Cenvat Credit Rules 2004 - Athenaathena.org.in/uploads/Cenvat-National-Conference...Rule 1 –Short title, extent and commencement •Cenvat credit rules, 2004 •(2) They extend to

Cenvat Credit Rules 2004

Puneet Agrawal, B. Com (H), CA, LLB

Partner

ATHENA LAW ASSOCIATES

Rule 1 – Short title, extent and commencement

• Cenvat credit rules, 2004

• (2) They extend to the whole of India:

Provided that nothing contained in these rules relating to availment and utilization of credit of service tax shall apply to the State of Jammu and Kashmir.

• (3) They shall come into force from the date of their publication in the Official Gazette.

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Rule 3 – Cenvat credit• Manufacture/ producer of final products or provider of output service can take credit

of (hereinafter referred as CENVAT CREDIT):– Excise;– CVD;– SAD (for manufacturer);– Service tax;– Education cess and Secondary and higher education cess

• Paid on – Inputs or Capital goods received in the factory of manufacturer or by provider of

output service; and– Input services received by a manufacturer or by provider of output service

• No requirement that inputs/ capital goods to be received in premises of the service provider

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Related definitions

• Final products is defined under 2 (h) of CCR, 2004 as excisable goods manufactured or produced from input, or using input service;

• Output services is defined under 2(p) of CCR, 2004 as any service provided by a provider of service located in the taxable territory but shall not include a service,-• specified in Section 66D of the Finance Act; or• where the whole of service tax is liable to be paid by the recipient of

service.

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Capital goods – Rule 2 (a)(a)"capital goods" means:-

(A) the following goods, namely:-

(i) all goods falling under Chapter 82, 84, 85, 90, heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act;

(ii) pollution control equipment;

(iii) components, spares and accessories of the goods specified at (i) and (ii);

(iv) moulds and dies, jigs and fixtures;

(v) refractories and refractory materials;

(vi) tubes and pipes and fittings thereof;

(vii) storage tank and

(viii) motor vehicles other than those falling under tariff headings 8702, 8703, 8704, 8711 and their chassis, but including dumpers and tippers

used-

(1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or

(1A) outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory; or

(2) for providing output service;

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Capital goods – Rule 2 (a)(B) motor vehicle designed for transportation of goods including their chassis registered in

the name of the service provider, when used for-

(i) providing an output service of renting of such motor vehicle; or

(ii) transportation of inputs and capital goods used for providing an output service; or

(iii) providing an output service of courier agency

(C) motor vehicle designed to carry passengers including their chassis, registered in the name of the provider of service, when used for providing output service of-

(i) transportation of passengers; or

(ii) renting of such motor vehicle; or

(iii) imparting motor driving skills

(D) components, spares and accessories of motor vehicles which are capital goods for the assesse,

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Capital goods – trail of amendments

• Earlier (till 01.04.12) credit on all motor vehicles was available to a few specified service providers.

• This was liberalised w.e.f. 01.04.12

• Now (w.e.f. 01.07.12) further liberalised

• e.g. Tractors, Crane Lorries, Mobile drilling derricks, Fire fighting vehicles, Concrete mixer lorriesare not covered below

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S.No. Tariff Heading Description of Motor Vehicle

1 8702 Motor Vehicles for the transport of ten or more persons, includingdriver

2 8703 Motor Cars/ other motor vehicles principally designed for thetransport of persons including station wagons and racing cars

3 8704 Motor Vehicles for transport of goods

4 8711 Motor Cycles (including mopeds) and cycles fitted with an auxiliarymotor, with or without side-cars

5 Chassis of all the Motor Vehicle prescribed above

Capital goods contd…

• Specified Service Providers till 30.06.12:– Courier Agency

– Tour Operator

– Rent a cab

– Cargo Handling Agency – now would not get credit of motor vehicles – doesn’t carry inputs/capital goods of service provider

– Goods Transport Agency - would not get credit of motor vehicles – doesn’t carry inputs/capital goods of service provider

– Outdoor Caterer

– Pandal or Shamiana Contractor

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Input Services – means

“input service” means any service, -

(i) used by a provider of output service for providing an output service; or

(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,

Input Services – includesand includes

1. services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises,

2. advertisement or sales promotion,

3. market research,

4. storage upto the place of removal,

5. procurement of inputs,

6. accounting, auditing, financing,

7. recruitment and quality control,

8. coaching and training,

9. computer networking,

10. credit rating,

11. share registry,

12. security,

13. business exhibition,

14. legal services,

15. inward transportation of inputs or capital goods and outward transportation upto the place of removal;

Input service - excludesbut excludes,-

(A) service portion in the execution of a works contract and construction servicesincluding service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for -

(a) construction or execution of works contract of a building or a civil structure or a part thereof; or

(b) laying of foundation or making of structures for support of capital goods,

except for the provision of one or more of the specified services; or

(B) services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or

(BA) service of general insurance business, servicing, repair and maintenance , in so far as they relate to a motor vehicle which is not a capital goods, except when used by -

(a) a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person ; or

(b) an insurance company in respect of a motor vehicle insured or reinsured by such person; or

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Input service - excludes(C) such as those provided in relation to:

– outdoor catering,

– beauty treatment,

– health services,

– cosmetic and plastic surgery,

– membership of a club,

– health and fitness centre,

– life insurance,

– health insurance and

– travel benefits extended to employees on vacation such as Leave or Home Travel Concession,

when such services are used primarily for personal use or consumption of any employee;”

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Input services - analysis

Input Services amended to include

• ‘General Insurance’, ‘servicing, repair and maintenance’, ofmotor vehicles covered as input service in case of vehiclemanufacturers and insurance companies;

• Renting of motor vehicle availed by a person for whom motorvehicle is capital goods, shall be considered as input services;

• For others these services are excluded

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Issues

• All services which are used for business not for the direct provision of services– Courier services for general correspondence

– Health insurance, rent a cab services for employees, canteen services quite necessary for efficiency of employees

– Telephone

– General insurance of the building

– Gardening services

– Cleaning services

• Law settled by Bombay HC in Coca Cola - need to be again considered by the Courts

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Inputs – 2 (k)“input” means–

(i) all goods used in the factory by the manufacturer of the final product; or

(ii) any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products; or

(iii) all goods used for generation of electricity or steam for captive use; or

(iv) all goods used for providing any output service;

but excludes-

(A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol;

(B) any goods used for -



except for the provision of service portion in the execution of a works contract or construction service as listed under clause (b) of section 66E of the Act;]

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Inputs – 2 (k)(C) capital goods except when used as parts or components in the manufacture of a final

product [if does not fall in the definition of capital goods, would be inputs – even if capital asset];

(D) motor vehicles;

(E) any goods, such as food items, goods used in a guesthouse, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; and

(F) any goods which have no relationship whatsoever with the manufacture of a final product.

Explanation. – For the purpose of this clause, “free warranty” means a warranty provided by the manufacturer, the value of which is included in the price of the final product and is not charged separately from the customer;

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Input services and inputs – works contracts and builder’s services

Input definition

….. but excludes-

(B) any goods used for -



except for the provision of service portion in the execution of a workscontract or construction service as listed under clause (b) of section 66E of the Act;

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Input services and inputs – works contracts and builder’s services

but excludes-

(1) service portion in the execution of a works contract and

(2) construction services including

(3) service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services)

in so far as they are used for -



- except for the provision of one or more of the specified services; or]

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Rule 3 – Cenvat credit

• Cenvat credit may be utilised for payment of:

– Duty of excise on final product;

– Cenvat credit taken on inputs if such inputs are removed as such or after partial processing;

– Cenvat credit taken on capital goods which are removed as such;

– Amount under sub rule (2) of Rule 16 of Service tax rules

– Service tax on output service

• Provided that credit available on last month/ quarter should only be utilized

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Rule 3 – Conti..

• CENVAT credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient. [Explanation Rule 3 (4)]

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Rule 3 (5) – Inputs or capital goods removed as such

• When inputs or capital goods, on which CENVAT credit has been taken, are removed as such then amount equal to the credit availed in respect of such inputs or capital goods is required to be paid:

(Exception to the said rule)

– Such payment not required where any inputs or capital goods are removed outside the premises of the provider of output service for providing the output service

– Such payment shall not be required to be made where any inputs are removed outside the factory for providing free warranty for final products

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Rule 3 (5A) - Removal of CG after use

Rule 3(5A) of CCR, 2004

If the capital goods, on which CENVAT credit has been taken, are removed after beingused,, the manufacturer or provider of output services shall pay an amount equal to theCENVAT Credit taken on the said capital goods reduced by the percentage pointscalculated by straight line method as specified below for each quarter of a year or partthereof from the date of taking the CEVAT Credit, namely:-

(a) for computers and computer peripherals :

– for each quarter in the first year @ 10%

– for each quarter in the second year @ 8%

– for each quarter in the third year @ 5%

– for each quarter in the fourth and fifth year @ 1%

(b) for capital goods, other than computers and computer peripherals @ 2.5% for each quarter:

Provided that if the amount so calculated is less than the amount equal to the dutyleviable on transaction value, the amount to be paid shall be equal to the duty leviableon transaction value. (Inserted vide Finance Act 2012)

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Removal of CG

Example:

Capital Goods purchased on 01.04.2012 for Rs. 1,00,000

Used for 5 months i.e. upto 31.08.2012

Sold either as capital goods or as scrap for Rs. 10,000

Value on which duty is payable is higher of following:

Depreciated Value: 1,00,000-(5% of 1,00,000)= 90,000

Transaction Value: 10,000

i.e. Duty is payable on Rs. 90,000

Position before amendment:

• If sold as capital goods, duty is payable on Rs. 90,000 (i.e. on depreciatedvalue)

• If sold as scrap, duty is payable on Rs.10,000 (i.e. on transaction value)

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Rule 3 (5B) – Capital goods written off

Rule 3 (5B)

• If value of input, or capital goods is written off fully or partially or where any provision to write off has been made in the books then the manufacturer or service provider, shall pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods:

• if said input/ capital goods is subsequently used in the manufacture or provision of output service, take the credit of the amount equivalent to the CENVAT credit paid earlier

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Amendment budget 2013

• Following explanation has been inserted in Rule 3, after the proviso to sub-rule 5B of CCR rules, 2004 vide NN 3/2013-CE (NT)

“Explanation- If the manufacturer of goods or the provider of

output service fails to pay the amount payable under sub-rules (5), (5A) and (5B), it shall be recovered, in the manner as provided in Rule 14, for recovery of Cenvat credit wrongly taken”

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Rule 4 - Conditions for allowing Cenvat credit

Inputs

• The CENVAT of inputs may be taken immediately on receipt of the inputs in the factory or premises of Service provider

• Provided further that the CENVAT credit in respect of inputs may be taken by the provider of output service when the inputs are delivered to such provider, subject to maintenance of documentary evidence of delivery and location of the inputs.

• Here also no requirement of premises

• A time limit of Six months has been fixed for availment of CENVAT Credit by amending Rule 4(1) (for input credit)

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Rule 4 – Cont…..Capital goods

• (a) The CENVAT of capital goods received

– in a factory; or

– premises of service provider ;or

– outside the factory for generation of electricity for captive use within the factory

• at any point of time in a given financial year shall be taken - not exceeding 50% of the duty paid

Exception

• CENVAT credit on capital goods shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year if such capital goods are cleared as such in the same financial year.

• CENVAT credit of SAD paid on capital goods shall be allowed immediately on receipt of the capital goods in the factory of a manufacturer.

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Rule 4 – Cont…..

• Where an assessee is eligible for small scale manufacturer exemption, the CENVAT credit in respect of capital goods received by such assessee shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year.

Requirement of delivery to service provider

• CENVAT credit in respect of capital goods may be taken by the provider of output service when the capital goods are delivered to such provider, subject to maintenance of documentary evidence of delivery and location

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Rule 4 – Cont…..

Credit of balance 50%

• The balance CENVAT credit may be taken in any subsequent financial year

• Capital goods, other than components, spares and accessories, refractories and refractory materials, moulds and dies and goods falling under heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act, are in the possession of the manufacturer of final products, or provider of output service in such subsequent years.

• Thus for availing Cenvat credit of balance 50% possession of capital goods is required

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Issue

• Capital goods purchased on 2 January;

• Received in factory on 20 march;

• Put to use on 12 April

Question

In what manner Cenvat of duty paid on capital goods would be available

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Issue

Ques 1

• Service provider receives capital goods on his behalf at some place other than the premise of service provider;

• How cenvat credit would be availed in such situation

Ques 2

• ABC ltd had acquired capital asset from leasing company can they take the Cenvat credit on such capital goods

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Rule 4 (3) and Rule 4 (4)

• The CENVAT on capital goods shall if the capital goods are acquired by him on lease, hire purchase or loan agreement, from a financing company

• Thus to claim Cenvat on capital goods ownership is not required

Credit on the amount claimed as depreciation

• The CENVAT on capital goods shall not be allowed on that part of the value of capital goods, which the manufacturer or service provider claims as depreciation under Income-tax Act, 1961

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Rule 4 – conti…

Inputs/ capital goods sent to job worker

• CENVAT credit shall be allowed even if inputs or capital goods are sent to a job provided it is established from the records, challans or memos or any other document that the goods are received back in the factory within 180 days of their being sent to a job worker

• If the inputs or the capital goods are not received back within 180 days, the manufacturer or service provider shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods

• but CENVAT credit can be taken again when the inputs or capital goods are received back in factory or the premises

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Rule 4 – conti…

Credit on input service

• Shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan is received

• Provided - where the service tax is paid on partial reverse charge by service recipient - CENVAT credit of such services shall be allowed on or after the day on which payment is made of the value of input service and the service tax

• In case of service tax paid under full reverse charge, Cenvat available as soon as payment of ST made [Amendment in July 2014]

• A time limit of Six months has been fixed for availment of CENVAT Credit by amending Rule 4(7) [Amendment in July 2014]

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Reversal of Cenvat Credit

Exception

• When payment for value of input service and the service tax is not made within three months of the date of the invoice, bill or, as the case may be, the manufacturer or the service provider who has taken credit on such input service, shall pay an amount equal to the CENVAT credit availed on such input service (where payment not made)

• Cenvat credit may be taken later in case payment for the services together with service tax is made

• In cases of recredit, time period of 6 months do not apply – Our stand confirmed vide Circular No.: 990/14/2014-CX-8 dated 19.11.14

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Is it a VAT

• Pure method – income method

• Proxy method – Credit method

• Credit not allowed on everything – therefore tax on value addition + non eligible expenses

• Service sector being taxed more than total value addition

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Service tax paid on reverse charge

Output service

2(p) “output service” means any service provided by a provider of service located in the taxable territory but shall not include a service,-

(1) specified in section 66D of the Finance Act; or

(2) where the whole of service tax is liable to be paid by the recipient of service

3. CENVAT credit.-

(1) A manufacturer or producer of final products or a provider of output service shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of

5B. Refund of CENVAT credit to service providers providing services taxed on reverse charge basis.-

• A provider of service providing services notified under sub-section (2) of section 68 of the Finance Act and

• being unable to utilise the CENVAT credit

• availed on inputs and input services for payment of service tax on such output services,

• shall be allowed refund of such unutilised CENVAT credit subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette

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http://www.taxmanagementindia.com/visitor/detail_act.asp?ID=16464


Service tax paid on reverse charge

• Service provider in which case 100% ST payable by receiver may not be able to take benefit of rule 5B

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Reverse charge

• Explanation to R 3(4)

• Cenvat cannot be used for paying tax on reverse charge basis

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Refund of Cenvat Credit

Rule 5. Refund of Cenvat Credit:

• New provision has been brought for refund of Cenvat credit toexporters of goods/ services [rule 5].

• The new scheme does not require correlation betweenexports and ‘inputs and input services’

• But proportion is applied across the board – even if used fullyfor export

• This problem not in rebate Notn – 39/2012-ST

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Relevant Extract of old RULE 5 - Refund of CENVAT credit• Where any input or input service is used in the manufacture of final product

which is cleared for export under bond or letter of undertaking, as the case maybe, or used in the intermediate product cleared for export, or used in providingoutput service which is exported, the CENVAT credit in respect of the input orinput service so used shall be allowed to be utilized by the manufacturer orprovider of output service towards payment of,

(i) duty of excise on any final product cleared for home consumption or forexport on payment of duty; or

(ii) service tax on output service,

and where for any reason such adjustment is not possible, the manufacturer or theprovider of output service shall be allowed refund of such amount subject to suchsafeguards, conditions and limitations, as may be specified, by the CentralGovernment, by notification :

Cont…

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Relevant Extract of New RULE 5 - Refund of CENVAT credit• (1) A manufacturer who clears a final product or an intermediate product for

export without payment of duty under bond or letter of undertaking, or a serviceprovider who provides an output service which is exported without payment ofservice tax, shall be allowed refund of CENVAT credit as determined by thefollowing formula subject to procedure, safeguards, conditions and limitations, asmay be specified by the Board by notification in the Official Gazette:

Refund amount = (Export turnover of goods+ Export turnover of services) x Net CENVAT credit

Total turnover

Where,-

(A) Refund amount‖ means the maximum refund that is admissible;

(B) Net CENVAT credit means total CENVAT credit availed on inputs and input services bythe manufacturer or the output service provider reduced by the amount reversed in terms

of sub-rule (5C) of rule 3, during the relevant period

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Rule 6

• CENVAT credit shall not be allowed on input, input services used in or in relation to the manufacture of exempted goods or for provision of exempted services,

• In case a manufacturer or service provider has both exempted and dutiable output then follow any of the option:

– Maintain separate accounts

– Pay an amount @6% on value of exempted goods and exempted services

– Pay an amount equal to credit on inputs and inputs services which are computed to have been used in manufacture of exempted goods/ provision of exempted services – computation on proportionate basis

– maintain separate accounts for the receipt, consumption and inventory of inputs, take CENVAT credit only on inputs under subclauses (ii) and (iv) of said clause (a) and pay an amount as determined under sub-rule (3A) in respect of input services. The provisions of sub-clauses (i) and (ii) of clause (b) and subclauses (i) and (ii) of clause (c) of sub-rule (3A) shall not apply for such payment

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Rule 6

Provision in relation to capital goods

• No CENVAT credit shall not be allowed on capital goods used exclusively in manufacture of exempted goods or provision of exempted service

Exception

• No such restriction is applicable where the goods are exempted in lieu of small scale manufacturer exemption

• Cenvat credit on capital goods are allowed when they are used for both dutiable and exempted output

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Rule 6 - Exempted Goods/Services

Example –

ABC Ltd providing –

1. Consulting engineer services to domestic clients

2. Providing farmer education/training – agricultural extn services

3. Providing research services to foreign client for which payment received in foreign exchange

4. Providing research services to foreign client for which payment to be received in foreign exchange but bad debt

Exempted service” means a-

(1) taxable service which is exempt from the whole of the service tax leviable thereon; or

(2) service, on which no service tax is leviable under section 66B ; or

(3) taxable service whose part of value is exempted on the condition that no credit of inputs and input services shall be taken;

but shall not include a service which is exported in terms of rule 6A of the Service Tax Rules, 1994

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http://www.taxmanagementindia.com/Site-Map/Service-Tax/list_rule.asp?ID=17

Rule 6 (1)- Exempted Goods/Services

CENVAT credit shall not be allowed:-

On such quantity of inputs or inputs services used in –

o Or in relation to manufacture of exempted goods

o Provision of exempted service

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Option 1 - Separate accounts

Rule 6 (2)

Maintain separate account for:-

(a) The receipt, consumption and inventory of inputs used for:-

oExempted goods /services

oDutiable final product/output service

(b) The receipt and use of inputs services for :-

oExempted goods /services

oDutiable final product/output service

take CENVAT credit on Inputs/input services which are used for taxable output

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Option 2 (Rule 6(3)(i)) – Pay 6%

1. Pay an amount equal to 6% of the value of exempted goods and services

-any excise duty paid on exempted goods, the same shall be deducted from this value

Example – 2% duty paid on goods vide NN 1/2011-CE – then only 4% more is payable

-Conditional abatement that no CENVAT credit of inputs/ input services be claimed – 6% on exempted part

-Renting of motor vehicle for passengers – Tax on 40% - No Cenvat

-6% to be paid on 60% of the value

-No Credit of inputs/Input Services used exclusively for exempted goods/services

2. Transportation of goods or passenger by rail- amount required to be paid-2%

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Option 3 – Proportionate method

• Rule 6(3)(ii)

• (ii) Pay an amount as determined under sub-rule (3A)

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Rule 6 (3A)- Determination and payment of amount under sub-rule3(ii)

Manufacturer of goods the provider of service shall:-

(a) intimate in writing to the Superintendent of Central Excise giving the following particulars:-

o Name, address and registration No. of the manufacturer/provider;

o Date from which option is exercised/proposed to be exercised;

o Description of dutiable goods or output services;

o Description of exempted goods /services;

o CENVAT credit lying in balance as on the date of exercising the option;

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Provisional reversal

Reverse every month the amount of CENVAT credit :-

oattributable to inputs used for manufacture of exempted goods

oOf proportionate inputs used for providing exempted services

oOf proportionate input services used for exempted goods/services

Attributable has to be based upon some scientific data

Proportionate Reversal based upon PY figures

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Final reversal

Reverse at the year end the amount of CENVAT credit :-

oattributable to inputs used for manufacture of exempted goods

oOf proportionate inputs used for providing exempted services

oOf proportionate input services used for exempted goods/services

Attributable has to be based upon some scientific data

Proportionate Reversal based upon current year figures

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difference to be paid – upto 30th June of succeeding FY,

In case of delay - interest @ 24% p.a from 30th June

If excess paid provisionally - take credit of excess amount;

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(g) Shall intimate the Superintendent of Central Excise within a period of 15 days from the date of payment or adjustment, as per condition (d) and (f) respectively:-

(i) Details of CENVAT credit attributable to exempted goods and services, monthwise, for the whole financial year, determined provisionally as per condition (b),

(ii) CENVAT credit attributable to exempted goods and services for the whole financial year, determined provisionally as per condition (c),

(iii) Amount short -paid determined as per condition (d), along with date of payment of amount short paid.

(iv) Interest payable and paid, if any, on the amount short- paid as per condition (e),and

(v) Credit taken on account of excess payment, if any, determined as per condition (f)

(h) If no dutiable goods/output service in the preceding FY, - no need to make provisional reversal

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Option 4 - Rule 6 (3)(iii)

(iii) Maintain separate accounts as under Sub- rule 2 clause (a)

– take CENVAT credit on inputs under subclause (ii) and(iii) of clause (a)

– pay an amount determined under sub- rule (3A) in respect of Input services

and provisions of Sub-clause (i) and (ii) of Clause(b) and sub-clause(c) of sub-rule (3A) shall not apply.

Explanation

– If manufacturer of goods or provider of services avails any of these option, then:-

o shall exercise such option on all exempted goods and servicesmanufactured/ provided by him.

o shall not withdraw such option in the remaining part of the financial year.

– CENVAT credit only on input and input services.

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Exercise of Option

• Option 2/3/4 are in the alternative

• Once opted, applicable for the balance FY

• Has to be applied for all exempt goods/ services

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Rule 6(3B)

Rule 6(3B)

• Notwithstanding anything contained in sub-rules (1), (2) and (3),

• a banking company/financial institution/NBFC

• engaged in providing services of extending deposits/loans/advances,

• shall pay for every month an amount equal to 50% of the CENVAT credit availed on inputs and input services in that month.

Earlier investment companies were also required to make reversal

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Rule 6

Value of Trading and of trading of securities

(c) Trading, shall be the

- difference between the sale price and the cost of goods sold or

- 10% of the cost of goods sold, whichever is more.

(d) trading of securities, shall be the

-difference between the sale price and the purchase price of the securities traded or

- 1% of the purchase price of the securities traded, whichever is more.

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Rule 6(4) - Capital goods

• No CENVAT credit allowed on capital goods - used exclusively in exempted goods/ exempted services

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Rule 6 (7)

7) The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable:

• in case the taxable services are provided, without payment of service tax, to a unit/ developer in/ of SEZ for their authorisedoperations or

• when a service is exported,

Thus in case service is provided to unit/ developer of SEZ or exported the same shall not be treated as exempted service

Tata Consulting Engineers Ltd 2013-TIOL-727-CESTAT-MUM

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Services provided to SEZ Unit/ Developer

• Rule 6(6A) of CCR introduced w.e.f. 01.03.11

• Cenvat credit of inputs, input services and capital goods usedfor providing services to a unit/developer of SEZ

• Services provided to SEZ even though exempt, Cenvat creditof inputs, input services and capital goods allowed withretrospective effect from 10.02.06

• Validation clause also introduced

• Now renamed as R 6(7)

8/7/2015

Rule 6(8)

For the purpose of this rule, a service provided or agreed to be provided shall not be an exempted service when:-

a) the service satisfies the conditions of export (Rule 6A of the Service Tax Rules, 1994; and

b) such payment has not been received for a period of 6 months or such extended period as may be allowed from time-to-time by the Reserve Bank of India, from the date of provision

Provided that if such payment is received after the specified or extended period allowed by the Reserve Bank of India but within one year from such period, the service provider shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier in terms of sub rule (3) to the extent it relates to such payment, on the basis of documentary evidence of the payment so received.

8/7/2015

Rule 6(8) Analysis

• Thus in case payment is not received within 6 months (or extended period) same would not be taxable as the service is provided out of the taxable territory

• But the benefit of export would not be available

• Credit would need to be reversed

• Till 6 months no need to reverse the Cenvat

• Once reversed if payment received beyond 6 months/ extended period by RBI but within 1 year, Cenvat may be claimed again.

8/7/2015

Input Service Distributor

• The input service distributor may distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or units providing output service, subject to the following conditions, namely:—

(a) the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon;

(b) credit of service tax attributable to service used by one or more units exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed;

(c) credit of service tax attributable to service used wholly by a unit shall be distributed only to that unit; and

[(d) credit of service tax attributable to service used by more than one unit shall be distributed pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all its units, which are operational in the current year, during the said relevant period.

8/7/2015

ISD

Circular No. 178/04/2014-ST, dated 10.7.2014 issued

• It clarifies that the amended rule 7 allows distribution of input service credit to all units (which are operational in the current year) in the ratio of their turnover of the previous year/previous quarter as the case may be

• The said circular is issued to clarify following amendment made vide notification no. 5/2014:– (d) credit of service tax attributable to service used by more than one unit

shall be distributed pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all its units, which are operational in the current year, during the said relevant period

8/7/2015

Rule 10A

Transfer of unutilised Cenvat credit of SAD

• Manufacturer having two or more factories can transferunutilized Cenvat credit of SAD from one excise unit toanother on strength of a transfer challan

8/7/2015

Amendment in Cenvat Credit Rules

“No interest” on Cenvat credit wrongly availed but not utilised

• Rule 14 amended to provide that interest is chargeable ifCenvat credit is “wrongly availed and utilized”. Thus, nointerest is chargeable if Cenvat credit is wrongly availed butremains unutilized.

• However, rule 15 relating to penalty has not been amendedand therefore in deserving cases, penalty may be chargedeven if wrongly availed Cenvat credit is not utilized.

8/7/2015

Rule 7(A)

Distribution of credit on inputs by the office or any other premises of output service provider.-

(1) A provider of output service shall be allowed to take credit on inputs and capital goods received, on the basis of an invoice or a bill or a challan issued by an office or premises of the said provider of output service, which receives invoices, issued in terms of the provisions of the Central Excise Rules, 2002, towards the purchase of inputs and capital goods.

(2) Rules applicable to a first stage dealer or a second stage dealer, shall mutatis mutandis apply to such office or premises

8/7/2015

Rule 8 – storage of inputs outside the factory

Special provision for manufacturer

• The Deputy Commissioner/ Assistant Commissioner of Central Excise, having jurisdiction over the factory of a manufacturer, in exceptional circumstances having regard to

– the nature of the goods; and

– shortage of storage space at factory

• permit such manufacturer to store the input in respect of which CENVAT credit has been taken, outside such factory, subject to such limitations and conditions as he may specify:

• Provided that where such input is not used in the manner specified in these rules for any reason whatsoever, the manufacturer of the final products shall pay an amount equal to the credit availed in respect of such input.

8/7/2015

Rule 9 – Documents and accounts

• CENVAT credit shall be taken, on the basis of any of the following documents:-

a) an invoice issued by-

i) a manufacturer

(ii) an importer;

(iii) an importer from his depot or from the premises of the consignment agent of the said importer if the said depot or the premises, as the case may be, is registered in terms of the provisions of Central Excise Rules, 2002;

iv) a first stage dealer or a second stage dealer, as the case may be, in terms of the provisions of Central Excise Rules, 2002; or

b) a supplementary invoice, issued by manufacturer/ importer of inputs or capital goods

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Rule 9 – Documents and accounts

(bb) a supplementary invoice, bill or challan issued by a provider of output service, in terms of the provisions of Service Tax Rules, 1994

(c) a bill of entry; or

(d) a certificate issued by an appraiser of customs in respect of goods imported through a Foreign Post Office; or

(e) a challan evidencing payment of service tax, by the service recipient as the person liable to pay service tax; or

(f) an invoice, a bill or challan issued by a provider of input service on or after the 10th day of, September, 2004; or

(g) an invoice, bill or challan issued by an input service distributor under rule 4A of the Service Tax Rules, 1994.

8/7/2015

Rule 9 – Documents and accountsRestriction

• No CENVAT shall be taken unless all the particulars, are contained in the said documents

Exception to restriction

• Provided that if the said document does not contain all the particulars but contains the details of :

• duty or service tax payable,

• description of the goods or taxable service,

• assessable value,

• Central Excise or Service Tax registration number of the person issuing the invoice,

• name and address of the factory or warehouse or premises of first/ second stage dealers or provider of output service,

• and the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, is satisfied that the goods or services covered by the said document have been received and accounted for in the books of the account of the receiver, he may allow the CENVAT credit

8/7/2015

Records to be maintained-inputs/CG

• Manufacturer/ service provider to maintain records for:

– Receipt, disposal, consumption and inventory of inputs/ capital goods

– To record the following details:

• Value, duty paid, Cenvat taken and utilised, person from whom inputs/ capital goods procured

– No prescribed format – everyone is free to have his own format

8/7/2015

Records to be maintained-input services

• Manufacturer/ service provider to maintain records for:

– Receipt and consumption of input services

– To record the following details:

• Value, tax paid, Cenvat taken and utilised, person from whom input service procured

– No prescribed format – everyone is free to have his own format

8/7/2015

Information relating to principal inputs

• Manufacturer to furnish

• Information regarding principal inputs

– The input,

– its quantity reqd to manufacture 1 unit of output

– This information to be furnished for each output

– Principal input: any input cost of which is 10% or more of the total cost of raw materials

• By 30th April of a financial year

8/7/2015

Interest – rule 14

“No interest” on Cenvat credit wrongly availed but not utilised

• Rule 14 amended to provide that interest is chargeable ifCenvat credit is “wrongly availed and utilized”. Thus, nointerest is chargeable if Cenvat credit is wrongly availed butremains unutilized.

• However, rule 15 relating to penalty has not been amendedand therefore in deserving cases, penalty may be chargedeven if wrongly availed Cenvat credit is not utilized.

8/7/2015

Rule 10 – Transfer of CENVAT

(1) CENVAT credit unutilized can be transferred if a manufacturer shifts his factory or transfers the factory (for manufacturer)

Subject to specific provision for transfer of liabilities of such factory

(2) Unutilized CENVAT credit can be transferred if a provider of output service shifts or transfers his business (for service provider)

with the specific provision for transfer of liabilities of such business

Condition for transfer of credit

1. allowed only if the stock of inputs as such or in process, or the capital goods is also transferred along with the factory or business premises to the new site or ownership and

2. the inputs, or capital goods, on which credit has been availed of are duly accounted for to the satisfaction of the Deputy Commissioner of Central Excise or, as the case may be, the Assistant Commissioner of Central Excise.

8/7/2015

THANK YOUPuneet Agrawal, Partner

ATHENA LAW ASSOCIATES

Contact:

[email protected],

+91 9891 898911

mailto:[email protected]