Cenvat Credit issue at the time of Registration

[Varun Arora]

Dear Experts,

Please resolve my query

In the first year I purchased raw material and capital goods and cleared material around of ₹ 120 lakhs, Now I want to get registeration under Central Excise.

At the time of registeration There was some stock lying in the premises in the shape of final product and raw material And I am Eligible for cenvat credit on Raw material which is lying in the premises as a raw material and in the shape of Final product, As I will pay excise duty on that final product while clearance.

Now My question is that Whether after completing registeration process, like filing A1, and physical verification of Premises by Excise officer, I need to file application regarding of cenvat credit on Raw material and Capital goods.

And after filing this application Excise officer again visit my factory for physical verification for allowing us for taking the Cenvat credit.

And my next question is that Excise officer is saying that If you will take cenvat credit of Capital goods then in the next year You have to pay duty from the day one means benifit of value based Exemption 150 lakhs will not be availabe to you.

Thanks in advance .

[KASTURI SETHI]

Dear Varun Arora Ji,

Cenvat Credit is admissible as per Rule 3(2) of Cenvat Credit Rules, 2004 which reads as follows:-

 "Notwithstanding anything contained in sub-rule (1), the manufacturer or producer of final products shall be allowed to take CENVAT credit of the duty paid on inputs lying in stock or in process or inputs contained in the final products lying in stock on the date on which any goods manufactured by the said manufacturer or producer cease to be exempted goods or any goods become excisable.

After getting registered with the department, the assessee should quantify the amount of admissible credit on the basis of documentary evidence and inform the jurisdictional Range Officer with a copy to the jurisdictional A.C./D.C.24 hours in advance along with the details of stock held by them (assessee) on that date.(date of registration).

Regarding the last question, I am of the view that SSI exemption cannot be denied next year and also go through Rule 4(2)(a) of Cenvat Credit Rules, 2004in full. Peruse Explanation also.

[YAGAY andSUN]

Dear Varun,

For your kind information.

Capital goods purchased prior to obtaining registration – Cenvat credit available: CESTAT.

MUMBAI, NOV 15, 2010: BRIEF facts of the case are that a show cause notice was issued to the respondents alleging that during scrutiny of ARE-1 returns, it was noticed that the respondent had availed Cenvat credit on the capital goods which were purchased prior to their registration with the department.

Following are the details:

Respondents applied for Central Excise registration on 7.3.2007 and got the registration certificate on 8.3.2007;

They availed Cenvat credit of ₹ 2,40,720/- on 10.3.2007 on the capital goods purchased during the month of June 2006 and remaining amount of 50% Cenvat credit of ₹ 2,44,538/- was availed on 10.4.2007.

Capital goods were installed and commissioned in June 2006.

During March 2007 the respondents had not manufactured any dutiable goods for the financial year 2006-07.

The demands were confirmed by the adjudicating authority but the Commissioner (Appeals) dropped the demand.

Aggrieved, the Revenue is before the CESTAT.

The Revenue representative submitted that as the respondent did not manufacture any dutiable goods during the period 2006-07 they are not entitled to take Cenvat credit on these capital goods; in June 2006, at that time of the receipt of the capital goods, the respondents were neither registered with the department nor they were manufacturing any dutiable goods. Reliance is placed on the Larger Bench decision inSpenta International Ltd. vs. Commissioner of Central Excise 2007 (8) TMI 25 - CESTAT, MUMBAI wherein it was held that the assessee is eligible to take credit with reference to the dutiability of the final product on the date of receipt of capital goods were received. It was, therefore, submitted that the order of the lower appellate authority be set aside.

The respondent assessee submitted that the case law cited by the Revenue representative is not applicable to this case as the issue before the Tribunal in that case is of determination of relevant date for eligibility of Cenvat credit on the capital goods. It was further submitted that the respondents are availing the value based exemption as per Notification no. 8/2003-CE dt. 1.3.2003 wherein it is mentioned that after crossing the limit of exemption the assessee can take the Cenvat credit but shall not utilize the same unless and until the exemption limit crosses. Reference was made to the following clarification given by the department -

Q.54. Whether Cenvat credit on capital goods is available when option to seek registration and payment of Central excise duty is exercised under notification no. 8/2003?

Ans. Yes, para 2(iii) and 2(iv) of Notification no. 8/2003-CE., dated 1.3.2003. The SSI unit can take credit of duty paid on capital goods which can be used after crossing the 100 Lakhs full exemption limit.

It was also submitted that on similar facts in the case of Progressive Systems vs. CCEx., Bangalore, 2009 (8) TMI 591 - CESTAT, BANGALORE it was held that as per CBEC clarification, SSI units can accumulate credit of duty paid on capital goods which can be used after it crosses the aggregate value of exempted clearances as per the notification; as per Rule 4(2) of CCR, 2004, an assessee can avail capital goods credit up to 50% in the year of receipt of the goods and the balance in the subsequent financial years; there is no prescription that credit to any extent has to be availed in the year of receipt of capital goods.

The Bench after hearing both sides observed:

6.I have gone through the submissions made by both the sides and as per the query sought from the department, the department clarified that in the case of value based exemption notification, the unit can take the credit of duty paid on capital goods, which can be used after crossing the full exemption limit and on the similar facts, the issue before the Tribunal was that whether the assessee is eligible to avail Cenvat credit on capital goods procured by the assessee during the year 20.06.2007. Wherein it was held that the assessee is a SSI unit and had availed of the full exemption during the year 2006-07 and had not registered themselves with the department during the financial year and had only got registration on 16.4.2007. The allegation in the show cause notice is that assessee had received the capital goods during 2006-07 and during that period the assessee had not obtained registration and also not opted to avail credit available on the capital goods in April 2007 instead of availing of 50% of the credit during 2006-07 i.e during the year procurement and that the assessee was ineligible of the credit relating to year 2006-07 since the assessee was not registered with Central excise during the period and had also not opted for, in that case the assessee is entitled to take the Cenvat credit on the capital goods. The case law cited by the DR is not applicable to this case as the issue before the Larger Bench was to determine the relevant date for taking the credit on capital goods. Following the ratio of the decision in the case of Progressive Systems (supra), the respondents are entitled for taking Cenvat credit on the capital goods which may be utilized only after crossing the full exemption limit….

Holding that there is no infirmity in the order of the Commissioner (Appeals), the same was upheld and the Revenue appeal was rejected.

Regards,

Y S

[Ganeshan Kalyani]

From the Kasturi sir reply and based on the case law I infer that CENVAT credit is eligible in your case only after the turnover crosses the basic exemption limit. Until such time the credit can be accumulated. Further in next year if the turnover does not cross the basic exemption limit the SSI benefit is available and if it crosses the credit can be availed against the duty payable. I hope my interpretation is correct.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

I agree with your views in toto. Thanks for clarification.

[Varun Arora]

Thank you all Experts.

AI Summary

Cenvat Credit Allowed Post-Registration: Inform Officer with Documents, Rule 3(2) Applies, Pre-Registration Purchases Eligible After Exemption Limit. A user inquired about Cenvat credit eligibility upon registering under Central Excise, questioning if an application for credit on raw materials and capital goods is needed post-registration and if an excise officer must verify again. An expert clarified that Cenvat credit is permissible as per Rule 3(2) of the Cenvat Credit Rules, 2004, and advised informing the jurisdictional officer with documentation. Another expert referenced a case where credit on capital goods purchased before registration was allowed, noting that credit can be accumulated and used after exceeding the exemption limit. The consensus was that Cenvat credit is eligible post-exemption limit crossing.