KPMG FLASH NEWS

KPMG IN INDIA

The Central Government amends Rule 3 of the CENVAT Credit Rules, 2004
10 January 2014

Background
The Sub-Rules 5, 5(A), 5(B) and 5(C) of Rule 3 of the
CENVAT Credit Rules, 2004 prescribes the provisions
relating to treatment of CENVAT Credit availed, under the
aforesaid circumstances :

Removal of inputs or capital goods, as such

Removal of capital goods, after being put to use

Removal of capital goods as waste/ scrap

Writing off the value of inputs or capital goods, in the

books of account, before putting to use or creating a
provision in the books of account - (whether fully or
partially)

Remission of duty payable on the final products

Amendment
On 8 January 2014, the Government of India has issued a
Notification amending the provisions of Sub-Rules 5, 5(A),
5(B) and 5(C) of Rule 3 of the CENVAT Credit Rules,
2004.

The relevant provisions before the said amendment

were as follows:
Rule
Rule
3 (5)

Rule
3
(5A)

Provisions before amendment

When the inputs or capital goods, on
which CENVAT Credit has been taken,
are removed as such, the manufacturer
or the service provider is required to pay
an amount equal to the credit availed in
respect of such inputs or capital goods.
(a) If the capital goods, on which
CENVAT Credit has been taken,
are removed after being used, the
manufacturer or service provider
shall pay an amount equal to the
CENVAT Credit taken on the said
capital goods. However, reduction
may be claimed from the payment,
at the rates prescribed in this
regard,
depending
upon
the
duration for which the capital goods
are put to use.

2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved.

In case duty leviable on the transaction

value is more than the duty payable as
computed above, the amount to be paid
shall be equal to the duty leviable on
transaction value.

reversed. Now this Rule is amended to provide that,

even the CENVAT Credit taken with respect to input
services used in or in relation to the manufacture or
production of said goods, is required to be reversed.

If the capital goods are cleared as waste

and scrap, the manufacturer is required to
pay an amount equal to the duty leviable
on transaction value.
If the value of any inputs or capital goods,
before being put to use, on which CENVAT
Credit is taken, is written off fully or partially or
where any provision to write off fully or partially
has been made in the books of account, the
manufacturer or service provider is required to
pay an amount equivalent to the CENVAT
Credit taken in respect of the said input or
capital goods.
Where on any goods manufactured or
produced, the payment of duty is ordered to be
remitted under Rule 21 of the Central Excise
Rules, 2002, the CENVAT credit taken on the
inputs used in the manufacture or production of
said goods is required to be reversed.

In case the inputs/capital goods are removed as such

or after being put to use or removed as scrap, or its
value is written off in the books of account, an amount
equal to the credit availed has to be paid back.
However there was no clarity as to when this amount
is to be paid? Is it on the date of removal of
inputs/capital goods or similar to other duty payments,
by the 5th of the following month? Whether CENVAT
Credit balance could be utilised for making this
payment etc.?

(b)

(c)

Rule 3
(5B)

Rule 3
(5C)

However, there was no clarity as to whether the said

amount is required to be paid only in cash or whether the
CENVAT Credit balance could be utilised, towards the said
payment.
Further, there was no clarity as to whether the said amount
is required to be paid immediately at the time of clearance
of inputs/capital goods or writing off its value in the books of
account or remission of duty on the final products, as the
case may be; or whether the same could be paid on a
monthly basis similar to duty payment on manufactured
goods.
Vide this amendment, an Explanation is inserted in the
Rules to provide that, the said amount could also be paid by
utilising the CENVAT Credit balance.
Further, the Explanation provides that, the said amount may
be paid (in cash or by utilising credit) on or before the 5th
day of the following month (except for the month of March,
where payment is required to be made before 31st March),
i.e., on monthly basis, and not on transaction to transaction
basis.
Further, as per Rule 3 (5C), where on any goods
manufactured or produced, the payment of duty is ordered
to be remitted under Rule 21 of the Central Excise Rules,
2002, the CENVAT Credit taken on the inputs used in the
manufacture or production of said goods, is required to be

Our comments

However, the judicial decisions including in the case of

CCE, Raigad v. Savita Polymers Limited, 2007 (208)
ELT 0200 (Tri - Mumbai), CCE, Raigad v. Cadila
Healthcare Limited, 2007 (079) RLT 0300 (CESTATMum.), KLRT Textiles v. CCE, Tirunalveli 2005 (188)
ELT 0169 (Tri. - Chennai), etc., consistently held that,
the CENVAT Credit balances could be used for paying
the said amount and the said amount may be paid on
a monthly basis. This position also appears to be
settled.
Further, Vide Notification No. 8/2007-C.E (NT) dated
01 March 2007 the Central Government has amended
the provisions of Rule 8 of the Central Excise Rules,
2002, with effect from 01 April 2007, which deals with
the provisions relating to payment of duty. As a result
of the said amendment, the expressions Duty or
Duty of excise used in the said Rule shall also
include the amount payable in terms of the CENVAT
Credit Rules, 2004.
Therefore this clarity was
provided to a certain extent in the Central Excise
Rules, 2002, in April 2007 itself.
Now this amendment brings more clarity and provides
that CENVAT Credit balances can also be used for
making payment in the aforesaid circumstances.
Further it also clarifies that, the CENVAT Credit
balances may be debited once in a month, instead of
doing the same on transaction to transaction basis.
Further, an Explanation is also added below sub-rule
5C to prescribe that in the event of failure to pay the
amount payable under sub-rules (5), (5A), (5B) and
(5C), it shall be recovered, in the manner as provided
in Rule 14, for recovery of CENVAT credit wrongly
taken and utilised. Earlier, this provision was limited to
sub-rules (5), (5A) and (5B).

2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved.

www.kpmg.com/in

Ahmedabad
Commerce House V, 9th Floor,
902 & 903,Near Vodafone
House,Corporate Road,
Prahlad Nagar,
Ahmedabad 380 051
Tel: +91 79 4040 2200
Fax: +91 79 4040 2244

Hyderabad
8-2-618/2
Reliance Humsafar, 4th Floor
Road No.11, Banjara Hills
Hyderabad 500 034
Tel: +91 40 3046 5000
Fax: +91 40 3046 5299

Bangalore
Maruthi Info-Tech Centre
11-12/1, Inner Ring Road
Koramangala, Bangalore 560 071
Tel: +91 80 3980 6000
Fax: +91 80 3980 6999

Kochi
4/F, Palal Towers
M. G. Road, Ravipuram,
Kochi 682 016
Tel: +91 484 302 7000
Fax: +91 484 302 7001

Chandigarh
SCO 22-23 (Ist Floor)
Sector 8C, Madhya Marg
Chandigarh 160 009
Tel: +91 172 393 5777/781
Fax: +91 172 393 5780
Chennai
No.10, Mahatma Gandhi Road
Nungambakkam
Chennai 600 034
Tel: +91 44 3914 5000
Fax: +91 44 3914 5999
Delhi
Building No.10, 8th Floor
DLF Cyber City, Phase II
Gurgaon, Haryana 122 002
Tel: +91 124 307 4000
Fax: +91 124 254 9101

Kolkata
Infinity Benchmark, Plot No. G-1
10th Floor, Block EP & GP,
Sector V Salt Lake City,
Kolkata 700 091
Tel: +91 33 44034000
Fax: +91 33 44034199
Mumbai
Lodha Excelus, Apollo Mills
N. M. Joshi Marg
Mahalaxmi, Mumbai 400 011
Tel: +91 22 3989 6000
Fax: +91 22 3983 6000
Pune
703, Godrej Castlemaine
Bund Garden
Pune 411 001
Tel: +91 20 3050 4000
Fax: +91 20 3050 4010

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we
endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue
to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity. All rights reserved.
2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
The KPMG (KPMG
name, logo
and cutting athrough
complexity
are reserved.
registered trademarks of KPMG International Cooperative (KPMG International), a Swiss entity.
Cooperative
International),
Swiss entity.
All rights