Clarification on issues related to reversal of cenvat credit on WIP/ finished goods written off in the books of accounts

Excise Circular : Circular No. 907/27/2009-CX

As per Rule 3(5B) of CENVAT Credit Rules, 2004, if the value of inputs is fully written off, then the manufacture is required to pay an amount equal to cenvat credit taken. However, there is no provision to demand reversal of credit taken on inputs which have gone into manufacture of work in progress (WIP), semi finished goods and finished goods which have also been written off fully in the books of accounts.

As far as finished goods in concerned, it is stated that excise duty is chargeable on the activity of manufacture or production. Even though liability for payment of tax has been postponed to the time of removal of goods for the factory, but still the legal liability to pay the excise duty has been fastened on the goods, when it has been manufactured or produced. Therefore, normally all goods manufactured suffer excise duty at the time of removal, but if the manufactured goods are destroyed due to natural causes etc., Rule 21 of Central Excise Rules, 2002, provides for remission of duty.

As regard writing off work in progress (WIP), it is stated that if the WIP has reached the stage, when it can be considered as manufactured goods, in that case, the same treatment as applicable to finished goods, discussed in para2 above would apply. However, if the activity carried out on the WIP goods cannot be considered as amounting to manufacture, in that case, the said goods should be considered as input and the treatment for reversal of credit applicable to input would be applicable.

Click the title for the text of the circular.

Amendment to CENVAT Credit Rules, 2004 (Second Amendment)

CBEC has amended CENVAT credit rules, 2004 vide notification no. 22/2009 C.E. (N.T.), dated 07-09-2009. Click the above link for the text of the notification. 

Liability of interest where CENVAT credit was wrongly taken but reversed by assessee before utilization

Liability of interest where CENVAT credit was wrongly taken but reversed by assessee before utilization

Circular No. 897/17/2009-CX, dated 3-9-2009

Representation has been received from the field formation stating that the decision of Hon’ble High Court of P&H in the case of CCE, Delhi III V/s Maruti Udyog Ltd. [2007(214)ELT173(P&H)], has upheld the order of Tribunal wherein it was held that assessee is not liable to pay interest in the case where credit was only taken and not utilized. The SLP against this order has been dismissed by the Hon’ble Supreme Court. On the other hand, Rule 14 of The CENVAT Credit Rules, 2004, provides for recovery of credit taken or utilized wrongly with interest. In view of this conflict in legal provisions and the decision of Hon’ble Supreme Court, a clarification has been requested from the Board.

2. The matter has been examined. It is seen that the Tribunal decision and the High Court judgement referred to above, was delivered in the context of erstwhile Rule 57I of the Central Excise Rules, 1944 and that the Supreme Court order under reference is only a decision and not a judgement. Since, the Rule 14 of the CENVAT Credit Rules, 2004, is clear and unambiguous in the position that interest would be recoverable when CENVAT credit is taken or utilized wrongly, it is clarified that the interest shall be recoverable when credit has been wrongly taken, even if it has not been utilized, in terms of the wordings of the present Rule 14.

3. Trade & Industry as well as field formations may be suitably informed.

4. Receipt of this circular may kindly be acknowledged.

CENVAT on service tax paid under reverse charge

Admissibility of credit of Service Tax paid as recipient under section 66A of the Finance Act, 1994

Letter F.No.354/148/2009-TRU, dated 16-7-2009

Please refer to your letter F. No. LTU/MUM/CX/TECH/MISC/3/2008 dated 10 th July, 2009 wherein you have pointed out that while the list of duties/taxes mentioned under Rule 3 of the CENVAT Credit Rule, 2004 covers section 66 of the Finance Act 1994, it does not mention section 66A of the Finance Act. 1994. You have stated that Section 66A of the Finance Act refers to payment by recipient of service imported from abroad, under reverse charge method and, therefore, the absence of mention of this section, legally makes credit of such tax paid ineligible. It has also been mentioned that while Board's letter F.No.BI/4/2006-TRU dated 19th April, 2006 clarified that if such imported service is used as input for providing any taxable output service, the service tax paid on such service can be taken as input credit, CERA has taken objection in view of the absence of specific mention of section 66A as stated above.

2. The matter has been examined. The provisions under section 66A state that in case service is provided from abroad and received in India , such taxable service shall be treated as if the recipient had himself provided the service in India , and accordingly all the provisions of Chapter V of the Finance Act, 1994 would apply. Therefore, it is clear that section 66A is not a charging section by itself. In fact, it only creates a legal fiction to deem import of service as provision of service within India so that the provisions of Chapter V of the Finance Act, 1994 can be applied to. The charging section remains section 66 even for the service imported. In other words, the tax collected from the recipient in terms of Section 66A is also tax chargeable under section 66 of the Finance Act, 1994.

3. In view of the foregoing, it is clear that there is no mistake or omission in the relevant provisions of the CENVAT Credit Rules, 2004 and that credit of tax paid on imported services should be allowed if they are in the nature of input services.

4. The CERA objection on the subject may, therefore, be replied to accordingly.