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Regarding reversal of CENVAT credit on removal of capital go

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Dear Sir, Kindly clarify following point with respect to reversal of CENVAT credit: Suppose a machine is purchased on 01/04/2009 by paying Excise Duty of Rs. 1,00,000. Now the same machine is sold on 25/03/2010 after using in manufacturing of excisable goods. My questions are : 1. Whether 100% CENVAT credit can be claimed in year 2009-2010, because 100% credit is allowed in the year of purchase only when such capital goods are removed as such? 2. How much CENVAT credit will be available in year 200-2010 & 2010-2011? 3. How much CENVAT credit to be reversed on 25/03/2010 i.e. at the time of sale. Thanking you, Yours Truly, Kunal Agrawal

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5 Replies

C.A. Parin Poojara (Chartered Accountant) (90 Points)
Replied 03 August 2010

Hi Krunal,

As per the Rule-4(2)(a) of CENVAT Credit Rules 2004 we can claim credit Not exceeding 50% of the duties paid in the same F.Y. in case of Capital goods received during the year.

But 1st proviso to the said clause provides that the CENVAT credit in respect of capital goods allowed for the whole amount of the duty paid on such capital goods in the same financial year if such capital goods are removed as such in the same financial year.

that means in your case CENVAT Credit not exceeding 50% of Rs.1,00,000 of excise duty u can claim afterr 01/4/09 i.e the day of receipt as per Rule-4(2)(a). But on 25/03/10 u hav sold the said machine so as per proviso thereto u have to claim first balancing credit. i.e. to avail full amout of credit in that same year. And as per Rule 3(5) i.e if input or capital goods are removed as such or after being partialy processed than manufacture or provider of output services, shall pay an amount as equal to CENVAT credit availed thereof. So u have to reversed the by full amount as on the day of 25/03/2010.

Hance accoringly answer of your question is as under.

1.As per 1st proviso to Rule-4(2)(a) u can avail full credit in 2009-10

2. CENVAT credit available in 2009-10 is upto 50% as u have claimed earlier under Rule-4(2)(a) but afterwards u have to pay an amount equal to CENVAT credit availed thereof. As per Rule 3(5) u have to pay an amount in cash or by PLA if u have not enough credit in your CENVAT a/c otherwise by debiting in that a/c.

And in 2010-11 No CENVAT credit is available.

3. As per Rule-3(5) u have to reversed the amount u hav availed thereof. So as u hav availed the full credit, u have to reversed back that. i.e.100%.

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Prabhat Kumar (Advocate & Consultant) (1912 Points)
Replied 03 August 2010

1. Since you are not removing the capital goods as such, you can not take 100% of the credit in the year of purchase of capital goods, the upper limit for you is 50%.

2. You can take upto 50% in the year 2009-10 and remaining in the next financial year.

3. The capital goods on which cenvat credit has been taken are removed after being used, the credit is required to be reversed reduced by 2.5% for each quarter.

HS Negi (Senior Executive- F&A) (590 Points)
Replied 04 August 2010

Dear Mr. Kunal

Mr. Prabhat is correct. Please calculate the depreciation @ 2.5% quarter from the date of purchasing and deduct the amount from the assable vaule on which you have purchased. You should the pay the excise duty on the depreciated vaule.

Regards

Harendra Singh Negi

C.A. Parin Poojara (Chartered Accountant) (90 Points)
Replied 04 August 2010

Hi Krunal

I m agree with the Answer given by Mr. Prabhat sir as the Capital goods is not removed As such rather it is removed after being partialy processed. So proviso to Rule-4(2)(a) is as such not applicable..