UTILIZATION OF CENVAT CREDIT

[RAMARANJAN MOHANTY]

We are the manufacturers of Pipes having plants at X in U.P, Y in Gujarat and Z in Karnataka.  The units at X , Z and Y are under Domestic Tariff Area (DTA).  We have accumulated Cenvat Credit balances in X and Z Units on account of reduction in Excise rates in the earlier years and also discharging the liability under Rule 6 (3) of Cenvat Credit rules.  We are contemplating to utilize the unused Cenvat credit balance at X and Z units.  We have the following proposals in our mind for which we need your detailed guidelines and legal tenability of the proposal.

Proposal -1

a)         We will be getting the export orders in the name of X and Z Nits..

b)         The Raw Material for the same shall be procured in the name of X & Z units.

c)         Advance Lincences shall be taken in the name of X & Z units and Y unit as supporting manufacturer.

d)         The Raw materials will be imported in the name of X and Z units making Y in the invoice as notified party.

e)         We will intimate the Y Range as per Notificateion No.214/86 Ex dated 25.03.1986 for carrying out the Job Work in the Y unit.

f)         X and Z units will also take permission under Rule 4(6) of the Cenvat Credit Rules 2004 for direct removal of pipes manufactured at Y on Job Work basis and under Notification No.214/86 for export.

g)         ARE-1 will be prepared at Y in the name of X/Z unit.

h)         All export documents will be made in X and Z units as the case may be.

i)          Y unit will raise invoice for job work charges with reference to the Job work challan.

j)          X and Z shall raise the Excise invoice after charging the Excise duty under Rule 18 of Cenvat Credit Rules 2002 under rebate of duty on finished goods (pipes) only by utilizing the Cenvat Credit lying unutilized.

k)         X & Z units will file the rebate claim of Excise duty under Rule 18.

 

Proposal- 2

 

a)         X & Z unit will purchase the Raw Material by its own for domestic orders received by it

b)         X & Z unit will send the Ram Material directly from the suppliers end to Y for carrying out the manufacturing activity of pipes underNotification 214/86.

c)         X and Z units will discharge the Excise duty liability on the Finished Goods i.e sale of pipes to the customers utilizing a portion of the cenvat credit on the value addition.

d)        Unit Y will charge the Job work Charges without any ED or service Tax to X&Z units.

 

Proposal -3

Any suggestions/proposals as you may deem fit.

We need detailed procedure from your end for utilizing the unutilized cenvat credit balance lying at our X & Z units

[YAGAY andSUN]

Please go for LTU registration.  All you problem pertaining to accumulation of CENVAT credit and Utilization will be sorted out after getting the LTU registration.

AI Summary

Cenvat credit utilization via job work and rebate for exports may require LTU registration for operational viability. The note analyses proposals to utilize accumulated Cenvat Credit at principal manufacturing units by routing export and domestic production through a job-worker unit: for exports, advance licences and imports are to be in the credit-holding units' names with the job-worker notified under Notification No.214/86, direct removal permission under Rule 4(6) obtained, ARE-1 prepared at the job-worker site and rebate claims filed under Rule 18 using unutilized credit; for domestic sales raw materials are sent to the job-worker and excise on finished goods discharged by the principal units using Cenvat Credit, with job-work charges invoiced without excise or service tax. The advisory suggests LTU registration to resolve accumulation and utilization issues.