Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise & Customs)
New Delhi, dated the 7th December, 2009.
Circular No. 907/27/2009-CX
To,
All Chief Commissioners of Central Excise (including LTU),
All Commissioners of Central Excise (including LTU),
All Director Generals.
Sir/ Madam,
Subject: Clarification on issues related to reversal of cenvat credit on WIP/
finished goods written off in the books of accounts -reg.
References have been received from field formations stating that as per Rule
3(5B) of CENVAT Credit Rules, 2004, if the value of inputs is fully written off,
then the manufacture is required to pay an amount equal to cenvat credit taken.
However, there is no provision to demand reversal of credit taken on inputs
which have gone into manufacture of work in progress (WIP), semi finished goods
and finished goods which have also been written off fully in the books of
accounts.
- The matter has been examined. Rule 3(5B) of the CENVAT Credit Rules, 2004,
provides that if the value of any input on which cenvat credit has been taken is
written off fully in the books of accounts, then the manufacturer is required to
reverse the credit taken on the said input. As far as finished goods in
concerned, it is stated that excise duty is chargeable on the activity of
manufacture or production. Even though liability for payment of tax has been
postponed to the time of removal of goods for the factory, but still the legal
liability to pay the excise duty has been fastened on the goods, when it has
been manufactured or produced. Therefore, normally all goods manufactured suffer
excise duty at the time of removal, but if the manufactured goods are destroyed
due to natural causes etc., Rule 21 of Central Excise Rules, 2002, provides for
remission of duty. Further, Rule 3(5C) of CENVAT Credit Rules, 2004, also
requires reversal of credit on the inputs when the duty is ordered to be
remitted under the said Rule 21. Therefore, if the goods have been manufactured,
in that case, 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 or he would be required
to reverse the credit on the inputs used, if duty has been remitted on finished
goods.
- As regard writing off work in progress (WIP), it is stated that 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 in para2
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.
- Trade & Industry as well as field formations may be suitably informed.
- Receipt of this circular may kindly be acknowledged.
- Hindi version will follow.
Yours faithfully,
(Amish Kumar Gupta)
OSD (CX-8)
F.No.267/141/2009-CX8