Position of Input Credit in respect of the goods sent to job worker:
In the Central Excise Law, since duty is payable at the time of removal of goods from the factory of the manufacturer the incidence of sending goods to job worker which involves removal of goods from the manufacturer’s factory has been specifically noted and its tax position has been specifically carved out. However, the input credit position and duty payment position at the time of removal of goods from the factory are inter-twined because of the fact that the reversal of respective credit on account of removal of goods practically amounts to payment of duty on such removal.
In the MGL, aspects relating to taking input tax credit in respect of inputs/capital goods sent for job-work have been specifically dealt in Section 16A, which provides that the credit of taxes paid on inputs or capital goods can be taken in the following manner:
Principal shall be entitled to take credit of inputs sent to a job-worker if the said inputs, after completion of job-work are received back in 180 days from the date of being sent out. In case the inputs are sent directly to the job-worker, the date shall be counted from the date of receipt of inputs by job-worker. Further the credit has to be reversed, with interest, in case the inputs are not received back within the specified time. The credit can be reclaimed when the inputs are actually received back.
Principal shall be entitled to take credit of capital goods sent to a job-worker if the said capital goods, after completion of job-work are received back in 2 years from the date of being sent out. In case the capital goods are sent directly to the job-worker, the date shall be counted from the date of receipt of capital goods by job-worker. Further the credit has to be reversed, with interest, in case the capital goods are not received back within the specified time. The credit can be reclaimed when the capital goods are actually received back.
This position is similar to the existing position as is obtaining in the CENVAT Credit Rules, 2004 (CCR). The related existing provisions provide that when inputs are removed from factory to job worker, respective CENVAT credit is not to be reversed (or duty is not payable) at the time of removal; and in case such goods are received back in the factory within 180 days of removal, there is no need for any credit reversal or duty payment on this account. Similar provision exists for sending the capital goods to job worker if the goods are returned within 2 years of removal. In case, goods do not come back within the specified time frame of 180 days or 2 years, the respective credit on these goods has to be reversed (or duty to be paid equal to the amount of credit taken on them), and whenever the goods come back, the same credit can be taken again by the manufacturer.