Cenvat credit on tools

SIR ,I WILL UPDATE IT SOON

There may not be any problem in claiming the balance 50%. Because, the intention of the restriction is that the capital assets are not transferred. Consumption in a shorter period may not disqualify the credit. REfund only for exporters.
 

short life tools may be catagorized under " consumable stores" and credit can be taken as "input"

US Sharmaji

I differ from your answer, How can we categorise the tools under the heard of Stores cosumable. Please backup ur answer with authority.

Mugundha : Nice question.

Regards

HS Negi

Originally posted by : HS Negi
	US Sharmaji I differ from your answer, How can we categorise the tools under the heard of Stores cosumable. Please backup ur answer with authority. Mugundha : Nice question. Regards HS Negi

before going in Central Excise provisions, we have to take a short view of accounting system followed by the assessee, there are two provisions

1) take the tools "capitalized" and charge 15% depriciation under incometax act, and here i have some query that how the assessee treat the capital goods under their accounting system, coz the sale value can not be ttreated as scarap under incometax, but it should be similer to 85% ( for more than 180 days in put to use) or 92.5% ( for less than 180 days of use)

2) in industry there are two types of tools and impliments, a) which are of capital nature, which are run over the couple of years b) which are consumable nature, viz, hackshaw blaces , curtting tools, drill bits etc, which have life of few hours to few weeks maximum.

3) As the query is posted but its silent about its accounting of such tools under the incometax act, if they claim 100% depriciation on such items, how they can classify these under capital goods? or they are making random entry of short term capital loss under every tool purchase?

4) under CCR 2004, Rule 2, Definitions

difinition of capital goods as per wikipedia

A capital good, or simply capital in economics, is a manufactured means of production.^[1] Capital goods are acquired by a society by saving wealth which can be invested in the means of production.

Individuals, organizations and governments use capital goods in the production of other goods or commodities. Capital goods include factories, machinery, tools, equipment, and various buildings which are used to produce other products for consumption. Capital goods, then, are products which are not produced for immediate consumption; rather, they are objects that are used to produce other goods and services. These types of goods are important economic factors because they are key to developing a positive return from manufacturing other products and commodities.

Manufacturing companies also use capital goods. Capital goods help their company make functional goods to sell individuals valuable services. As a result, capital goods are sometimes referred to as producers’ goods or means of production. An important distinction should also be made between capital goods and consumer goods, which are products directly purchased by consumers for personal or household use.

For example, cars are generally considered consumer goods because they are usually bought by an individual for personal use. Dump trucks, however, are usually considered capital goods, because they are used by construction and manufacturing companies to haul various materials in order to make other products such as roads, bridges, dams, and buildings. Similarly, a chocolate candy bar is a consumer good but the machines used to produce the chocolate candy bar are considered capital goods.

Capital goods are generally man-made, and do not include natural resources such as land or minerals, or human capital—the intellectual and physical skills and labor provided by human workers.

The economic term 'capital goods' is not to be confused with the financial or accounting usage of 'capital', which may mean simply wealth or financial capital.

5) Now when the goods become part of balance sheet under fixed assets, it is called capital asset, but when the same is passed through P/L account without getting place in balance sheet, its to be treated as normal input used within production line.

i would request the query author to put a light of their accounting system maintained with such short lived capital assets and method of value reduction adopted by them for sale as scrap, under light of which we may continue the debate.

The tools are written off fully in the year of purchase. but that cannot be considered for classifying the goods as INPUTS, coz, accounting treatment is no way related to classification of goods under central excise act

when the tools are written off fully in year of purchase then how they can be classified under capital goods?

Definition of capital goods under central excise is that the goods which are "neither cleared with or in relation to" the goods manufactured are catagorized as capital goods, and for this purpose they have prescribed certain chapter and definitions, 

spares parts of capital goods are retained in capital goods, and get value added at the end of year, thats why its available under capital goods, 

on independent nature of tools, the CCR 2004 is silent and it goes upto assessee how the tools are used under factory of manufacture, where as in definition of inputs the language is mentioned as "

Hope the matter would be viewed under the quoted lines under definition of "input"

Originally posted by : CA.G.Muguntha Narayanan
	The tools are written off fully in the year of purchase. but that cannot be considered for classifying the goods as INPUTS, coz, accounting treatment is no way related to classification of goods under central excise act

Capital goods under central excise is notified only to prevent misuse of the rules, to prevent the assessee to get input credit on any negative item, 

Electric motors are capital goods when installed under the factory of production, but input when it is cleared with Product line machines , produced by the assessee, hence all capital goods can be classified under input, but all inputs can not be classified under capital goods, 

depending on the nature of industry, negative lists differ, 

viz when cement is used in production of sevarage pipes, or cement made products which are cleared on payment of duty, input credit is available, but when cement is used in factory of production for capital assets( construction or re-construction), input credit is inadmissible( thats the main line of the spirit of rules)

Regarding tools, when we use any tools which is required for manufacture of final taxable product and it get absorbed under process ( get useless after certain process, and scrapped, majority of cutting tools are under this catatory), such tools does not take place under "fixed assets" either in final accounts or in "fixed assets register", hence such tools are broadly to be catagorized under "input" and sub head "consumable stores" for accounts.

We can not say that accounting is not directly related to excise rules, as excise rules are not the old one, where everything was under physical control and the assessee had to have enough cash balance under PLA, get the Gate Pass signed from inspector of CE, and clear the goods either in physical presence of inspector or SRP.

now the excise control is dependint on financial accounts of assesee, with cross relation with other departmental returns and records , audit team check and cross examine all records to ascertain the correctness of input credit taken / utilized and valuation method adopted by the assessee for different modes of clearances, and if found any irregularity they issue spot memos to assessee, to comply, in case case of non compliance only, the process of SCN get followed.

at the start of every financial year, the assessee has to Intimate the R/O or online through ACES " The records maintained under central Excise, under statuary acts ( other than CE) and other records for other rules/ acts" this is for records and task to be done prior to audit of the asseesee.

I have purchae the tools and the same is treated as consumable store (i.e. charged in Profit and loss a/c). Now my question is can i take the credit of duty 50% or 100% in the year of purchase.