Sub rule 5B of Rule 3 of the CENVAT Credit Rule 2004, provides that if the value of any:
- Input; or
- capital goods before being put to use,
on which CENVAT Credit has been taken is:
- written of fully or partially or
- where any provision to write off fully or partially has been made in the books of account,
then, the manufacturer of service provider shall pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods.
However, if the said input or capital goods is subsequently used in the manufacture of final products or provision of taxable services, the manufacturer of output service provider shall be entitled to take the credit of the amount equivalent to the CENVAT Credit paid earlier subject to the other provisions of these rules.
Points to be taken care of:
- No proportional reversal in case of partially written off (always full reversal of CENVAT credit.
- Capital goods should be unused before writing off or making provision to write off.
|Reversal of CENVAT Credit- Rule 3(5B/C)|
Sub rule 5C of Rule 3 of the CENVAT Credit Rule 2004, provides that:
Where on any goods manufactured or produced by an assessee, the payment of duty is ordered to be remitted /waived-off under rule 21 of Central Excise Rules, 2002, the CENVAT Credit taken on inputs used in the manufacture or production shall be reversed.
However, Rule 3(5C) doesn’t require reversal of credit availed on input services used in manufacture of destroyed goods (other than under Rule 21) on which duty has been ordered to be remitted. Therefore, no reversal is required to be made by company. Similarly, no reversal is required of credit availed on capital goods used in manufacture of such destroyed goods.
Note: Rule 21 of Central Excise Rules, 2002 provides remission/waiving-off of the duty on finished goods destroyed by natural cause/unavoidable accidents or rendered unfit for consumption.
Important Circular: Circular No. 907/27/2009-CX
Reversal of CENVAT Credit in respect of written off Finished Goods and WIP
A) Finished Goods written off:
If the goods have been manufactured, then
- a manufacturer is liable to pay excise duty unless duty is remitted under rule 21. Therefore, if the value of finished goods is written-off, the manufacturer would be liable to pay excise duty on such goods, or
- if the duty has been remitted on finished goods under rule 21, he would be required to reverse the credit on the inputs used in such goods, under rule 3(5C).
B) WIP written-off:
As regards writing off work in progress (WIP), 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 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.