Excisable Machinery (Capital Goods) give as rental base

[Nitin Patel]

dear expert

We have purchase excisable machinery in may 2012 we have use this machine three year , now we thinking this give as rental base , we have taken credit of capital goods , so now we give this machinery as rental base question is we have required to reverce capital goods credit or not ,

[YAGAY and SUN]

Ownership is not an issue to avail the CENVAT credit on the capital goods. You would have to charge either service tax or VAT as per the terms of agreement for providing the machinery on rent. Proportionate CENVAT credit after deducting the 2.5% per quarter would be available to you.

[KASTURI SETHI]

I agree with M/s. YAGAY AND SUN. I would like to add that renting of machinery (Capital goods) attract Service Tax under the category of "Right To Use Of Tangible Goods Services" under Section 65(105)(zzzz) of the Finance Act. Though definitions of services under Section 65(105) have been omitted w.e.f.1.7.2012 but these still exist for the purposes of clarification of the concept and accounting codes.

[varun arora]

Sir, In this case If I am charging service tax on my renting of Tangible goods service then In that case too do i need to reverse the credit as i availed earlier??

[PARTHASARATHY V]

Yes, You have to reverse Cenvatt Creidt after depreciation @2.5% per quarter from the date of purchase. Duty to be paid on the depreciated value on appropriate rates at the time of machinery purchased.

AI Summary

Reversal of CENVAT credit required when capital goods are rented, with proportionate adjustment after prescribed depreciation.
When capital goods on which CENVAT credit was availed are put on rent, the supplier must charge service tax or VAT on rental receipts as per the agreement and reverse CENVAT credit proportionately by applying the prescribed quarterly depreciation adjustment from the date of purchase; the reversal and any duty/payment liability are computed on the depreciated value at the applicable rate.