CENVAT on Capital Goods lying in the factory but not in usable condition

[Ashok Chopra]

Dear Experts,

We purchased capital goods for the manufacture of Alloy Coated Sheet and availed CENVAT Rs. 32.00 Lac. Utilized the same in the clearance of ENTIRELY DIFFERENT PRODUCT in the same premises, same unit and name and style. Due to certain problems, we withdraw the idea of manufacturing Alloy Coated Sheet and bear a loss more than Rs. 5.00 crore on the development. The said capital goods was installed in the unit for trial production, but we could not produce the same due to technical error, the machinery is designed wrongly and  is not in PRODUCTION, even no single final product has been manufactured due to design problem and may not be in production or may be in production for the manufacture of any other dutiable final product  or job work but not now after a long time.  Central Excise Department is insisting to debit the said CENVAT alongwith interest.  What should i do? more than a period of four years has already lapsed.  Pls guide me accordingly

[JAMES PG]

As per Rule 4 (2) a & b of CCR, credit of CG to the extent of 50 % can be taken in the year of receipt and balance 50% can be taken in the next financial year subject to the condition that it is in possession of the factory. There is no condition that it shall be put to use.  Given below is the CBEC Circular dated 28.04.2006  which clarifies that the condition of usage of CG for availment of balance 50% is only for the period from 1.04.2000 to 9.09.2004. There are several judgements too in this regard,  (CCE Vs, V. Fiat India Pvt. Ltd.,' - 2009 -TMI - 34845 - (CESTAT, MUMBAI)

F.No.267/26/2006 – CX – 8

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise & Customs

*****

New Delhi, dated the 28^th April, 2006.

 To

         All the Chief Commissioner of Central Excise

         All the Commissioner of Central Excise

 Sir,

        Sub:-  Incorrect availment of CENVAT Credit on Capital Goods before use – Regarding.

***

        Attention is invited to the various audit objections raised by C & AG regarding incorrect availment of CENVAT Credit on Capital Goods wherein assessees had taken the initial 50 % of CENVAT Credit during the first year and the balance 50 % of CENVAT Credit was taken in the subsequent years even though the said capital goods were not put to use.

2.     The issue has been examined. The legal position has to be interpreted in the context of the wordings of the rule at the relevant time. As long as the word ‘use’ is specifically referred to in the rules, installation is a prerequisite to availment of the second installment of CENVAT credit. Accordingly, the audit objections have been accepted for the period 01-04-2000 to 09-09-2004. It is, therefore decided that during the period 01-04-2000 to 09-09-2004, the balance of 50 % of CENVAT credit cannot be allowed in the subsequent year unless the capital goods are put to use and mere possession is not enough. The Board desires that immediate action should be initiated for recovery of Credit wherever it is taken irregularly.

3.     The outcome of such action should be reported within three months from the receipt of this letter.

 Yours faithfully,

Sd/-

(Rahul Nangare)

Under Secretary (CX-6&8)

 Copy forwarded for information:

1.                All Director Generals / Directorates under Central Board of Excise and Customs

2.                All Chief Commissioners of Customs / Customs (P).

 

AI Summary

CENVAT on capital goods: balance credit may be denied if goods remained unused during an earlier regulated period, enabling recovery. CENVAT on capital goods: Rule 4(2)(a)&(b) permits taking an initial portion of credit in the year of receipt and the balance in the next financial year if the capital goods are in the factory; possession, not use, is generally sufficient. A CBEC circular dated 28 April 2006 clarified that during the earlier period when the rule expressly required 'use', the balance credit could not be allowed unless the goods were put to use, and recovery was directed for credits availed irregularly in that period.