CA D D Gaur

A.   Capital Goods

As per CENVAT Credit Rules, 2004 the capital goods means the following goods used in the factory of manufacturer (also used outside in case of captive  power) :

(i) All goods falling under following Chapters/Headings of First Schedule to Central Excise Tariff Act, 1985 :

  • 82 – Tools, Forks, Cutters, Hammers, Drilling and related goods
  • 84 – Machinery, Mechanical appliances, Boilers and related goods
  • 85 – Electrical Machinery and Equipments and related goods
  • 90 – Measuring, Testing, Checking and related goods
  • 68.04 – Millstones, Grindstones, Grinding wheel etc.
  • 68.05 – Abrasive Powder or Grain etc.

(ii) Pollution Control Equipment

(iii) Components, Spares and Accessories of the goods specified above

(iv) Moulds and Dies

(v) Refractories and Refractory Material

(vi) Tubes, Pipes and Fittings thereof, used in the factory

(vii) Storage Tank

(viii) Motor Vehicles other than those falling under tariff headings 8702(MOTOR VEHICLES FOR THE TRANSPORT OF TEN OR MORE PERSONS), 8703 (MOTOR CARS) , 8704 (MOTOR VEHICLES FOR THE TRANSPORT OF GOODS ), 8711 (MOTORCYCLES )  and their chasis but including Dumpers and Tippers

Ineligible capital goods

  • Motor vehicles falling under tariff headings 8702, 8703, 8704, 8711are not eligible for a manufacturer of final products.
  • Capital goods used exclusively for the manufacture of exempted goods
  • Equipment or appliances used in an office will not be eligible capital goods

B.    Goods used in manufacture of Capital Goods

(upto 30-Jun-2012) The term ‘INPUT’ includes goods used in manufacture of capital goods which are further used in the factory of manufacturer.

But shall not include :-

  • Cement
  • Angles
  • Channels
  • Centrally twisted deform bar (CTD)
  • Thermo mechanically treated bar (TMT)
  • Other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods.

(w.e.f. 01-JuL-2012) The term ‘INPUT’ includes all goods used in the factory of manufacturer.

But shall not include :- any goods used for –

(a)                 construction or execution of works contract of a building or a civil structure or a part thereof; or

(b)                 laying of foundation or making of structures for support of capital goods,

except for the provision of service portion in the execution of a works contract or construction service as listed under clause (b) of section 66E of the Act;”

Summary of provisions related to goods used in manufacture of capital goods :-

Before 07-Jul-09 CENVAT credit availability on Cement and Steel were under litigation at large due to no specific disallowance mentioned in law.
w.e.f. 07-Jul-09 Explanation added to the definition of Input, which specifically disallows, Steel, Cement etc.
W.e.f. 01-Jul-2012 The amendment more clarifies the  situation with respect to manufacturers non availability of CENVAT Credit on “any goods” used for construction or execution of works contract of a building or a civil structure or a part thereof or laying of foundation or making of structures for  support of capital goods except for the provision of service portion in the execution of a works contact or construction service.

 C.   Inputs used in or in relation to the manufacture of final products

“Input” means : (i) All goods used in the factory by the manufacturer of the final product (ii) Any goods including accessories cleared along with final product the value of which is included in the value of final product and goods used for providing free warranty for final product (iii) All goods used for generation of electricity or steam for captive use (iv) all goods used for providing output service

But shall not include :-

(i)           Any goods used for –

(a)  construction or execution of works contract of a building or a civil structure or a part thereof; or

(b)  laying of foundation or making of structures for support of capital goods

except for the provision of of service portion in the execution of a works contract or construction services.

(ii)                Light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol

(iii)               Any goods primarily for personal use or for consumption by employees

(iv)             Any goods which has no relationship whatsoever with the manufacture of a final product.

D.   Other related concepts / Case laws

  • Capital goods used in Mines –     If the mines are captive mines so that they constituted one integrated unit together with the concerned cement factory, CENVAT credit would be available to the assessee.   (Vikram Cement v. CCE (2006) 197 ELT 145) (SC)
  • Ropeways connecting mines with the factory for the transportation of crushed limestone was entitled to Cenvat credit.  (Birla Corporation Ltd. v. CCE (2005) 186 ELT 266) (SC)
  • MS plates, angles, beams, joints etc. used for structural work to erect reactors, condenser, receive tank are eligible for Cenvat as capital goods – (CCE v. Hyderabad Chemical Products (2009) 243 ELT 580 (CESTAT)
  • Ducts and structural’s of steel used in the plant and machinery are used for manufacture of capital goods and hence eligible for Cenvat credit. (CCE v. Madras Cement 2006 (203) ELT 605 (CESTAT)
  • Steel plates and strips used in manufacture of capital goods are inputs. They are eligible – (Hindalco Industries v. CCE (2008) 230 ELT 649 (CESTAT SMB) * Shree Cement v. CCE (2008) 227 ELT 249 (CESTAT SMB)
  •  “It is clarified that those structural components which are to be used essentially as a part of Boiler System would be classifiable as parts of Boiler only under Heading 8402 of the Tariff. It is further clarified that since these structural components are nothing but the parts and accessories of the Boiler, they would be covered by the definition of inputs under Rule 2(k)(iii) of the CENVAT Credit rules, 2004 (i.e. all goods for generation of electricity & steam). Further these structural components shall not be hit by the exclusion clause to the said definition of inputs, as these are not used for laying of foundation or making of structures for support of capital goods, but are essentially the part of said Boilers.”  (Circular No.964/07/2012-CX dated 2nd April, 2012 CBEC)
  • While CENVAT Credit is available in respect of parts of Boiler, the same is not admissible in respect of the structural components used for laying of foundation or making of structures for support of capital goods/ Boiler. The above clarification is in conformity with the views expressed in the judgments of the Hon’ble Supreme Court/ different benches of the CESTAT.   (Circular No 966/09/ 2012-CX dated 18th May 2012 CBEC)
  • Credit not admissible based on value addition when items not used in manufacture –Cement and steel items used for laying foundation and building structural support contended as contributing to value of final products and credit admissible – Excise duty not in the nature of value added tax, Credit not allowed as per statute with reference to value addition :-Supreme Court in Maruti Suzuki case [(2009) 240 ELT 641 (SC)] referred to integral connection with final product, dependence test and functionality test to decide an item as input eligible for CENVAT credit – Impugned items not being used in course of manufacture of final product, credit thereon not admissible.
  • Capital goods vis-a-vis capital assets – Capital assets and capital goods not synonymous as per Central Excise Act, 1944 and CENVAT Credit Rules, 2004 – Capital goods defined in CENVAT Credit Rules, 2004 enumerating number of goods – Phrase ‘capital assets’ having wider meaning and includes capital goods and other assets like immovable property like building – Foundations and supporting structures embedded to earth can be categorized as capital assets but not qualify as capital goods as per definition in CENVAT Credit Rules, 2004.

E.    Points to be taken care of

  • Excise Invoice should be clear about the material being Purchased in very clear terms.
  • ER-1 return should mention the parts/ accessories of a capital goods fabricated out of structural steel. It helps in developing strong paper work and a confidence in accessing officer about the usage.
  • Correct mention of chapter and schedule of capital goods as per Central Excise tariff
  • Keeping record of usage of structural steel from start of project work, this will  help in proving the usage of structural steel, parts and accessories of capital goods, etc
  • Hard and soft records of drawings should be properly stored.
  • Practice to claim CENVAT credits on all the structural steel even if it is used for making foundations and supports to be avoided.

F.     Food for thought

Another question that still remains unanswered even after the amendment made is as to whether the credit would be deniable even if the said material being used in the construction or structure for support of capital goods is covered under the sub clause (iii) to the Rule 2 (a) defining the capital goods. This means that the goods used as spares, components, and accessories of the capital goods will still be eligible for Cenvat credit. This is due to the fact that the definition of inputs has been changed and there is no change in the definition of capital goods. Thus, there is still a hope for the assessee for taking the Cenvat credit on such items.

(Author can be reached at gaurdd@yahoo.com )

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0 responses to “Amended Provisions of CENVAT Credit with special reference to Projects”

  1. pooja says:

    how to avail excise cenvat of steel purchased by our factory for manufacture of trolleys

  2. Srinivas says:

    Please clarify:
    1. Thermal Coal fired Captive Power Plant has Boiler. The Boiler parts can be erected and put into operational sequence if and only if the structure for the boiler is in place. This structure is a net work of fabricated structural members in a particular order and sequence as per the drawings which are is specific for each boiler. The members are manufactured from steel sections like plates, beams, angles, channels etc and each member is specific to a particular drawing with its own component number. Total structural members weight to be supplied could be over 3000 MT. Can these structural members be covered under chapter 84 of central excise rules. Regards,

  3. SANJAYA SRIVASTAVA says:

    SIR,COULD YOU PROVIDE THE LATEST ORDER OF SUPREME COURT REGARDING INPUT (CH-72) USED FOR MAKING EOT CRANE (CH 84 )FOR OWN USED.
    MATTER:-WE CLAIME THE 50 % CENVAT ON INPUT USED FOR MAKING EOT CRANE WHILE ACCORDING TO AUDITOR WE SHOULD CLAIM ONE TIME INPUT SO THEY CHARGES INTEREST TO US.KINDLY LET US THE LETTEST ORDER REGARDING THE SAME.

    MAIL ID:-sanjaya@allahabadenterprises.com
    M-09839090376

  4. anil meher says:

    pl suggest
    MVAT APPLICABLE FOR
    THE CENTRING PLATE (USED IN CONCRET WORK IN CIVIL WORKS OF ELECTRICITY TOWER FOUNDATION WORKS)

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