Cenvat Credit on capital goods

January 19th, 2015

1 Capital Goods [Rule 2(a)]

Capital goods (machinery, plant, spare parts of machinery, tools, dies, etc. ) as defined
in rule 2(a), used for manufacture of final product and/or used for providing output taxable
service

Only those defined as capital goods eligible check chapter heads as specified in rule
2(a) before taking Cenvat Credit

Following capital goods are covered in clause (A)(i)of above definition Tools, hand
tools, knives etc. falling under chapter 82 * Machinery covered under chapter 84 *
Electrical machinery under chapter 85 * Measuring, checking and testing machines etc.
falling under chapter 90 * Grinding wheels and the like, and parts thereof falling under
sub-heading No 6804 * Abrasive powder or grain on a base of textile material, of paper, of
paper board or other materials, falling under chapter heading 6805

Steel, cement for construction does not fall within definition of capital goods

Spare parts, components, tools , dies are covered under the definition though normally
not capitalised in books of account

Dumpers and tippers eligible

Office equipment not eligible

Capital goods obtained on hire purchase, lease or loan are eligible for Cenvat credit.

2 Use of Capital Goods

Capital goods should be used in the factory. Capital goods used outside the factory for
generation of electricity for captive use within the factory eligible

Service provider can use capital goods anywhere, but capital goods should be used for
providing taxable service. Other capital goods are not eligible for service provider.

3 Motor Vehicle as capital goods eligible for service provider

Motor vehicles and chassis designed for transportation of goods used for renting of
vehicle, transportation of goods for providing taxable service and courier are eligible.
 Motor vehicles and chassis designed to carry passengers eligible if used for renting of
motor vehicle, transportation of passengers or training

The motor vehicle should be registered in the name of service provider.

4 Motor vehicles Eligibility to manufacturers

Cenvat credit is available only in respect of tractors, special purpose motor vehicles,
work trucks, bicycles, baby carriages and trailers and parts and accessories of all motor
vehicles

Their components and accessories eligible

Dumper and tipper eligible, if used within the factory

5 Restrictions on Cenvat Credit on capital goods

50% credit is available in current year and balance in subsequent financial year or years,
except in case of SSI

Assessee should not claim depreciation on duty portion on which he has availed Cenvat
credit. If value of machinery is ten lakhs plus excise duty 1.236 lakhs, claim depreciation
on ten lakhs only

6 Removal of capital goods after use

If capital goods are cleared after use, an amount payable by reducing the original
Cenvat credit @ 2.5% per quarter i.e. 10% per year.(Higher reduction in case of
computers)

If excise duty calculated on basis of transaction value of the old capital goods is higher,
then amount equal to that duty payable.

For example, capital goods were purchased on which Cenvat Credit availed was `
1,00,000. These were cleared after use for five years. Then amount to be paid (i.e.
Cenvat credit to be reversed) is ` 50,000 (10% per year). However, capital goods were
sold for ` 5,00,000 on which excise duty payableat current rate of 12.36% is 61,800. In
that case, amount payable will be ` 61,800.