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Capital goods removal

CA PRAMOD SARAOGI (Chartered Accountant) (1113 Points)

15 June 2010

Capital Goods purchased in 2008 - 09 and after having used for manufacture is removed (not as a scrap) in 2009-10. Excise Duty paid on purchases is Rs. 510000/- . CC of 50% availed in 2008-09 and remainng 50% availed in 2009-10 . How much should be the reversal of Cenvat Credit on removal of Capital Goods? Whether 50% credit will be available in the 2nd year as the goods are not in the possession of the assessee.

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6 Replies

Venkateswara Rao Sapare (Accountant) (1500 Points)
Replied 15 June 2010

Dear Friend,

CENVAT CREDIT is deferred on the reason if the Goods are of the nature of “CAPITAL”. Else, complete CENTVAT CREDIT is availed in the very financial year.

Hope, this explanation will serve your purpose.

From

Venkateswara Rao Sapare

CA KHAN AURANGZAIB (ERP FINANCIAL CONSULTANT) (85 Points)
Replied 15 June 2010

Excise duty on capital goods removed after being used in excisable unit. for this purpose first calculated the Assesseble value of these capital goods.

Value of capital goods removed as such shall be :

Cost of acquisition less reduce 25 % per quarter or part thereof from the such cost of acquisition.

Then make a excise invoice like normal sale of excisable goods.

CA KHAN AURANGZAIB (ERP FINANCIAL CONSULTANT) (85 Points)
Replied 15 June 2010

Notification 39/2007-CE(NT), dated 13.11.2007 by inserting another
proviso in Rule 3(5) of the Rules as under:
“Provided also that if the capital goods, on which CENVAT Credit has been
taken, are removed after being used, the manufacturer or provider of output
service shall pay an amount equal to the CENVAT Credit taken on the said
capital goods reduced by 2.5 per cent for each quarter of a year or part thereof
from the date of taking the Cenvat Credit;”
Therefore, the entire amount of cenvat credit taken need not be paid. The
amount to be paid shall be :
Cenvat credit taken xxxx

(-) 2.5% for each quarter of a year or part thereof xxxx

This notification comes into effect on 13.11.2007.

To Illustrate, a machinery purchased on 1.7.2005 on which cenvat credit
taken is Rs.16,000/-. The machinery is removed after use on 31.12.2007.
The amount to be paid by the manfuacturer / service provider is:
Cenvat credit taken                             = 16,000

(-) 2.5% per quarter 16000 x 25%    = 4,000 (See Foot note)
Amount to be paid                               = 12,000
Foot Note
Quarters involved :
2005 September and December   =2
2006 March, June, September and December           =4
2007 March, June, September and December           =4
Total No. of quarters involved                                         =10
Amount to be reduced2.50% x 10 = 25%
The notification extract is given below
NOTE
One crucial aspect to be noted is that the quarters have to be reckoned from
the date of taking the cenvat credit and not from the date of purchase the
capital goods / putting the capital goods to use. This would create issues.
Further, on capital goods 50% credit is taken in the year of purchase and the
balance in the subsequent financial years. So, the issue as to whether the
number of quarters will vary for the initial credit taken and the subsequent
credit also arises.