Cenvat credit on capital goods

[S.C. WADHWA]

Dear Experts,

We are manufactures of dutiable products of chapter 20 and 21 and paying duty @2% as mentioned in general exemption no.46 when no cenvat credit on input availed.

Now my query is whether we are elible to get cenvat on the purchase of capital goods i,e machinery,generator etc. Please give your expert opinion.

Regards,

WADHWA

[Rajagopalan Ranganathan]

Sir,

Proviso to Notification No. 2/2011-CE dated 01.03.2011 as amended stipulates that "nothing contained in this notification shall apply to the goods in respect of which credit of duty on inputs or tax on input services has been taken under the provisions of the CENVAT Credit Rules, 2004." Since the proviso is not mentioning regarding availability of credit of duty paid on capital goods, the same is available.

However, 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, goods in respect of which the benefit of an exemption under Notification No. 1/2011-CE, dated the 1st March, 2011 or under entries at serial numbers 67 and 128 of Notification No. 12/2012-CE, dated the 17^th March, 2012 is availed. But rule 6 (4) of CENVAT Credit Rules, 2004 states 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". Since the provisions of CENVAT Credit Rules, 2004 has overriding effect on the provisions of a Notification, you are not eligible to avail the credit of duty paid on capital goods.

[Rama Krishana]

Dear Rajagopalan Ranganathan

With due respect, I do not agree with the second part of your reply. In my view cenvat credit on capital goods is allowed.

You have referred rule 2 (d) of CENVAT Credit Rules, 2004 and Rule 6(4) of the CENVAT Credit Rules, 2004 which indicates exemption from whole of duty of excise or NIL rate of duty. But as per the notification no. 1/2011 CE goods are not exempt from the whole of duty of excise, rather they are liable to duty @2% and therefore outside from the purview of Rule 2(d) and Rule 6(4).

Please correct me, if something is wrong.

[B. Naga Rami Reddy]

Sir,

Notification No.2/2011-CE mentioned by Shri Rajagopalan Sir may be read as Notification No.1/2011-CE so as to make the reply complete with regard to in eligibility of the credit on the capital goods.Rule 2(d) of CCR 2004 treats goods on which duty is paid at 2% under Notification No.1/2011-CE also as exempted goods.

[Rajagopalan Ranganathan]

Dear Ramakrishna,

Please read in full the rule 2 (d) of CENVAT Credit Rules. It states that "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, goods in respect of which the benefit of an exemption under Notification No. 1/2011-CE, dated the 1st March, 2011 or under entries at serial numbers 67 and 128 of Notification No. 12/2012-CE, dated the 17^th March, 2012 is availed. Therefore when you avail the exemption provided by Notification 01/2011-CE the excisable goods cleared @2% under the above Notification will be treated as exempted goods. Therefore Rule 6 (4) will also applicable.

AI Summary

Cenvat credit on capital goods may be disallowed where goods are treated as exempted under the general exemption. The CENVAT Credit Rules define 'exempted goods' to include goods in respect of which the benefit of the general exemption is availed; a rule in those Rules disallows CENVAT credit on capital goods used exclusively in the manufacture of exempted goods. Consequently, even where an exemption notification provides for clearance at a concessional duty rate and a proviso refers only to input credit, the overriding effect of the CENVAT Credit Rules renders credit on capital goods unavailable for goods treated as exempted under the notification.