Reversal of Cenvat Credit - Capital Goods

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

15 June 2010 Capital Goods were removed (not as a scrap) in the 2nd year of purchase after having used it. In the first year 50% of Cenvat Credit availed. The assessee wants to avail the remaining 50% in the next year and then calculation for reversal according to Rule 3(5) of CC Rules is made. Can he do so? As the capital Goods were removed in the immediately next year of purchase and the Capital goods were not in the possession of the assessee during that FY i.e. the 2nd year. Whether the entire remaining amount of CC of 50% has to be reversed or reversal has to be made by reducing the amount of duty by 2.5% quarterly basis.

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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15 June 2010 First You have to take credit remaining 50% then , for payment of duty you can reduced the total duty amount by 2.5% quarterly basis.
i.e Total Duty - 2.5% of total duty multply by Totla no. of quarter.
= duty payable

Querist : Anonymous

Querist : Anonymous (Querist)

15 June 2010 But my Query is that in the second Financial year capital goods are not in the possession of the assessee. According to Rule 4(2) if capital goods are not in the possession of the assessee then CC will not be available. I think remaining 50% CC on CG in the 2nd year will have to be reversed

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CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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15 June 2010 As soon as next financial year starts, 50% credit is available to assesse.
Now entry is passesd
Cenvat on Capital Goods availed Dr.
To Cenvat on Capital Goods to be availed.

Afterwards, as soon as you have removed machinery , you have to pass entry for duty reversal or duty payable.

Querist : Anonymous

Querist : Anonymous (Querist)

15 June 2010 My query is still answered , Sir.
How much credit has to be reversed/payable in the second year

Querist : Anonymous

Querist : Anonymous (Querist)

15 June 2010 as the CG is not in the possession of the assessee at the time of removal , whether the entire 50% credit shall be reversed?

ajay taneja

ajay taneja (Expert)
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15 June 2010 On 1st day of April you will avail benefit of remaining 50% and thereafter you will reverse the amount of equal to duty payable.

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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15 June 2010 Answer for duty payable or reversal in 1st Reply aslike below

First You have to take credit remaining 50% then , for payment of duty you can reduced the total duty amount by 2.5% quarterly basis.
i.e Total Duty - 2.5% of total duty multply by Totla no. of quarter.
= duty payable

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Querist : Anonymous

Querist : Anonymous (Querist)

15 June 2010 But Rule 4(2)(b) states as under :
The balance of CENVAT credit may be taken in any financial year subsequent to the financial year in which the capital goods were received in the factory of the manufacturer, if the capital goods, , are in the possession of the manufacturer of final products, or provider of output service in such subsequent years. Since the goods are not in the possession of the assessee in the 2nd financial year, why should not the entire amount of credit (50%) taken in the 2nd year be reversed.

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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16 June 2010 As soon as next financial year starts, 50% credit is available to assessee on 1st April
Now entry is passesd
Cenvat on Capital Goods availed Dr.
To Cenvat on Capital Goods to be availed.

Even if you have sold machinery on 1st April you have to take credit balance 50% .
Afterwards, as soon as you have removed machinery , you have to pass entry for duty reversal or duty payable.

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