machine imported from Japan. The response clarified that CENVAT credit should be reversed from the date of availment or capitalization, whichever is earlier. According to Rule 3(5A)(a), if capital goods are removed after use, the manufacturer must pay an amount equal to the CENVAT credit taken, reduced by specified percentage points per quarter. For non-computer capital goods, the reduction rate is 2.5% per quarter. If the calculated amount is less than the duty on transaction value, the duty amount should be paid.