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CENVAT Credit on Capital Goods

J R Madhusudan Rao (Manager) (24 Points)

11 March 2010

CENVAT Credit on Capital Goods can be availed for payment of Service Tax by the Service Provider. There are several conditions mentioned in Cenvat Credit Rules, 2004.But, is there a separate restriction in such availement that the service necessarily need to be provided using the said Capital Goods? In other words, can a Service Provider avail the CENVAT Credit on Capital Goods to set off the service tax liability arised in entirely different business, not at all connected with the Capital Goods procured?

Resolving this issue is little bit urgent for me. Help from the learned friends shall be highly appreciated

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6 Replies

Jeevesh Mehta (Advocate- Corporate Commercial & Indirect Tax Advisory) (861 Points)
Replied 12 March 2010

Mr Rao,

CENVAT Credit on capital goods can not be availed on the out services not connected with such capital goods. To claim such credit there has to be conection between the capital goods and the out put service either directly or indirectly. Complete isolation with the service provided is nt allowed.

Can contact me at jeevesh @ svalaw.com for further clarifications.

Regards

Gita Iyer (Specialist) (135 Points)
Replied 12 March 2010

for entirely different business CENVAT Credit cannot be claimed.....the service should be directly or indirectly connected to the capital goods....

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 12 March 2010

Originally posted by : Uday Kiran
	Dear Madhusudhan Rao, There is no such restriction under CENVAT credit Rules, 2004, so as to avail the credit earned on Capital Goods to pay for ST liability, for service provided using that particular capital goods only. You need no have any correlation between Capital Goods on which credit has been availed and the Output service provided . Even this is applicable for Inputs/Input Services, one to one relation is not necessary.

I also agree with Mr Uday Kiran on the above

Chintan Vasa (CA Final Student M.Com) (1241 Points)
Replied 12 March 2010

Dear all please refer the definition of Capital goods as per section 2 (a) of CCR, 2004 as under:

(a) “capital goods” means:—

(A) the following goods, namely:—

(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, ¹ [heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804] of the First Schedule to the Excise Tariff Act;

(ii) pollution control equipment;

(iii) components, spares and accessories of the goods specified at (i) and (ii);

(iv) moulds and dies, jigs and fixtures;

(v) refractories and refractory materials;

(vi) tubes and pipes and fittings thereof; and

(vii) storage tank,

used—

(1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or

(2) for providing output service,

From the definition it’s quite clear that capital goods have to be used for providing output service whether directly or indirectly. When the capital goods are not at all used for providing output service then how can we use the credit of the same?