Cenvat Credits on Plates used in Manufacturing of Capital Goods

[Mehul Pandya]

Dear Experts,

We are manufacturers of Sugar. At the time of installation of machinery we have fabricated 2 storage tanks on our own and purchased Plates for the same. Can we take cenvat credit on this plates or not ? If yes we should take the same in A-II or C-II (50%). Pl. give your expert suggestions with relevant notification or circular or any other reference if possible.

Thanking you

[KASTURI SETHI]

Sir,

Plates are integral parts of storage tank. Storage tank is a capital goods. No dispute. You can take take credit as capital goods. Earlier about three months there has been too much discussion on this issue in this forum.

[Ganeshan Kalyani]

Yes there had been a healthy discussion in this forum wherein it was discussed that Cenvat credit is eligible. You should take this credit under RG23C Part-II in which 50% of Credit will be taken in current year in which it was received in the factory and balance in the next financial year. The balance can credit can be taken immediately on 1st April or any time during the year. Thanks.

[YAGAY andSUN]

Dear Mehul,

RG 23 C Part I and II are no more statutory records. Even, records maintained in computer system would also be valid to claim the CENVAT credit on plates used in Storage Tank since Storage Tanks are specifically included in definition of Central Excise vide para that under Rule 2 (a) (A) (vii) of the CENVAT credit Rules, 2004 as amended from time to time. Further there are plethora of judgment on the matter of Storage Tax wherein CENVAT credit had been allowed.

Regards,

YAGAY and SUN

(Management, Business and Indirect Tax Consultants)

[Ganeshan Kalyani]

Though maintenence of manual register as mentioned in my previous reply is scrapped out, maintaining the system record in such method is very essential to get during audit time. Thanks.

[KASTURI SETHI]

Thanks a lot to M/S. YAGAY and SUN for comprehensive reply. I also agree with Sh.Ganeshan Kalyani Sir.It becomes convenient for the assessee if RG23 C Pt. I and II are maintained.

[CSSANJAY MALHOTRA]

Dear Experts,

Reference is drawn to Explanation 2 to Rule 2K of CCR, which states that "Inputs" includes Inputs used in the manufacture of Capital Goods to be further used in the factory of manufacturer.

Storage Tank is already covered as Capital Goods as per Rule 2(a)(viii) of CCR 2004.

CENVAT Credit is eligible as "Input Credit" in RG23A(II).

Plates becomes parts of Storage Tank when the same is procured after the Storage Tank is put to use. In the present scenario, the party is undertaking construction of Storage Tank itself, hence Plates shall be treated as Input for the manufacture of Capital Goods.

 

[CSSANJAY MALHOTRA]

Dear Experts,

My earlier submission holds good for period upto 28.02.2011 as from 01.03.2011 vide Notification No. 03/2011-NT dated 01.03.2011 was revised.

Since I have not been part of earlier debate of experts on this subject, but would like to add that the benefit has been availed even at present by Industries treating the same as Input under Rule 2(K)(i) : all goods used in the factory by the manufacturer of final product..

It has been taken up with department that the Input does not specifically mean Input meant for manufacture of FG, same can be for CG also which has been accepted by department.

Further, even if one takes CENVAT as CG, even then the same is not disallowed as once the credit is admissible, it does not matter what register the same has been posted to. Endorse the view of M/s Yagay that statutory registers are no more valid since 2000.

[Ganeshan Kalyani]

Sri Sanjay Sir the querist is and entity manufacturing sugar and it is not manufacturing tank and therfore I said that the credit would be as capital item. But from your last para of your reply which makes it very clear that if credit is eligible then may it be taken as input or capital department will not reject the claims. Thanks.

[CSSANJAY MALHOTRA]

Respected Sh. Kalyani ji,

We all agree that CENVAT is admissible, only contention is eligibility as an "Input" or "Capital Goods".

Have taken into account the aspect of manufacture of Storage Tank while sharing the opinion. Until and unless storage Tank comes into existence, Plates can't be treated as parts of Capital Goods. Plates are used for manufacture of storage Tank in the present case.

Explanation to Input definition prior to Notification No. 03/2011-NT dated 01.03.2011 includes Input used for the manufacture of Capital Goods. "Input" from 01.04.2011 means "All goods used within the factory of manufacturer" (does not correlate Input to FG only).

CENVAT is allowed by department as an Input / CG considering the facts which might differ case to case basis.

Thanks for revert as each query enriches the thought process.

[KASTURI SETHI]

SH.CS SANJAY MALHOTRA JI,

Rightly understood and rightly interpreted. Agreed. I would like to term this reply as an icing on the cake i.e. your reply dated 21.2.16. It means one should not miss even a single word of definition or provisions of any Section or Rule for the sake of best performance on the part of experts as well as in the interest of querists.

[Ganeshan Kalyani]

Thanks for sharing your valuable reply. Thanks to Sri Sanjay Sir and Sri Kasturi Sir in this regard.

[KASTURI SETHI]

SH.CS SANJAY MALHOTRA JI,

Sir, I like your words, "each query enriches thought process." very much. It reflects sportsman spirit. In this forum, there is no question of defeat or victory. This reminds me of Dr.Subhash Chandra's words (ZEE TV). He has said, "If you are contented with your knowledge, you are finished." So if we want to progress and progress further, thirst for knowledge should never be quenched. That is possible only if anyone is really happy when one's ( his) mistakes are pointed out. Sachin Tendulakar often conveyed this message during his interviews.

[CSSANJAY MALHOTRA]

Respected Sir Sh. Kasturi ji,

Very well mentioned. Appreciate that this platform is not as you rightly said "Defeat / Victory" and none should ever thought of these things. It's should be a platform for updating self through debates / understanding intent of law.

I keep on interacting with the law makers and whenever I come across with the divergent views or feels from the opinion shared by the Experts herein that the law point needs clarification, immediately apprise them and make them understand that their legislative intent and understanding of Industry is different. You will not believe that this platform is looked in by various industry leaders and Departmental personnel to even enrich their skill set and this has even reduced litigation to large extent.

Once again thanks for bringing important point.

AI Summary

Cenvat credit eligibility on components used to fabricate capital goods; credit may be claimed as input or capital goods. Plates procured to fabricate storage tanks are eligible for cenvat credit because they either become parts of the capital good (storage tank) or, when used in construction of the tank, are inputs for manufacture of a capital good; departmental practice allows treatment as input or capital good and phased posting (RG23C Part II practice of 50% in year of receipt and balance later) while maintaining system records in light of definitional changes under Notification No. 03/2011 NT.