Sending of defective parts of capital goods to the foreign supplier for repair and return and availing of cenvat credit there on., Central Excise

[G GOSWAMI]

We the manufacturer of engineering products imported machines for manufacturing excisable goods. Some of which are more than 10 years old, some of which are 4-5 years old and some of which are 1-2 years old.Cenvat credit was availed on those machines. Now we require to send some defective parts of those machines to the foreign suppliers/agency for repair and return. CVD/SAD as applicable will be paid on those defective parts after returning to us. The said reimported parts will be fitted to their respective machines. Under this circumstances kindly opine that:

1. Whether the said defective parts could be sent to the foreign country under LUT ?-or any other procedure?

2. Whether cenvat on CVD/SAD credit on the said reimported parts/capital goods could be available?

Regards,

G.GOSWAMI

Posts / Replies

[Pradeep Khatri]

Dear G Goswami,

In our opinion, this matter pertains to exportation of defective parts of a particular machine on the basis of re-importation of such parts (duly repaired). One to one correlation of name of parts, part number while exporting and re-importing will be essence of this transaction. You have to be remain conscious in this regard.

Under LUT i.e. UT-1, you can do it.

First of all ,you would have to obtain NOC/GR-Waiver Form from your Authorized Dealers (i.e. your banker) by submitting the three copies of Commercial Invoice and Packing list duly providing the information about the defected parts' name , part no. nature of repair required. Commercial invoice would not show any amount in foreign currency as no amount would be chargeable by you on your counter part.

Commercial Invoice will also provide the reference no of the bill of entry through which such machine was imported. On the face of invoice this phrase should be mentioned " This consignment does not involve any foreign remittance and goods were re-imported into India after getting repaired. On repair charges appropriate customs duty would be paid."

After getting the NOC/GR-Waiver Form, One original copy of Noc/GR Waiver, Commercial Invoice, Packing list, ARE-1, Insurance Cover will accompany the goods for export purpose.

On the shipping bill, NOC/GR-Waiver Form Number must be mentioned.

Parts when repaired by your counter part, will be despatched along with their Invoice/bill for repairing charges.

You would file bill of entry for repaired goods by giving the reference of your export invoice/Shipping bill without payment of any customs duty. On the repair charges customs duty would be paid. You can avail the CENVAT credit on CVD and SAD against such payments of Customs duty.

Proof of export would be submitted with in 6 months from the date of ARE-1 or let export order as the case may be.

Counter part will be paid in foreign currency and relevant ECC copy of bill of entry along with Invoice raised by the counter part will be submitted to your banker along with GR Waiver Form, copy of Export Invoice packing list shipping bill to close this matter.

If required, you may also seek specific permissions from the Commissioner of Central Excise in this regard.

Regards

YAGAY and SUN

(Management and Indirect Tax Consultants)

[G GOSWAMI]

Respected Khatriji,

 

Many many thanks for your kind and specific views.I am totally unanimous with your wise opinion.

But the Excise authority objecting to avail cenvat credit on REPAIRED CAPITAL GOODS on the plea that the Rule 3(1) or 4(5a) of the Cenvat Credit Rules, 2004 and the Board's Circular F.NO.267/11/2010-CX Dated 8.7.2010 does not permit to take cenvat credit on REPAIRED CAPITAL GOODS. I think when cenvat credit is availed on proper prescribed duty paying document (Bill of Entry) as per Rule 9 CCR it can not be denied. Under this circumstances I

shall be highly obliged to have your kind opinion in this prospect.

 

Regards,

 

G.Goswami

[Pradeep Khatri]

Dear G Goswami,

Thanks for your kind appreciation.

In our opinion you can avail the CENVAT credit on the basis of B/E as it is a prescribed document in Rule 9 (1) of the CENVAT credit Rules, 2004 as amended from time to time. There cannot be two yard sticks, i.e. one for collection of Duties and Taxes, and other for denying the substantial benefits, such as, availment of CENVAT credit.

Rule 3(1), nowhere specify that on components/inputs/raw-material which are used in repair of capital goods, CENVAT credit cannot be availed.

Rule 4(5)(a), specify that Goods and/or Capital goods sent for job work for repair purpose, should be returned back within 180 days, and if, not returned within prescribed time, then, equivalent CENVAT credit must be reversed. Further, whenever such Goods and/or Capital goods returned back, then, CENVAT credit can be availed. Hence, there is no restriction, denial or stoppage of CENVAT credit in this scenario also.

Now coming back to Board's Circular F.NO.267/11/2010-CX Dated 8.7.2010. This circular is based on Vandana Global Ltd’s judgment which was overruled by Hon’ble Supreme Court in the matter of Rajasthan Spinning and Weaving Mills Ltd.

We are referring here the very crux of the both judgments for your kind perusal. After, going through these, you decide about the availability of CENVAT credit.

In the decision of the Larger Bench of the CESTAT in Vandana Global Ltd v CCE, Raipur 2010 (4) TMI 133 - CESTAT, NEW DELHI (LB), the Larger Bench held that Goods like cement and steel items used for laying 'foundation' and for building 'supporting structures' cannot be treated either as inputs for capital goods or as inputs in relation to the final products and therefore, no credit of duty paid on the same can be allowed under the CENVAT Credit Rules. This order was delivered on 30 th April 2010.

But the Supreme Court in CCE, Jaipur Vs. Rajasthan Spinning and Weaving Mills Ltd. - 2010 (7) TMI 12 - SUPREME COURT OF INDIA held that MS channels, plates, etc., used in its fabrication, were capital goods. This judgment was delivered on 9th July 2010 – that is after the Larger Bench decision.

Therefore, in this matter Tribunal Bench has held that, in view of the Supreme Court judgment, the view of the Larger Bench is no longer valid.

In case, if you have any doubt in this matter, then, you may approach to the jurisdictional AC/DC/Commissioner of the Central Excise and you may also refer our reply while seeking clarification/discussing/arguing this matter.

Further, we seek long term relationship with you and with your organization.

We remain.

YAGAY and SUN

(Management and Indirect Tax Consultants)

Mobile:- 09818131923

E-Mail:- [email protected]