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Passing Duty - Sale of Capital Goods

K Vinod Kumar (Manager-IT) (43 Points)

28 July 2009

Sir, We had purchased a Forklift in the year 2007-2008. Now we want to sell this. Do we have to pass the full CENVAT credit availed to the new buyer? What is amount we have to pass? This was purchased when the Excise Duty was 16%. Now it is 8%. What would be our assessable value? Should the assessable value and the sale value be the same? Is there any format for invoicing of capital goods? This is the first time we are coming across such a situation. Kindly advice. Regards Vinod

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7 Replies

sanjoy (chd) (30 Points)
Replied 28 July 2009

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Rajesh Kumar (Advocate- Tax) (7806 Points)
Replied 29 July 2009

It will be cleared on the usual excise invoice.Sale value will be the actual transaction value, value on which you are selling.Duty will be the amount of cenvat credit taken.

Say you brought the goods for Rs. 100, and took credit of Rs. 16. Now you are selling for Rs. 75. The invoice will be showing sale value as 75 and duty as Rs. 16.

If the capital goods has been used, there is depreciation in duty required to be reversed (in that case it will less than 16) as per cenvat credit rules.

K Vinod Kumar (Manager-IT) (43 Points)
Replied 29 July 2009

Thank you sir. Do we have to specify anywhere in the invoice that this is a Capital Goods? How will this entry be shown in the ER-1 report? What should be its assessable value shown as?

Regards

Vinod

Rajesh Kumar (Advocate- Tax) (7806 Points)
Replied 29 July 2009

You are not required to specify that the goods are capital goods. In fact I will take this opportunity to explain the basics, which will explain the things.

Invoice is for the purpose of doing commercial transaction. You should write on the invoice all those things which you need to write for the purposes of commerce. It is just that on such goods some amount of duty is payable, that has to be calculated. Rule 3(5) of the Cenvat Credit Rules says that when input or capital goods are cleared as such, the amount of credit taken is to be reversed. Thus, the 16 rupess credit taken is to be reversed. The second proviso of the Rule says that if the capital goods are removed after being used, the amount of duty paid is equal to cenvat credit reduced by 2.5% each quarter or part of quarter.

It will shown in the ER-1 as credit utilised on removal as such (para 8, row 12 of ER-1).

There is no assesable value in this case. At the place of rate of duty where you writes ( @ 8%), write [under Rule 3(5) of Cenvat Credit Rules], which will clarify the things.

CA.Aakhilesh (C.A. ) (403 Points)
Replied 30 July 2009

hiiii..................cenvat credit on capital goods shall be taken not more than 50% on the receipt of capital goods and balance credit take to subsequent year of asset pur. year..........in ur case u can take only 50% of credit because after one year u sell the capital asset.and there is no issue abt the duty rate..........u can claim duty paid on capital good but only 50%.

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R.Sankaranarayanan (Indirect Tax Executive) (163 Points)
Replied 04 January 2011

Hi,

If capital goods are cleared after use as second hand capital goods, duty is payable at reduced rate by reducing credit taken @ 2.5% per quarter.

Thus,

1. find the date of purchase of the capital equipment proposed to be disposed off.

2. Identify the Cenvat credit availed during the whole period

3. Apply the following formula to calculate the duty to be discharged.

Amount of duty to be discharged = (Total CENVAT credit availed for the said capital equipment) - (4 X No. of years of holding period X Cenvat Credit availed X 2.5%)

However, amount of duty to be discharged will be zero, if the figure turns to be negative.

Pralay Chakraborty (Service) (482 Points)
Replied 10 March 2011

Originally posted by : R.Sankaranarayanan
	Hi, If capital goods are cleared after use as second hand capital goods, duty is payable at reduced rate by reducing credit taken @ 2.5% per quarter. Thus, 1. find the date of purchase of the capital equipment proposed to be disposed off. 2. Identify the Cenvat credit availed during the whole period 3. Apply the following formula to calculate the duty to be discharged. Amount of duty to be discharged = (Total CENVAT credit availed for the said capital equipment) - (4 X No. of years of holding period X Cenvat Credit availed X 2.5%) However, amount of duty to be discharged will be zero, if the figure turns to be negative.