CAPITAL GOODS ACQUIRED ON LEASE, HIRE PURCHASE etc,

 

by

 

VIJAY. K. KUMAR

MA, B.Ed,BL,MBA

SUPERINTENDENT OF CENTRAL EXCISE

 

 

In terms of Rule 4(3) of the new Cenvat rules " The CENVAT credit in respect of the capital goods shall be allowed to a manufacturer even if the capital goods are acquired by him on lease, hire purchase or loan agreement, from a financing company.

 

Is this a clarification? Nowhere else in the rules is there a restriction on allowing credit on capital goods acquired on lease, hire purchase etc,. Then why a specific mention that credit is allowed on such acquisition?

 

To understand this riddle, perhaps a flash back is called for. Let us peep into the history of credit on capital goods acquired on lease, hire purchase etc,

In the beginning when credit on Capital goods was introduced by Notification No. 4/94-Central Excises (N.T), dated 1.3.1994, the relevant rule namely Rule 57 R (3) stood as,

(3) No credit of the specified duty paid on the capital goods shall be allowed if such capital goods are acquire by a manufacture on lease, hire-purchase, loan or by any other transaction other than direct purchase, whereby the property in the said capital goods is not transferred to such manufacture.

 

So here was a clear bar on allowing credit if the capital goods were acquired on lease, hire purchase etc, It was also required that the capital goods be by direct purchase.

 

This provision of course did not last long. The rule was amended by notification No. 26/94-CE (NT), dated. 17.6.1994, substituting Rule 57 R (3) with,

"(3) The credit of the specified duty paid on the capital goods shall be allowed if such capital goods are acquired by a manufacturer on lease, hire-purchase or loan agreement, subject to such conditions and restrictions that may be specified in the notification issued by the Central Government."

From a total ban, it now became a conditional eligibility. The Government was prompt to issue the notification as required under the above mentioned rule. On the same day, by Notification No. 27/94-CE(NT) dated 17-06-1994, conditions were prescribed.

27/94 CE(NT), dt. 17.6.1994 : In exercise of the powers conferred by sub-rule (3) of rule 57R of the Central Excise Rules, 1944 (hereinafter referred to as the said Rules), the Central Government hereby specifies the following conditions and restrictions that shall be observed by a manufacturer availing credit of the specified duty paid on the capital goods when such capital goods are acquired on lease, hire-purchase or loan agreement, from a financial company :-

(i) The manufacturer shall file a declaration before the Assistant Collector of Central Excise as required under rule 57T of the said Rules;

(ii) When the manufacturer availing credit of the specified duty paid on capital goods has entered into a financial arrangement for financing the cost of such capital goods excluding the specified duty, the manufacturer shall produce a copy of the invoice as referred to in rule 57T of the said Rules, evidencing payment of specified duty along with a copy of the agreement with the financial company;

(iii) When the manufacturer availing credit of the specified duty paid on capital goods has entered into a financial arrangement to finance the cost of such capital goods including the specified duty, the manufacturer shall produce a certificate from the financial company that duty specified on such capital goods has been paid by the said manufacturer to such financial company, prior to the first lease rental instalment or the first hire-purchase instalment or the first loan instalment of repayment of loan along with a copy of the agreement :

Provided that no credit of the specified duty paid on such capital goods shall be allowed unless such specified duty represents the whole of duty payable on such capital goods;

Thus an elaborate procedure was prescribed for allowing credit on capital goods acquired on lease, hire purchase etc,. Why this was required at all was any body's guess as later events proved that they were not really necessary.

 

The law remained boringly static for almost three long years, when it was again amended by Notification No. 6/97-CE (NT) dated 01-03- 1997.The conditions prescribed in the notification earlier were incorporated into the rule itself. The new rule 57 R (3) read as,

(3) The credit of the specified duty paid on the capital goods shall be allowed to a manufacturer if the capital goods are acquired by the manufacturer on lease, hire-purchase or loan agreement, from a financing company subject to the following procedure, namely :-

1. The manufacturer shall file a declaration before the Assistant Commissioner of Central Excise as required under rule 57T;
   
2. The manufacturer availing credit of the specified duty paid on capital goods, who has entered into a financial arrangement. -
   
   1. for financing the cost of such capital goods excluding the specified duty, shall produce a copy of the invoice referred to in rule 57T, evidencing payment of specified duty along with a copy of the agreement entered into by him with the said financing company; or
      
   2. for financing the cost of such capital goods including the specified duty, shall produce a certificate from the financing company to the effect that the duty specified on such capital goods has been paid by the said manufacturer to such financing company, prior to payment of first lease rental instalment or first hire-purchase instalment or first instalment of re-payment of loan, as the case may be, along with a copy of the agreement entered into with the said financing company.
      
3. The manufacturer and the financing company shall not claim depreciation under the Income-tax laws on that part of the value of capital goods which represents the amounts of specified duty paid on such capital goods.
   
4. The relevant documents required for the purpose of availing credit of the specified duty paid on such capital goods under rule 57T shall bear the name of the manufacturer along with that of the financing company.
   

Interestingly there was no set proforma for the declaration under Rule 57 T. So Commissioners prescribed the proforma. One such form prescribed by Cochin – I Commissioner, vide Trade Notice 73/99- dated 21-06-1999 mentioned a declaration which the assessees were required to file, which read as,

"9. I/We declare that :

1. I am/we are the absolute owner(s) of the above capital goods as described above and have not acquired the same under lease/hire-purchase/loan; OR
   
2. I am/we are not absolute owner of the above capital goods, the mode of acquisition/prosecution/possession of capital goods is enclosed as per Annexure"
   

 

Hire purchase thus became a procedure ridden problem. And remained so till the next round of amendments came, predictably after three years. The maximum shelf life for most of the Modvat Rules was three years. Of course for Cenvat it is still less.

 

By Notification No. 27/2000-CE (NT) dated 1.4.2000, the Cenvat Rules 57AA to 57 AK were introduced. And our capital goods acquired on lease, hire purchase etc, underwent another major change. The new Rule 57AC. (3) read,

"The CENVAT credit in respect of duty paid on the capital goods shall be allowed to a manufacturer even if the capital goods are acquired by the manufacturer on lease, hire purchase or loan agreement, from a financing company"

Now credit was made available even if the capital goods were acquired on lease, hire purchase etc, with absolutely no conditions! All the procedural rigmarole over the last six years was not after all necessary.

 

As is well known these rules lasted only a year and now we have the brand new Cenvat Rules 2001.

 

Notification No. 31 /2001-CE (N. T.) dated 21.6. 2001 brought in the new Cenvat rules. The new rules did not have any major changes from the previous rules. So the position regarding capital goods acquired on lease, hire purchase etc, remains exactly the same. Rule 4(3) of the new Cenvat rules reads,

 

"(3) The CENVAT credit in respect of the capital goods shall be allowed to a manufacturer even if the capital goods are acquired by him on lease, hire purchase or loan agreement, from a financing company.

 

As can be seen from the above history tour, these restrictions and conditions and even the very mention of this were required because in the rules in the beginning, there was a bar on credit if capital goods were acquired on lease, hire purchase etc,. Once that bar is removed from the statute what is the need to mention that credit will be allowed even if the goods were acquired on lease, hire purchase etc,.?

 

 

 

 

EXCISE LAW TIMES – 01.01. 2002 – A 19