Whether Central Excise Duty Payable on Inputs Cleared After Use or as Waste/Scrap?

After going through the above title first question comes into mind is how an input can be removed after use or as Waste/Scrap. As per my understanding it is possible in Central Excise Law. Vide Notification No. 13/2016 – CE (NT) dated 01.03.2016 definition of input has been amended and sub clause (v) in clause (k) of Rule 2 of Cenvat Credit Rules, 2004 has been inserted, which reads as follows:-

“(v) All capital goods which have a value up to ten thousand rupees per piece”

It means all the capital goods having value of up to ten thousand will be considered as input. In view of this amendment so many capital goods like Small Motors, Rubber Belts, Bolts and Nuts, Filters etc. of the value of ten thousand will be treated as input in Central Excise Law.

In Indirect taxes like Central Excise & Service Tax the purposes of bifurcating the goods in Inputs or Capital Goods are as follows:-

  1. Availment of Cenvat Credit at the time of receipt of goods i.e. in one instalment or two instalments.
  2. Discharging of Central Excise Duty at the time of removal of goods i.e. on depreciated value; transaction value or scrap value.

After this amendment Central Excise Assessee is now eligible to take Cenvat Credit on all Capital goods having value up to ten thousand per piece in one instalment. This is the first purpose achieved through this amendment.

Now coming to the second purpose of discharging central excise duty at the time of removal of Inputs/Capital goods. Central Excise Duty payable at the time of removal of Input/Capital goods is governed by Clause (5); (5A) & (5B) of Cenvat Credit Rules, 2004.

  1. Clause (5) deals with the situation when Input/Capital goods are cleared as such.
  2. Clause (5A) (a) deals with the situation when Capital goods are cleared after use.
  3. Clause (5A) (b) deals with the situation when Capital goods are cleared as waste and scrap.
  4. Clause (5B) deals with the situation when input/Capital goods are written off.

As per above mentioned provisions inputs can be cleared as such on reversal of equal amount of duty taken at the time of receipt of inputs. These provisions do not even contemplate the situation of clearing the inputs after being used or as Waste/Scrap. These provisions perfectly cover the situation before amendment because in pre amendment era definition of capital good was so wide to encompass all the goods which can be cleared after being used or as Waste/Scrap.

Post amendment era inputs can be cleared after being used or as Waste/Scarp like used Motors, Belts and Bolts etc. Second purpose of discharging the Central Excise Duty on removal of goods stands unsettled by this amendment. None of the provisions governing the removal of Input/Capital goods cover this situation.

Now following questions need clarification:-

[1] Whether Central Excise Duty is payable on the inputs cleared after being used or as Waste/Scarp?

[2] If No, Whether it will be applicable to all the inputs cleared on or after 01.04.2016 or only on the inputs purchased on or after 01.04.2016?

[3] Whether the purpose of the amendment is to give double benefit i.e. at the time of receipt as well as at the time of removal.

If the purpose of the amendment is not to give double benefit then following can be done at the end of department:-

[1] Department must amend the clause with an explanation that only for the limited purpose of availing Cenvat Credit.

[2] Department must insert the word “Inputs” in clause 5(A) (a) & (b).

Till the time above anomaly is rectified and assessee wants to avail the double benefit then assessee is required to maintain separate record to prove that Waste/Scrap is of Input/Capital goods.

At the same time chances are that amendment to rectify the anomaly may be applicable retrospectively.

(Author: Anish Jain, B.Com. LL.M. – Dy. Manager – Law- Ballarpur Industries Ltd., Gurgaon)

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