CENVAT CREDIT – RULE 6

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CENVAT CREDIT CENVAT CREDIT – RULE 6– RULE 6

PRESENTATION BY-:PRESENTATION BY-:

CA ASHOK BATRACA ASHOK BATRA

M/S A.K.BATRA & M/S A.K.BATRA & ASSOCIATES ASSOCIATES

A-36, RAJOURI GARDENA-36, RAJOURI GARDEN

FIRST FLOOR , DELHI-27FIRST FLOOR , DELHI-27

CENVAT CREDITCENVAT CREDIT In any Indirect Tax under VAT system In any Indirect Tax under VAT system

one has to calculate Net Tax payable i.e. one has to calculate Net Tax payable i.e. Output Tax Liability – Tax CreditOutput Tax Liability – Tax Credit

Calculation of Output Tax Liability is Calculation of Output Tax Liability is becoming easier and easier with the becoming easier and easier with the increase in the scope of taxable servicesincrease in the scope of taxable services

Money saved is money earned, hence Money saved is money earned, hence calculation of Tax Credit is gaining calculation of Tax Credit is gaining importance and will become more importance and will become more relevant in GST regime. relevant in GST regime.

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CENVAT CREDITCENVAT CREDIT Claim of CENVAT is becoming a subject Claim of CENVAT is becoming a subject

matter of litigation because:-matter of litigation because:- Definition of Inputs, Input services and Definition of Inputs, Input services and

Capital goods not drafted with precision and Capital goods not drafted with precision and subject to interpretation in more than one subject to interpretation in more than one mannermanner

There are economic activities carried out in There are economic activities carried out in various permutations and combinations various permutations and combinations which have not been visualized and provided which have not been visualized and provided in law i.e. trading, manufacturing, provision in law i.e. trading, manufacturing, provision of services and return on investments etc.of services and return on investments etc.

Difficult to maintain separate records being Difficult to maintain separate records being intangible in nature intangible in nature

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CENVAT CREDITCENVAT CREDIT

Implication of wrong availment of Implication of wrong availment of CENVAT:-CENVAT:- Interest, penalties, loss of Interest, penalties, loss of

expense/depreciation resulting into expense/depreciation resulting into increased liability of Income Tax increased liability of Income Tax

Implication of non-availment of CENVATImplication of non-availment of CENVAT Increased liability of tax to extent of 70% of Increased liability of tax to extent of 70% of

CENVATCENVAT Cautious and Judicious approach is the Cautious and Judicious approach is the

answer to the issueanswer to the issue

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CENVAT CREDITCENVAT CREDIT Basic Fundamental:-Basic Fundamental:-

Must fall under the definition of inputs(2k), Must fall under the definition of inputs(2k), input services2(l) and capital goods2(a)input services2(l) and capital goods2(a)

Must be used for the provision of output serviceMust be used for the provision of output service Inputs, services used exclusively for providing Inputs, services used exclusively for providing

exempted service CENVAT not allowedexempted service CENVAT not allowed Credit of duty on capital goods and specified Credit of duty on capital goods and specified

services under rule 6(5) shall be allowed even if services under rule 6(5) shall be allowed even if used partially for providing taxable servicesused partially for providing taxable services

There should be a proper duty paying document There should be a proper duty paying document (invoice, bill, etc.) in terms of Rule 9.(invoice, bill, etc.) in terms of Rule 9.

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CENVAT CREDIT- RULE CENVAT CREDIT- RULE 66Obligation of manufacture of dutiable and Obligation of manufacture of dutiable and

exempted goods and provider of taxable and exempted goods and provider of taxable and exempted services exempted services – Not applicable in case – Not applicable in case of following:of following:

1. Assessee providing only taxable services1. Assessee providing only taxable services2. Assessee providing exempted services only2. Assessee providing exempted services only

New Procedure applicable w.e.f. 01.04.2008.New Procedure applicable w.e.f. 01.04.2008. Prior to that, utilization of CENVAT Credit was Prior to that, utilization of CENVAT Credit was

restricted to 20% of Output Service tax liability.restricted to 20% of Output Service tax liability. Accumulated CENVAT Credit as on 01.04.08 shall be Accumulated CENVAT Credit as on 01.04.08 shall be

available fullyavailable fully as per Departmental clarification F.NO. as per Departmental clarification F.NO. 137/72/2008-CX.4 dated 21.11.2008.137/72/2008-CX.4 dated 21.11.2008.

Rule 6 not applicable to services rendered Rule 6 not applicable to services rendered to J&K as these are not exempted services.to J&K as these are not exempted services.

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CENVAT CREDIT – RULE CENVAT CREDIT – RULE 66

Rule 6(1)Rule 6(1) No Cenvat credit of Service Tax paid in respect No Cenvat credit of Service Tax paid in respect

of input or input services used for manufacture of of input or input services used for manufacture of exempted goods or provision of exempted exempted goods or provision of exempted services.services.

Exception - Rule 6 (2) i.e. maintenance of Exception - Rule 6 (2) i.e. maintenance of separate records separate records

Proviso: CENVAT Credit on inputs shall not be Proviso: CENVAT Credit on inputs shall not be denied to a job worker referred in Rule 12AA of denied to a job worker referred in Rule 12AA of CER, 2002, on the ground that said inputs are CER, 2002, on the ground that said inputs are used in the manufacture of goods cleared without used in the manufacture of goods cleared without payment of duty under the provisions of that rule payment of duty under the provisions of that rule – – Applicable in the case of mfr. Under exciseApplicable in the case of mfr. Under excise

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Situation I – Where service provider is Situation I – Where service provider is maintaining separate accountsmaintaining separate accounts

Rule 6(2) – Separate Rule 6(2) – Separate accounts/recordsaccounts/recordsRule 6(2) of CENVAT Credit Rules, 2004, provides Rule 6(2) of CENVAT Credit Rules, 2004, provides that, where a provider of output service avails of that, where a provider of output service avails of CENVAT credit in respect of any inputs or input CENVAT credit in respect of any inputs or input services and provider of such output service which services and provider of such output service which are chargeable to tax as well as exempted services, are chargeable to tax as well as exempted services, then, the provider of output service then, the provider of output service shall maintain shall maintain separate accountsseparate accounts for for receipt, consumption and receipt, consumption and inventory of input and input serviceinventory of input and input service meant for use in meant for use in providing output service and the quantity of input providing output service and the quantity of input meant for use in the exempted services and take meant for use in the exempted services and take CENVAT credit only on that quantity of input or CENVAT credit only on that quantity of input or input service which is intended for use in providing input service which is intended for use in providing output service on which service tax is payable.output service on which service tax is payable.

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CENVAT CREDIT – RULE CENVAT CREDIT – RULE 66 Situation II – Where service provider is not maintaining Situation II – Where service provider is not maintaining

separate accountsseparate accountsRule 6(3) and (3A)Rule 6(3) and (3A)

W.e.f. 01.04.2008, Rule 6(3) is being amended and Rule 6(3A) is W.e.f. 01.04.2008, Rule 6(3) is being amended and Rule 6(3A) is being inserted in CENVAT Credit Rules, 2004. Rule 6(3) being inserted in CENVAT Credit Rules, 2004. Rule 6(3) provides the following options to provider of output service provides the following options to provider of output service opting not to maintain separate accounts opting not to maintain separate accounts [Rule 6(3)][Rule 6(3)]:-:-

Option-IOption-I: : The provider of output service shall pay an The provider of output service shall pay an amount amount equal to equal to 6%6% (8% upto 07.07.2009)of the value of the exempted (8% upto 07.07.2009)of the value of the exempted services. Manufacture of goods shall pay an services. Manufacture of goods shall pay an amount equal to amount equal to 5%5% (10% upto 07.07.2009 of the value of exempted goods(10% upto 07.07.2009 of the value of exempted goods

Option-IIOption-II: Provider of taxable services shall : Provider of taxable services shall reversereverse the the credit attributable to the inputs and input services used for credit attributable to the inputs and input services used for providing exempted services as per the procedure prescribed providing exempted services as per the procedure prescribed in the rule i.e. in the rule i.e. [Rule 6(3A)][Rule 6(3A)]. .

Note: It is an option and not an obligation. Note: It is an option and not an obligation. Department cannot force the assessee for Department cannot force the assessee for exercising of a particular option.exercising of a particular option.

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Rule 6(3) and (3A) – Cont.Rule 6(3) and (3A) – Cont. Procedure to be followed for exercising Procedure to be followed for exercising

option II option II Step1Step1: Information to jurisdictional : Information to jurisdictional

Superintendent before opting for this Superintendent before opting for this SchemeScheme

While exercising the option of availing CENVAT While exercising the option of availing CENVAT on provisional (estimated) basis, the provider of on provisional (estimated) basis, the provider of output service shall file a letter with the output service shall file a letter with the jurisdictional Superintendent containing jurisdictional Superintendent containing following information, namely:-following information, namely:-

(i)(i) name, address and registration No. of the name, address and registration No. of the provider of output service (i.e. assessee);provider of output service (i.e. assessee);

(ii) date from which the option under this clause (ii) date from which the option under this clause is exercised or proposed to be exercised;is exercised or proposed to be exercised;


Rule 6(3) and (3A) – Cont.Rule 6(3) and (3A) – Cont.(iii) description of taxable services;(iii) description of taxable services;(iv) description of exempted services provided (iv) description of exempted services provided

and/or to be provided by assessee;and/or to be provided by assessee;(v) opening balance of CENVAT credit of inputs (v) opening balance of CENVAT credit of inputs

and input services on the date of exercising and input services on the date of exercising this option;this option;

Option once exercised shall not be Option once exercised shall not be reversed during the remaining part of the reversed during the remaining part of the financial year and to be applied to the financial year and to be applied to the business as a whole on the basis of business as a whole on the basis of registrationregistration

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Rule 6(3) and (3A) – Cont.Rule 6(3) and (3A) – Cont. Step 2 : Step 2 : Provisional CENVAT Credit to be Provisional CENVAT Credit to be

taken by assessee on monthly basis taken by assessee on monthly basis

Assessee shall calculate the eligible amount of Assessee shall calculate the eligible amount of monthly CENVAT Credit in respect of inputs and monthly CENVAT Credit in respect of inputs and input services and avail the same on provisional input services and avail the same on provisional basis in the ratio of value of taxable and basis in the ratio of value of taxable and exempted services provided by assessee in the exempted services provided by assessee in the preceding financial yearpreceding financial year. Assessee shall avail . Assessee shall avail such provisional credit (estimated credit) while such provisional credit (estimated credit) while discharging its monthly service tax liability discharging its monthly service tax liability

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CLAIM OF CENVATCLAIM OF CENVATRule 6(3) and (3A) – Cont.Rule 6(3) and (3A) – Cont.

Step 3: Step 3: Calculation of ‘Total Estimated CENVAT Calculation of ‘Total Estimated CENVAT Credit’ availed by assessee during the year and Credit’ availed by assessee during the year and ‘Total Actual Admissible CENVAT Credit’ during ‘Total Actual Admissible CENVAT Credit’ during the year.the year.

At the end of financial year, assessee shall calculate At the end of financial year, assessee shall calculate the the “Total Actual admissible credit” “Total Actual admissible credit” andand “Total “Total Estimated Credit”.Estimated Credit”.

Total Estimated CreditTotal Estimated Credit ==“Estimated credit on “Estimated credit on inputs”inputs” plusplus “Estimated credit on input services”“Estimated credit on input services” (claimed during the relevant financial year)(claimed during the relevant financial year)

Total Actual admissible CreditTotal Actual admissible Credit = Total Actual = Total Actual admissible Credit on inputs + Total Actual admissible admissible Credit on inputs + Total Actual admissible Credit on input servicesCredit on input services

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CLAIM OF CENVATCLAIM OF CENVAT

Rule 6(3) and (3A) – Cont.Rule 6(3) and (3A) – Cont. Step 4: Step 4: Adjustment/payment of Adjustment/payment of

excess/short CENVAT Credit availed by excess/short CENVAT Credit availed by assessee assessee

At the end of Financial Year, assessee shall pay At the end of Financial Year, assessee shall pay the CENVAT Credit on or before 30th June of the CENVAT Credit on or before 30th June of succeeding financial year if total estimated succeeding financial year if total estimated credit taken by him is MORE than total actual credit taken by him is MORE than total actual admissible credit admissible. admissible credit admissible. Interest @ 24% Interest @ 24% per annum per annum shall be charged and collected from shall be charged and collected from such assessee if such service provider makes such assessee if such service provider makes payment of differential Cenvat after the due payment of differential Cenvat after the due date i.e. 30th June.date i.e. 30th June.

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CENVAT CREDIT – RULE CENVAT CREDIT – RULE 66Rule 6(3) and (3A) – Cont.Rule 6(3) and (3A) – Cont.

Step 5:Step 5: Information to jurisdictional Information to jurisdictional Superintendent after making aforesaid Superintendent after making aforesaid payment/adjustmentpayment/adjustment

The provider of output service shall inform to the The provider of output service shall inform to the jurisdictional Superintendent of Central Excise jurisdictional Superintendent of Central Excise within a period of within a period of 15 days 15 days from the date of from the date of additional payment or adjustment as explained in additional payment or adjustment as explained in step 4 (para no. 2.6) above. Information given by step 4 (para no. 2.6) above. Information given by the provider of output service shall contain the the provider of output service shall contain the following particulars, namely:-following particulars, namely:-

(i) details of CENVAT credit attributable to (i) details of CENVAT credit attributable to exempted goods and exempted services, month exempted goods and exempted services, month wise, for the whole financial year, determined wise, for the whole financial year, determined provisionally as calculated 2 & 3 above.provisionally as calculated 2 & 3 above.

(ii) CENVAT credit attributable to exempted (ii) CENVAT credit attributable to exempted goods and exempted services for the whole goods and exempted services for the whole financial year, determined as per step 3 above.financial year, determined as per step 3 above.


Rule 6(3) and (3A) – Cont.Rule 6(3) and (3A) – Cont.

(iii)(iii) amount short paid determined as per amount short paid determined as per step 4, along with the date of payment of the step 4, along with the date of payment of the amount short-paid, amount short-paid,

(iv)(iv) interest payable and paid, if any, on the interest payable and paid, if any, on the amount short-paid, if payment is made after amount short-paid, if payment is made after 30th June of succeeding financial year.30th June of succeeding financial year.

(v) adjustment of CENVAT Credit if assessee (v) adjustment of CENVAT Credit if assessee had claimed the less CENVAT Credit on had claimed the less CENVAT Credit on estimated basis.estimated basis.

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Summary of Rule 6 (1), Summary of Rule 6 (1), (2) & (3)(2) & (3)

Sl. No.

Situation Extent of CENVAT Credit allowed

1 If a service provider / manufacturer provides only taxable services / manufacture only taxable goods

100% CENVAT Credit is allowed

2 If a service provider provides/manufacturer only exempted services / manufacturer only exempted goods

No CENVAT Credit is allowed

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Summary of Rule 6 (1), Summary of Rule 6 (1), (2) & (3)(2) & (3)

Sl. No.

Situation Extent of CENVAT Credit allowed

3 If a service provider/manufacturer provides / manufactures both taxable & exempted services: / goods- In this situation following options are available:-

(A)Option to maintain separate accounts for the Receipt & Consumption of taxable & non-taxable services/goods vide Rule 6(2) of CENVAT Credit Rule

CENVAT Credit allowed only to the extent of inputs/services used in providing taxable services/ taxable goods

(B)Option of not to maintain separate accounts in the aforesaid manner(Rule 6(3)(i) OR 6(3) (ii) as the case may be)

(i) Either pay 6% (8% upto 6-7-2009) on the value of exempted services OR (ii) Reverse the CENVAT Credit attributable to the inputs & input services used for providing exempted services/exempted goods

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Issued involved in Issued involved in applying the formula applying the formula

under Rule 6 (3)under Rule 6 (3)Treatment of Traded GoodsTreatment of Traded Goods

To be considered on the same footing as that of To be considered on the same footing as that of exempted goods / servicesexempted goods / services

Metro Shoes Pvt. Ltd. Vs. CCE Mumbai – 2008 Metro Shoes Pvt. Ltd. Vs. CCE Mumbai – 2008 (10) STR 382 (Tri-Mum.) - (10) STR 382 (Tri-Mum.) - Cenvat for service Cenvat for service tax paid on services which are directly and tax paid on services which are directly and wholly attributable to the trading activities wholly attributable to the trading activities is not available is not available

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Issued involved in Issued involved in applying the formula applying the formula

under Rule 6 (3)under Rule 6 (3)Whether value of export goods/services should Whether value of export goods/services should be taken as final product / taxable service or be taken as final product / taxable service or exempted goods / servicesexempted goods / servicesIn respect of In respect of exempted servicesexempted servicesExport of services chargeable to Nil rate of Service Export of services chargeable to Nil rate of Service TaxTaxRule of CCR, 2004 – No reversal of Cenvat Credit Rule of CCR, 2004 – No reversal of Cenvat Credit on exported services.on exported services.Para 6 of Para 6 of Circular No. 868/6/2008-CX dated 9-5-Circular No. 868/6/2008-CX dated 9-5-20082008 confirms that export of services without confirms that export of services without payment of Service Tax are to be treated as taxable payment of Service Tax are to be treated as taxable services. services.Value of export of services should be taken in Value of export of services should be taken in denominator i.e. with the value of taxable services.denominator i.e. with the value of taxable services.

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Rule 6 (4)Rule 6 (4) Rule 6(4) of CENVAT Credit Rules, 2004, provides that Rule 6(4) of CENVAT Credit Rules, 2004, provides that

CENVAT Credit shall CENVAT Credit shall not be allowed not be allowed on on capital goods capital goods which are used which are used exclusivelyexclusively in the manufacture of in the manufacture of exempted goods or in providing exempted services, exempted goods or in providing exempted services, other other than than the final product which are exempt from the whole the final product which are exempt from the whole of the duty of excise leviable thereon under any of the duty of excise leviable thereon under any notification where exemption is granted based upon the notification where exemption is granted based upon the value or quantity of clearances made in the financial year.value or quantity of clearances made in the financial year.

NOTE: CENVAT Credit on NOTE: CENVAT Credit on capital goods capital goods will be will be availableavailable to to output service provider even if such capital goods are output service provider even if such capital goods are used used partlypartly for the purpose of providing taxable service for the purpose of providing taxable service and partly for the purpose of exempted servicesand partly for the purpose of exempted services

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Rule 6(5)Rule 6(5) Rule 6(5) of Cenvat Credit Rules, 2004, Rule 6(5) of Cenvat Credit Rules, 2004,

implies that in case of implies that in case of 16 specified services16 specified services, , CENVAT Credit shall not be allowed CENVAT Credit shall not be allowed if such if such services are used exclusively for services are used exclusively for providing exempted servicesproviding exempted services. This implies . This implies that in case of 16 specified taxable services, that in case of 16 specified taxable services, service provider can avail service provider can avail full CENVAT full CENVAT credit credit even if these are partially used in providing even if these are partially used in providing output taxable services and partially in output taxable services and partially in providing exempted services. providing exempted services.

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Rule 6(5)Rule 6(5)Following are list of aforesaid services mentioned in Following are list of aforesaid services mentioned in

Rule 6 (5)Rule 6 (5)• Consulting EngineerConsulting Engineer• ArchitectArchitect• Interior DecoratorInterior Decorator• Management, Maintenance or RepairManagement, Maintenance or Repair• Foreign Exchange broker other than Banking & Foreign Exchange broker other than Banking &

Financial Institution with NBFC & Body CorporateFinancial Institution with NBFC & Body Corporate• Intellectual property service other than copy rightIntellectual property service other than copy right• Management ConsultantManagement Consultant

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Cenvat CreditCenvat CreditRule 6(5)Rule 6(5)

• Real Estate AgentReal Estate Agent• Security AgencySecurity Agency• Technical Testing and AnalysisTechnical Testing and Analysis• Scientific or Technical ConsultancyScientific or Technical Consultancy• Banking & Other Financial ServicesBanking & Other Financial Services• Erection, Commissioning or InstallationErection, Commissioning or Installation• Technical Inspection or CertificationTechnical Inspection or Certification• Construction services in respect of Construction services in respect of

Commercial or Industrial Buildings or Commercial or Industrial Buildings or Civil StructuresCivil Structures

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CENVAT CreditCENVAT Credit

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Rule 6(6)Rule 6(6)

The provisions of sub-rules (1), (2), The provisions of sub-rules (1), (2), (3) and (4), shall not be applicable in (3) and (4), shall not be applicable in case the excisable goods removed case the excisable goods removed without payment of the duty under without payment of the duty under specified circumstances as specified specified circumstances as specified under the law.under the law.

Clarification by Clarification by Department w.r.t. Rule 6Department w.r.t. Rule 6

Circular No. 868/6/2008-CX dated Circular No. 868/6/2008-CX dated 09.05.200809.05.2008

Question 1Question 1 : : Whether an assessee availing Whether an assessee availing option option (i)(i) or option (ii) under rule 6(3) is or option (ii) under rule 6(3) is allowed to take CENVAT Credit of duty allowed to take CENVAT Credit of duty paid on inputs and input services which are paid on inputs and input services which are used for both dutiable and exempted goods used for both dutiable and exempted goods or services. or services.

Answer:Answer: YesYes

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Clarification by Department Clarification by Department w.r.t. Rule 6w.r.t. Rule 6

Circular No. 868/6/2008-CX dated 09.05.2008Circular No. 868/6/2008-CX dated 09.05.2008Question 2Question 2 : : Whether an assessee availing option Whether an assessee availing option

(i)(i) in respect of certain exempted goods/services in respect of certain exempted goods/services can also avail option (ii) in respect of other can also avail option (ii) in respect of other exempted goods or services simultaneously?exempted goods or services simultaneously?

Answer:Answer: No No The same assessee cannot avail both option The same assessee cannot avail both option (i)(i)

and option (ii) simultaneously during a financial and option (ii) simultaneously during a financial yearyear

Option once exercised during a financial year Option once exercised during a financial year (F.Y.) cannot be withdrawn during the remaining (F.Y.) cannot be withdrawn during the remaining part of the FYpart of the FY

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Circular No. 868/6/2008-CX dated 09.05.2008Circular No. 868/6/2008-CX dated 09.05.2008Question 3Question 3 : : Assessee opting for option Assessee opting for option (i)(i) is is

required to pay an amount equivalent to 10% of required to pay an amount equivalent to 10% of value of exempted goods or 8% of value of value of exempted goods or 8% of value of exempted services. What is the scope of term exempted services. What is the scope of term "value" for the said purpose "value" for the said purpose

Answer:Answer: Value of exempted goods Value of exempted goods = As per Section 4/4A = As per Section 4/4A

of CEA, 1994 (Transaction Value u/s 4 in case of CEA, 1994 (Transaction Value u/s 4 in case goods chargeable to specific rate of duty)goods chargeable to specific rate of duty)

Value of exempted services Value of exempted services = Gross amount = Gross amount charged for providing exempted service (without charged for providing exempted service (without abatement)abatement)

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QuestionQuestion 4 4 : : What is the accounting code What is the accounting code to be followed by the assessee who is to be followed by the assessee who is required to pay 8% or other amount for required to pay 8% or other amount for the exempted service under Rule 6(3). the exempted service under Rule 6(3).

Answer:Answer: 00440044

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Question 5Question 5 : : Whether input services Whether input services distributor can also opt for option distributor can also opt for option (i)(i) or or option option (ii)(ii)? ?

Answer :Answer : No No ISD is like a trader.ISD is like a trader.

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QuestionQuestion 6 : 6 : Whether export of service Whether export of service without payment of service tax under without payment of service tax under Export of Service Rules shall be treated as Export of Service Rules shall be treated as exempted service for the purpose of rule exempted service for the purpose of rule 6(3)? 6(3)?

Answer :Answer : No No

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Circular No. 868/6/2008-CX dated 09.05.2008Circular No. 868/6/2008-CX dated 09.05.2008QuestionQuestion 77 : : What is the manner for calculation of What is the manner for calculation of

CENVAT Credit amount attributable to inputs used in or CENVAT Credit amount attributable to inputs used in or in relation to the manufacture of exempted goods?in relation to the manufacture of exempted goods?

Answer :Answer : OOn the basis of actual consumption of inputs usedn the basis of actual consumption of inputs used Quantification may be made based upon the Quantification may be made based upon the

stores/production records maintained by the stores/production records maintained by the manufacturermanufacturer

Certificate from Cost Accountant/Chartered Accountant Certificate from Cost Accountant/Chartered Accountant giving details of quantity of inputs used in the giving details of quantity of inputs used in the manufacture of exempted goods, value thereof and manufacture of exempted goods, value thereof and CENVAT credit taken on these input may be submitted CENVAT credit taken on these input may be submitted at the end of the yearat the end of the year..

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QuestionQuestion 8 : 8 : Whether credit in respect of input Whether credit in respect of input services covered by rule 6(5) would be required services covered by rule 6(5) would be required to be taken into account for determination of to be taken into account for determination of amount payable as per formula provide in rule amount payable as per formula provide in rule 6(3A). 6(3A).

Answer : NoAnswer : No

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Rule 6 not applicable to services Rule 6 not applicable to services rendered to J&K as these are not rendered to J&K as these are not

exempted servicesexempted services.. Services provided to establishment located in Services provided to establishment located in

J&K shall not be considered as exempted service.J&K shall not be considered as exempted service. ECIL Rapicscan Ltd. V Commissioner of ECIL Rapicscan Ltd. V Commissioner of

Service Tax, Hyderabad-2010(17) S.T.R. 433 Service Tax, Hyderabad-2010(17) S.T.R. 433 (Tri.-Bang)(Tri.-Bang)

Appellant providing services to various Appellant providing services to various establishment in the Country including establishment in the Country including establishment located in J&K.establishment located in J&K.

Held J&K region falls outside the purview of Held J&K region falls outside the purview of Chapter V of Finance Act 1994 Chapter V of Finance Act 1994

Cenvat Credit Rules shall not be applicable in such Cenvat Credit Rules shall not be applicable in such case.case.

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CENVAT Credit Is CENVAT Credit Is IndefeasibleIndefeasible

Vijayanand Roadlines v. CCE, Belgaum, Vijayanand Roadlines v. CCE, Belgaum, 2007 (7) STR 219 (Tri-Bang)2007 (7) STR 219 (Tri-Bang)

CENVAT Credit Rules, 2004 only entails CENVAT Credit Rules, 2004 only entails the allowability of Cenvat Creditthe allowability of Cenvat Credit

Does not provide any conditions for its Does not provide any conditions for its availment or utilizationavailment or utilization

It is at the discretion of the service It is at the discretion of the service provider as to at what point of time it provider as to at what point of time it intends to avail and utilize the CENVAT intends to avail and utilize the CENVAT credit accumulated with itcredit accumulated with it

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Important Case LawImportant Case Law

Credit utilization of 20% not applicable Credit utilization of 20% not applicable to capital goodsto capital goods Idea Celllular Ltd. Vs CCE Rohtak [2009] Idea Celllular Ltd. Vs CCE Rohtak [2009]

16 STR 712 (Tri-Delhi)16 STR 712 (Tri-Delhi) If Services becomes taxable during the If Services becomes taxable during the

year CENVAT available proportionately year CENVAT available proportionately even if falls under Rule 6(5)even if falls under Rule 6(5) G.H.C.L Ltd. Vs CCE Bhavnagar[2009] 16 G.H.C.L Ltd. Vs CCE Bhavnagar[2009] 16

STR 588 STR 588

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If exempted service started during the If exempted service started during the year, full CENVAT credit till exempted year, full CENVAT credit till exempted service was not provided service was not provided Mount Mettur Pharmaceuticals Ltd. Vs CCE Mount Mettur Pharmaceuticals Ltd. Vs CCE

Chennai [2009] 13 STR 414Chennai [2009] 13 STR 414 Cenvat credit reversal equal to credit Cenvat credit reversal equal to credit

not takennot taken 2004 [174] ELT 422 (All)2004 [174] ELT 422 (All) Mount Mettur Pharmaceuticals Ltd. Vs CCE Mount Mettur Pharmaceuticals Ltd. Vs CCE

Chennai [2009] 13 STR 414Chennai [2009] 13 STR 414

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Maintenance of separate accounts initially Maintenance of separate accounts initially not a pre-condition for claiming exemptionnot a pre-condition for claiming exemption CCE vs. Ashima Dyecot Ltd. [2008] 12 STR CCE vs. Ashima Dyecot Ltd. [2008] 12 STR

701 (Guj)701 (Guj) Rule 6(5) Non-Obstante clause, for Rule 6(5) Non-Obstante clause, for

claiming 100% CENVAT on specified claiming 100% CENVAT on specified services, one need not make separate services, one need not make separate accountsaccounts CCE Goa vs V.M.Salgaonkar & Bros. Pvt. Ltd CCE Goa vs V.M.Salgaonkar & Bros. Pvt. Ltd

[2008] 10 STR 609 (Tri-Mumbai) [2008] 10 STR 609 (Tri-Mumbai)

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Rule 6(5) has used the word Rule 6(5) has used the word ‘allowed’ and it covers both taking ‘allowed’ and it covers both taking and utilization. No reason for and utilization. No reason for allowing credit and not permitting allowing credit and not permitting utilisation.utilisation. CCE Goa vs V.M.Salgaonkar & Bros. Pvt. Ltd CCE Goa vs V.M.Salgaonkar & Bros. Pvt. Ltd

[2008] 10 STR 609 (Tri-Mumbai) [2008] 10 STR 609 (Tri-Mumbai)

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M/s AVAYA GLOBAL CONNECT LTDM/s AVAYA GLOBAL CONNECT LTD VsVs CCE, CCE, AHMEDABAD, AHMEDABAD, 2010-TIOL-397-CESTAT-AHM2010-TIOL-397-CESTAT-AHMDepartment’s view that even Department’s view that even if CENVAT if CENVAT credit on common input services is not credit on common input services is not takentaken, appellant is required to maintain , appellant is required to maintain separate accounts not proper separate accounts not proper Unless the department shows that Unless the department shows that appellants have availed credit of input appellants have availed credit of input services which have also been used for services which have also been used for providing any of the exempted services, the providing any of the exempted services, the demand cannot be sustained demand cannot be sustained

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Important Case LawImportant Case Law Very vide meaning has been given to the Very vide meaning has been given to the

term ‘Input Services’ under various term ‘Input Services’ under various judgments.judgments.

Activity in relation to business has also Activity in relation to business has also been given very wide meaning.been given very wide meaning. Case laws: ABB, Coco ColaCase laws: ABB, Coco Cola

An activity which has got the remotest An activity which has got the remotest connection has been held as Input Service.connection has been held as Input Service. Victor Gaskets India Ltd. [2008] 12 STR 468 (Tribunal Victor Gaskets India Ltd. [2008] 12 STR 468 (Tribunal

Larger Bench) Larger Bench) – Outdoor caterer services availed for – Outdoor caterer services availed for running canteen in factory premises for employees, running canteen in factory premises for employees, CENVAT allowedCENVAT allowed

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M/s ABB Ltd. M/s ABB Ltd. v. v. CCE, Bangalore, 2009-CCE, Bangalore, 2009-TIOL-830-CESTAT-BANG-TIOL-830-CESTAT-BANG-Larger BenchLarger Bench

(the ABB Case)(the ABB Case)

Scope of definition of ‘input service’ – examined:-Scope of definition of ‘input service’ – examined:-

““3.3. The above definition can be conveniently divided The above definition can be conveniently divided into the following five categories, insofar as the into the following five categories, insofar as the manufacturers are concerned:manufacturers are concerned:

(a) Any service used by the manufacturer, whether (a) Any service used by the manufacturer, whether directly or indirectly, in or in relation to the directly or indirectly, in or in relation to the manufacture of final products,manufacture of final products, (b) Any service used by the manufacturer whether (b) Any service used by the manufacturer whether directly or indirectly, in or in relation to clearance of directly or indirectly, in or in relation to clearance of final products from the place of removal,final products from the place of removal,(c) Services used in relation to setting up, (c) Services used in relation to setting up, modernization, renovation or repairs of a factory, or modernization, renovation or repairs of a factory, or an office relating to such factory, an office relating to such factory,

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M/s ABB Ltd. M/s ABB Ltd. v. v. CCE, Bangalore, 2009-CCE, Bangalore, 2009-TIOL-830-CESTAT-BANG-TIOL-830-CESTAT-BANG-Larger BenchLarger Bench

(the ABB Case(the ABB Case))(d) Services used in relation to advertisement or (d) Services used in relation to advertisement or

sales promotion, market research, storage upto sales promotion, market research, storage upto the place of removal, procurement of inputs,the place of removal, procurement of inputs,

(e) Services used in relation to activities relating to (e) Services used in relation to activities relating to business and outward transportation upto the business and outward transportation upto the place of removal.place of removal.

Extensive meaning assigned to the phrase ‘in Extensive meaning assigned to the phrase ‘in relation to business’ by relying on OECD relation to business’ by relying on OECD guidelines guidelines

Held, Cenvat credit of outward transportation is Held, Cenvat credit of outward transportation is eligible.eligible.

Held that for eligibility of Cenvat Credit, there is Held that for eligibility of Cenvat Credit, there is no precondition that expense/cost forms part of no precondition that expense/cost forms part of transaction value/Assessable Value. transaction value/Assessable Value.

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COCA COLA COCA COLA V. V. CCECCE, BOM, 2009-, BOM, 2009-TIOL-449-HC-MUM-ST (“THE TIOL-449-HC-MUM-ST (“THE

COCA COLA COCA COLA CASE”)CASE”)

Extensive meaning to the phrase ‘in Extensive meaning to the phrase ‘in relation to business’ assigned by ABB relation to business’ assigned by ABB Case was upheld.Case was upheld.

Held, that the basic approach adopted by Held, that the basic approach adopted by India is to tax services on the destination India is to tax services on the destination cum consumption principle, which is in cum consumption principle, which is in line with international norms. Therefore, line with international norms. Therefore, OECD Guidelines can be safely OECD Guidelines can be safely considered.considered.

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COCA COLA CASE COCA COLA CASE (CONTD.)(CONTD.)

Upheld the observation of ABB case which Upheld the observation of ABB case which held that service tax and excise duty are held that service tax and excise duty are consumption taxes to be borne by the consumption taxes to be borne by the consumer and, therefore, if credit is denied consumer and, therefore, if credit is denied on transportation service, the levy of service on transportation service, the levy of service tax on transportation will become a tax on tax on transportation will become a tax on business rather than being a consumption business rather than being a consumption tax.tax.

On a limited issue held that since the expense On a limited issue held that since the expense of advertisement forms part of Assessable of advertisement forms part of Assessable value, Cenvat credit cannot be denied.value, Cenvat credit cannot be denied.

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THANKSTHANKS

M/S A.K.BATRA & ASSOCIATES M/S A.K.BATRA & ASSOCIATES

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Documents

CENVAT CREDIT – RULE 6