Cenvat credit on capital goods.

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Shrikant (Querist)
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22 October 2016 Hello All,

A Pvt. Ltd co. has factory in Non excisable Zone. It is enjoying excise duty holiday from last 5 years.
Now, as 5 years are completed of tax holiday it will be liable to pay excise.

My Query is
1. Can the co. take excise duty credit on capital goods which were purchased in tax holiday period.
2. What will be the conditions to avail the credit on such goods.

Please share the Section/Rule if any for such situation.

Arun Kumar Singh

Arun Kumar Singh (Expert)
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30 November 2016 Yes, you can avail the 100 percent cenvat credit on capital goods purchase at the time of exemption period with payment of excise duty.

Shrikant

Shrikant (Querist)
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01 December 2016 Thanks Arun Sir,

Can you please tell ,under which rule or section i can get credit. So that i can go through the section/rule.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)
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19 July 2024 In the situation where a Private Limited company has been enjoying excise duty exemption in a non-excisable zone for five years and will now be liable to pay excise duty, the CENVAT credit rules regarding capital goods purchased during the tax holiday period are as follows:

### 1. CENVAT Credit on Capital Goods:

- **Rule 4(2) of CENVAT Credit Rules, 2004**: According to this rule, when capital goods on which CENVAT credit has been taken are removed as such from the factory or premises of the manufacturer or provider of output service, the manufacturer or service provider shall pay an amount equal to the CENVAT credit availed on such capital goods, reduced by the percentage points calculated by straight-line method for each quarter of a year or part thereof from the date of taking the CENVAT credit. This amount needs to be paid at the time of removal of the capital goods.

- **Conditions to Avail CENVAT Credit**:
- The capital goods should have been used for providing taxable goods or services, including exempted goods or services.
- The manufacturer or service provider should maintain proper records of receipt, use, and inventory of such capital goods.
- The credit can be availed only if the capital goods are in the possession of the manufacturer or service provider.

### Relevant Sections and Rules:

- **Section 11A of the Central Excise Act, 1944**: Deals with recovery of CENVAT credit wrongly taken or erroneously refunded.
- **Rule 4 of CENVAT Credit Rules, 2004**: Specifies the conditions and procedure for availing and utilizing CENVAT credit on inputs and capital goods.

### Points to Consider:

- Since the company was in a non-excisable zone and enjoying excise duty holiday, it needs to carefully evaluate the conditions under which CENVAT credit can be claimed on the capital goods purchased during the tax holiday period.
- The company should consult with a qualified tax advisor or chartered accountant to ensure compliance with the rules and to correctly calculate any amount payable if the capital goods are removed as such.

By following these guidelines and rules, the company can ascertain its eligibility and compliance with respect to availing CENVAT credit on capital goods purchased during the tax holiday period.

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