Captive consumption

[NANDA H.L.]

Dear Experts

1. We manufactured one CNC machine & made captive consumption without payment of duty under notification No.67/95, manufactured in the year September 2012, valued at ₹ 7.05 lakhs. We have availed input credit of ₹ 35000.00 (including Cess)
2. During captive consumption we have made the self invoice & communicated to Range office with cost accountant certificate
3. Now we are planning to sell the same. Need a clarification, what is the duty to be charge & also duty availed on the inputs used to be reverse?

Please clarify.

[Ganeshan Kalyani]

The duty is applicable on transaction value. Thanks.

[KASTURI SETHI]

I agree with the reply of Sh.Ganeshan Kalyani, Sir. CE law is very much clear. Exemption for captive consumption under Notification No.67/95-CE dated 16.3.95 as amended is available only if duty is paid or payable on final product. Now after using the machine for more than three years, if machine is to be sold CE duty has to be paid on transaction value as advised by Sh.Ganeshan Kalyani, Sir.

[KASTURI SETHI]

In continuation of my reply dated 24.6.16, regarding the reversal input credit, when CE duty has been paid on final product (Machine is final product), the question of reversal credit does not arise.

[Rajagopalan Ranganathan]

Sir,

According to rule 3 (5A) (a) of Cenvat Credit Rules, 2004-

"If the capital goods, on which CENVAT credit has been taken, are removed after being used, 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 CENVAT Credit, namely:-

(i) 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%

 

(ii) 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.

(b) If the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty leviable on transaction value.]

[KASTURI SETHI]

Sh.Nanda H.L. Ji,

Rule 3 (5A)(a) of Cenvat Credit Rules, 2004 is not applicable here inasmuch the manufacturer did not pay CE duty on CNC machine because of its captive use in the manufacture of dutiable final product for three years. Thus they availed exemption from CE duty on CNC machine under Notification No.67/95-CE dated 16.3.95 as amended. No duty was paid (also mentioned in query), so no question of taking credit at the time of clearance for captive consumption and no question of reversal thereof. Needless to say if final product is exempt, exemption is not available under Notification No.67/95-CE dated 16.3.95 as amended. So the appropriate payment of CE duty on transaction value is only the requirement of CE law.. Machine has not become waste and scrap after use of three years only.

[Ganeshan Kalyani]

Thanks to Sri Kasturi Sir and Sri Rajagopalan Sir for submitting your valuable views. Thanks.

AI Summary

Captive consumption exemption: sale of a previously exempt capital good requires payment of duty based on transaction value. Sale of a capital good originally cleared under a captive consumption exemption without payment of duty triggers liability to pay excise duty on the transaction value; if CENVAT credit had been taken on the capital goods, an amount equal to the credit reduced by specified quarterly percentages must be paid on removal after use, but if that amount is less than the duty on transaction value, the duty on transaction value governs.