Availment of Cenvat Credit on Capital Goods

[HImanshu Singh]

Respected Members, I would Like to ask a query relating to CCR on Captal Goods:

1. A Factory Purchased the duty paid capital goods during the period when it was availing an exemption, due to exemption factory did not availed the CCR on capital goods as its final products were Exempted.

Subsequently Govt. withdrew the said exemption and all the final products become duitable, in that case whether factory can avail the CCR on Capital Goods which were purchased during the period of exemptions as the capital goods are continued to be used in the factory? If Yes then what will be time limit for the same?

2. A factory Manufacturing Taxable and exempted both types of final Products, it purchased a capital goods which is commonly used in manufacturing of both taxable and exempted Products. Whether CCR can be availed and utilized for payment of Excise duty on Dutitable Products? If Yes then what will be time limit for the same?

Please give your valuable comments on the same.

[YAGAY and SUN]

Now in both the scenarios you can avail the CENVAT credit provided capital goods should not be used exclusively in manufacturing of Exempted Goods. It is now a settled legal position.

[HImanshu Singh]

Dear Sir, Thanks for your Valuable reply.

1. Capital goods purchased in 2011 during which exemption was available and Govt withdrawan the exemptin in 2015, can Cenvat be availed in Sep-2016?

2. Please tell me within how much time can i avail the CENVAT Credit?

3. Is there any specific Rule / Section which contains the provisions in this matter or is there any Case Law decided by Courts or CESTAT?

[YAGAY and SUN]

The restriction of one year to avail the CENVAT credit is not applicable on Capital Goods.

Please check CENVAT credit Rules on Capital goods. Further there are various good judgements on this matter. You may dig out from TMI.

[PRANAB PANDA]

in this case you can avail 100% Cenvat credit on capital goods.

[KASTURI SETHI]

In support of the views of M/s. Yagay and Sun, experts, read para no. 4.1.5 (i) of CBEC letter DOF No.334/15/2014-TRU dated 10.7.2014

[CSSANJAY MALHOTRA]

Dear Friends,

I have difference of opinion here.

CENVAT Credit shall not be available on Capital goods under Rule 6(4) if the same are used exclusively in the manufacture of Exempted goods other then the exemption granted on basis of value of quantity or clearances during F.Y.

The above said Rule 6(4) has been amended vide Notification No. 13/2016-CE dated 01.03.2016 to provide CENVAT ineligibility for first 2 years.

Secondly, CENVAT Credit is available if a person manufactures taxable and exempted goods. Full CENVAT is available, but to claimed equally in 2 years.

[Ganeshan Kalyani]

Sir, in my view the service tax credit is not eligible. This is because when the capital goods was purchased the manufacturing was of exempted goods exclusively. It is only after exemption was withdrawn the manufacturing started of both exciseable and non excisable. Thanks.

[MADAN RAHEJA]

Dear Sir,

In confirmation of views expressed by Sh. Sanjay Malhotra, please refer to decision of Tribunal in the case of M/s Andhra Polymers Ltd reported at 2016 (332) E.L.T. 831 (Tri. - Bang.) = 2015 (10) TMI 1684 - CESTAT BANGALORE

[CSSANJAY MALHOTRA]

Dear Madan ji,

Thanks for sharing the case law. I have simply referred to basic provisions of CCR 2004 and your goodself have validated the same with case law. It adds to our knowledge too as I rarely go by case laws instead of facts.

[KASTURI SETHI]

Sh.CS Sanjay Malhotra Ji,

Sir, The case law cited by Sh.Madan Raheja pertains to the very old period and hence not relevant in present scenario in view the period involved in the query. However, I agree with your views as additional legal information which also fits into the query and another aspect interconnected with the reply sought for. Your reply has enriched my knowledge also.

[CSSANJAY MALHOTRA]

Dear Sh. Kasturi ji,

Case law shared by Madan ji stands valid till the Notification No 13/2016-CE dated 01.03.2016 has come into effect. I have personally represented this case to CBEC through various council when budget exercise for 2016-17 was going on to provide sunset clause for availing exemption on capital goods as the unit has to once come out of exemption ceiling.

Further as the capital goods life even range from 5-15 years in majority of cases, person should not be deprived of CENVAT credit for lifetime, i.e. why the Board has inserted sunset for 2 years in Notf No. 13/2016-CE dated 01.03.2016

 

[Ganeshan Kalyani]

Sir, reduced credit may be allowed. That is when the capital goods was purchased the final product was exempt hence credit was not allowed. When exemption was withdrawn then the provision allows to take propotionate credit. But since initially the condition was not fulfilled and later on the condition got satisfied the credit would be reduced for the differnatial period. This is my view. Welcome views of expert on this. Thanks.

[CSSANJAY MALHOTRA]

Dear Friends,

When the unit is availing exemption, then the Capital Goods sourced are capitalised in books of accounts by the assessee and accordingly depreciation is claimed, which must have been done in this case also. Rule 4 of CCR provides that no CENVAT is allowed if depreciation has been allowed on excise duty.

Have seen practically that the goods are capitalised and depreciation is availed on excise duty part as none knows that Govt would withdraw the notification one sudden day.

[Ganeshan Kalyani]

Sir, very valid point you have observed. It is actually practised in the industries. That is if credit is not eligible then the tax portion is capitalised along with the capital goods value.

The querist have to check this very crucial point, otherwise all the discussion would be of no use. Thanks.

[HImanshu Singh]

Dear Sir, Factory had not Claimed the Depreciation as the factory is wholly owned govt factory.

If proportaniate CCR is to be allowed, whether any case law in supporting of the same?

[Ganeshan Kalyani]

Sir, not the factory but the capital goods. Whether that has been capitalised with service tax or not. Thanks.

[CSSANJAY MALHOTRA]

Sh. Ganeshan ji, you are right. Depreciation on Capital goods and not Factory.

1. Cenvat credit is not available If depreciation availed on Excise duty. If depreciation not claimed 2. Avail credit as per rule 3(5A)(a). Example: ED on CG rs.100. CG purchased on 1.04.2011. exemption withdrawn on 31.03.2015. ₹ 100 - ( 100 Rs x 2.5% x 16 quarter) = 60 Rs. You can avail credit of 60 Rs

I am P.S.SUNTHARRAJEN working as Manager/Taxes & Law in a private Company.I am new to this forum.I have studied the query of Mr.Himanshu Singh and also gone through the expert views of other members.My opinion is as below:As per Rule 4(2)(a) "The CENVAT credit in respect of capital goods received in a factory or in the premises of the provider of output service at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent. of the duty paid on such capital goods in the same financial year:"No other condition stipulated for availing Credit on Capital Goods.Whether the output product is exempted or dutiable,the position of availing capital goods credit will not change.If the output is exempted,you cannot utilize the credit and keep the same.Rule 6 of cenvat credit rules will not apply to capital goods credit.So in my opinion this assesee would have availed the credit on the year of purchase itself.However he can even now avail the credit fully.

AI Summary

Cenvat credit on capital goods: available when not exclusively used for exempted output; timing and proportion governed by Cenvat rules.
Cenvat credit on capital goods bought during an exemption is permissible when the goods are not exclusively used for exempt supplies; the one year restriction does not apply to capital goods. Credit is barred where depreciation has been claimed on the excise component. Relevant Cenvat Credit Rules govern timing and proportionate quantification of credit, and both Board circulars and Tribunal decisions (noted by contributors) bear on temporal eligibility, with Notification No.13/2016 CE introducing a limited ineligibility window.