Tool amortisation., Central Excise

[JAYARAMAN RAMAMURTHY]

we had provided our tools to our vendor. the tool cost is say ₹ 100000 and 10000 pcs can be made out of the tool. Vendor made the tools and we paid for the tool and the tools are retained at the vendor end to supply components to us.

pl explain us

1; Excise duty on tool amortisation - how to handle? pl explain with various scenarios ..

2. after some time say after supply of 2000 pcs, I prefer to shift the tool to another vendor? how to handle - any payment of excise duty.

3. After 5000 pcs, I intend to scrap the tool. what is theprocedure.

4. after 8000 pcs, I intend to take the tool to my premise. what is the procedure on excise.

pl help us with your inputs.

regards

J Ramamurthy

TAFE.

Posts / Replies

[surya narayana]

Dear Mr. Jayaraman,

You have not stated whether the components manufactured by the vendor by using the tool provided by you ( which was bought by you from the vendor) supplied on payment of duty or otherwise. In the absence of this , it would be difficult to comment on the situation. However, I am giving the following points which may of help for you.

1. If the arrangement is on job work basis, the question of amortization does not arise( since you are going to pay the duty.

2. You may kindly aware, the general practice of amortization is value by the number of pieces in this case and

the value to be amortized accordingly till the expected life/completion of estimated pieces irrespective of the vendor.This is because, as a general practice, you might be informing your jurisdictional Excise Authorities.

3. In a scenario where, the components are manufactured by the vendor using the tool provided by you and clearing the components on payment of duty, then he can amortize the value accordingly by giving a proper intimation to his excise authorities. ( assuming the vendor is availing the cenvat credit of duty paid on such tool)

Regards

Suryanarayana

[Rajagopalan Ranganathan]

Sir,

Since your vendor got manufactured the tool there are two scenarios, namely he may get it manufactured by another manufacturer who may be availing SSI exemption. In this the manufacturer will not pay any duty if his clearance is within the limit of 150 lakhs. Otherwise he will pay duty and clear it you vendor. In that case you vendor can avail cenvat credit of duty paid on the tool and use it for discharging his duty liability on the components cleared by the vendor to you.

If after supply of 2000 pcs if you shift the tool to another vendor since tool is a capital goods your first vendor will pay duty on the depreciated value of the tool under rule 3 (5A) (a) of Cenvat Credit Rules, 2004 and your second vendor can avail the duty paid by first vendor as credit and utilize the same for payment of duty on the components cleared by him to you.

After supply of 5000 pcs if you scrap the tool then under rule 3 (5A) (b) of the credit rules, you have pay duty on the transaction value of such scrapped tool if you clear it from the premises of the second vendor or you can destroy the scrapped tool and claim remission of duty under rule 21 of Central Excise Rules, 2002.

If you bring back the tool to your factory after manufacture of 8000 pcs, then you have to pay duty on the depreciated value of the tool under rule 3 (5A) (a) of Cenvat Credit Rules, 2004 and you can avail the credit of such duty paid.

 

[YAGAY AND SUN]

In addition to above replies, no VAT/CST would be applicable on the amortized value of capital goods as it is now a settled legal position to not to charge VAT/CST on amortized value. It can form part of value for calculation of Central Excise Duty only.