Cenvat credit rules

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Komal Mundada (Querist)
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28 December 2015 Dear Sir/Madam,
Please give your expert opinion for my query
A Pvt Ltd Co engaged in business of preparing gitti (on which VAT Paid) purchased Crusher on which it utilised 100% cenvat credit of CG against its Stax liability in initial 2 years. After 5 years of use of CG co. wants to sell crusher.
So as per relavant part of rule 3(5A) of CCR,
Provided further that if the capital goods, on which CENVAT Credit has been taken, are removed after being used, the manufacturer or provider of output services shall pay an amount equal to the CENVAT Credit taken on the said capital goods reduced by the percentage points calculated by straight line method as specified below for each quarter of a year or part thereof from the date of taking the CENVAT Credit, namely:-
(a) for computers and computer peripherals:
(b) for capital goods, other than computers and computer peripherals @ 2.5% for each quarter.
My working for above is:

Crusher Cost 100
Cenvat Credit availed 12.36 A
1st year CC Utilised 6.18
2nd Year CC Utilised 6.18
3rd year
4th Year
5th Year
Assume date of cenvat credit taken in Q2 & sale in last month of 5th year

Q1 Q2 Q3 Q4
0.309 0.309 0.309 0.927
0.309 0.309 0.309 0.309 1.236
0.309 0.309 0.309 0.309 1.236
0.309 0.309 0.309 0.309 1.236
0.309 0.309 0.309 0.309 1.236
5.871 B

Cenvat Credit to be reversed 6.489 A-B
52.50%
please let me know if above working is correct? Is there any other method of calculation of above reversal ? Instead of sale can assessee lease the CG so that Cenvat Credit Reversal is not required?

Komal Mundada

Komal Mundada (Querist)
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14 January 2016 Please answer to my above Query

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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19 July 2024 Based on your query regarding the reversal of Cenvat credit on capital goods (Crusher) under Rule 3(5A) of the Cenvat Credit Rules, 2004, here's an analysis and clarification:

### Calculation of Cenvat Credit Reversal:

1. **Initial Cenvat Credit Availed:** ₹12.36 (assuming this is the total Cenvat credit availed on the crusher).
2. **Utilization Over 2 Years:** ₹6.18 per year, totaling ₹12.36 over 2 years.

### Reversal Calculation:

According to Rule 3(5A) of CCR:
- The reversal of Cenvat credit is required if the capital goods are removed after being used. The amount to be reversed is reduced by a specified percentage for each quarter of a year or part thereof from the date of taking the Cenvat Credit.

### Calculation Method:

You've used a straight-line method to calculate the percentage reduction for each quarter of a year. Your calculations suggest a total reversal amount of ₹6.489.

### Verification:

To verify:
- You've correctly applied the straight-line method by reducing the Cenvat credit availed over 5 years based on 2.5% per quarter, resulting in a total of 52.5% over 5 years.
- The amount of ₹6.489 seems to be the difference between the Cenvat credit availed and the reduced amount after considering the quarters of use.

### Alternative Methods:

There isn't an alternative method specified under Rule 3(5A) for calculating Cenvat credit reversal. The straight-line method based on the specified percentage (2.5% per quarter for most capital goods) is the standard approach.

### Leasing Option:

Regarding your question about leasing the capital goods instead of selling:
- Leasing the capital goods does not exempt you from the requirement to reverse Cenvat credit under Rule 3(5A).
- Whether you sell or lease the capital goods, if they are removed after being used, Cenvat credit reversal is applicable.

### Conclusion:

Your calculation method appears correct based on the information provided and the rules under Cenvat Credit Rules, 2004. Ensure that the dates and utilization periods are accurately accounted for to determine the exact amount of Cenvat credit to be reversed. Leasing the capital goods does not exempt you from the reversal requirement. If in doubt, it's advisable to consult with a tax advisor or chartered accountant specializing in indirect taxes to ensure compliance and accurate calculation.

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