capital goods or not

[Dalia Felix]

Dear Sirs,

We are manufacturers of certain dutiable final products.

we also conduct 'trading' of certain other goods. For trading, dutiable goods are purchased, cut them using special machines and sell to outside parties.

can we take the cenvat credit on the cutting machine used? (though the process conducted with the machines do not amount to manufacture, definition of capital goods as per Rule 2 of CCR, 2004 allows credit on all machinery used in the factory)

In connection with the credit availability on Gen set, many learned experts have referred the SC judgment CCE, Coimbatore Vs Jawahar Mills Ltd 2001 (7) TMI 118 - SUPREME COURT OF INDIA

Give your comments please.

[YAGAY andSUN]

Dear Dalia Felix,

Trading is an exempted activity. As per Rule 2(d) of CENVAT Credit Rules, 2004, “exempted goods” means excisable goods which are exempt from the whole of the duty of excise leviable thereon, and includes goods which are chargeable to “Nil” rate of duty and goods in respect of which the benefit of an exemption under Notification No. 1/2011-C.E., dated the 1st March, 2011 or under entries at serial numbers 67 and 128 of Notification No. 12/2012-C.E., dated the 17th March, 2012 is availed. So, the goods you manufacture are treated as exempted goods for the purpose of CENVAT Credit Rules, 2004.

As per Rule 6(4) of the said Rules, ‘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’.

Therefore, if your capital goods are used exclusively in the manufacture of goods, then you cannot take Credit of the duty paid on such capital goods. This position is also clarified though CBECCircular no. 943/4/2011-CX., dated 29-4-2011.

This is for your kind information.

Regards

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

[Mahir S]

Sir,

It appears that in your case, No cenvat credit can be availed either on the cutting machines nor on the dutiable goods that are cut on such machines.

AI Summary

Cenvat credit on capital goods used exclusively for exempted trading activities is not available under the CENVAT framework. Trading is treated as an exempted activity for CENVAT purposes; accordingly, Cenvat credit on capital goods used exclusively in processing goods for trading (where the process does not constitute manufacture) is not allowable, and credit cannot be claimed on the dutiable goods merely cut in the trading activity.