Cenvat credit of capital goods purchased before excise registration

[Mehul Pandya]

Sir,

SSI unit have purchased capital goods before 2 years. After that they have taken excise registration as and when they have crossed 1cr. and filling their return time to time. Now in this case unit is eligible to take credit on such capital goods.

Thanking you

[YAGAY andSUN]

Dear Mehul,

You may avail the CENVAT credit on capital goods provided you had not capitalized such capital goods with gross amount as you can avail either CENVAT credit on the Capital goods or Depreciation on the gross amount of capital goods but not the both.

Regards

Team YAGAY & SUN

(Management & Indirect Tax Consultants)

[Rajagopalan Ranganathan]

Sir,

  Rile 6 (4) of CENVAT Credit Rules, 2004 stipulates that-

     " No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year."

     The implication of this rule is that cenvat credit of duty paid on the capital goods can be taken while the assessee is availing the SSI exemption, that is, up to Rs. 150 lakhs but the same cannot be utilized.  After crossing this limit and when assessee starts paying the duty he can utilize the credit for payment of duty.  Rule  6 (4) do not lay down any restriction regarding time limit to avail the credit.  Therefore, in my opinion, though you had purchased the capital goods 2 years before taking the registration you can take the credit provided the capital goods are still in use in your factory.  But you have to give reasonable explanation why you have purchased the capital goods 2 years before you contemplate taking registration.

          However, I would like to caution you that the department will not allow the credit on the ground that the credit was not taken within reasonable time. Normally taking credit within 1 year from the date receipt of the capital goods into the factory is presumed that the credit is taken within reasonable  period.   It is an arguable point.

[Mehul Pandya]

Sir,

Thanks for your such valuable reply.

Regards,

Mehul Pandya

[Arun Kumar Singh]

You can avail the cenvat credit on capital goods purchase before registration. 

AI Summary

SSI Unit Seeks CENVAT Credit on Capital Goods Bought Pre-Registration; Timeliness and Capitalization Key Issues An SSI unit purchased capital goods two years before obtaining excise registration. After crossing a turnover of 1 crore, the unit sought to claim CENVAT credit on these goods. Experts advised that CENVAT credit is permissible if the goods were not capitalized with the gross amount, as per CENVAT Credit Rules, 2004. The credit can be claimed if the goods are still in use, but the department might challenge the claim if not made within a reasonable time, typically within one year of receipt. A reasonable explanation for the delay is necessary.