We are a company engaged in the manufacture of pesticides at our facilities in Delhi and Gurgaon. We receive all inputs for manufacturing at the Delhi factory and avail of cenvat credit of excise duty paid, on such receipt. At times, we transfer inputs to the Gurgaon factory, and reverse proportionate credit on such inputs removed ‘as such’ from Delhi. In this regard, we have received a show-cause notice from the department as to why a proportionate credit of service tax paid on goods transport services received at the time of receipt of the inputs has not been reversed. Please let us know whether we need to reverse the proportionate input service tax credit availed of input services also, along with the reversal of credit availed of when the inputs are removed as such.
As per Rule 3(5) of Cenvat Credit Rules, when inputs or capital goods are removed ‘as such’ from the factory, an amount equal to the credit availed on respect of such inputs or capital goods is to be reversed or paid in cash. However, this rule does not provide for reversal of credit availed of input service used in respect of such goods. Accordingly, reversal of credit in respect to input services would not be required when the inputs or the capital goods are removed as such.
I am an engineering consultant and pay service tax under the category of consulting engineer’s services. Last month, I purchased a set of precision instruments on payment of excise duty and VAT. I am aware that in respect of duty paid on capital goods, cenvat credit can be availed of the extent of 50% of duty paid in the year of purchase, and the balance in the subsequent years. Please let me know whether the restriction applies only to excise duty or also on the education cess payable alongwith excise duty.
Rule 4(2)(a) of the Cenvat Credit Rules states that cenvat credit in respect of capital goods can be availed of up to 50% of the duty paid in the year of receipt in the factory. In this sub-section the term used is ‘duty’, which doesn’t reveal much as to whether cesses would also be included. However, Rule 4(2)(b) provides that ‘balance cenvat credit can be taken in any subsequent financial year’. Based on this, it can be said that since cenvat credit would include credit of education cess also, the credit