- Excise law and rule is expalin to understand
Provision for Slow Moving Inventory
· Rule 3(5B) of the Cenvat Credit Rules, 2004 (“Credit Rules”) states that if the value of any input or capital goods before being put to use, on which Cenvat credit has been taken of written off fully or partially or where any provision to write off fully or partially has been made in the books of account then the manufacturer or service provider, as the case may be, shall pay an amount equivalent to the Cenvat credit taken in respect of the said input or capital goods.
· As per proviso to Rule 3(5B) of the Credit Rules, if the said inputs or capital goods are subsequently used in the manufacture of final products, the manufacturer will be entitled to take the credit of the amount equivalent to the Cenvat credit paid earlier.
· The intention behind the above provision is to bar the availability of Cenvat credit on such inputs and capital goods which are not proposed to be used in the process of manufacture due to their obsolescence or defects.
· In the instant case, We proposes to create a provision in respect of its slow moving inventory of inputs in its books of accounts. This is because of the reduced demand of the final products which are manufactured using such inputs. The finished goods/inputs in this case are not obsolete in nature.
· Since such inputs are fit to be used in the manufacture of the final products and are not obsolete, Rule 3(5B) is not applicable. Hence, there is no requirement to reverse the credit on such inputs.
Credit on Damaged Goods
Inputs damaged in stores
· Rule 3(5) of the Credit Rules provides that when inputs or capital goods, on which Cenvat credit has been taken, are removed as such from the factory, or premises of the provider of output service, the manufacturer of the final products or provider of output service, as the case may be, shall pay an amount equal to the credit availed in respect of such inputs or capital goods.
· In the case, Asahi India Safety Glass Limited Vs. Union of India reported at 2005(180) E.L.T. 5 (Del.), the High Court dealt with the availability of credit in two scenarios of which in one, the raw materials, i.e. the float glass, was found to be damaged on unpacking the wooden boxes in which such float glass were received from the suppliers. It was held that no cenvat credit could be availed on such float glass on the ground that the same could not be used in the manufacture of final products.
· In the given case, the inputs were found to be damaged within the stores thereby, making them unfit for use in manufactured. Subsequently, they were removed as such from the stores.
· In view of the above , since the aforesaid raw materials have not been used in the manufacture of final products, credit taken on such inputs is required to be reversed under Rule 3(5) of Credit Rules.
Inputs damaged post issuance to production floor
· Further, Asahi India Safety Glass Limited Vs. Union of India (supra) also dealt with the issue of availability of cenvat credit wherein the goods were found to be damaged on the float table subsequent to being cut, broken and washed. It was held by the High Court that the manufacturing process began with loading of the float glass sheet on the float table where the cutter is used to cut the glass to size. Therefore, giving wider connotation to the phrase “in relation to manufacture”, such goods shall be said to be used in relation to the manufacture of final products i.e. the safety glass.
· In the case at hand, the inputs were found to be damaged at the production floor subsequent to being issued for production and thereafter, scrapped and removed from the factory. In light of the aforesaid decision, it can be said that the manufacturing process began at the stage of issuance of such inputs for production. In view of the above decision, the inputs in question can be said to be used in the manufacturing of the final products and thus, have not been removed as such. Therefore, there is no requirement of reversal of credit taken on these inputs under Rule 3(5) of Credit Rules. Further, since the inputs have been used in manufacture, the same are required to be removed on payment of applicable excise duty.
“Provision for Slow Moving Inventory”and forget to read out if the value of any ,
- Input, or
- Capital Goods before put to use, on which CENVAT Credit has been taken is
- Written off fully or
- Where any provision to write off fully has been made in the books of account then the manufacturer or service provider shall pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods.
However, if the said input or capital goods is subsequently used in the manufacture of final products or provision of taxable services, the manufacturer or output service provider shall be entitled to take the credit of the amount equivalent to the CENVAT Credit paid earlier subject to the other provisions of these rules.”
In nut shell conclude not any excise liability attract thereon and request to consider above said facts and reply drop down Audit Para’s and settled. It is crystal clear that we have not made any provision for write off of inputs during the year 2016-17.
Regards
Uma Shankar
CAclubindia
