Inputs or Capital Goods Cleared as such - Reversal of CENVAT Credit - Board Overrules CAG
THE CAG in one of its recent reports on Central Excise observed,
As per rule 3(5) of the Cenvat Credit Rules, 2004, when input or capital goods on which Cenvat credit has been taken, are removed as such from the factory, the manufacturer of final products shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in rule 9. However, there is no provision for reversal of proportionate Cenvat credit of input services at the time of clearance of inputs/capital goods as such .
So the CAG has suggested that:
Board may consider incorporating suitable provisions in Cenvat Credit Rules, 2004 requiring reversal of proportionate credit attributable to input services at the time of clearance of inputs or capital goods as such .
While reporting this, DDT 2592 07 05 2015, observed, "Let us hope the Board doesn't embark upon any such misadventure, which would make life more miserable for the assessee, and the revenue earned will not cover the cost of even one audit report."
We are happy to report that the CBEC has taken a very positive decision.
This was an issue discussed in the recent Tariff Conference and it was noted that Rule 3(5) of the CENVAT Credit Rules, 2004 does not provide for reversal in respect of input services for a reason. Input services are consumed once the inputs and capital goods are received in the factory. Thus on receipt of inputs and capital goods, the associated input services have to be considered as consumed within the factory and become a cost to the business. Demand for reversal of the input services credit, when such input services cannot be reused, unlike inputs and capital goods which are available for reuse would not be fair to the trade.
It was concluded that the present rule represents the correct provision in accordance with the principles of input tax credit. Rule 3(5) of the Cenvat Credit Rules, 2004, does not need any amendment. Audit para may be replied accordingly.
What a refreshing change that the Government wants to be fair to the trade and actually clarifies a point in favour of the trade against Audit - to be fair. Obviously some sections of the Board do consider issues fairly.