CENVAT ON REMOVAL OF CAPITAL GOODS

In respect of Capital Goods removed after use, there was an issue as to

Whether the entire credit taken initially has to be reversed since the capital

goods are not removed 'as such' and the value of capital goods would have

depreciated over the years. In certain cases, the amount to be paid on removal

after use is higher than the transaction value of the capital goods so used and

sold...

A lot of decisions have supported the view that the entire credit taken shall not

be reversed since the capital goods are "removed only after use" and not

"removed as such". In some cases assesssees have paid duty on the transaction

value of the sale of the used capital goods. In some cases assessees have argued

that there is no requirement for payment of duty at all in such cases since

nothing is prescribed in the rules.

To address this anomaly, the Cenvat Credit Rules, 2004 have been amended

vide Notification 39/2007-CE(NT), dated 13.11.2007 by inserting another

proviso in Rule 3(5) of the Rules as under:

“Provided also that if the capital goods, on which CENVAT Credit has been

taken, are removed after being used, the manufacturer or provider of output

service shall pay an amount equal to the CENVAT Credit taken on the said

capital goods reduced by 2.5 per cent for each quarter of a year or part thereof

from the date of taking the Cenvat Credit;”

Therefore, the entire amount of cenvat credit taken need not be paid. The

amount to be paid shall be :

Cenvat credit taken xxxx

(-) 2.5% for each quarter of a year or part thereof xxxx