SSI- CENVAT - Capital Goods

[CA Akash Phophalia]

CENVAT credit scheme has been introduced to reduce the cascading effect of taxes. The scheme was introduce in the year 2004. According to which the assessee is eligible to avail CENVAT credit of duty paid on inputs, input services and capital goods. When assessee claims SSI benefit then he is eligible to claim CENVAT credit of the inputs and input services lying on the date when he is required to pay duty i.e. when his turnover crosses ₹ 150 lacs. It is further provided in rule 4(2) of CENVAT credit rules that the assessee is eligible to claim credit of the whole of the amount of duty paid on such capital goods in the same financial year when assessee is availing exemption under a notification based on the value of clearances.

Now one question arises that when person procures some capital goods during the period when his factory is under construction or during the period when he is availing exemption on the value of clearances then whether CENVAT on capital goods procured during such period is available?

In this regard it was held in the case of Well Kown Polyesters Limited and settled in the favour of assessee. The ratio agreed was :-

“…The appellant had relied upon the decision of the Tribunal in the case of J.R. Herbal Care India Ltd v CCE, Noida – 2010 (3) TMI 391 - CESTAT, NEW DELHI. In this case the appellant has received the capital goods while availing SSI exemption without taking registration. Cenvat credit was taken for capital goods for the years 2003-04 and 2004-05 but taken in the year 2005-06. This was allowed by the Tribunal. The tribunal took a view that there is no provision in the rules that the credit was not available to the unregistered manufacturers. Manufacturers exempted from registration do not cease to be manufacturer of excisable goods…. Therefore, in respect of goods manufactured during the period when appellant was not registered, credit can be taken subsequently also. This view is further supported by the consistent stand taken by judicial forums in the case of clandestine removals, even if the duty is paid subsequently, Cenvat credit on inputs will be available to the manufacturer/ assessee subject to the conditions that proper documents showing payment of duty are available….”

Thus even if manufacturer does not take registration or avail SSI exemption then CENVAT credit on the capital goods procured during that period is available.

Now the amendment is introduced on 1^st October 2014 in Cenvat Credit Rules in regard with the availment of CENVAT Credit and now the manufacturers are required to take CENVAT credit within six months of the date of invoice. Thus the ratio cited above seemed to stand loose for the invoices generated after 1^st October 2014 if the manufacturer avails SSI benefit for the period more than six months.

Views are welcome.

CA Akash Phophalia

Chartered Accountant

(BCOM (HONS), MCOM (FandT), CS, DISA, Certified Indirect Taxation of ICAI)

Office No 203, Amrit Kalash,

Residency Road, Near Bombay Motor Circle

Jodhpur – 342001

Rajasthan

0291-2640225, 9799569294

Discussions to this article

[PANKAJ GUPTA]

Dear Sir,

I think condition of taking Cenvat Credit with in 6 month from invoice date is only for cenvat related to Input and Input Service not for Cevat on Capital Goods. Pease clarify the same.

Regards

Pankaj Gupta

M-09212401641

[CA Akash Phophalia]

Dear Panakj Ji

I have rechecked and found that you are correct.

Thanks you very much.

Good thing is that the relevance of the case is still at its place...Cheers!!!!!

[Chintamani Bhide]

Mr. Akash and Mr. Pankaj,

I would like to draw your attention to one anomaly which needs to be removed. From 1st Oct.2014, credit on inputs and input services cannot be taken after 6 months from date of document specified under Rule 9. Suddenly, everyone was awaken and raised few queries about credit taken in time, but reversed in order to comply with certain rules such as Rule 4(5)a etc. Can re-credit will affect because of new provision ? Then Board came out with clarification vide Circular no. 990 saying that 'no, it will not affect re-credit, as once credit taken, the life of the document in question is over. and re-credit is on the basis of previous entry of reversal. However, nobody seems to have thought of the plight of SSI, who has a stock of Inputs procured 8 months back and credit could not be taken because the turnover was less than 1.5 Cr. The moment it crosses 1.5 cr. he is eligible to claim credit on inputs that have gone in stock of WIP as on the date of crossing turnover as well as finished goods cleared on payment of duty. The date of input document will be prior to 6 months limit. It is true that when he is near to the turnover limit, he should procure inputs judiciously, but still if it happens, should he lose this credit because document is more than six month old ?