Excise duty on Capital Goods

[RAM SHARMA]

Dear Experts,We have purchased capital goods before 10 years and availed cenvat credit on that capital goods. Now we want to remove as such this capital goods. Whether we will charge excise duty on this capital goods ?Thanks

[Rajagopalan Ranganathan]

Dear Shri. Ram Sharma,

Sub-rule (5 A) of Rule 3 of CENVAT Credit Rules, 2004 gives the solution to your problem which is reproduced below; -

[(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 @ 10%

for each quarter in the second year @ 8%

for each quarter in the third year @ 5%

for each quarter in the fourth and fifth year @ 1%

(ii) for capital goods, other than computers and computer peripherals @ 2.5% 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.]

If you clear the capital goods after use for 10 years as scrap Rule 3 (5 A) (b) is applicable since as per the above formula after 10 years the credit available will be Nil.

[MUKUND THAKKAR]

Dear sharma,

you should have to pay excise duty as per cenvat rules 3(5) calculate the duty on basis of table, and compare with your transaction value duty.please pay which is higher.

[YAGAY andSUN]

Dear Ram,

You would have to pay the duty either deduction of 2.5% per quarter or on the transaction value whichever is higher.

Regards

YAGAY and SUN

(Management and Indirect Tax Consultants)

[RAM SHARMA]

Dear Sir,If we have not availed cenvat credit on that capital goods then what will be the treatment of that capital goods.Thanks&Regards

[YAGAY andSUN]

Dear Ram,

No Gain, No PainJust reversed the famous saying (Originally, it is No Pain, No Gain) for the purpose of replying to your query.

Now, coming back to the query, if you have not availed the CENVAT credit (i.e. no Gain), then, there is no need to reverse the CENVAT credit (i.e. no pain). However, being pro-revenue , Department may ask to pay duty/amount on the transaction value of the capital goods. But the settled legal position is that if CENVAT credit is not availed then no reversal, no duty on transaction value on the Capital goods but it is also subject to production of documentary evidence that no CENVAT credit was availed.

Hope you will also smile little bit, after understanding the level of my sense of humor. 

Regards,

Pradeep Khatri

YAGAY and SUN

(Management and Indirect Tax Consultants)

[RAM SHARMA]

Many Many Thanks

AI Summary

Understand Excise Duty on Capital Goods Removal After 10 Years: Rule 3(5A) of CENVAT Credit Rules Explained A user inquired about the excise duty implications when removing capital goods after ten years, having previously availed CENVAT credit. Experts advised that under Rule 3(5A) of the CENVAT Credit Rules, 2004, the duty payable is the higher of the reduced CENVAT credit or the duty on transaction value. If the goods are cleared as scrap, Rule 3(5A)(b) applies, requiring duty on transaction value. If no CENVAT credit was availed, no reversal is necessary, but documentation is needed to prove this to avoid duty on transaction value.