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A look at indirect tax intricacies
December, 25th 2009

We are a company engaged in organic chemicals manufacturing, which are covered under Chapter 29 of central excise tariff. In respect of these products, excise laws prescribe that repacking from bulk packs to retail packs shall amount to deemed manufacture and excise duty would be leviable on it.

As a business practice, our goods are transported to our factory in tankers/containers and thereon, offloaded into smaller drums at our warehouse. Please clarify whether such an activity would qualify as manufacture and, therefore, invite excise duty.

The Central Board of Excise & Customs (CBEC), in relation to goods covered under Chapter 29, has in a recent circular clarified that tankers/containers by which the goods are transported cannot be termed as bulk packs.

Therefore, the activity of transferring the goods from tankers into smaller drums would not amount to deemed manufacture under the excise laws. So, this activity would not invite excise duty.

Ours is an auto parts manufacturing company. We set up a factory in Ghaziabad 12 years ago and purchased certain machinery on payment of excise duty at that time. We had also availed the Modvat credit of duty paid on these machines.

We now wish to sell off these machines. In this regard, we understand that if capital goods are sold after being used, the amount of credit originally availed has to be paid/reversed, after reducing 2.5% for each quarter during which such goods were used.

However, as we would be selling the machines after using them for more than ten years, we understand that no reversal of credit would be required. Please advise.

As per the Cenvat Credit Rules, 2004, a deduction of Cenvat credit to the extent of 2.5% per quarter is available in respect of capital goods. This means that as per the rules, in case capital goods are used for more than ten years, 100% deduction of Cenvat credit would be available.

Accordingly, no reversal of credit would be required at the time of disposal of such goods. However, the CBEC has clarified that if capital goods are cleared as waste and scrap, excise duty would still be payable on the transaction value of such clearances.

Therefore, in your case, even though the Cenvat credit would not have to be reversed, excise duty may still have to be paid at the time these machines are sold.

 

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