Reversal of ED on Machine sent under CENVAT Credit Rule 4(5) (a) Challan

[Pradeep Jain]

Dear Sir,

Our Company having a Capital Goods (machine )20 years old . The same machine has sent for refurbishment on the basis of returnable challan under CENVAT Credit Rules4(5) (a). Time involve in refurbishment is around one year. Now after completion of 180 days do we need to debit excise duty under sub-clause (I) of CENVAT Credit Rules4(5) (a) .

Please advise.

Regards

Pradeep Jain

[Ganeshan Kalyani]

Sir, as per Rule 4 (5) of CCR 2004 - if the inputs or capital goods, as the case may be, are not received back within the time specified under sub-clause (i) or (ii), as the case may be, by the manufacturer or the provider of output service, the manufacturer or the provider of output service shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods, as the case may be, by debiting the CENVAT credit or otherwise, but the manufacturer or the provider of output service may take the CENVAT credit again when the inputs or capital goods, as the case may be, are received back in the factory or in the premises of the provider of output service. Thus you need to reverse the Cenvat credit. But since it is two decade now the condition of reversal of cenvat credit by 2.5% per quarter would not apply here. Thus in my view you have to pay Excise Duty on transaction value. This is my view. I also welcome views of my collegue experts. Thanks.

[KASTURI SETHI]

Sir,

Pl. go through Rule 4(5)(a)(ii) of Cenvat Credit Rules,2004. Period of return is two years. Also note the line for "or any other purpose".

[YAGAY andSUN]

On receiving back the capital goods, CENVAT credit of such duty can be availed. Recently CAG Department has objection that no interest is being paid on such scenarios. Their objection has been well taken in the Model GST Law wherein provision of payment of Interest is enshrined and on return back of goods/capital goods duty along with interest can be taken back.

[Ganeshan Kalyani]

Yes sir the provison of goods sent on returnable basis is incorporated in GST.

In present situation the assesse need to reverse the credit if the goods not received back within the given time period. And recredit is allowed once it is received back, but no provision in present tax provision about credit on interest. But in GST the same is proposed eligible. Thanks.

AI Summary

Reversal of CENVAT credit required when capital goods sent for refurbishment are not returned within the prescribed period. Reversal of CENVAT credit is required when capital goods sent on a returnable challan for refurbishment are not received back within the period prescribed; the manufacturer must debit the CENVAT credit or otherwise pay an amount equivalent to the attributable credit and may re avail the credit when the goods are returned. Administrative commentary highlights that interest on delayed reversal and re credit is not provided under current rules but is proposed to be addressed in GST.