removal as such

[Dalia Felix]

We had purchased certain capital goods for diversifying our product portfolio. The capital goods has not been installed and cenvat credit is not taken.

now, we are planning to set up another company and manufacture and market the new product under it. how can we manage so that the new company gets the cenvat credit of the capital goods? (since the invoice is in the name of the first company)

[Rajagopalan Ranganathan]

Sir,

First take full (100%) credit of duty paid on the capital goods in your books of account. Then clear the capital goods as such to your new company under your invoice after debiting the duty in your CENVAT Account.

[S RAMAN]

Sir

Thats right. But please give your opinion whether to take cost of fright and pass it on to other company ??

S Raman

[PAWAN KUMAR]

Dear Sir,

As per my view, you have to charge the landed cost including freight and sales tax. In addition to this, excise duty would be charged equivalent to cenvat credit taken.

As you have taken 50% cenvat at the time of receipt in the year of purchase, you need to again take remaining 50% cenvat and debit 100% cenvat in your cenvat account which is also to be mentioned on invoice as excise duty paid. The receiveing company can take cenvat as per rule 4(2)(a) of Cenvat Credit Rules, 2004.

[VVFINDIA Taloja]

Make sure invoice is less than six months old. I have noticed that you have mentioned Cenvat credit is not taken. If you have already availed 50% credit in the existing company no problem to exercise the activity as said by Mr. Pawan.

[Rajagopalan Ranganathan]

Dear Mr.. Raman,

Rule 5 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 states that-

"Where any excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of section 4 of the Act (except the circumstances in which the excisable goods are sold for delivery at a place other than the place of removal), then the value of such excisable goods shall be deemed to be the transaction value, excluding the cost of transportation from the place of removal upto the place of delivery of such excisable goods."

Therefore the freight incurred by the consignor alone is to be excluded from the "transaction value." Bur you can recover this cost from the consignee. There is no bar in the provisions of Section 4 of Central Excise Act, 1944 or Valuation Rules. if the freight shown in the invoice is more than the actual freight paid to the transporter then the difference between the two has to be added to the transaction value for the purpose of calculating the duty payable.

However the Supreme court has held in BARODA ELECTRIC METERS LTD. Versus COLLECTOR OF CENTRAL EXCISE [1997 (94) E.L.T. 13 (S.C.)] = 1997 (7) TMI 126 - SUPREME COURT OF INDIA that-

"The Tribunal accepted the position that equalised freight was charged by the appellant from everyone, but proceeded to say that even though freight cannot be a part of the assessable value that wherever freight actually paid was less than the amount collected by way of freight and transportation charges the difference was appropriated by the appellant and, therefore, the same would be a part of the assessable value. In our opinion, the Tribunal proceeded on an incorrect premise. It was clearly held in Indian Oxygen Ltd. v. Collector of Central Excise - 1988 (36) E.L.T. 723 (S.C.) = 1988 (Supp.) SCC 658= 1988 (7) TMI 58 - SUPREME COURT OF INDIA , that the duty of excise is a tax on the manufacturer and not a tax on the profits made by a dealer on transportation. In view of that decision, the view taken by the Tribunal cannot be sustained."

However this judgments pertains to old Section 4 of Central Excise Act, 1944 before the same is replaced by the present Section 4. As far as the freight is concerned there is no difference between the old and amended Section 4.

AI Summary

Cenvat credit transfer: seller should take full credit, invoice with duty debited to enable purchaser's input credit. Advises that the seller should first take full CENVAT credit on the capital goods, then transfer the goods to the new company on invoice after debiting duty in its CENVAT account so the receiving company can claim credit under rule 4(2)(a) of the Cenvat Credit Rules, 2004; if partial credit was earlier availed, remaining credit must be taken and excise reflected on invoice. Freight is excluded from transaction value under Rule 5 but may be recovered from the consignee; excess freight charged over actual may affect assessable value as discussed in cited precedents.