Removal of goods i.e. Input, Capital Goods as such -

[vinay wakde]

We are manufacturer as well as service provider. We are taking credit on Input, Capital Goods & Input services. We have cleared Input and Capital Goods as such and reversed proportionate credit taken on input /Capital goods as per Rule 3(5) of CCR,2004. However, we have not reversed proportionate credit taken on Input services.

We have now asked by the Department to submit details for last three years i.e. for as such removal of Input & Capital goods from the factory. As per the Department such kind of routing of input/Capital Goods to second manufacturer, getting extra credit of input services to the first manufacturer.

Kindly let us know (1) whether proportionate credit taken on input services required to be reversed (2) How to calculate Input service credit involved on removal of input & capital goods as such (3) whether the Department raised demand for recovery of duty (4) Is there any case law in our support to reply the letter.

Regards,

VINAY

[MUKUND THAKKAR]

#3 Dated: 18-7-2012 By:- vinay wakde

CESTAT in case of A.R.Casting VS CCE (2009 (12) TMI 182 - CESTAT, NEW DELHI)= (2010) 25 STT 244 (CESTAT SMB) has held that the Rule uses the words Input which applies to Input Goods and not the Input services. Hence, CENVAT credit of Input Services used in the factory is not required to be reversed. Further, CESTAT has also held that CENVAT on GTA service is allowable even if Inputs/ Capital Goods removed as such. The ratio of the cases also apply, as GTA can be treated at par with services of Barge. CCE VS Simplex Castings(2009 (7) TMI 608 - CESTAT, NEW DELHI) = 2010 (25)STT 106, Chtrakoot Steel Vs. CCE (2007 (11) TMI 135 - CESTAT, CHENNAI)

Regards,

VINAY

above reply is was submitted by you vinayji.

[Ganeshan Kalyani]

Sir to speak in a layman language the requirement of reversal of input and capital cenvat is essential because they are to be used in the process of manufacturing of goods. And service is availed in relation to manufacturing process and not directly used in the process. Thus only input and capital cenvat is required to be reversed. Thanks.

[Rajagopalan Ranganathan]

Sir,

Rule 3 (5) of Cenvat Credit Rules,2004 clearly states that " When inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, or premises of the provider of output service, the manufacturer of the final products or provider of output service, as the case may be, shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in rule 9:

It does not mandate about reversal of input service credit. Therefore you need not reverse credit taken on input services when you remove inputs/capital goods as such outside your factory

 

[Ganeshan Kalyani]

I agree with Sri Rajagopalan Sir. Thanks.

[vinay wakde]

Thanks to all. This information asked by the Department in respect of "Draft performance audit report on Cenvat Credit Scheme” by C&AG.

[Suryanarayana Sathineni]

Dear Friend,

The views expressed by our friends are right and need no intervention.

However, in terms of CCR,2004, there is no specific mention of reversal of input service credit reversal at the time of clearance of inputs and input services, except the amount of credit availed at the time of receipt of such inputs and capital goods.

When there is no specific provision, the departmental allegation is not sustainable.

You may also kindly the case law in case Chitrakoot chemicals citation of which is not readily available.

A word of caution : If the value of the input service demanded to reverse is below the value prescribed to file an appeal, then even if you fight for the possibility of success is very remote since the CESTAT would be dismissing the appeal in value terms and I had an experience with this type of issue when I was in working for a company where CESTAT was not considered the miscellaneous petition to consider the appeal on the ground of interpretation but not on value terms . In that case the demand of reversal of input service was Rs. less than 500/- only.

In case if the amount involved is very less, I suggest you to reverse the same without contesting since your efforts would not get succeeded.

Best Regards

Suryanarayana

[Ganeshan Kalyani]

Sri Surya Sir I agree with your views. I too have handled a situation where the amount involved was minimal but the objections of the revenue was not acceptable. However looking into the cost of litigation which would have cost me more that the disputed amount. Hence I had to pay the demand as raised by the department. Thanks.

[KASTURI SETHI]

Sir,

Sometimes one has to buy peace of mind at the cost of merit.

[Suryanarayana Sathineni]

Dear Kasturi Sethi Ji,

You are right sir,

When the right of appeal / system of remedy restricted in nature on value terms, the legitimate right of the assessee /appellants is getting defeated and in the present situation, we have no option but to live with the trend.

Best Regards

Suryanarayana

AI Summary

Input service credit need not be reversed when inputs or capital goods removed as such under Rule 3(5).
Rule 3(5) directs payment equal to credit availed for inputs or capital goods removed as such, and its language and tribunal practice treat the reversal obligation as applying to goods rather than to input services, so CENVAT on input services used in the factory need not be reversed when goods are removed as such.