Passing of cenvat credit

This query is : Resolved

Guest

Guest (Querist)

25 November 2010 Whether ultimate buyer will get CENVAT credit in following case and if yes, how?

Example
There are three party involved in transactions.
A (based outside india and trader)
B (Based in india manufacturer)
C (ultimate buyer based in india)

Suppose A buys excisable goods from B and sales it to the C.

B invoiced to A and A invoiced to C.

Goods directly moved from B to C.

Madhukar N Hiregange

Madhukar N Hiregange (Expert)
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27 November 2010 C shouldbe marked as the consignee in As invoice. Alternatively B shouldbe registered as a delaer under central excise and pass on the duty to C in thefomr of invoice.

Guest

Guest (Querist)

27 November 2010 Dear sir

A is the foreign company and as per my view the transaction will be of following nature and in that case how cenvat can be passed on;
Purchase by A from B is Export for B
Purchase by C from A is Import for C

However the goods are moving inside the country only..

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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09 August 2024 In the scenario described, where there are three parties involved and goods are moving directly from a manufacturer (B) to the ultimate buyer (C) with an intermediary trader (A) based outside India, understanding how CENVAT credit applies can be complex. Let's break it down:

### **1. Understanding CENVAT Credit in the Context of the Scenario**

**Key Definitions:**
- **CENVAT Credit**: Credit of Excise Duty paid on inputs or capital goods which can be used to offset the excise duty liability on final products.
- **Exporter**: A person or entity who sends goods out of India.
- **Importer**: A person or entity who brings goods into India.

### **2. Transaction Breakdown:**

1. **Transaction from B to A**:
- **B** (Indian Manufacturer) sells goods to **A** (Foreign Trader).
- This sale is an **export** from the perspective of **B**, and thus it is **zero-rated** under GST laws. B will not charge any excise duty or GST on this sale.
- Since the sale is zero-rated, B can claim a refund of the excise duty or GST paid on inputs used to manufacture these goods.

2. **Transaction from A to C**:
- **A** (Foreign Trader) sells goods to **C** (Ultimate Buyer, also based in India).
- This is considered an **import** of goods by **C**. Import of goods attracts Customs Duty and Integrated Goods and Services Tax (IGST) under GST.

### **3. How CENVAT Credit is Passed:**

**3.1. Credit at Manufacturer Level (B):**
- **B** (Manufacturer) will not charge excise duty or GST on the goods sold to **A** because it is an export transaction.
- B can claim a refund of the input tax credit or CENVAT credit on the excise duty paid on inputs used in the manufacturing of these goods.

**3.2. Credit at Importer Level (C):**
- **C** (Ultimate Buyer) will pay Customs Duty and IGST at the time of import.
- The IGST paid on imports is eligible for credit. This means **C** can claim Input Tax Credit (ITC) of the IGST paid on the import of goods.

**3.3. Role of Intermediary (A):**
- **A** (Foreign Trader) does not charge GST or excise duty but is involved in the transaction. The primary concern for **A** is ensuring compliance with export regulations and receiving the correct export documentation to support the zero-rated sale.

### **4. Key Points for Ultimate Buyer (C):**

1. **Receipt of Goods:**
- Since the goods are directly shipped from **B** to **C**, **C** should ensure that the import documents are correctly maintained.

2. **Claiming Input Tax Credit:**
- **C** can claim the ITC of IGST paid on import. This ITC can be used to offset against the output tax liability under GST.

3. **Documentation:**
- **C** needs to ensure they have the proper import documentation, including the bill of entry and proof of payment of customs duties and IGST.

### **5. Practical Considerations:**

- **Compliance**: Ensure all documentation related to the import and the zero-rated export is in order to support the claim for CENVAT or GST credit.
- **Refunds**: If **B** has claimed a refund on input tax credit, **C** should not face issues in claiming ITC on IGST paid on imports as long as documentation is properly maintained.

### **Summary:**

- **B** (the manufacturer) can claim a refund of the excise duty or GST paid on inputs used in manufacturing since the sale to **A** is zero-rated.
- **C** (the ultimate buyer) will pay customs duty and IGST at the time of import. **C** can claim ITC on the IGST paid on imports.

Thus, CENVAT or GST credit in this scenario is primarily managed through the import process, where the ultimate buyer can benefit from the input tax credits on the duties and taxes paid at the time of import.