Whether Cenvat Credit of CVD paid on imported Capital goods is admissible or entitled to output service providers.

[samiuddin ansari]

Sir,

Recently, audit was conducted to my friends firm providing taxable services, audit team objected of taking cenvat credit of CVD paid on imported capital goods supplied by registered dealer and citing that second proviso to Sub rule 2(a) of Rule 4 of the Cenvat Credit Rules, 2004 stipulates that the cenvat credit of the additional duty leviable under sub-section (5) of Section 3 of the Custom Tariff Act, in respect of capital goods shall be allowed immediately on receipt of the capital goods in the factory of a manufacture. As per my understanding, it should be read harmoniously as sub 2(a) of the said Rule clearly says that the Cenvat credit in respect of capital goods received in a factory on 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 50% of the duty paid on such capital goods in the same financial year. In fact, firm has taken only 50% of the credit in respective financial year. It appears that the above lines specifically allows credit to provider of output service also. Please throw some light on this issue with supportive case laws, circulars, clarifications, etc. by Boards, if any.

[KASTURI SETHI]

Credit is allowed. The audit team has missed the words, "or in the premises of output service provider". Credit on capital goods lying outside the premises of the taxable output service was also allowed during pre-GST era. When law is clear, no need of any case law or Board's circular.

Show the audit team the relevant provision of Rule 2(a) Credit Rules, 2004. It is very much clear.

[samiuddin ansari]

Sir, Second proviso to sub rule 2(a) of Rule 4 of Cenvat Credit Rules, 2004 does not talk about output service provider, but it says about only a manufacturer. Hence, audit is strictly adhered to statutory words and instructed to reverse the credit of CVD availed on Capital goods. We solicit your guidance backed by circular or case laws.

[KASTURI SETHI]

Dear Querist, O.K. I shall try my best to trace out case law, circular etc. in your support

[YAGAY andSUN]

Credit of ADC can be taken at 100% immediately after the receipt of Capital Goods by the manufacturer. But this credit cannot be used for payment of output services. ADC is not allowed the service provider.

[KASTURI SETHI]

Dear Querist,. After posting reply by M/s.YAGAY and SUN, Sirs, I have discontinued my efforts to trace out case law, circular etc. Now no room for any doubt.