The Associated Chambers of Commerce and Industry of India (Assocham) has suggested amendments to the CENVAT credit rules to extend 100 per cent CENVAT credit on capital goods at par with inputs.
The chamber, in a note to the Finance Ministry, has stated that the manufacturers are paying 100 per cent excise duty and as such CENVAT credit also should be allowed on such excise duty paid by the manufacturers.
At present, the CENVAT credit rules provide for availment of CENVAT credit on inputs or capital goods.
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Even though 100 per cent CENVAT is allowed on the input at the time of receipt, 50 per cent CENVAT credit is only allowed on the capital goods in the year of receipt and the manufacturer has to wait till the next financial year for availing the balance 50 per cent CENVAT credit.
In fact, the manufacturer is made to pay 100 per cent excise duty on inputs as well as capital goods. When, 100 per cent CENVAT is allowed on receipt of inputs there is no reason why the balance 50 per cent CENVAT credit is deferred till the succeeding financial year.
Based on the feedback received from trade and industry, Assocha has pointed out that if a manufacturer has to return the capital goods to the OEM in the year of receipt for inherent manufacturing defect noticed subsequent to receipt of the same he has to pay the entire excise duty leviable on such capital goods although he has availed only 50 per cent CENVAT credit of the duty paid by him.
Similarly a manufacturer will lose 50 per cent CENVAT credit if he proposes to transfer capital goods to another manufacturing location belonging to him in the financial year of receipt of the capital goods.
The same situation prevails when the capital goods may have to be sold after finding that such capital goods are not serving the intended purpose.