We are an export-oriented unit (EOU) engaged in the export of ?honey, edible fruits and nuts?. We have been informed that these goods are eligible for grant of benefit under the Vishesh Krishi Gram Udyog Yojna (VKGUY) stipulated in the foreign trade policy (FTP). We intended to understand whether we, as an EOU, are eligible to claim such duty credit scrips under VKGUY.
VKGUY benefits are available to exporters of notified goods (including honey and edible fruit and nuts) for claiming duty credit scrips equivalent, ranging from 2.5% to 5% of FOB (free on board) value of exports. However, the benefit of the VKGUY scheme is available only to such EOUs which do not avail of direct tax benefit/exemptions. It has also been clarified that for aforesaid purpose, the following EOU can be regarded as units not availing direct tax benefit/exemption (i.e. benefit under income tax):
(i) EOUs that have completed the period for which direct tax benefit/exemption was granted
Such units can claim scrips for exports undertaken post-expiry of the period for which direct tax benefit was available to it.
(ii) EOUs that have not completed the period for which direct tax benefit/ exemption was granted, however, are willing to forego the exemption/benefit.
Such units can claim the benefit subject to submitting evidence regarding change of exemption status from the jurisdictional Income tax authorities.
Accordingly, if you are not availing of any direct tax exemption/benefits, or are willing to forego those currently being availed of, you should be eligible to claim benefit under the VKGUY.
Scrap sale benefit not for service providers
We are a service provider in the infrastructure sector. We are planning to sell certain obsolete/used equipment/machinery as scrap. We were informed that there have been certain changes in the input credit regulations for sale of capital goods as scrap. Request your guidance on the same.
You are correct in your understanding that amendments have been made in the Cenvat Credit Rules regarding sale of capital goods as scrap. It is important to understand the background to the amendments.
Generally, when capital goods, on which cenvat credit has been taken, are removed after being used, the manufacturer or service provider is required to pay an amount (either in cash or through reversal of credit) equal to the credit taken with certain specified deductions based on the period of use of such capital goods. However, if the capital goods are sold as scrap, a manufacturer could pay an amount equal to the transaction value of the good. This provision was only applicable to a manufacturer, not a service provider. Service providers have made several representations to extend this provision to them as well.
However, in March 2012, the provision for a manufacturer to pay an amount equal to the scrap value had been discontinued. After that representations were made by both manufacturers and service providers for reinstating the provision.
Last month (Sep 2013), the Cenvat credit rules have been amended and the provision was reinstated. However, the amendment merely reinstated the erstwhile provisions and accordingly, the said benefit continues to be available only to manufacturers. As a result, service providers continue to represent their case for similar benefit.
Given the above, since you are a service provider, in case of sale of capital goods as scrap, you would need to pay an amount equal to the credit taken on such capital goods with the prescribed deductions based on the period of use of such capital goods.
The replies do not constitute professional advice. Neither EY nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to sme@expressindia.com