Ad-Free CAclubindia and Daily Updates on your mobile. Subscribe Now!

CENVAT Credit Problum..........its urgent plz.

Suraj Agarwal (Self Practitioner in Income Tax & GST) (782 Points)

07 May 2011

Mr. A purchased 25 computer system eligible as capital goods under the CENVAT Credit Rules, 2004, on 01.04.2009 paying a duty of Rs.2600 on each computer system. However, since these system become outdated, it sold 20 computer system out of 25 on 30.03.2011 at a residual value of Rs.2000 each. Detemine the amount of CENVAT credit required tobe reversed in the financial year 2010-11.

Please give your response with the supported working details.

Reply
Follow
Share

8 Replies

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 07 May 2011

Provided further that if the capital goods, on which CENVAT Credit has been taken, are removed after being used, the manufacturer or provider of output services shall pay an amount equal to the CENVAT Credit taken on the said capital goods reduced by the percentage points calculated by straight line method as specified below for each quarter of a year or part thereof from the date of taking the CENVAT Credit, namely:-

(a) for computers and computer peripherals:

for each quarter in the first year @ 10%

for each quarter in the second year @ 8%

for each quarter in the third year @ 5%

for each quarter in the fourth and fifth year @ 1%

(b) for capital goods, other than computers and computer peripherals @ 2.5% for each quarter.

Upgrade to CAclubindia Pro. Subscribe Now!

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 07 May 2011

2009-10 ....4 quarters *10% each quarter total 40%

2010-11.. 4 quarters *8% each quarter total 32%

total 72%

input credit 2600*72/100=1872

duty to be paid/reversed = 2600-1872= 728

Suraj Agarwal (Self Practitioner in Income Tax & GST) (782 Points)
Replied 07 May 2011

Hello Sir, Thanks 4 ur attention. But same this issue is covered in Nov.2010 CA final Exam as well as in RTP May 2011 issued by ICAI. At both places, our institute take different view in this regards. Now I hv 3 alternates for the IInd Proviso of Rule 3(5) of CENVAT credit rules. So please confirm me finally, because i am attempting this may 2011 exam.

Thanks in Advance.

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 07 May 2011

Originally posted by : Suraj Agarwal
	Mr. A purchased 25 computer system eligible as capital goods under the CENVAT Credit Rules, 2004, on 01.04.2009 paying a duty of 2600 on each computer system. However, since these system become outdated, it sold 20 computer system out of 25 on 30.03.2011 at a residual value of 2000 each. Detemine the amount of CENVAT credit required tobe reversed in the financial year 2010-11. Please give your response with the supported working details.

1) its mentioned in query "eligible as capital goods under the CENVAT credit rules 2004" so i dont put any question of admissibility, as computers are not qualified as capital goods in 90% cases, and to judge the admissibility we need flow chart of process done by Mr. A in his place of business and use of computer system there.

2) it is assumed that computers were put in use on very day from purchase,

the replies above are as per rules and laws subject to 1) and 2) above, i m not a student and have very limited idea of syllebus/ question patterns of ICAI, but at point of taxation and with CBEC i m confident about the admissibility of my reply.

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 07 May 2011

some places the books eleborate 50% credit taken in 1st and 50% credit in 2nd year, but its the rule of use of cenvat credit availed, side by side if the capital asset is transfered in two years 100% credit is available in 1st year, so depriciation rules are not adhared to the 50% its availed on 100% without any confusion.

Upgrade to CAclubindia Pro. Subscribe Now!

CA Prakash Rai (CA) (129 Points)
Replied 04 October 2011

Originally posted by : U S Sharma
	some places the books eleborate 50% credit taken in 1st and 50% credit in 2nd year, but its the rule of use of cenvat credit availed, side by side if the capital asset is transfered in two years 100% credit is available in 1st year, so depriciation rules are not adhared to the 50% its availed on 100% without any confusion.

Sir, I agree with your reply, its absolutely correct but i couldn't understand the 2nd line and onwards.. Could you please explain again in clear language.

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 04 October 2011

regarding the admissibility of input credit only the 50% in 1st year and balance in subsequent year applies, not about the capital asset value,

depriciation is allowed on capital asset value, not on input credit, hence the depriciation is to be claimed on goods value, irrespective of facts that input credit is availed in piecemeal or in single installment.

1 Like