Low Value Capital Goods as Inputs - Beneficial or baneful?
A major textile manufacturer writes in:
We are a Composite Textile manufacturer.
At Present, we have opted simultaneous availment of Notification No. 30/2004-CE dt.09.07.2004 for clearance of finished goods under Nil Rate of duty & concessional Rate of Duty under Notification No. 7/2012-CE or Tariff rate.
We are not availing CENVAT Credit on Inputs and Input Services as per the condition of Notification No.30/2004-CE.
We avail CENVAT Credit on Capital goods/ Spares part and as per CENVAT credit Rules Rule 4 (2)(a), 50% of Capital Goods CENVAT credit is eligible in first year of receipt and remaining 50% will be eligible in subsequent year/years.
In the Budget-2016,vide Notification No. dated 01.03.2016 w.e.f.01.04.2016 the following clause (v) has been inserted in Rule 2 (k) definition of inputs under CENVAT Credit Rules Rules,2004.
“(v) all capital goods which have value upto ten thousand rupees per piece”
In terms of above amendment,Capital Goods up to value of Rs. 10000/- has been included in the definition of Inputs and a manufacturer can avail full credit in the first year itself instead of keeping 50% for remaining FY under Capital goods definition.
The intention of above changes in the definition of Inputs is to have full CENVAT credit of capital goods upto Rs. 10000/- in the same year of receipt.
However, this change is a major setback for Textile Industries who opted both notification simultaneously. Therefore, availment of CENVAT Credit as per above amendment would be violation of condition of Notification no. 30/2004-CE.
In view of the above, we request you to highlight the issue for better clarifications providing option of availing of such CENVAT credit under both capital goods and Inputs definition.
The Budget Notification No. , dated 1.3.2016 also stipulates that input excludes capital goods except when, the value of such capital goods is upto ten thousand rupees per piece.
This would mean that capital goods valued at less than ten thousand rupees will remain as capital goods even though they are deemed inputs now. But this provision is confusingly drafted that even a major textile manufacturer is not sure and wants a clarification from the Government. And such an element of doubt is enough for Show Cause Notices to start flying around.
The Board should immediately clarify that the low value capital goods will be both capital goods and inputs as per the choice of the assessee, lest the boon given by the Board should not end as a bane.