Cenvat on capital goods received before excise registration

4289 views 4 replies

CA Prabhat Gupta

Manager (Indirect Taxes)

821 Points Joined January 2011

Dear all,

Our Company in engaged in Cement manufacturing. It has set up a new cement plant. The construction of plant started in 2005-06 and came into operation only in 2009. During this construction period various Capital goods (as defined in Cenvat Credit Rules as amended) were purchased. Excise Registration was taken in November 2009. During a Departmental Audit by Excise Department, the audit team has objected on Credit availed by the unit on Capital goods (referred above) that were received before Central Excise Registration.

Some other points are to be considered:

1. We are not claiming Value based exemption.

2. We are paying duty from the very first removal.

3. We have availed Credit on eligible Capital goods only.

4. We applied for Excise registration before first removal.

My opinion is that we were required to get Excise registration only on manufacture of exciseable goods and as per Rule 3 (1) of Cenvat Credit Rules we are allowed to take credit of Duty paid on capital goods received in the factory of manufacture on or after September 10, 2004. Moreover Act or Rules do not specifically require registration before receipt of capital goods to be eligible for Cenvat credit on the same as per my knowledge.

There are several Tribunal decisions that allow such credit, but most relate to assessee claiming value based exemption. This is not the case with us.

Please suggest whether Departments demand for reversal of credit is valid. Please quote relevant Rules or cases so that we can reply Department's demand.

Thanks in advance.

Replies (4)

HS Negi

Senior Executive- F&A

590 Points Joined January 2009

Dear Sir,

I have studied your issue. Cenvat credit on capital goods so aviled can not be disallowed. I will share the authority of such issue soon with you. In general practice, it is understood that first you will install the machinery then you will be able to manufacture of finish goods. Generally company intimate to department that they are going to install a factory and will take the cenvat credit of capital goods later after obtaing the CE registration. Have you intimated such things ?

Regards

HS Negi

CA Prabhat Gupta

Manager (Indirect Taxes)

821 Points Joined January 2011

Dear Sir,

Intimations regarding setting up of Cement & clinker plant were difinitely given to Excise and other department. Your reply is useful thanks.

HS Negi

Senior Executive- F&A

590 Points Joined January 2009

Dear Mr.Prabhat

You have posted a another query related to Notification 50/2003-CE . This qery is not opening in my system. Please share it here, I think, I can resolve this query.

Best Regards

HS Negi

CA Prabhat Gupta

Manager (Indirect Taxes)

821 Points Joined January 2011

Dear All,

Central Excise Notification No. 50/2003 dated 10.06.2003 provides for Area based exemption to units manufacturing goods specified in the first & second schedule to CETA (excluding goods specified in the negative list - Annexure - I to the notification).The relevant part of the notification is produced below (only that part that is relevant for our unit are produced here):

1. New industrial units which have commenced their commercial production on or after the 7^th day of January, 2003.

2. As per Circular No.939/29/2010-CX dated 22.12.2010, exemption is available to new units set up and commence commercial production before the cut-off date, that is, on or before 31.3.2010.

3. The exemption contained in this notification shall apply to any of the said units for a period not exceeding ten years from the date of publication of this notification in the Official Gazette or from the date of commencement of commercial production, whichever is later.

4. Unit must be set up in area specified in the Annexure - II to the notification.

Our case is as follows:

1. Our unit is an integrated plant producing both clinker & cement. Clinker being one of the items specified in the negative list. Cement is an eligible item.

2. Our unit is situated at one of the areas as specified in Annexure - II to the Notification.

3. The Unit is Setup after the 7^th day of January, 2003.

4. It started commercial production (clinkers) before the cutoff date, i.e., before 31.3.2010.

5. Production of cement is proposed to start this month (December 2011).

In our opinion, our unit is an eligible unit as it satisfies all the conditions required in the notification. We have started commercial production before the cut off date and from that day onwards the exemption period of 10 years has started, but as we are not producing eligible goods as of now, we have to forgo the benefit and once the production of cement starts we will start taking the benefit of the notification for the balance period. The only doubt is that the unit has not commenced production of Cement before the cut off date. But at the same time the Notification or the circular referred above nowhere specify that the commercial production should be of eligible goods only.

Please suggest whether our stand is valid.

Thanks in advance.