Capital Goods removal after 10 years usage to our Own unit II - under excise invoice with zero duty -

[venkataraman swaminathan]

Dear sir,

We removed one capital goods ( Machine) to our own Unit , Unit 2 ( ie. from Unit 1 to Unit 2 ) . The said machine is more than 10 years from the date of credit taken . Hence we cleared this CG under our excise invoice with a value of ₹ 5 lacs and in the invoice we printed more than 10 years & no duty applicable .Not for sales /stock transfer only. Now audit raised audit point , that because the value is indicated in the Excise Invoice we need to pay duty even though the life of said CG more than 10 years the value to be treated as transaction value & duty to be paid .

. Request Experts opinion and if any case law reference please.

[MUKUND THAKKAR]

point is raised by audit party is correct, you have to pay duty, there is no other option. please refer following

With effect from 13.11.2007, the following provision has been introduced in Rule 3 (5)

Provided also that if the capital goods on which CENVAT credit has been taken are removed after being used, the manufacturer or provider of output service shall pay an amount equal to the CENVAT credit taken on the said capital goods reduced by 2.5 per cent for each quarter of a year or part thereof from the date of taking the Cenvat Credit.

In case of stock transfer excise is applicable.

Provided also that if the capital goods on which CENVAT credit has been taken are removed after being used, the manufacturer or provider of output service shall pay an amount equal to the CENVAT credit taken on the said capital goods reduced by 2.5 per cent for each quarter of a year or part thereof from the date of taking the Cenvat Credit.

[Ganeshan Kalyani]

Sri Mukund Ji, 2.5 % per quarter means 10% a year and after completion of 10 year the 10% becomes 100% which means total credit taken has been utilized and hence no need to reverse the credit as per the provision cited by you. Please have a re-look. Thanks.

[Rajagopalan Ranganathan]

Sir,

If you remove the capital goods used for 10 years or more the credit availed is to be reduced @ 2.5% per quarter of use and the same will bee 100% after 10 years. Therefore when you remove the capital goods after using the same for 10 years according rule rule 3 (5A) of Cenvat Credit Rules, 2004 the cenvat credit to be reversed will be nill. However when you transfer the used capital goods to your unit II you will show the value of the used capital goods in the transport documents for your accounts purpose. According to proviso to rule 3 (5A) (a) "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". Here the transaction value will be the value shown by you in the document by what ever name it is called will be transaction value and you have to pay duty on that value. Since unit II can take the credit of duty paud by your unit I this is a revenue neutral situation. Hence the audit objection is, in view, is sustainable.

[KASTURI SETHI]

Comprehensive and fool-proof reply by Sh.Rajagopalan Ranganathan, Sir. Also agree with Sh. Ganeshan Kalyani, Sir for laying the foundation for comprehensive reply.

[Ganeshan Kalyani]

Thanks Sir Rajagopalan Ranganathan Sir, Sri Kasturi Sir and Sri Mukund Ji.

[venkataraman swaminathan]

DEAR SIR,

Thanks for the experts opinion /clarification on the above subject. V Swaminathan

[Suryanarayana Sathineni]

Dear Friend,

The issue was clarified by our learned friends in very clear cut terms and need no intervention.

On the invoice, you should have mentioned that the clearance is under Rule 3(5)(A) of CCR,2004 to avoid the complication. Now you can reply using the clarifications given in in terms of the Rules specified to the Audit party.

Value is not the criteria for payment of duty in the situation stated by you except, if you sell such capital goods as scrap.

Best Regards

Suryanarayana

AI Summary

Cenvat reversal on removal of capital goods: duty may attach based on transaction value; credit transferable to receiving unit. Under Rule 3(5A) of the Cenvat Credit Rules, 2004, removal of capital goods used by a manufacturer after taking CENVAT credit requires payment equal to credit taken reduced by 2.5% per quarter; after ten years the reversal becomes nil. However, the proviso makes duty payable equal to duty leviable on the transaction value if the calculated amount is less than that duty. Thus invoicing used capital goods for transfer between units can attract duty on declared transaction value, although the receiving unit may claim credit for such duty.