Removal of capital goods as such

Dear Sir,

I have not read such issue to Service tax credit to be reversed on GTA service on removal of such goods to other sister units.

Please demand an authority (ruling ) on which they are relying for reversal of such credit.

Best Regards

HS Negi

Thanks Mr. Negi,

Actually this was the jist of the discussion with the audit team. They have neither given any audit para nor served any notice yet. Once we receive the audit objection in writing things will be more clear. In that case, we will surely ask for an authority (ruling) on the basis of which the are raising the demand. Thanks again.

sorry sir for my ignorance............was just browising through your question..but sir gta cannot be claimed as input service..moreover for a registered unit it is the the consigner or consignee who pays the service tax...sir pls clear my doubt on it....and also the sister units to whom capital goods were transferred can claim  the cenvat credit once goods reach their premises????????????

Dear Chandni,

GTA can be considered as input service for a consignee, provided the consignee is either manufacturer of excisable goods or provider of taxable output services. Credit of GTA is allowed provided it is an input service. For this purpose inward freight and outward freight, only upto the place of removal, both are considered as input services for a consignee, irrespective of the fact that who has paid the service tax ( may it be consigner, consignee or the GTA). You may refer to Issue (b) at point number 8.1 in the Department's Circular No. 97/8/2007 dated 23.08.2007. Check this link: https://www.servicetax.gov.in/circular/st-circular07/st_circ_97-2k7.htm

You were correct to say that the liability of service tax on GTA is on the service recepient in case it is in organised sector as per Rule 2 (1) (d) of Service Tax Rules, 1994.

As far as your doubt in respect of Removal of Capital Goods as such to sister units is concerned, I would like to clarify that under the provisions of cenral excise every unit is considered as a separate assessee. In case Capital goods on which Cenvat Credit was availed are transferred as such to any other unit Credit can also be transferred. For this the transferring unit will have to pay Duty equal to credit availed on the same and has to remove capital goods under invoice.

Dear Sir,

Here you are making a mistake. Rule 3(5) of CENVAT Credit Rules says: if capital goods on which CENVAT has been availed are returned as such (without being taken into use) the manufacturer shall pay an amount equal to the Credit availed in respect of such input.

It these capital goods are removed after being used, the manufacturer shall pay an amount equal to the credit taken minus 2.5% for every quarter calculated by straight line method (except for Computers and computer peripherals)

If the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty leviable on transaction value.

For computers and peripherals:

1^st year             -           10% for every quarter

2^nd year            -           8% for every quarter

3^rd year -           5% for every quarter

4^th & 5^th year    -           1% for every quarter

Thanks

Mr. Nair,

Your reply is not very clear. First there is no question of returning Capital Goods. Secondly, Rule 3 (5) of CCR 2004 does not speaks of return of capital goods, but removal as such. My query is in respect of 'removal of Capital goods as such' and hence provisions relating to removal after use or as waste is irrelevant here. Capital Goods concerned are not Computers & Peripherals.

Please clarify your reply and suggest on validity of department's stand for reversal of Service tax on GTA in above circumstances.

Thanks.

Dear Sir,

According to my studies, there is no statutory provisions to reverse credit of service tax availed in relation to inputs or capital goods which are removed from the factory of the assessee. So the department's stand for reversal of credit on GTA is not valid.

Please refer the case cited in STO 2007 CESTAT 1348 (Chitrakoot Steel & Power Pvt.Ltd  vs Commr. of C.E., Chennai. For more details please visit the following link.

https://ns2.servicetaxonline.com/case_laws.php?court=1&p=22&pf...Cached

Thanks

if the capital goods were received for self use , put to use but transferred to sister unit after "put in use" then GTA services availed for inward transportation of such capital goods are input services, 

if the capital goods are transfered to sister unit merely after receiving the same at your end, then your role is alike trader/depot, hence the input credit of GTA would be viewed as par with trader unit, where input credit is barred.

as per my opinion Freight paid on bringing the capital goods in the factory is capitalized along with the asset and service tax as reverse charge is also need to be capitalized hence while returning the assets this amount will be treated as revenue expenses hence while returning the asset CCR on freight will not be reversed.

My question is, suppose ABC is a manufacturer registered under excise,purhcases a capital goods at Rs. 2,00,000+ Excise Duty 24720/- in Apri'2012.  Suppose ABC removes that P & M as such at Rs. 2,50,000/-.  Will ABC charge excise duty on Rs. 2,50,000/- by 12.36% which comes to Rs. 30,900/-.   How would the treatment of excise will be done at the time of purchase of  P & M and also at the time of removal.

With regards

Harish 

Removal of Capital Goods after put in to use: If the capital goods are removed after being used whether as capital goods or scrap or waste, the manufacturer shall pay an amount equal to the CENVAT Credit taken on capital goods reduced by the percentage points calculated by straight line method as specified below for each quarter of year or part there of from the date of taking the CENVAT Credit.

Provided that if the amount so calculated is less than the amount equal to the duty leviable on transaction value, the amount to be paid shall be equal to the duty leviable on transaction value. (This rule is amended with effect from 01/04/2012). Your transfer price Rs. 250000 is not relevent in this scenario if you remove within a period of 5 years.