Boiler Credit - CBEC Responds
BY Circular No. dated 02.04.2012, Board made some very important clarifications.
"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)."
DDT did not make any adverse comments on this circular, when it was carried in DDT 1830 – 04.04.2012; in fact, we mentioned, "This is a beneficial clarification and let us hope the pending disputes would be settled".
In - 09.04.2012, we asked a question whether this clarification would apply to goods 'other than' boilers?
Board issued another Circular - , Dated: May 18, 2012, in which it was clarified that 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.
While reporting this in DDT 1861 - 21.05.2012, DDT observed, "It is beyond reason, why the Board should create so much confusion by issuing circulars. Can't they just be satisfied with their confusing rules and notifications? Should they complicate matters further by issuing clarifications on which further clarifications have to be issued within less than two months ?"
The CBEC responded pretty fast. Member (CX) in CBEC, Sreela Ghosh, spoke to DDT expressing her anguish at the harsh criticism, but patiently explained the need for the second circular.
The Director (CX) in the Board clarified the position as:
The relevant facts leading to the issuance of the circular no dated 2nd April 2012 are as follows:
++ The manufacturer of Boiler, clears the Boiler and it components/ parts/accessories after classifying them under tariff heading 8402 and pays the duty accordingly.
++ Amongst the parts cleared there are certain components which are used for construction of support to the Boiler. These too are classified by the Boiler manufacturer under the same heading.
++ The jurisdictional officers from where the Boiler and its parts/ components are being cleared are in agreement with the classification made.
++ However the officers in the jurisdiction where the CENVAT credit is being taken by the recipient of the Boiler and its parts, have been raising the issue with regard to the admissibility of CENVAT credit in respect of the certain components. The argument advanced by these officers is that since these structural components are not contributing to the functioning of the Boiler but are used for manufacture of supporting structure in respect of the Boiler, therefore they will be hit by the exclusion clause in the definition of input, read along with the decision of the tribunal in case of the Vandana Global []
After examination of the issue in consultation with the jurisdictional officers, the Board clarified that only those structural components which are essential for manufacture of the Boiler and are necessary for its operation shall merit classification under heading 8402. It was also clarified that since these structural components are essential to the functioning of the Boiler they shall be eligible for CENVAT Credit. The natural corollary to the assertion made is that those structural components which only provide support to the boiler (e.g. those used for laying foundation) will not be classifiable under heading 8402. Further as these structural components are used for construction of support to the Boiler the CENVAT credit shall not be admissible in respect of these items.
After issue of the Board circular dated 2 nd April 2012, certain doubts were expressed with regard to the scope of the clarification issued in the said circular. Accordingly a second circular vide dated 18th May 2012 was issued reiterating the position and indicating that admissibility of CENVAT credit on structural components used for construction of support to the Boiler are in accordance with the judicial pronouncements on the subject.
With regard to the issue of jurisdiction mentioned in the Article, it may be mentioned that it is a well settled law that goods are to be classified in the jurisdiction where they are manufactured and cleared and the jurisdiction in which they are received cannot alter the classification of the goods. The circulars in question do not attempt to clarify issue of the jurisdiction.
We are grateful to the Board for its prompt response and clarification. So, the position now is that structural components essential to the functioning of the Boiler are eligible for CENVAT Credit and classification of the product is not to be done at the receiving end. There can be absolutely no dispute with this view of the Board.
A responsive tax administration commands respect and confidence.