Cenvat credit of 4% ADI on Inputs/Capital goods recd u/r3(5) of CCR,2004

[RAMNIRANJAN KANDOI]

An assessee (A) has recd Inputs/ Capital goods from its another unit B. Unit B has debited duty -Basic duty as well as 4% ADI.A has taken credit of both.

EA-2000, auditor has taken objection about credit taken of 4% ADI. According to him ,B is liable to debit but A cannot take. For this I do not agree the objection as Rule 3(6) of CCR,2004 allows the credit.

I will appreciate opinion of our experts as amount of credit is high.If any case law on this than may be quoted., so the same can be shown to auditor.

[Rajagopalan Ranganathan]

Sir,

According to proviso 4 of rule 3 (4) of Cenvat Credit Rules, 2004, no credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act,shall be utilised for payment of service tax on any output service.

If A and B are both manufacturers then the audit objection is baseless. If B is a service provider and A is a manufacturer, then transfer of credit of additional duty leviable under sub-section (5) of section 3 of Customs Tariff Act by B to A is in order. According to the above proviso the credit of additional duty paid cannot be utilised for payment of service tax on output service only. Therefore you can contest the audit objection by quoting the above proviso.

[MUKUND THAKKAR]

You may go with the view is given by Rajagopalan Ranganathan, if auditor is not agree than taking memo from him and given written submission with your disagreement of points.

AI Summary

Cenvat credit of Additional Duty transferable between manufacturing units; recipient may claim credit though restricted for service tax payments. Entitlement to cenvat credit of additional duty on inputs/capital goods transferred between units is permissible for a receiving manufacturer; an audit objection is unsustainable where both units are manufacturers. The proviso to rule 3(4) CCR restricts only the utilisation of additional duty credit for payment of service tax on output services, and does not prevent inter unit transfer of that credit between manufacturing units.