CENVAT credit budget amendments: Taking the bad with the good

March 08,2016
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Rohit Jain, Partner, Economic Laws Practice
Divya Jeswant, Senior Associate

The Union Budget 2016-17 has amended the CENVAT Credit Rules, 2004 (‘Credit Rules’) significantly, which has far-reaching impact for industry.

While the CENVAT scheme is one of beneficiation for manufacturers and service providers, most disputes currently arise out of the interpretation of the provisions of the Credit Rules. The Union Budget amendments have taken a step forward to provide certainty on disputed issues, which amendments involve all four segments of the credit provisions – availment, reversal, distribution and utilisation of credit.

Availment of credit

Certain noteworthy amendments have been made to the definitional and the eligibility provisions, i.e. under Rules 3 and 4 of the Credit Rules.

(a) Capital goods:

The definition of “capital goods” has been modified to enable credit of wagons and also of equipments and appliances used in an office of a manufacturer. The former was held not to be available in terms of Bulk Cements Corporation (India) Ltd. vs. CCE [2013 (294) ELT 433 (Tri-Mum)], while the latter was previously specifically excluded from the definition.

CENVAT credit has been disallowed in respect of “capital goods” where they are used exclusively for exempt manufacturing / service for two years starting from the date of installation (or from the date of commencement of commercial production / rendition of service). Previously, there were two schools of thought on this issue – (i) credit could be availed if the assessee was not involved only in exempt activity on the date of receipt of the capital goods; or (ii) credit could be availed if the assessee had no intention to carry out only exempt activity on the date of receipt of the capital goods. This amendment now subverts both these tests to some extent and overcomes the decision in Brindavan Beverages Pvt. Ltd.

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