Cenvat availed capital goods cleared as such - The full circle- Is the problem solved?
To yesterday's DDT comments on the subject, two very knowledgeable netizens wondered whether the amendment really solves all the problems or whether fresh problems will crop up.
An Industry leader from Kochi remarked,
The amended Cenvat Credit Rules provide for "payment of amount equal to the Cenvat credit on the said capital goods reduced by 2.5 per cent for each quarter of a year or part thereof from the date of taking the Cenvat Credit" if "the capital goods, on which CENVAT Credit has been taken, are removed after being used"
At the same time the provision under sub Rule (5A) of Rule 3 of Cenvat Credit Rules 2004 continues to be there, which reads as under
(5A) If the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty leviable on transaction value.
(Is it not a fact that, for ascertaining the amount equal to duty leviable on the transaction value, some rate of duty is also to be applied? What is the duty rate to be applied in this case? Is it supposed to be the maximum rate leviable under CET Act which is 16% ? Whether the duty leviable under C.Ex.Tariff Act only is to be considered here or whether the ECS/SHECS also is to be considered? These aspects appear to have been ignored, leaving room for disputes and litigation)
Notwithstanding the above limitations/inadequacies of Rule 3(5A), reading both the provisions together, one is led to the following conclusion:
1. If the capital goods on which credit has been taken are removed after use, in such a manner that they can still be put to the same use in another premises/location, then amount equal to the cenvat credit on the said capital goods reduced by 2.5 percent per quarter, has to be paid;
2. If the capital goods on which credit has been taken are removed after use, as waste and scrap, amount equal to the duty leviable on transaction value has to be paid.
If such an interpretation is not possible, then both these provisions concurrently available, will only compound the confusion..
A leading advocate remarked,
Even after introduction of the 3rdproviso to Rule 3 (5) vide Notification No: 39/2007 CE (NT) dated 13.11.2007, there can be litigations. For instance, ina case of clearance of Capital goods after 10 years, nocredit reversal is called for as per the amendment introduced w.e.f. 13.11.2007, even if the CG fetches a price. However, the department may demand duty by calling the said clearance as"waste and scrap" in terms of Rule 3 (5A) of CCR, 2004. Similarly, in other situations of clearances of CG within 10 year period, the best of the above two provisions [3rd proviso to Rule 3 (5) or 3 (5A)] could be forced on the assessee by the department, with revenue bias.
While the CBEC has done a bit of improvement, the situation is not going to be litigation-free.
Let us hope the Board will allay these fears too. - In due course of course!