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Controversy: Inputs and Capital Goods (Cenvat Credit Rules)

Kunal (Article) (84 Points)

16 March 2011

A simple eg:

I use a certain good falling under Tariff headin 82,84...(falling under capital goods defination) as an input for producing my final product...!!!!

Will CENVAT credit be available on it as an Input or as Capital Goods i.e. 50% ???

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10 Replies

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 17 March 2011

capital goods definition is for restriction of input credit on capital goods,

as input there is no bar to avail input credit as input, ( i assume your point of discussion is on electric motors) you can take input credit on that.

satya (Executive Excise) (1839 Points)
Replied 17 March 2011

Hi, Kunal,

Mr.U.S.Sharma version is correct,

No restriction of tariff nos for taking/availing Cenvat Credit as Inputs, the only condition is in or in relation to the manufacture of Final/finished product, or any other purpose, with in the factory of production, it to be dutiable.

DAYANANDA K N (ACCOUNTS EXCECUTIVE) (575 Points)
Replied 17 March 2011

No more this confustion remains as new defination of INPUT as per Finance bill 2011 allows capital goods as inputs if it is used as parts or components in the manufacture of final product.

Regards

Dayananda

Aman Thakur (Sr. Asstt. in Warehouse) (39 Points)
Replied 07 April 2011

what is the technical point to differ the item is capital good or input?

I am getting confused when i fill ER-I return.

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 08 April 2011

capital goods have certain limitations , you can not take input credit on all items, but on the items list specified as capital goods.

in duty credit , u have to take 50% credit instant and 50% in forthcoming year on capital goods.

Aman Thakur (Sr. Asstt. in Warehouse) (39 Points)
Replied 08 April 2011

goods falling under 70179090/7012090 are capital goods or inputs?

the item is glass assembly 20 ltr.

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 08 April 2011

Rule 2. Definitions. - In these rules, unless the context otherwise requires,-
(a) "capital goods" means:-

(A)	the following goods, namely:-
	(i)	all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No. 68.05 grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act;
	(ii)	pollution control equipment;
	(iii)	components, spares and accessories of the goods specified at (i) and (ii);
	(iv)	moulds and dies, jigs and fixtures;
	(v)	refractories and refractory materials;
	(vi)	tubes and pipes and fittings thereof; and
	(vii)	storage tank, used-
		(1)	in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or
		(2)	for providing output service;
(B)	motor vehicle registered in the name of provider of output service for providing taxable service as specified in sub-clauses (f), (n), (o), (zr), (zzp), (zzt) and (zzw) of clause (105) of section 65 of the Finance Act;

Aman Thakur (Sr. Asstt. in Warehouse) (39 Points)
Replied 14 April 2011

we can take 100 % credit on capital goods in march-2011.

What can I do to correct it ? or leave it as it is.

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 14 April 2011

Originally posted by : Aman Thakur
	we can take 100 % credit on capital goods in march-2011. What can I do to correct it ? or leave it as it is.

just submit an undertaking to R/O that the input credit is taken in credit account for 100% but you will not use the 50% credit for 1 year,

inform them that such entry has been done for ease of excise and incometax depriciation rules, which get complicated in case of 50% input credit in 1 year and balance in subsequent year. ( as the 1st year depriciation get availed on 50% duty also and in next year you have to reverse it) so for accounting ease 100% credit is taken but availed 50% only , balance 50% would be in credit account and would be availed after 1 year.

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Anurag Singh (Manager Commerical) (21 Points)
Replied 19 April 2012

We are a medium size auto parts manufacutring co. Can we take 100% cenvat credit as input on consumables items such as cutting tools, (inserts, drills, taps, bandsaw blades, grinding wheel etc) used in process of manufacturing of final/finished parts. However these items falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No. 68.05. as defined as capital goods in cenvat rules. We took 100% credit on CNC inserts, and excise audit team gave us memo on availing 100% credit on these items, but we gave them a reply by referring a court dicision that conumbales are taken as input and we have not received further any letter from department till date against our reply(almost 8 months have gone).

secondly you suggested earlier that by giving undertaking we can take 100% credit of capital goods (machines etc) in RG23 part II, and amount will not be debited. Is this practically accepted by the excise department and should we go ahead.

Please suggest me and give your valuable feedback in the matter.