CA. Sanjeev Singhal, FCA, DISA [ ICAI]
CENVAT Credit is available on Capital goods used by manufacturer or service provider. Let us discuss the intricacies of CENVAT on capital goods which is most contentious issue nowadays.
RULE 2(a) : Capital Goods
“capital goods” means:- definition of “capital goods” is amended by notification no. 28/2012 dated 20.6.2012.
(A) the following goods, namely:-
(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading no. 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act; *** defined
(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;
(vii) storage tank; and
(viii) motor vehicles other than those falling under tariff headings 8702, 8703, 8704, 8711 and their chassis but including dumpers and tippers have been inserted w.e.f. 1.7.2012 **** Defined
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
(1A) outside the factory of the manufacturer of the Final products for generation of electricity for captive use within the factory; or
(2) for providing output service;
(B) motor vehicle designed for transportation of goods including their chassis registered in the name of the service provider, when used for-
(i) providing an output service of renting of such motor vehicle; or
(ii) transportation of inputs and capital goods used for providing an output service; or
(iii) providing an output service of courier agency”
(C) motor vehicle designed to carry passengers including their chassis, registered in the name of the provider of service, when used for providing output service of-
(i) transportation of passengers; or
(ii) renting of such motor vehicle; or
(iii) imparting motor driving skills
(D) components, spares and accessories of motor vehicles which are capital goods for the assessee
***
Capita Good covered in Clause (A)(i)
Chapter 82 : tools hand tools Knives etc
Chapter 84 : machinery
Chapter 85 : Electrical Machinery
Chapter 90 : Measuring, Checking and testing machine
Sub heading 6804 : Grinding wheel and the like and parts thereof
Sub heading 6805 : Abrasive powder or grain on base of textile material, of paper, of paper board, or other material
Description of tariff heading discussed in hereinbefore is given as under.
****
| Tariff Heading | Type of vehicle |
| 8702 | Motor vehicle for the transport of ten or more person, including the driver |
| 8703 | Motor cars and other Motor vehicle principally designed for the transport of persons (other than those specified in heading 8702) including station wagon and racing cars. |
| 8711 | Motorcycle (including moped)and cycle fitted with an auxiliary motor, with or without side cars. |
Capital goods definition is enlarged to include motor vehicle other than used for transportation of passengers and goods like cranes, forklift, tractor and all other vehicle primarily used for business or commerce for all kind of service providers.
What does not cover under the definition of motors vehicle provided under section 2(28) of the Motor Vehicle Act,1988.
- Vehicle running on fixed rails like railways, tram, trolleys etc.
- Vehicle of special type which is used in factory like cranes and forklifts.
- Vehicles less than four wheel fitted with an engine capacity of not exceeding 25 cubic centimetres .
- Hand cart, bull cart, animal driven, vehicle, hand rickshaw etc. As they are not mechanically propelled.
→Spare, Component etc of capital goods of (i) and (ii) above.
→Accessories of capital goods eligible ;
Accessory means “ an object or device not essential in itself but adding to beauty, convenience or effectiveness of something else.”
In Mehra Brother VS. Joint Commercial Officer-1991 car seat cover was considered as accessories of automobile.
Balkrishna Industries VS CCE it was held that tube is part of tyre and flap is accessory.
Banco Product VS. CCE [ 2009] it was held that plastic crates for material handing within the factory are eligible as accessory of capital goods and eligible for capital goods.
_ Parts, spares etc need not fall under chapter 82,84 ,85 and 90.
_ Capital goods obtained on hire purchase / lease / loan eligible
B] Motor Vehicle designed for transportation of goods including their chasis if register in the name of service provider, is eligible as capital goods , when used for – w.e.f. 1.7.2012.
i) providing an output service of renting of such motor vehicle; or
ii) transportation of input and capital goods used for providing output service; or
iii) providing an output service of courier agency
C] Motor Vehicle designed to carry passengers including their chasis if register in the name of service provider, is eligible as capital goods , when used for – w.e.f. 1.7.2012.
i) transportation of passenger; or
ii) renting of such vehicle
iii) imparting motor driving skills
- Capital Goods used exclusively for exempted final products and output services not eligible.
Capital goods does not cover equipment or appliances used in office for manufacturer
Rule 2(a)(A)(1) clarify that equipment or appliances used in an office will not be eligible as “capital goods”. This restriction is only for manufacturer and not for service provider.
It is clarified that air conditioner, refrigerator and computer will be eligible if they are used in the manufacture of final product.
Computer though install in office but used for monitoring equipment involved in manufacturing process and movements of goods shall be eligible for CENVAT – Ruchi Health Food V. CCE[2007]
General Provisions
- Elgibiliy to be decided on the basis of date of receipt of capital goods; CCE V. Suraya Roshni Ltd., KS Oils V. CCE,
- Ownership of capital goods is not essential to avail CENVAT on capital goods; HIS Automotive Ltd V. CCE , CCE V. Pepsi Foods, German Remedies Ltd v. CCE, Dalmia Cement v. CCE
- Purpose for which the capital goods is used is immaterial. CCE v. Miscrolabs
- Capital goods manufactured within factory; Input purchased to manufacture capital goods will be input used for capital goods shall be eligible for CENVAT Credit.
Capital Goods used by Service provider
A service provider is eligible for CENVAT Credit on capital Goods , If these are used for providing output service.. The definition does not say ‘exclusively used’.
→Capital Goods need not be brought in the premises of service provider. Only documentary evidence of delivery and location of capital goods should be maintained – Fourth Proviso to Rule 4(2)(a) of CENVAT Credit Rule inserted w.e.f 1.4.2012.
→ Towers, prefabricated building, chairs for telecom service not capital goods – Bharti Airtel v. CCE[2012]
Condition for Availing CENVAT on Capital Goods
- Duty paying documents eligible for CENVAT .
- Depreciation under section 32 of income tax act not to be claimed on the excise portion of capital goods- Rule 4[4] of CENVAT Rule,2004,
- CENVAT Credit on capital goods has to be availed in two stages except by SSI. 50% to be availed in first year when goods received and balance 50% in any subsequent years. SSI unit can avail 100% CENVAT in the very first year.
- W.e.f 1.4.2010 – Rule 4(2)(b) of CENVAT Credit Rules [ the word is subsequent years not subsequent year ][ Till 10.9.2004 , the word used were ‘in possession and use’ but now ‘possession’ is sufficient in subsequent years. These need not be in use.
- In case of additional custom duty paid u/s 3(5) of Custom Tariff Act ( Special CVD), 100% CENVAT credit will be available in first year itself , even if these goods are capital goods. Service providers are not eligible for this CENVAT credit of this duty [ Second proviso to Rule 4(2)(a) of CENVAT Credit Rules .
- In case of unit availing SSI exemption, entire CENVAT credit can be availed by them in first year itself. – Second proviso to Rule 4(2)(a) as inserted w.e.f. 1.4.2010.
- Assessee can take full credit in second year if no credit has been taken in first year.
- If full credit is availed in the first year, demand can be only of interest on 50% excess credit availed in the first year. [ Guardian Plasticote V. CCE]
- If the capital goods are cleared as such in the first year, 100% CEVAT credit shall be available. [ Proviso to rule 4(2)(a) of CENVAT Credit Rules ][ CCE v. Ispat industries ltd.]
Article written By CA. Sanjeev Singhal, FCA, DISA [ ICAI]
Author Bio
I need help.i had take registration in exise on December 2014 .i had purchased a machine on march 2014.that means before 9 months of registration.but my c.a has done one fraud with me he gave me fraud ecknolegment.due to this exise make a penalty on me.but they are not giving me in put of this machine.please guide me how can i take this input.
what are the duties whose credit can be taken:
1. Basic Custom Duty
2. CVD
3.Customs education cess
4.SH customs education Cess
5.Additional Duty9Imports)
If Cenvat can not be claimed fully . can we take refund of duty paid.
If a Concern start without Registration. under Excise Act, and get no Registration, as it does not cross 1.50 Crores Limit. After some Years, it is about to cross the Exemption limit, it gets registered. Can it avail Cenvat Credit on on Plant & Machinery purchased in the previous Years? – See more at: https://taxguru.in/excise-duty/cenvat-credit-duty-paid-capital-goods.html#comment-1950464
If a Concern start without Registration. under Excise Act, and get no Registration, as it does not cross 1.50 Crores Limit. After some Years, it is about to cross the Exemption limit, it gets registered. Can it avail CENVAT on on Plant & Machinery purchased in the preceeding Years? – See more at: https://taxguru.in/excise-duty/cenvat-credit-duty-paid-capital-goods.html#comment-1950464
If an Concern start without Regn. unde Excise Act, an avail no Regn as it does not cross 1.50 Crores. After some Years, it is about to cross the Exemption limit, it gets registered. Can it avail CENVAT on on Plant & Machinery purchased in the preceeding Years?
capital goods cenvat credit tyre purchase of company vehicle whether eligible ?
We have purchased Measuring PIN set is it capital goods or not ?
Any duty paid on capital goods can be taken as Refund..Help me on this.
Sir,Excise duty is not payable on our product.How we can claim refund on excise duty paid by us on capital goods installed in our plant. Further we are doing 15% turnover in export also.
sir, we would like to send cenvat credit utilised capital goods on lease basis
what documents to be carry with the goods, i have seen one article that 2.5% cenvat we need to reverse per quarter, we have utilised this machine for 11 quarters which will come to 27.5%, duty utilised 4 lakhs, what about balance amount of cenvat utilized value and what documuents to carry with machine.
please advise me sir
sir.. if as per terrif the goods belong to capital items but in our process or use it is consumable.. Like cutting inserts, as per tarrif it is capital goods but we used in machine for cutting and there life is too short and after one day we have to replace it as same we use refectory material for furnace and laddle lining and it will be done by alternate days because lining need much strength to bear the heat of liquid metal.
and in any case if manufacturer is making capital goods (Like hydrolic press and SPM) with procurement of capital BOP (like pneumatic cylinder and others). In this case his total Raw material is capital goods as per tarrif but manufacturer used it as a Raw Material and without this his final product is incomplete.
can u cite some case law or rule for availing 100% cenvat credit on capital goods if not taken 50% credit in the year of receipt of capital goods
if first 50% of Cenvat credit is not take in the year or receipt of capital goods than can the assessee take 100% cenvat credit in the subsequent year
whether CVD and SAD credit is available on imported second hand capital goods. Second hand capital goods will be used for manufacturing of excisable product.
Can you please advise if the ” Crane Gantry” is covered under Capital goods and the Excise duty on Steel Structures used in the manufacture of Crane Gantry is available or not?
Regards
Dear Mr Agarwal
If a company has not taken CENVAT credit of Excise duty on Capital Goods, which was purchased in the FY: 2013-14, can it claim the same now in the December, 2015 return.
Regards
Sanjay
Is transformer installed in new factory and the oil purchased for the transformer at the time of installation is eligible for CENVAT. Pl. clarify.
H L Arora
Can you pl clarify credit on capital goods. Whether amount used for credit on ac of capital goods from excise payable in (ER 01) is credit or amount shown in ER 03 also cosidered as cdredit taken on capital goods.
Can we take CENVAT Credit on Chapter 82, Chapter 84, Chapter 85, Chapter 90,
WOULD YOU PLEASE CLARIFY ABOUT CAPTIAL GOODS REGARDING COMPUTER
(OUR UNIT IS STEEL MANUFACTURER)
HS CODE 8471 i.e.ARE COMPUTER , LAPTOP,OR COMPUTER COMPONENT AND SPARES, ELIGIBLE FOR CENVAT CREDIT OR NOT? KINDLY PROVIDE US WITH SOME ADVISE,INSITE AND NOTIFICATION OR CIRCULAR,SHOWCASE REF.OF CENTRAL EXCISE.
CAPITAL GOODS RULE 2 (a) CENVAT CREDIT RULE 2004 HAS 84 TARIFFS. ARE ALL THESE 84 TARIFES ALSO APPLICABLE FOR CENVAT CREDIT OF COMPUTER ,LAPTOP,AC,??
KINDLY PROVIDE ME A LEGAL NOTE FOR THE SAME.
sir,
whether an ssi is required to get registered under excise to avail cenvat credit of capital goods and input service,
My query is I have availed cenvat credit on purchase of fixed assets. However the excise department is of the view that the assets are not used in the manufacturing process hence credit taken has to be reversed. This was finally confirmed by higher courts also after a period of three years. In such a scenario in the year of judgement whehter i have to capitalise the credit or can i write it off in the books of accounts
Ashish Panday:-
Tower and other item are immovable goods as they embedded to earth and can not be removed as such and for taking CENVAT goods must be movable and marketable….. There for CENVAT credit can not be availed.
Barsha Jalan.
In n number of cases it has been decided that prior registration under Central excise act is not mandatory. Even if not registered, CENVAT can be availed Excise/service tax registration is mandatory from the date, one is liable to pay excise or service tax
Arvind Sharma:-
Cenvat on services to be availed as per provision applicable to capital goods if services used for capital goods manufacturing.
Why towers and chairs for telecom service does not considered as capital goods?
Is it mandatory for the purchaser of the capital good to have central excise registration at the time purchase of capital good. If registration obtained after a gap of 3 months of procuring the capital capital good will the assesse be eligible to take cenvat credit
Can you please clarify about CENVAT of Service Tax on Capital Goods to a Service Provider and to Manufacturer, whether the same is eligible for 100% of 50% in first year. (Presume the same capital good to be used in providing output service or manufacturing dutiable goods).