Instructions regarding CENVAT - Central Excise - F. No. 345/2/2000-TRU

F. No. 345/2/2000-TRU Ministry of Finance Department of Revenue Tax Research Unit New Delhi, the 29TH August, 2000 To Commissioner of Central Excise (All) Sir, I am directed to refer to the CENVAT Rules and to say that since then certain points have been raised either by the field formations or by the industry which, they have requested, may be examined for consideration by the Government. These points have been raised having regard to the working of the CENVAT scheme so far since its inception from 1.4.2000. 2. A point has been raised that the CENVAT credit should be allowed in the event of additional demand of duty that may be confirmed against the manufacturer of inputs or capital goods. It has also been mentioned that in certain cases provisional assessment is resorted to on account of price escalation clause by way of an agreement between the buyer and the seller. 3. The matter has been examined in all its aspects. It has been decided that if the assessment is provisional, then the CENVAT credit of the additional amount of duty that may be recovered from the buyer may be allowed. For this purpose, it is necessary that the supplementary invoice should be issued by the manufacturer of inputs or capital goods. Such supplementary invoice has also been included in the category of eligible documents for CENVAT credit. 4. It has been represented that when the inputs are sent directly to a job worker, the erstwhile modvat credit scheme permitted availment of modvat credit under rule 57J read with the notification No.214/86-CE as amended. Several associations have requested that similar provision may be made in the CENVAT scheme. This request has been acceded to and rule 57AB (1) has been amended suitably for this purpose. The amended provisions of rule 57AB(1) apply to goods received in the factory on or after 1st April, 2000. Credit is therefore permissible in respect of intermediate goods received from a job-worker on or after 1.4.2000. Credit shall, of course, be allowed only if the intermediate products received by the manufacturer of the said final products are accompanied by any of the documents as specified under rule 57AE(1) evidencing the payment of duty on such inputs or capital goods. 5. Doubts have been expressed whether CENVAT credit in respect of the inputs lying in stock, inputs contained in the finished goods lying in stock and the inputs in process on the date when an SSI unit is required to pay excise duty after crossing the exemption limit of Rs.100 lakhs is admissible or not. In this context, it is clarified that when the SSI unit clears the goods at nil rate or 5% rate upto an aggregate clearance of Rs. 100 lakhs, it is on the condition that no CENVAT credit is taken on the inputs used in such goods. Once the limit of Rs. 100 lakhs is over and the unit starts paying full duty, the CENVAT credit is admissible. In the CENVAT scheme also, CENVAT credit can be taken on the inputs on which duty has been paid. Accordingly, once the embargo, which is applicable because of the SSI exemption notification, is lifted, the SSI unit is eligible to take CENVAT credit in respect of inputs lying in stock, on the inputs contained in the finished goods lying in stock and on the inputs in process. This would apply equally to any other assessee (non-SSI) who begins to pay duty in the middle of the year. For this purpose, it is obligatory on the assessee to quantify the amount of admissible credit on the basis of documentary evidence and records maintained for this purpose 6. Some references have been received seeking clarification whether CENVAT credit can be utilized for payment of duty on waste and scrap. The answer to this query lies in the affirmative for the simple reason that waste and scrap are "final products" within the definition under rule 57AA(c). 7. It has been pointed out that in some cases the manufacturers use raw materials for making packing material within the factory of production for packing of goods. It is stated that while packing material is specifically covered in the definition of "input", doubts have been expressed whether CENVAT credit is admissible on the raw material used for making the packing material. It is clarified that the CENVAT credit is also permissible on the raw material so used. This is for the reason that the packing material being an input, the raw material used for making the packing material is also to be construed as an input in or in relation to the manufacture of finished products. 8. Explanation 10 clause (b) of sub-rule (1) of rule 57AB refers to payment of appropriate duty of excise if the inputs or capital goods are removed as such from a factory. It has been pointed out that there may be a situation where the input or capital goods are exported. Doubt has been expressed whether such export clearances have to be made only on payment of duty. In this context it is clarified that under the excise procedures, a manufacturer can export the goods under bond without payment of duty. This is a facility that is available to the manufacturer under the excise procedure. In such case, the appropriate duty of excise that is payable is 'nil'. Therefore, there is no bar for a manufacturer to remove the inputs or capital goods for export under bond within the Explanation referred to above. 9. Referring to sub-rule (2) (c) of rule 57AC, it has been pointed out that there are cases in which the capital goods were received before 1st day of April, 2000, and also installed before that date. However, the modvat credit on the capital goods was not taken for some reason prior to 1.4.2000. It has been pointed out that in this situation, not being covered under rule 57AC(2) (c), the duty paid on the capital goods causes burden to the manufacturer. It has also been reported that in some cases the inputs were received in the factory on or before 31.3.2000 but credit was not taken for some reason. It is clarified that in the situations mentioned, even though the modvat credit was not taken by the manufacturer, the modvat credit had been "earned" by the manufacturer and, therefore, the manufacturer is entitled to take the CENVAT credit of this amount under rule 57AG(1). 10. Rule 57AC provides that CENVAT credit may be taken immediately on receipt of inputs in the factory. Some apprehensions have been expressed that if the CENVAT credit is not taken "immediately", like within 24 hours or so, the field officers may deny the CENVAT credit. The idea is that if the manufacturer desires he can take the CENVAT credit at the earliest opportunity when the inputs are received in the factory. This, however, does not mean, nor is it even intended that if the manufacturer does not take credit as soon as the inputs are received in the factory, he would be denied the benefit of CENVAT credit. Such an interpretation is not tenable. 11. It has been pointed out that in some cases the tyres cleared by the manufacturer on payment of CENVAT and special excise duty were received by the motor vehicle manufacturers for use as OE on or after 1.3.2000. It is stated that the CENVAT credit of the SED paid on such tyres, used as OE, is not admissible. This is not the intention. Accordingly, the CENVAT credit of the tyres cleared on payment of SED before 1.3.2000 has been allowed in the transition provision under rule 57AG. 12. Rule 57AC(2)(a) provides for CENVAT credit to the extent of an amount not exceeding 50% of the duty paid on the capital goods in the financial year in which the capital goods are received in the factory. In this context, clarification has been sought for as regards the status of the capital goods or other raw materials, which are classified and imported as project import under heading 98.01 of the Customs Tariff. It is clarified that in respect of capital goods, which are included in the project import, the CENVAT credit shall be admissible only to the extent of an amount not exceeding 50% of the additional duty of customs paid on such capital goods. However, on the other materials, which are not in the nature of capital goods, the CENVAT credit of the additional duty paid shall be allowed to the full extent. 13. It has been informed that non-woven mats, classified in Chapter 57 of the Schedule to the Central Excise Tariff Act, are used as inputs in cars and other motor vehicles. Such mats are subjected to CENVAT as also SED. However, at present the CENVAT credit of the SED on such mats is not permissible. Similarly, it has been pointed out that the CENVAT credit of the SED paid on SKD kits of two wheelers used for assembly of two wheelers by certain manufacturers is also not admissible at present. It has now been decided to allow the CENVAT credit of the SED on the aforesaid two products. The credit of SED shall be admissible in respect of these inputs received in the factory of the manufacturer of final products on or after 1st April, 2000. Rule 57AB and Rule 57AI have been amended suitably for this purpose. 14. Notification No. 51/2000-Central Excise (Non Tariff) dated 29.08.2000 has been issued to amend the CENVAT Rules. A copy thereof is enclosed. 15. The above clarifications/ decisions may kindly be brought to the notice of the trade and industry. (T.R. Rustagi) Joint Secretary to the Government of India