TRANSFER OF CAPITAL GOODS FROM ONE STATE TO ANOTHER

Guest

Dear Members,

we want to transfer the capital goods (situated at Tamilnadu_ Registered under Excise ) to another site (A.P) , what are the legal procedures & compliance to be followed in order to make transfer smoothly.

Is it required to Register the Premises (A.P) ?

Why we want to make transfer is because of Project is over at Tamilnadu, so if we holding the Machinery there we are going to bear fixed costs. now the site (A.P) is not registered under Excise . is there any alternatives available for us to make transfer of Capital goods to A.P ??

Kindly assist me.

Cenvat credit reversal on transfer of capital goods requires payment based on depreciated credit or duty on transaction value. Transfer of capital goods removed after use triggers CENVAT credit reversal under Sub Rule (5A) of Rule 3, Cenvat Credit Rules, 2004: the transferor must pay the credit taken reduced by prescribed quarterly depreciation rates, with a proviso that if this computed amount is less than duty on transaction value the duty on transaction value becomes the payable amount. The rule applies to removals after use including lease or transfer to another unit; if goods are removed 'as such' full reversal is required. Non registration of the receiving unit makes excise duty a cost and transfer of right to use may attract State VAT. (AI Summary)

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MUKUND THAKKAR on Jan 30, 2016

Removal of Capital Goods after being used or as waste & scrap has always been an area of litigation. Sub Rule (5A) of Rule 3 of Cenvat Credit Rules, 2004 is the governing rule in this regard. Before going into detail it is important to go through this rule, which is reproduced below:-

(5A) If the capital goods, on which CENVAT credit has been taken, are removed after being used, whether as capital goods or as scrap or waste, the manufacturer or provider of output services shall pay an amount equal to the CENVAT Credit taken on the said capital goods reduced by the percentage points calculated by straight line method as specified below for each quarter of a year or part thereof from the date of taking the CEVAT Credit, namely:-

(a) for computers and computer peripherals :

for each quarter in the first year @ 10%

for each quarter in the second year @ 8%

for each quarter in the third year @ 5%

for each quarter in the fourth and fifth year @ 1%

(b) for capital goods, other than computers and computer peripherals @ 2.5% for each quarter:

Provided that if the amount so calculated is less than the amount equal to the duty leviable on transaction value, the amount to be paid shall be equal to the duty leviable on transaction value.

After going through this Sub Rule it seems that now everything is settled. Assessee is required to reverse Cenvat Credit availed at the time of removal of Capital goods as per the formula prescribed in the abovementioned Sub Rule in both the cases when Capital Goods are cleared after being used or as waste or Scrap.

But if we go through the proviso, there seems to be a problem when it says if the amount calculated as per the formula prescribed under Sub Rule (5A) is less than the amount equal to the duty leviable on transaction value, the amount to be paid shall be equal to the duty leviable on transaction value.

It means if the transaction value of the old capital goods is more as compared to the formula prescribed under Sub – Rule (5A), then Assessee is required to reverse Cenvat Credit equal to the duty payable on transaction value. It clearly shows that department is trying to impose Central Excise Duty on removal of Capital Goods through Cenvat Credit Rules, 2004.

Is it required to Register the Premises (A.P) ?

if your other unit is not register with the central excise. than Excise duty portaion will be your cost. and you can claim depreciation on full transfer value.

Guest on Jan 30, 2016

Thank you very much for your valuable reply.

If the same goods (used) are given for lease to any party and transferred to AP site, then also same provision will apply ??

why i am asking this one means, in my opinion Removal may not include "Lease" .

and one more thing is that any attraction of State VAT on transfer.

Kindly give me the your valuable suggestion.

KASTURI SETHI on Feb 3, 2016

Dear Sh.Sunil D. Ji,

In case the capital goods (used) are removed for lease, even then this formula of depreciated value will be applicable. Do not go by the definition of 'removal'. The issue is whether the capital goods are removed 'as such' or 'after usage'. If removed as such full amount of credit taken has to be reversed. If after use, then above formula as advised by Sh.Mukund Thakkar, Sir will be applicable.

Regarding applicability of VAT, I do not know. However, transfer of right to use the goods has been deemed as sale for the purpose of payment of VAT/Sale Tax.

KASTURI SETHI on Feb 3, 2016

A few judgments on this issue are appended below:-

2014 (310) E.L.T. 956 (Tri. - Kolkata) = 2015 (1) TMI 588 - CESTAT KOLKATA

NILKAMAL LTD.

Versus

COMMISSIONER OF CENTRAL EXCISE, BOLPUR

Final Order No. A-75482/KOL/2014, dated 15-7-2014 in Appeal No. E/952/2011

_______

2015 (321) E.L.T. 577 (Mad.) = 2015 (3) TMI 694 - MADRAS HIGH COURT

IN THE HIGH COURT OF JUDICATURE AT MADRAS

R. Sudhakar and S.Vimala, JJ.

COMMISSIONER OF C. EX., COIMBATORE