Central Excise Query on closure of business

Hi Vandana,

Regarding your query on reversal of Cenvat Credit on closure of business under Central Excise:

Key points:

1. Closure of Factory and Cenvat Credit Balance:

   • When you close your manufacturing unit and do not migrate to GST, the unutilized Cenvat credit balance cannot be refunded automatically.

   • The department typically requires you to reverse the credit availed on inputs, capital goods, semi-finished and finished goods, and waste lying in your factory as on the date of closure.

2. Relevant Provisions / Rules:

   The requirement to reverse credit arises from the Cenvat Credit Rules, 2004, specifically:

   • Rule 3(5)(b): This rule states that if any inputs, capital goods, or input services are used for exempted goods/services or if the premises are closed or the business is discontinued, the credit taken has to be reversed.

   • Also, Rule 6(2)(b) states that credit taken on inputs or capital goods lying in stock at the time of cessation of business is not allowed as a refund and has to be reversed.

   The department’s demand to reverse credit on raw materials, semi-finished goods, finished goods, capital goods, and waste scrap lying in factory is consistent with these rules.

3. No Migration to GST:

   Since you have not migrated to GST, you are not eligible for any GST transitional credit or refund on the unutilized Cenvat credit balance.

What you need to do:

• Reverse the credit on all inputs, semi-finished and finished goods, capital goods, and waste scrap lying in the factory as on the closure date by paying the equivalent duty to the government.

• File the Final Return under Central Excise and show the reversal amount.

• Maintain proper records for audit.

Summary:

• Yes, you have to reverse the Cenvat Credit balance on goods and capital assets lying in your factory on closure.

• The department can demand this reversal under Cenvat Credit Rules, 2004 — Rule 3(5)(b) and Rule 6(2)(b).

• Since you did not migrate to GST, refund claim of Cenvat credit is generally not allowed.