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Clarification on CENVAT Credit

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

28 April 2011

A capital asset has been purchased on 01-07-2007 for duty paid of Rs.263680/-. It is disposed of on 30-09-2009 as such. Now problem is what amount payable towards cenvat credit already taken at the time disposal ?

As per my view,

Total CENVAT credit 263680
Less:Abatement(2.5%*9)=22.5% 59328
Amt. payable 204352

Is it valid in law ?? If not, plz. reply in detail .

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13 Replies

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 28 April 2011

yes the calculation is right

1 Like

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Murthy B.C (Excise Officer) (141 Points)
Replied 28 April 2011

Helo Dear

U can avail 2.5% Depriciation per quater,

Amit (Accountant) (261 Points)
Replied 28 April 2011

Your calculation is right. Just check out the following for info...

If capital goods (other than computer and computer peripherals) on

which Cenvat credit is claimed are removed after use, the

manufacturer / service provider is liable to pay an amount equal to

Cenvat credit taken as reduced by 2.5% for each quarter of a year

from the date of taking Cenvat credit [Proviso to Rule 3(5) of CCR].

SAMAR JEET SINGH (CA) (72 Points)
Replied 28 April 2011

Yes your calculation is correct and valid in law.

Refer "CENVAT Credit Rules,2004" Rule 3(5)

Which creates liability on removal of Capital Goods after use by manufacturer to pay amount equal to CENVAT Credit taken earlier after reducing amount equal to 2.5% per quarter or part thereof from the date of taking the CENVAT Credit.

1 Like

Pavan Bharadwaj (Practicing Chartered Accountant) (353 Points)
Replied 28 April 2011

Your calculation is correct.

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CA AJAY KUMAR AGRAWAL (PRACTICE) (815 Points)
Replied 28 April 2011

In my opinion ur calculation is WRONG, as the assets has been cleared as such. Had it been cleared after use, ur calculation was correct and u could avail abatement. In ur present case you have to reverse amount equal to CENVAT Credit taken. In case the assets is sold as scrap, then amount is payable on transaction value. Plz check again.

Alok Agarwal (Partners) (144 Points)
Replied 28 April 2011

Agree with Ajay.

Since the Capital Asset is removed as such, an amount equal to cenvat credit taken should be reversed. Use for even one day shall be deemed to be used capital goods. Hence, you can remove them as used capital goods and get the benefit of reduced reversal of credit.

Regards.

CA Chintan Vyas (Chartered Accountant) (116 Points)
Replied 28 April 2011

Disposed off after Use :

calculation of suraj is correct

Disposed off "As Such":

ajay is correct

1 Like

Suraj Agarwal (Self Practitioner in Income Tax & GST) (782 Points)
Replied 29 April 2011

Thanks to All persons 4 the responses, but this problum is taken from Nov.2010 CA Final IDT Exam paper Question No. 2(c). & there is a different view of our respected Institute in the suggested answer which is as follows :-

Total CENVAT Credit available 263680

Less: Amount of reduction

(i) Ist Year 50% (131840 x 2.5%) x 9 quarters 29664

(ii) IInd Year 50% (131840 x 2.5%) x 6 quarters 19776

Amount Payable on Disposal of Machinery 214240

So which approach will be valid in law.............??

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 29 April 2011

depriciation does not relate to the the % of cenvat credit availed, as cenvat credit utilization is barred by 50% but capital goods is used 100% from the date of taken in the assesee premises.

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Rajesh Kotkar (Company Secretary) (68 Points)
Replied 29 April 2011

Dear All,

We had supplied material to one customer on Excise gate pass at higher price, later on customer has raised an debit note including excise duty, we told customer they can availed excise duty and raised debit note only for the diferential amount excluding excise duty.

My queries are :

1) Since we have debited duty payment whether customer can availed full cenvat credit?

2) Whether we can avail cenvat credit based on debit note or we can pay short duty to the extent of debit note.

Please help me out.

Regards.

Rajesh K

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 29 April 2011

1) you have not mentioned the time gap between the issue of invoice and debit note, and regular nature of discounts viz time discount, volume discounts, cash discounts , are to be considered at the time of making invoice, not at later stage.

2) ask the buyer to issue a certificate that they have have not availed the input credit to the extent of price reduction and get it certified from their range superintendent, on the strength of this document u can take the credit back.

3) debit note / credit notes are not a valid instrument for indirect taxes, these are accounting add on not the taxation,

4) if the buyer is of regular nature, then ask the buyer to accept the invoice as it is, and adjust the value in your next invoice( this will make the issue less complex)

CA-NISHIT SHAH (Finance Controller) (115 Points)
Replied 30 April 2011

Dear Suraj

Institute suggested answer is wrong. If Capital goods removed as such then reverse whole amount of Cenvat Credit taken as per rule 3(5) and if removed after using then reverse such amount reduced by 2.5% per quarter. If used Capital goods removed before 2 years then allow to take full cenvat credit and then reduced by 2.5% per quarter.

CA Nish*t Shah