Major Changes in Cenvat Credit Rules
The Government has silently come up with some major changes in the credit rules.
1. Capital goods cleared as scrap – pay duty on transaction value. As per Rule 3(5), when inputs or capital goods are removed as such, an amount equal to the credit taken is to be paid back. This means that even when a 20 year old machine is sold, the manufacturer has to pay back the amount of credit taken 20 years ago. He will not have records to show how much credit he had taken. Earlier there was a system of allowing depreciation. Now the Government notification stipulates that if the capital goods are sold as scrap, an amount equal to the duty on the transaction value has to be paid. But is removal of scrap removal of capital goods as such?
2. Inputs sent for job work to manufacture intermediate products. Under Rule 4(5a), credit is allowed even if the inputs or capital goods are sent for job work. Now it will be allowed even when they are sent for the manufacture of intermediate goods necessary for the manufacture of final products. Is this a change in policy? Will credit be allowed on explosives used in mines? Is JK Udaipur overruled by Government?
3. Clearances from job worker: As per Rule 4(6), Commissioner can permit clearance of final products from the job worker’s premises without bringing them back to the original factory. Now Assistant Commissioner/Deputy Commissioner can give this permission.
4. Dutiable and exempted final products- common input – fuel. As per Rule 6(2), if common inputs are used for manufacture of dutiable and exempted goods, the manufacturer is required to maintain separate accounts or pay 10% or reverse credit in certain cases. These restrictions do not apply to inputs intended to be used as fuel. Now the words “except inputs intended to be used as fuel,” are removed from the rule. What does this mean? If one of your inputs is a fuel and you have one exempted product, you are doomed, you can’t take credit! Is this the intention of the Government? We will hopefully know soon.
5. No Credit on inputs used exclusively in exempted goods. Government has added an explanation to Rule 6(3), “For the removal of doubts, it is hereby clarified that the credit shall not be allowed on inputs and inputs services used exclusively for the manufacture of exempted goods or exempted services.” This issue has an interesting history which will be carried in tomorrow’s DDT.
NOTIFICATION NO. dated the 16th May, 2005