Cenvat Credit Rules

Contents

Indirect Taxes by Prof. Rajesh Tayal

Indirect Taxes

Part I

for

CA/CS Final and CMA studentsBy

Prof. Rajesh Tayal

FCSTAYAL INSTITUTE PRIVATE LIMITED403, D-Definity, Road No.1, J P Nagar, Above Indian Overseas BankGoregaon (East), MUMBAI 400063

Ph: 32420612email: [email protected]

Dear Friends,

I welcome you all for the lectures on Indirect Taxes. This is one of the most scoring subjects for CA Final.This book is the first part of the study material to be provided to you by me. Believe me that you dont have to refer any other material except

a. The material given by me,

b. Module provided by the ICAI,

c. Practice Manual and

d. RTP.

This study material has been prepared with my vast experience of teaching thousands of students across India, in more than 200 batches.

Your study pattern should be

a. CENVAT Credit Rules, 2004

b. Central Excise

c. VAT

d. Customs

e. Service Tax.

Lectures have been recorded in the same order and material will also be provided to you in the same order.

While attending the lectures, please keep noting everything in the same manner in which it is presented in the class. That will make your studies not only easy but also interesting. I will concise the subject for you to such an extent so that you can revise entire syllabus even on the day of exam.

For any query please feel free to call me on 09373312800 between 9.30 PM and 11.00 PM or write to me on [email protected] studying

Prof. Tayal

Contents

Page No.1. Notes on CENVAT Credit Rules, 2004

42. Practical Problems on CENVAT Credit

333. Case Laws recommended by ICAI

464. Text of CENVAT Credit Rules, 2004

68CENVAT Credit Rules, 2004What is CENVAT credit This is a system under which a manufacturer of excisable goods who is liable to pay excise duty and a provider of taxable services who is liable to pay service tax is given credit for excise duty, custom duty and service tax paid or payable by him on his Capital Goods, Inputs and Input services.

The credit so availed by the assessee is allowed to be utilized by him for discharging his own liability of excise duty and service tax.

Manufacturer A manufacturer is liable to pay duty only if

1. Goods manufactured by him are excisable goods

2. The goods are not exempted goods

3. The assessee is not availing value based exemption (SSI Exemption) or the exemption limit has already been exceeded.

Value Based Exemption Vide Notification No. 8/2003, the Central Government has authorised a manufacturer to avail exemption based on the value of goods removed by him. This exemption is optional for the assessee.

Eligibility for exemption A manufacturer is entitled for this exemption during the current financial year only if the value of excisable goods removed by him, from his all premises (factories), for home consumption during the preceding financial year has not exceeded Rs. 400 lacs.

Exemption If a manufacturer is eligible for exemption, as mentioned above, then during current financial year, he is not liable to pay duty until value of the dutiable goods removed during current financial year from his all premises, for home consumption, does not exceed Rs. 150 lacs.

Service Provider - A service provider is liable to pay service tax only if

1. The activity carried out by the person amounts to service

2. The service is not covered under the Negative List

3. The service is not covered under any Exemption notification

4. The assessee is not availing Small Service Provider exemption or the exemption limit has already been exceeded.

Small Service Provider Exemption Vide Notification No. 33/2012, the Central allowed has authorised a service provider to avail exemption based on the value of taxable services provided by him. This exemption is optional for the assessee.

Eligibility for exemption A service provider is entitled for this exemption only if the aggregate value of all taxable services provided by him, from his all premises during preceding financial year has not exceeded Rs. 10 lacs.

Exemption If a service provider is eligible for exemption, as mentioned above, then during current financial year, he is not liable to pay service tax until the aggregate value of all taxable services provided by him does not exceed Rs. 10 lacs.

Duties for which credit is available Rule 3(1)

Central ExciseCustomsService Tax

Basic Excise Duty

Note - Credit is not available for the duty paid on goods covered under Notification No. 1/2011 and at entry No. 67 and 128 of notification No. 12/2012.Additional Custom duty under section 3(1) of the CTA

Note If a vessel is brought to India for breaking than Credit is available only for 85% of the duty.Service Tax

Special Excise Duty Special Additional custom Duty under section 3(5) of the CTA

(Note If the assessee is a service provider, he cannot avail credit for this duty)

Special Excise Duty on Goods of Special Importance

Special Excise Duty on Textile and Textile Articles

National Calamity Contingency Duty

Addl. Excise duty u/s 157 of Finance Act 93

Addl. Excise Duty u/s 85 of Finance Act 95

Education cessNot allowedEducation Cess

SHESNot allowedSHES

Note- Credit can always be availed for the amount shown of duty/tax shown in the document on the basis of which credit is being taken irrespective of the fact that payment has not been made or only part payment is made or part payment itself is made as full and final payment.

Question - M/s. RC imported some inputs and paid Basic Customs Duty Rs 5lakhs, surcharge on customs duty Rs. 50,000 and CVD Rs 1 lakh. Calculate the amount that he can claim as CENVAT credit. Would it make any difference, if the assessee is not a manufacture, but a service provider?

Answer - M/s RC can take credit of Rs. 1,00,000 i.e. of additional duty of customs (CVD). Rule 3(1) of CCR allows credit of additional duty of customs imposed under section 3 of CTA. The credit of other two duties i.e. BCD and surcharge on custom duty is not allowed.

It will not make any difference if the assessee is a service provider as credit of additional duty of customs (CVD) can be availed both by manufacturers and the service providers alike but credit of CVD u/s 3(5) will not available to a service provider.

Utilisation of Cenvat Credit Rule 3(4)

Subject to these restrictions, CENVAT credit can be utilised for

a. Payment of excise duty and service tax

b. Reversal of credit on removal of capital goods and inputs under Rule 3(5), 3(5A) and 3(5B) of the CCR

c. Reversal of credit under 16 of CER

Credit can be utilised for discharging liability of central excise duty and service tax but other than payment of interest and penalty. Custom duty cannot be paid through credit.

Credit can be utilised only upto the extent it is actually available at the end of the month or quarter for which duty is payable. (Credit availed in the current month or quarter cannot be utilised for discharging earlier liability)

Credit for EC and SHES can be utilised for discharging respective liability and not for any other purpose. However, EC and SHEC can be paid out of credit of EC and SHEC respectively or out of other credits excluding credit of NCCR or in csh. NCCD can be paid either through credit of NCCD or in cash and credit of NCCD cannot be utilised for any other purpose.

Credit of SACD u/s 3(5) of CTA cannot be utilised for paying service tax.

Clean Energy Cess cannot be paid out of CENVAT credit.CENVAT credit on capital goods Rule 4(2) - 4(4)Rule 2(a)"capital goods" means:-

(A) the following goods, namely:-

(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 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;

(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.Availing the Credit Rule 4(2), 4(3) and 4(4) A manufacturer can avail credit on capital goods only when goods have been received in the factory.

If the capital goods relate to generation of electricity then credit is available even if goods are not received in the factory.

In case of a service provide, it is sufficient that the goods are received by him at any place but the receipt of such goods shall be supported through documentary evidence regarding place and time of delivery of goods.

Credit can be availed only when goods as well as the documents on the basis of which credit can be availed, both are available. Therefore, if these two are received on different dates, then credit can be availed not before the later date.

During the first financial year in which capital goods are received

a. an assessee availing SSI exemption is entitled to avail full credit for all the duties immediately

b. for any other assessee, credit is restricted to 50%. (0% to 50%)

Balance credit (50% to 100%) can be availed in any of the subsequent financial years provided the goods are in possession of the assessee. However, certain capital goods, if consumed within the factory or at the place of the job-worker are always deemed to be in possession for the purpose of CENVAT credit.

It is also to be noted that the credit for Special Additional Custom Duty chargeable under section 3(5) of the Custom Tariff Act is available to the extent of 100% during first year itself.

Note If capital goods are removed during the first financial year in which those are received than instead of 50%, the assessee is authorised to avail 100% CENVAT credit during first financial year itself.

Credit on capital goods can be availed even if those are acquired on lease or hire-purchase basis from a finance company. For availing credit, possession is more important than ownership

In case of service provider, this will not be applicable for motor vehicles because, on motor vehicles, a service provider can avail CENVAT credit only if the vehicle is registered in the name of service provider.

Credit can be availed for that part of duty which has not been capitalized i.e.it is not depreciated.

Removal of capital goods on which credit has been availed

Removal as such Rule 3(5)

Where capital goods, on which CENVAT credit has been availed are removed as such than the entire credit available on such goods shall be reversed immediately. However, if the assessee has not availed full credit, he is authorised to avail balance credit before making reversal.

This requirement will not be applicable where capital goods are removed for providing service outside.

Question - H. Ltd. Purchased a Boring-Drilling machine at a cum duty price of Rs. 32,14,476. The Excise duty rate charged on the said machine was @ 16%. The machine was purchased on depreciation @ 25% following Straight Line Method. Using the said information answer the following question:

(i) What is the Excise duty paid on the machine?

(ii) What is the Cenvat credit allowable under Cenvat Rules?

(iii) What is the amount of cenvat credit reversible or duty payable at the time of clearance of the said machinery, If removed as such?

Answer

Computation of duty, assessable value and CENVAT credit

Cum-duty Price3214476

Excise Duty @ 16.48% (3212476 X 16.48 / 116.48)454795

Assessable value2759681

CENVAT Credit allowable during first Financial year 50%227397

Balance credit allowable in any subsequent financial year 50%227398

Credit Reversible 100%454795

Working notes 1. As per Rule 4(2) of CCR, CENVAT credit is limited to the extent of 50% during the financial year in which capital goods are received and balance can be availed in any of the subsequent financial years , if the capital goods are in possession.

2. As per Rule 3(5), if capital goods are removed as such, 100% of the credit available shall be reversed and as per Rule 4(2), in case of such reversal, the assessee is authorised to avail balance credit also in the first financial year itself.Removal after use Rule 3(5A)

In case of removal of capital goods after partial use, the assessee is authorised to retain prescribed amount of cenvat credit and balance credit shall be reversed.

For the purpose of this rule, capital goods have been divided into two categories i.e. computer and peripheral and all other capital goods.

Percentage of Credit that can be retained by the assessee

Computer and peripheralsOther capital goods

1st year for every three months or part10%For every 3 months or part thereof2.5 %

2nd year for every three months or part8%

3rd year for every three months or part5%

4th and 5th year - for every three months or part1%

The period of three months is to be counted from the date on which credit is availed.

Note: If amount of duty payable on transaction value is higher than the amount of CENVAT credit reversible, as calculated above, then such higher amount of duty shall be payable.

Goods written off in the books of account Rule 3(5B)

Where any capital goods are written off, partially or fully or a provisions is made for the same, in the books of account prior to being put to use, then entire credit availed thereon shall be reversed and if such goods are utilised again at any time in future, then credit can be availed once again.

Sending out for repairs, maintenance etc. Rule 4(5)

If capital goods on which credit has been availed are required to be sent outside for getting those repaired, it requires prior approval of AC/DC and the approval is given subject to the condition that the goods shall be received back within 180 days otherwise the assessee shall reverse the credit and he can avail the credit once again on goods being received back.

Sending out for providing service

There is no provision to regulate the time within which capital goods sent outside for providing service shall be received back.Credit on InputsRule 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 -

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

(C) capital goods except when used as parts or components in the manufacture of a final product;

(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;Availing credit on inputs Rule 4(1)

A manufacturer can avail full cenvat credit on inputs as soon as goods are received by him in the factory.

Rule 8 Depending on nature of goods or shortage of space in the factory, on such terms and conditions as the Commissioner deems fit, he may authorise storage of inputs outside the factory in a warehouse and to avail credit thereon in the factory. The place where inputs are allowed to stored outside the factory shall be treated as a factory for the purpose of CENVAT credit.A service provider can avail full cenvat credit on inputs as soon as inputs are received by him at any place. The receipt of inputs shall be supported by documentary evidence regarding time and place of delivery of goods.

Removal of inputs on which credit has been availed Removal as such Rule 3(5)

Where inputs, on which cenvat credit has been availed are removed as such than the entire credit available on such goods shall be reversed immediately.

Any such reversal is not required where inputs are required to be removed as such for providing service related to guarantee/warrantee offered along with the goods and the value of which is already included in the value of finished goods.

Goods written off in the books of account Rule 3(5B)

Where any inputs are written off in the books of account, partially or fully or even if a provisions if made for the same, prior to being put to use, then entire credit availed thereon shall be reversed and if such goods are utilised again at any time in future, then credit can be availed once again.

Goods destroyed Rule 3(5C)

Where any of the finished goods are destroyed before removal and remission of duty is allowed under Rule 21 of the Central Excise Rules, 2002, the assessee shall reverse the credit taken for inputs used in manufacture of such goods.Rule 21 of Central Excise Rules, 2002: Remission of duty

Where finished goods are destroyed or lost or those become non-marketable otherwise, before removal from the factory, on an application of the assessee, the Central Excise officer may allow remission (waiver) of duty on such goods, within the limit prescribed.

OfficerAmount of duty upto which remission can be allowed by him

Superintendent

Rs. 10,000

Asst./Dy. CommissionerExceeding Rs. 10,000 but not exceeding Rs. 1,00,000

Jt. CommissionerExceeding Rs. 1,00,000 but not exceeding Rs. 5,00,000

CommissionerExceeding Rs. 5,00,000

Inputs sent for job work Rule 4(5) and 4(6)

Where any of the inputs or semi-finished goods are required to be sent outside for job-work without reversal of credit, it requires prior approval of AC/DC and this approval is given on annual basis.

The assessee shall receive back all the goods within 180 days failing which he shall reverse the credit and if goods are received back subsequently, credit can be taken again.

Question - Briefly discuss with the reasons whether in the following case Cenvat Credit is available to an assessee and, if yes to what extent?

An assessee purchased inputs weighing 1,000 Kgs. The duty paid on inputs was Rs. 10,000 but during transit, 500Kgs inputs were destroyed.

Answer Since the assessee has received only 500 Kgs inputs in the factory, he can avail credit only to the extent of Rs. 5000 because as per rule 4(1) of CENVAT Credit Rules, 2004 the CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or provider of output service.

Rule 2 of CCR, 2004 provides that any goods used in the factory where finished goods are manufactured are eligible as inputs. Therefore, the goods which are not even received in the factory cannot considered to be inputs.

Recovery of CENVAT credit

Vide notification No. 3/2013, an expalantion has been inserted after Rule 3(5B) which states that 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 inrule 14, for recovery of CENVAT credit wrongly taken.

Input ServiceRule 2(l) 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,

and includes 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, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; but excludes,-

(A) service portion in the execution of a works contract and construction services including 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 thereof; orbuilding or a civil structure or a part

(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

(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;

Availing CENVAT credit on input services Rule 4(7)

The CENVAT credit in respect of input service shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan referred to in rule 9 is received:

Provided that in case of an input service where the service tax is paid on reverse charge by the recipient of the service, the CENVAT credit in respect of such input service shall be allowed on or after the day on which payment is made of the value of input service and the service tax paid or payable as indicated in invoice, bill or, as the case may be, challan referred to in rule 9:Provided further that in case the payment of the value of input service and the service tax paid or payable as indicated in the invoice, bill or, as the case may be, challan referred to in rule 9, is not made within three months of the date of the invoice, bill or, as the case may be, challan, 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 and in case the said payment is made, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these rules:

Provided also that if any payment or part thereof, made towards an input service is refunded or a credit note is received by the manufacturer or the service provider who has taken credit on such input service, he shall pay an amount equal to the CENVAT credit availed in respect of the amount so refunded or credited:

Provided also that CENVAT credit in respect of an invoice, bill or, as the case may be, challan referred to in rule 9, issued before the 1st day of April, 2011 shall be allowed, on or after the day on which payment is made of the value of input service and the service tax paid or payable as indicated in invoice, bill or, as the case may be, challan referred to in rule 9.Explanation I.- The amount mentioned in this sub-rule, unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, when such payment shall be made on or before the 31st day of the month of March.

Explanation II. - If the manufacturer of goods or the provider of output service fails to pay the amount payable under this sub-rule, it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken.

Explanation III.- In case of a manufacturer who avails the exemption under a notification based on the value of clearances in a financial year and a service provider who is an individual or proprietary firm or partnership firm, the expressions, following month and month of March occurring in sub-rule (7) shall be read respectively as following quarter and quarter ending with the month of March.CENVAT credit on goods procured from 100% EOU etc. Rule 3(7)

The CENVAT credit in respect of inputs and capital goods cleared from an export-oriented undertaking or by a unit in Electronic Hardware Technology Park or in a Software Technology Park, as the case may be, on which such undertaking or unit has paid -

(A) excise duty leviable under section 3 of the Excise Act (Excise duty shall be the aggregate of Additional Custom Duty under section 3(1) of the Custom Tariff Act and Special Additional custom Duty under section 3(5) of the Custom Tariff Act)(B) the Education Cess leviable under section 91 read with section 93 of the Finance (No. 2) Act, 2004 and (C) the Secondary and Higher Education Cess leviable under section 136 read with section 138 of the Finance Act, 2007, on the excise duty referred to in (A)

Explanation.- Where the provisions of any other rule or notification provide for grant of whole or part exemption on condition of non-availability of credit of duty paid on any input or capital goods, or of service tax paid on input service, the provisions of such other rule or notification shall prevail over the provisions of these rules.

Why reversal Rule 3(6)

The amount paid under sub-rule (5) and sub-rule (5A) shall be eligible as CENVAT credit as if it was a duty paid by the person who removed such goods under sub-rule (5) and sub-rule (5A).Other Definitions

Rule 2: Definitions - In these rules, unless the context otherwise requires,-(b) "Customs Tariff Act" means the Customs Tariff Act, 1975 (51 of 1975);

(c) "Excise Act" means the Central Excise Act, 1944 (1 of 1944);

(d) "exempted goods" means excisable goods which are exempt from the whole of the duty of excise leviable thereon, and includes goods which are chargeable to "Nil" rate of duty goods in respect of which the benefit of an exemption under Notification No. 1/2011-CE, dated the 1st March, 2011 or under entries at serial numbers 67 and 128 of Notification No. 12/2012-CE, dated the 17th March, 2012 is availed

(e) "exempted services" 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 of the Finance Act; or

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

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

(f) "Excise Tariff Act" means the Central Excise Tariff Act, 1985 (5 of 1986);

(g) "Finance Act" means the Finance Act, 1994 (32 of 1994);

(h) "final products" means excisable goods manufactured or produced from input, or using input service;

(ij) "first stage dealer" means a dealer, who purchases the goods directly from,-

(i) the manufacturer under the cover of an invoice issued in terms of the provisions of Central Excise Rules, 2002 or from the depot of the said manufacturer, or from premises of the consignment agent of the said manufacturer or from any other premises from where the goods are sold by or on behalf of the said manufacturer, under cover of an invoice; or

(ii) an importer or from the depot of an importer or from the premises of the consignment agent of the importer, under cover of an invoice;

(n) "job work" means processing or working upon of raw material or semi-finished goods supplied to the job worker, so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for aforesaid process and the _expression "job worker" shall be construed accordingly;

(naa) manufacturer or producer,-(i) in relation to articles of jewellery or other articles of precious metals falling under heading 7113 or 7114 as the case may be of the First Schedule to the Excise Tariff Act, includes a person who is liable to pay duty of excise leviable on such goods under sub-rule (1) ofrule 12AAof theCentral Excise Rules, 2002;

(ii) in relation to goods falling under Chapters 61, 62 or 63 of the First Schedule to the Excise Tariff Act, includes a person who is liable to pay duty of excise leviable on such goods under sub-rule (1A) of rule 4of theCentral Excise Rules, 2002;;

(o) "notification" means the notification published in the Official Gazette;

(p) "output service" means any taxable service, excluding the taxable service referred to in sub-clause (zzp) of clause (105) of section 65 of the Finance Act, provided by the provider of taxable service, to a customer, client, subscriber, policy holder or any other person, as the case may be, and the expressions 'provider' and 'provided' shall be construed accordingly;

(q) "person liable for paying service tax" has the meaning as assigned to it in clause (d) of sub-rule (1) of rule 2 of the Service Tax Rules, 1994;

(r) "provider of taxable service" include a person liable for paying service tax;

(s) "second stage dealer" means a dealer who purchases the goods from a first stage dealer;

Rules 5 to end in sequenceRule 5 - Refund of CENVAT Credit in cash

(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 service provider who provides an output service which is exported without payment of service tax, shall be allowed refund of CENVAT credit as determined by the following formula subject to procedure, safeguards, conditions and limitations, as may 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 by the manufacturer or the output service provider reduced by the amount reversed in terms of sub-rule (5C) of rule 3, during the relevant period;

(C) Export turnover of goods means the value of final products and intermediate products cleared during the relevant period and exported without payment of Central Excise duty under bond or letter of undertaking;

(D) Export turnover of services means the value of the export service calculated in the following manner, namely:-

Export turnover of services = payments received during the relevant period for export services + export services whose provision has been completed for which payment had been received in advance in any period prior to the relevant period advances received for export services for which the provision of service has not been completed during the relevant period;

(E) Total turnover means sum total of the value of -

(a) all excisable goods cleared during the relevant period including exempted goods, dutiable goods and excisable goods exported;

(b) export turnover of services determined in terms of clause (D) of sub-rule (1) above and the value of all other services, during the relevant period; and

(c) all inputs removed as such under sub-rule (5) of rule 3 against an invoice, during the period for which the claim is filed.

(2) This rule shall apply to exports made on or after the 1st April, 2012:

Provided that the refund may be claimed under this rule, as existing, prior to the commencement of the CENVAT Credit (Third Amendment) Rules, 2012, within a period of one year from such commencement:

Provided further that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties and Service Tax Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, in respect of such duty; or claims rebate of service tax under the Service Tax Rules, 1994 in respect of such tax.

Explanation 1.- For the purposes of this rule,-

(1) export service means a service which is provided as per rule 6A of the Service Tax Rules 1994, whether the payment is received or not;

(2) relevant period means the period for which the claim is filed.

Explanation 2.-For the purposes of this rule, the value of services, shall be determined in the same manner as the value for the purposes of sub-rule (3) and (3A) of rule 6 is determined.

Rule 5A- Refund of CENVAT credit to units in specified areas.-

Notwithstanding anything contrary contained in these rules, where a manufacturer has cleared final products in terms of notification of the Government of India in the Ministry of Finance (Department of Revenue) No.20/2007-Central Excise, dated the 25th April, 2007 and is unable to utilize the CENVAT credit of duty taken on inputs required for manufacture of final products specified in the said notification, other than final products which are exempt or subject to nil rate of duty, for payment of duties of excise on said final products, then the Central Government may allow the refund of such credit subject to such procedure, conditions and limitations, as may be specified by notification.

Explanation: For the purposes of this rule, duty means the duties specified in sub-rule (1) of rule 3 of these rules.

Rule 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.

Rule 6 Duty of assessee

An assessee cannot avail CENVAT credit on capital goods, inputs and input services which are used exclusively for exempted goods/exempted services.

Where assessee is using same capital goods for exempted goods/exempted services as well as dutiable goods and taxable services, the assessee is authorised to avail full CENVAT credit on capital goods.

Where an assessee is using same inputs and input services for exempted goods/services as well as dutiable goods and taxable services, the assessee is having following two options

(a) Pay 6% of the value of exempted goods/ exempted services; or

(b) Maintain separate record for utilization of inputs and input services which are utilized for exempted goods/exempted services and dutiable goods/taxable services. If separate record is maintained, then no credit will be available for the inputs and input services used for exempted goods/services; or

(c) Maintaining separate record is not possible; or

(d) Assessee may maintain separate record for utilization of inputs but no separate record for input services.

No separate record

The manufacturer of goods or the provider of output service shall, determine and pay, provisionally, for every month,-

(i) the amount equivalent to CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods, denoted as A;

(ii) the amount of CENVAT credit attributable to inputs used for provision of exempted services (provisional)= (B/C) multiplied by D, where B denotes the total value of exempted services provided during the preceding financial year, C denotes the total value of dutiable goods manufactured and removed plus the total value of taxable services provided plus the total value of exempted services provided, during the preceding financial year and D denotes total CENVAT credit taken on inputs during the month minus A;

(iii) the amount attributable to input services used in or in relation to manufacture of exempted goods and their clearance up to the place of removal or provision of exempted services (provisional) = (E/F) multiplied by G, where E denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the preceding financial year, F denotes total value of taxable and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the preceding financial year, and G denotes total CENVAT credit taken on input services during the month;

The manufacturer of goods or the provider of output service, shall determine finally the amount of CENVAT credit attributable to exempted goods and exempted services for the whole financial year in the following manner, namely:-

(i) the amount of CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods, on the basis of total quantity of inputs used in or in relation to manufacture of said exempted goods, denoted as H;

(ii) the amount of CENVAT credit attributable to inputs used for provision of exempted services = (J/K) multiplied by L, where J denotes the total value of exempted services provided during the financial year, K denotes the total value of dutiable goods manufactured and removed plus the total value of taxable services provided plus the total value of exempted services provided, during the financial year and L denotes total CENVAT credit taken on inputs during the financial year minus H;

(iii) the amount attributable to input services used in or in relation to manufacture of exempted goods and their clearance up to the place of removal or provision of exempted services = (M/N) multiplied by P, whereM denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year,N denotes total value of taxable and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, andP denotes total CENVAT credit taken on input services during the financial year;

(d) the manufacturer of goods or the provider of output service, shall pay an amount equal to the difference between the aggregate amount determined as per condition (c) and the aggregate amount determined and paid as per condition (b), on or before the 30th June of the succeeding financial year, where the amount determined as per condition (c) is more than the amount paid;

(e) the manufacturer of goods or the provider of output service, shall, in addition to the amount short-paid, be liable to pay interest at the rate of twenty-four per cent. per annum from the due date, i.e., 30th June till the date of payment, where the amount short-paid is not paid within the said due date;

(f) where the amount determined as per condition(c) is less than the amount determined and paid as per condition (b), the said manufacturer of goods or the provider of output service may adjust the excess amount on his own, by taking credit of such amount;

(g) the manufacturer of goods or the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within a period of fifteen days from the date of payment or adjustment, as per condition (d) and (f) respectively, the following particulars, namely:-

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

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

(iii) amount short paid determined as per condition (d), alongwith the date of payment of the amount short-paid,

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

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

(h) where the amount equivalent to CENVAT credit attributable to exempted goods or exempted services cannot be determined provisionally, as prescribed in condition (b), due to reasons that no dutiable goods were manufactured and no taxable service was provided in the preceding financial year, then the manufacturer of goods or the provider of output service is not required to determine and pay such amount provisionally for each month, but shall determine the CENVAT credit attributable to exempted goods or exempted services for the whole year as prescribed in condition (c) and pay the amount so calculated on or before 30th June of the succeeding financial year.

(i) where the amount determined under condition (h) is not paid within the said due date, i.e., the 30th June, the manufacturer of goods or the provider of output service shall, in addition to the said amount, be liable to pay interest at the rate of twenty four per cent. per annum from the due date till the date of payment.

Input Service DistributorRule 2(m) "input service distributor" means an office of the manufacturer or producer of final products or provider of output service, which receives invoices issued under rule 4A of the Service Tax Rules, 1994 towards purchases of input services and issues invoice, bill or, as the case may be, challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be;Rule 7 Input service Distributor

Every office of a manufacturer/service provider where invoices in respect of input services issued under Rule 4A of the Service Tax Rules are received, can avail CENVAT credit for input services provided

1. The office is registered as Input Service Distributor, and

2. the input services are not used exclusively in relation to exempted goods/services.

The ISD is authorised to transfer the credit so availed to another premises of the assessee by issuing invoice or challan subject to following condition

a. The credit for services received in any particular premises shall be transferred to that unit only.

b. If service is received in multiple premises then credit shall be transferred in proportion of turnover of the unit during relevant period.

As per Rule 9 of CCR, the ISD is required to file a half yearly return in respect of credit taken and transferred within 30 days after the end of half year.

Rule 7A-Transfer of credit of capital goods and inputs by service provider

A service provider is authorised to avail credit for capital goods, inputs and input services. Credit for input services is transferable under Rule 7 and credit for Capital Goods and Inputs is also transferable from one premises of the service provider to his another premises.

Rule 8 Storage of INPUTS outside the factory (only for manufacturer)

Due to shortage of space in the factory or due to nature of the inputs the commissioner may authorise an assessee for storage of inputs outside the factory in a registered premises and to avail credit for such inputs in the factory.

If such authorization is given, the premises where inputs are allowed to be stores shall be treated as an extension of factory for the purpose of CENVAT credit.

Rule 9 Documents for availing credit, records and returnsDocuments Credit can be availed on the basis of following documents

ExciseCustomService Tax

Invoice or supplementary invoice issued by the manufacturer or his branch or depot or agent.

Supplementary invoice

Invoice for removal of capital goods/inputs

Challan Assessed copy of Bill of Entry

Invoice issued by the manufacturer or his agent. Invoice or supplementary invoice issued by the service provider along with proof of full payment.

The document need not be original (but not a photocopy)

The document need not be in the name of the assessee availing credit.

If the relevant document is not having amount of duty or tax shown separately then credit cannot be availed.

If relevant document is lacking any required information, other than the amount of duty or tax, then credit can be availed only with the prior approval of the Asst./Dy. Commissioner.

Records - Every assessee availing credit as well as FSD/SSD should maintain proper records for all the goods procured, CENVAT credit availed and utilized. In case of FSD/SSD, he may be prohibited from transferring credit to the customers.

Returns Under the CENVAT Credit Rules, an assessee is required to file the following returns

ManufacturerFSD/SSDISDService Provider

Availing Value Based ExemptionOthers

QuarterlyMonthlyQuarterlyHalf YearlyHalf yearly

Within 10 daysWithin 10 daysWithin 15 daysWithin 30 daysWithin one month.

He is also authorised to file revised return within 90 days.

Rule 10 Transfer of CENVAT credit

Unutilised accumulated amount of CENVAT credit is transferable only under the following circumstances

a. Shifting of location of the premises or change of premises of the service provider

b. Merger or amalgamation

c. Change of ownership of business

Transfer of credit is subject to the following conditions

a. All the liabilities of business are also transferred

b. All the goods in stock are transferred

c. The AC/DC is satisfied that aforesaid both the conditions have been fulfilled.

Rule 11 Transition provisions To be read with Rule 3(2) and 3(3)Where an assessee is availing value based exemption, during exemption period he is entitled for CENVAT credit on capital goods but not inputs and input services. When exemption comes to end, the assessee becomes entitled to

a. utilize credit availed on capital goods

b. avail credit on inputs lying in stock as inputs or material in process or as finished goods

c. No credit for input services received during exemption period.

Similarly, where an assessee becomes entitled to avail value based exemption on change of financial year

a. Unutilised credit of capital goods will be carried forward

b. Unutilised credit for input services will lapse

c. Credit for inputs lying in stock as input or material in process or as finished goods will have to be reversed and if there is any surplus, it will lapse.

Question - X availed Cenvat credit of Rs. 42,000 for manufacture of an item chargeable to duty. These goods were lying in his factory till 28-02-2009, from 1.3.2009; the final product was made exempt from duty. Now, when the final goods are cleared, should the CENVAT credit of Rs. 42,000 availed earlier be reversed?

Answer: As per CENVAT Credit Rule 11 (3) when dutiable goods becomes exempt, CENVAT credit availed on inputs, work-in process and finished goods should be reversed. Hence X has to reverse an amount of Rs. 42000/- of credit availed.

Rule 12 Special provisions for North East States, Jammu and Kashmir, Kutch district of Gujarat

All the goods manufactured in these areas have been exempted from duty liability under various provisions. If any person, outside these area, makes use of the goods manufactured in these areas as inputs, he is entitled to avail CENVAT credit as if goods are not exempt.

Large Tax Payer and LTURule 2(na) "large taxpayer" shall have the meaning assigned to it in the Central Excise Rules, 2002

Rule 12A Large Taxpayer unit

For the purpose of Central Excise and service tax, a large tax payer means an assessee

a. Having a permanent account number allotted under the Income Tax Act;

b. Having one or more premises registered under the Act

c. Fulfilling other criteria laid down for the purpose i.e.

i. He has paid income tax for the preceding financial year or advance tax for the current financial year not less than Rs. 10.0 Cr; or

ii. He has paid excise duty or service tax for the preceding financial year, only in cash i.e. other than CENVAT credit, not less than Rs. 5.00 cr

For the large tax payers, the central government has offered a centralised facility for assessment of income tax, service tax and central excise duty. The facility is optional for the assessee. The office for centralised assessment is called as LTU.

A LTP willing to come under LTU is required to make an application to the Commissioner having jurisdiction over LTU and, if accepted, the assessee will be assessed, thereafter, at LTU only and the regional officers will not have any jurisdiction on any premises situated in their jurisdiction.

Every premises of the assessee is required to be registered separately, returns are also required to be filed separately but assessment is centralised.

An assessee in LTU is also authorised to avail credit of inputs in a premises and transfer the same either as such or after processing to another unit without payment of duty or reversal of credit. In such a case, the goods shall be removed from the recipient premises within 6 months.

As assessee may come out of LTU jurisdiction by making another application to the Commissioner of LTU, at least 30 days before the end of financial year.

Rule 12AA Power to impose restrictions

With a view to ensure that any person/assessee does not misuse provisions related to CENVAT credit, the Central Government may, by issuing a notification, specify certain restrictions that may be imposed on a manufacturer, first stage and second stage dealer or an exporter. The restrictions may also include -- restrictions on utilization of CENVAT credit and suspension of registration in case of a dealer and type of facilities to be withdrawn. The CBEC may also specify the procedure for passing such order.

Rule 13 Deemed CENVAT credit

The Central government may declare certain inputs and input services on which an assessee is authorised to avail CENVAT credit at a rate specified by the Central Government irrespective of actual rate applicable. This shall be subject to such terms and conditions as may be specified by the Central Government in the notification.

Rule 14 Recovery of CENVAT credit

Recovery provisions of section 11 of the Central Excise Act and/or Section 87 of the Finance Act, 1994 will be applicable where the CENVAT credit has been taken and utilized wrongly or has been erroneously refunded. The amount shall be recovered along with interest.

Rule 15 Penalty

Wrongly availing or utilizing credit

(Unintentional)Wrongly availing or utilizing credit due to fraud, misrepresentation etc.

(Intentional)

Goods are liable to confiscation

Fine upto Rs. 2000 or amount of duty or service tax, whichever is morea. Goods are liable to confiscation

b. Penalty as per section 11AC of the Central Excise Act; and/or

c. Penalty under section 78 of the Finance Act, 1994

No penalty unless rule of natural justice has been followed.

Rule 15A General Penalty

For contravention of any of the provisions of the Rules for which no specific penalty is prescribed, there is a fine upto Rs. 5000/-

Rule 16 Transition

(1) Any notification, circular, instruction, standing order, trade notice or other order issued under the CENVAT Credit Rules, 2002 or the Service Tax Credit Rules, 2002, by the Central Government, the Central Board of Excise and Customs, the Chief Commissioner of Central Excise or the Commissioner of Central Excise, and in force at the commencement of these rules, shall, to the extent it is relevant and consistent with these rules, be deemed to be valid and issued under the corresponding provisions of these rules.

(2) References in any rule, notification, circular, instruction, standing order, trade notice or other order to the CENVAT Credit Rules, 2002 and any provision thereof or, as the case may be, the Service Tax Credit Rules, 2002 and any provision thereof shall, on the commencement of these rules, be construed as references to the CENVAT Credit Rules, 2004 and any corresponding provision thereof.

Availability of CENVAT credit under various situationsSituationSolution

a.The inputs are procured from a registered First stage dealer under the cover of invoice in which amount of duty shown is Rs. 13,200/-. The Invoice was marked ORIGINAL FOR BUYER. As per Rule 9, CENVAT credit can be availed on the basis of invoice issued by registered First Stage Dealer, for the amount of duty shown therein. In the given case Cenvat credit is available for Rs. 13,200.

b.Machinery falling under chapter heading 84 received along with invoice marked DUPLICATE FOR TRANSPORT indicating the amount of duty Rs. 7,600. assume that the amount shown includes EC as well as SHECAccording to Rule 2(a) Machinery falling under chapter 84 are the Capital Goods. As per Rule 4(2), CC on capital goods can be availed upto 50% of the amount of duty during the first Financial year in which goods are received and balance can be availed in any of the subsequent financial years. Therefore, in the given case amount of credit during the first financial year cannot exceed Rs. 3,800 (50%) and balance can be availed in any subsequent financial year.

c.Some inputs were directly sent on 1st of the month for job work to the factory of job worker, from place of the input supplier, without bringing them in factory. As per the invoice of supplier of inputs, duty paid on inputs was Rs. 5,000. Out of these inputs, 80% were received in the factory on 14th of the month, after carrying out job work. According to Rule 4(1), CENVAT credit on inputs can be received only when inputs are received in the factory, for the quantity actually received. In the given case, the assessee can avail the credit for Rs. 4000 (80%) when inputs are received in the factory along with documents, referred under rule 9, showing amount of duty.

d.Some spare parts of machinery falling under chapter 84 received with invoice indicating amount of duty Rs. 1,600/-. The Invoice was marked DUPLICATE FOR TRANSPORT.

According to Rule 2(a), spare parts of Machinery falling under chapter 84 are the Capital Goods. As per Rule 4(2), CC on capital goods can be availed upto 50% of the amount of duty during the first Financial year in which goods are received and balance can be availed in any of the subsequent financial years. Therefore, in the given case amount of credit during the first financial year cannot exceed Rs. 800 (50%) and balance can be availed in any subsequent financial year.

e.Some Inputs received under the cover of invoice indicating amount of duty Rs. 4,500/-. The Invoice was marked DUPLICATE FOR TRANSPORT and it did not contain time of removal from the factory.

According to Rule 9(2) of the CCR, if there is any defect in invoice, Cenvat credit can be availed only with permission of AC/DC.

In the given case, failure to mention time of removal on the invoice is a defect. Therefore, CC cannot be availed except with the prior approval of AC/DC.

If such approval is obtained then CC will be available for Rs. 4500/-

f.Assessee received some inputs are the cover of an invoice. The invoice is not in the name of assessee.

According to Rule 9(1), CENVAT credit can be availed on the basis of certain specified documents. The rule does not require that the invoice should be in the name of the assessee. Therefore, assessee can avail the CC on the basis of invoice even though it is not in his name provided goods are in his possession.

g.An consignment of imported inputs was received vide Bill of Entry showing payment of following duties BCD - Rs. 1,000, CVD - Rs. 1,760, Special CVD Rs. 515 and applicable EC+SHEC. According to Rule 3(1) of CCR, CC is not available for BCD but it is available for --

1. CVD - Rs. 1,760

2. Spl CVD Rs. 515

h.A consignment of 1,000 Kg of inputs was received. The excise duty paid was per invoice was Rs. 10,000. While the inputs were being unloaded, 50 Kgs were damaged and it was found that these were not usable.

According to Rule 2(k), Inputs are the goods which are used in the factory. If the material is received but it cannot be used, then it cannot termed as Input and CC cannot availed on unusable material.

In the given case, 50 Kgs of inputs are not usable. Therefore, credit can be availed for 950 Kgs only i.e. Rs. 9,500.

i.Some inputs were received along with photo copy of the Invoice. The original or duplicate copy of Invoice was not traceable.

Cenvat credit cannot be taken on basis of photo copy. If assessee can procure triplicate copy (available with supplier), then he can avail Cenvat credit.

j.500 pieces of inputs were received. duty paid on these goods was Rs. 2,500. These were issued to production. While on production line, a fire broke out and 200 pieces of inputs lying on shop floor were destroyed.

CENVAT credit is available for all the inputs used in the factory even if those are destroyed during the process of manufacture. In the given case reversal of credit is not required because once the inputs are on production line, those are considered to be used in manufacture.

k.1000 litres of inputs were received on which duty paid was Rs. 10,000. Out of these, 950 litres of final products were manufactured. 50 litres of inputs were lost during the process of manufacture

Same as above

l.Some inputs were received on which duty paid was Rs. 20,000. Assessee used 60% of the inputs but balance 40% could not be used due to change in design. He made provision for obsolete goods written off in his books of account. However, the inputs were still in his store room.

According to rule 3(5B) if inputs are written off in the books of account or a provision is made to write off, before inputs are put to use, then the CC availed on the inputs shall be reversed.

Therefore, in the given case, the assessee is required to reverse Rs. 8,000 (40% of the total credit on inputs).

The rule further provides that if such inputs are used again then assessee can avail CC again.

m.Cenvat credit of Rs. 10,000 was taken on some inputs. These were never used and later sold as scrap for Rs. 15,000. Excise duty payable on scrap is 16.48%. In this case, the assessee will have to reverse Cenvat credit of Rs. 10,000. Rule 3(5)

Practical Problems in CENVAT Credit Note: In many question education cess has and SHEC has not been mentioned. You should assume that EC and SHEC is also paid in addition to the amount of duty.

Problem No 1

An assessee was availing SSI exemption from 1-4-2012. He crossed turnover Ps. 150 lakhs on 15-11- 2012 and started payment of excise duty. He had received machinery on 10-11-2008 one which excise duty paid was Rs. 3,20,000. He intends to avail Cenvat credit of this duty. Can he do so?

Solution According to Rule 4(2), an assessee availing SSI exemption is entitled to availed 100% CENVAT credit on capital goods during the financial year in which those goods are received. CENVAT credit is available on capital goods irrespective of the fact that the assessee is availing SSI exemption. This credit can be used by the assessee only after his exemption limit is exhausted.

In the given case, Capital goods are received during exemption period. Therefore, the assessee can avail 100% CENVAT credit during the same financial year.

Problem No 2

(1) The assessee received 500 pieces of inputs on which duty of Rs. 2500/- has been paid. While on production line, a fire broke out and 200 pieces of inputs lying on the shop floor were destroyed.

(2) 1000 litres of oil, an input, was received on which duty of Rs. 18,000 has been paid. 60 liters of oil has been lost during the process of manufacture.

Discuss availability of CENVAT credit in both of these cases.

Solution (1) Material destroyed before being used does not qualify to be input. Therefore, CENVAT credit availed on 500 units destroyed due to file shall be reversed/paid back by the assessee.

(2) All the material used in the factory is said to be input. 60 liters of oil lost during the process of manufacture is said to have been used. Therefore, CENVAT credit is admissible for entire 1000 liters.

Problem No. 3

Examine the validity of the following statements:

(i) Purchased a plant for Rs. 1,16,480 cum-duty price. Excise duty rate 16.48% on 12.12.2011 and received the plant into the factory on 5.4.2012. Cenvat allowed will be only Rs. 8,240 for the year ended on 3 1.3.2012.

(ii) An assessee purchased inputs weighting 400 tons. The duty paid on inputs was Rs. 40,000. During transit, 20 tons of the inputs were destroyed. The destroyed quantity of inputs does not qualify to be inputs within the meaning of Cenvat Credit Rules, 2004.

Answer

(1) As per Rule 4(2), CC on capital goods can be availed on being received in the factory and not on the date of purchase. In the given case, the goods are purchased on 12.12.2011 but those are received on 05.02.2012. Therefore credit cannot be availed before 5.04.2012. In other words, no CENVAT credit is admissible during the financial year 2011-12.

During financial year 2012-13 also CENVAT credit is limited to 50% i.e. Rs. 8240 and balance credit can be availed during any of the subsequent financial years.

(2) The statement is correct. It is to be noted that the material destroyed before being put to use in the factory does not qualify to be input and, thus, CC is not admissible on the quantity so lost.

Problem No 4

A manufacturer procures certain inputs for Rs. 1,00,000 and duty Rs. 16,000 +EC+SHEC. As soon as he receives the inputs, he availed CENVAT credit.

Since he does not require these inputs any more, he sells those for Rs. 1,30,000 (lump sum). Examine the amount of duty payable by the assessee if

(a) On the date of clearance, duty rate on inputs was 20%

(b) On the date of clearance, duty rate on inputs was 10%.

Solution:

According to Rule 3(5) of the CENVAT Credit when inputs are removed as such, the assessee is required to reverse or pay back the amount of CENVAT credit taken by the assessee. Therefore, in the given case, the assessee need not pay any duty but he shall reverse the CENVAT credit taken by him on inputs.

It is to be noted that while making reversal, change in value as well as in rate of duty becomes immaterial.

It is also relevant to note that the reversal is required to be made immediately on removal of goods. In case of reversal facility of making payment of duty on monthly or quarterly basis does not apply.

Similar sum for practice

An assessee had procured some inputs in May 2012 for Rs. 20 lakhs and paid duty of Rs. 3,20,000 ( @ 16%) plus education cess of Rs. 6,400. He was unable to use the inputs in view of change in market conditions. He sold the inputs in March 2013 for Rs. 16,00,000. How much duty or amount is payable while clearing the inputs?

Problem No. 5

M/s ALM imported some inputs and paid Basic Customs duty Rs. 5 lakhs, surcharge on customs duty Rs. 50,000 and ACD Rs. 1 lakh. Calculate the amount that he can claim as Cenvat credit. Would it make any difference, if the assessee is not a manufacturer, but a service provider (CA Final May 2006)

Answer As per Rule 3(1) of the Cenvat Credit Rules, 2004, CENVAT credit is not available for Basic Custom Duty as well as for any Surcharge thereon. It is available only for Additional Custom duty paid under section 3(1) of the Custom Tariff Act.

A service provider can avail credit only if the imported goods are used by him as input for providing output service.

Problem No. 6

Based on the following information, determine the CENVAT Credit available for use in the current year under the CENVAT Credit Rules, 2004

Amount after each item indicates Central Excise duty paid at the time of Purchase of goods. EC and SHEC is in addition to the amount of duty

(Rs.)

(a) Pollution control equipments -

Rs 25,000

(b) Spares for pollution control equipments -

Rs 5,000

(c) Equipments used in office -

Rs 12,000

(d) Storage Tank -

Rs 10,000

(e) Paints used for painting machinery used -

Rs 6,000

(f) Packing material -

Rs 4,000

(g) Lubricating oils -

Rs 8,000

(h) High Speed diesel oil -

Rs 7,000

Answer:

Particulars of goods Nature of Goods Duty paid Education Cess Cenvat Credit Eligible in Current year Reason Remarks

Pollution Control Equipments Capital goods 25000 750 12500 375 CENVAT credit is limited to 50%

Spares for Pollution control Equipment Capital goods 5000 150 2500 75 CENVAT credit is limited to 50%

Equipment used in office Not a Capital goods 12000 360 Nil Nil Credit is not available for the goods used in office.

Storage Tank Capital goods 10000 300 5000 150 CENVAT credit is limited to 50%

Paints used for painting Machinery Inputs 6000 180 6000 180 100% Credit is available on Inputs

Packing Material Inputs 4000 120 4000 120 100% Credit is available on Inputs

Lubricating Oils Inputs 8000 240 8000 240 100% Credit is available on Inputs

High speed diesel Not a Input 7000 210 nil No CENVAT Credit.

Total Credit available in Current year380001140

Problem No. 7 Discuss about the eligibility of CENVAT Credit in each of the following situations

(i) 1000 kgs of raw materials were purchased on which duty of Rs. 16,000 was paid. Whilst in the production yard those goods were destroyed by accidental fire.

(ii) 1000 kgs of raw materials on which duty paid was Rs. 10,000 was used in manufacture of a final product for which the duty payable is Rs. 8000

(iii) The original invoice for 1,000 units of inputs purchased were missing; however duplicate for transport copy of invoice is available, which shows that duty of Rs. 10,000 had been paid on inputs

Answer

(i) Credit is available on inputs only when used in manufacture. If inputs are destroyed before being used in the process of manufacture, CENVAT credit already availed shall be reversed or paid back. In other words, in the given case, CENVAT credit is not available.

(ii) If finished goods are dutiable then full CENVAT credit is available on inputs. It is immaterial that the amount of duty paid on input is higher than the duty payable on the finished goods. Therefore, in the given case, credit is available for Rs. 10,000 out of which Rs. 8,000 shall be utilized to pay duty on finished goods and balance Rs. 2,000 shall be carried forward.

(iii) As per rule 9 of the CCR, CENVAT credit can be availed on the basis of certain specified documents only. Rule 9 does not require only original copy for availing the credit. As long as all the particulars are available on the transporters copy, credit can be availed.

Problem No. 9

H Ltd. purchased a Boring-brilling machine at a cum-duty price of Rs. 32,14,476. The Excise duty rate charged on the said machine was @ 16% +EC+SHEC. The machine was purchased on 01.04.2011 and disposed of on 30.09.2012 for a price of Rs. 12 lakhs. The company was claiming depreciation @ 25% following Straight Line Method. Using the said information, answer the following questions:

(i) what is the Excise duty paid on the machine?

(ii) What is the Cenvat credit allowable under Cenvat Rules?

(iii) What is the amount of Cenvat credit reversible or duty payable at the time of clearance of the said machinery

Solution

1. According to Rule 4(4), the assessee can either claim depreciation on the amount of duty or CENVAT credit.

2. The assessee is always authorised to claim depreciation for the value of goods excluding amount of duty for which CENVAT credit is claimed. This depreciation on the value of goods does not affect right of the assessee to claim CENVAT credit for the amount of duty paid on machine.

3. According to Rule 4(2), CENVAT credit on capital goods is limited to 50% during first financial year in which goods are received and balance credit can be availed in any of the subsequent financial years.

4. According to Rule 3(5A), if goods are removed after partial use, the assessee is entitled to retain 2.5% of the total credit for every three months or part thereof and balance credit shall be reversed.

Calculation of Excise duty, CENVAT credit and reversal Cum duty price 32,14,476

Assessable Value 3214476 x 100/116.48 27,59,681

Excise duty including EC and SHEC 3% of duty4,54,795

Availability of Cenvat credit

During first year -50% of Rs. 454795 2,27,398

During subsequent year remaining 50% Of Rs. 454795 2,27,397

Credit of EC available only on payment of EC

Cenvat credit reversible at the time of clearance

Cenvat Credit availed in year 11-12 Rs. 2,27,398

Less: 2.5% per quarter for 6 quarters-15% 34410 1,93,288

Cenvat Credit availed in year 12-13 2,27,397

Less : 2.5% per quarter for 2 quarters 11371 2,16,027

Total amount of CENVAT credit reversible / payable at the time of clearance 4,09,315

Problem for Practice

1. An assessee had procured machinery in April 2011 for Rs 10 lakhs by paying duty of Rs 1,60,000. It was commissioned in June 2011. Assessee had availed 50% Cenvat credit of Rs 80,000 in 20011-12, and Rs 80,000 (balance 50% credit) in 2012-13. He sold the capital goods after use, on 10th April 2103 as second hand goods for Rs 3,00,000. How much excise duty or amount is payable while clearing the machinery?

2. Machinotech Ltd. purchased a lathe machine at a price of Rs. 1,00,000 on which 16% Excise duty was paid and the company availed of the Cenvat credit on the said capital goods. The lathe machine was purchased on 27-01-2010 and it was disposed of on 29-04-2011. How much CENVAT credit and when it can be availed by the assessee. Is it necessary to reverse the cenvat credit on disposal of the machine? If your answer is yes, quantify the amount.Problem No. 10

UTV Limited manufactures 10,000 units of Product A having assessable value of Rs. 400/- per unit attracting duty of Rs. 16/- per unit (all inclusive). UTV Limited has paid duty of Rs. 3,00,000 on inputs. Out of 10,000 units manufactured by UTV Limited, 2,000 units are sold in India and remaining 8,000 are exported. Based on these fact, answer the following questions

(i) What is CENVAT credit available?

(ii) What is the duty payable through personal ledger account (PLA)?

(iii) Can UTV Ltd. get any refund of CENVAT credit?

Answer:

(i) CENVAT credit is available for the inputs used in manufacture of dutiable goods. Export goods are also dutiable if sold in India but particular transaction of export is exempt. Export goods cannot be referred as exempted goods. Therefore, credit is available even for the inputs used in manufacture of export goods.

In the given credit the assessee is entitled to get credit of Rs. 3,00,000 i.e. duty paid on inputs.

(ii) Duty is payable only on the goods removed within India. The assessee is required to pay duty on 2000 units @ Rs. 16/- per unit i.e. Rs. 32,000. The assessee is having sufficient credit balance, therefore nothing is payable through PLA (cash).

(iii) Yes, the assessee is entitled for refund. According to Rule 5 of CCR, the assessee is entitled to get refund of CENVAT credit availed on inputs used in manufacture of export goods in accordance with the prescribed formula.


A manufacturer manufactures 1,000 units of product P having a, Assessable Value of which is Rs. 2,000 per piece. Duty payable is 20%.

Duty paid on raw materials is Rs. 2,00,000+EC+SHEC. The manufacturer sells 700 pieces in India and 300 pieces are exported. What is CENVAT available and what is the duty payable through PLA?

Problem No. 11

MIs Tips and Toes Ld., manufactures four types of Nail Polishes, namely Sweety, Pretty, Beauty, Tweety. The company has availed CENVAT credit of Rs. 4,00,000 on the common inputs used in the manufacture of Nail Polishes during the financial year 2011-12 the company manufactured 1000 litres of each type of Nail Polishes. The CENVAT availed input was used in equal proportion in all the four types of the products. Examine the availability of Cenvat Credit and duty payable

Product Nature of Sale Sale Price excluding Sales Tax & other local taxes

Sweety Sale to Home Consumption Rs. 30 per 20 ml bottle

Pretty Sold to a 100% EOU Rs. 40 per 20 ml bottle

Beauty Fully exported Rs. 50 per 20 ml bottle

Tweety Supplied to defence Canteen under exemption Rs. 60 per 20 ml bottle

Solution The assessee is authorised to avail full CENVAT credit for the inputs used in manufacture of the goods which are removed for

1. Home consumption

2. Export

3. Supplied to 100% EOU

In respect of goods supplied to defence canteen, the assessee is having following options

1. If assessee is maintaining separate record for use of inputs used in manufacture of various articles, then CENVAT credit cannot be availed on the inputs used in manufacture of goods supplied to defence canteen or

2. On removal of goods to defence canteen duty can be paid @ 6% or

3. CENVAT credit availed on inputs used in manufacture of goods supplied to defence can be reversed in accordance with the formula prescribed under rule 6(3A).

Problem No 12

An assessee cleared his manufactured final Product during the month of January 2013. The duty payable on the final product for the month is

Basic excise duty Rs. 48,000,

NCCD Rs.2000 and applicable education cess.

During the month he has received various inputs total duty paid on the inputs was as follows.

Basic Excise duty Rs. 40000,

Special excise duty 4000,

Service tax paid on input services Rs. 8000.

Applicable education cess and SHEC was also paid. How much duty is payable through account current

Solution

BEDSEDNCCDService Tax EC and SHECTotal

Credit available40,0004,00080001,60053,600

Duty payable48,0002000150051500

BED can be paid out of credit of BED, SED as well as ST. There is surplus credit of Rs. 4,000.NCCD is payable only in cash or out of NCCD credit. Since there is no credit for NCCD, then it is payable in cash onlyThis credit can be used to pay BED, SED, EC, SHECCredit exceeds the liability. Therefore, excess credit can be carried forward


An assessee cleared his manufactured final Product during the month of March 2013. The duty payable on the final product for the month is

Basic excise duty Rs. 200000,

Special excise duty Rs. 1,00,000 and applicable education cess.

During the month he has received various inputs total duty paid on the inputs was as follows --

Basic Excise duty Rs. 50000,

Special Excise duty is Rs. 5000.

Excise duty paid on capital goods received during the month was Rs. 12000

Service tax paid on inputs Rs. 1000,

Applicable EC and SHEC was also paid. How much duty is payable through account current

Problem No 13

X availed Cenvat credit of Rs. 42,000 for manufacture of an item chargeable to duty. These goods were lying in his factory till 29-02-2013. From 1.3.2013 the final product was made exempt from duty. What is the responsibility of assessee in respect of CENVAT credit.

Solution

According to Rule 11 of CCR, if finished goods become exempt, the assessee shall reverse CC for all the inputs lying in stock as well as inputs contained in the finished goods in stock.

In the given case, all the finished goods are in stock when dutiable goods become exempt. Therefore, the assessee is required to make reversal of CENVAT credit of Rs. 42,000.

Problem No 14

A manufacturer received certain inputs. The cost of inputs was Rs. 2,00,000 and duty paid @ 16% was Rs. 32,000. After receipt of the inputs, the cenvat credit was availed of by the manufacturer. He further carried out some processes on the inputs. The cost of processing was Rs. 50,000. The semi-processed material was sent to a small-scale unit for a job work. -Is there any duty payable at the time of removal of inputs for the job work? The material sent was not returned by the small- scale unit after the job work within 180 days. What will be the duty payable on such goods not returned after being sent out for the job work?

Solution

According to Rule 4(6) of the CCR, if inputs or semi-finished goods are sent for job work without paying duty and if those are not returned within 180 days, the assessee is required to make reversal of the CENVAT credit on the inputs/inputs used in semi finished goods for the job-work.

In the given case, if goods are not returned within 180 days since removal for job-work, the assessee is required to make reversal of the credit availed. However, special permission can also be obtained for removal of finished goods from the premises of job-worker and in that case, duty will be payable on assessable value of finished goods.

Problem No 15

A Small Scale Industrial unit (SSI) is required to pay the following central excise duties by January 10, 2013 for clearances effected from its factory in respect of final products manufactured during the month of December, 2012:

Basic Excise Duty (B.E.D.):

Rs.36,000

Special Excise Duty (S.E.D.):

Rs.18,000

National Calamity Contingency Duty (N.C.C.D.):

Rs.1,000

EC and SHEC as applicable

Balances available as credit at the beginning of the month i.e. December, 2012 were as follows:

BED

Rs. 24,000

N.C.C.D.

Rs. 2,000

E.C.

Rs. 780

No inputs were received during the month. However, certain inputs were received on January 1, 2013 on which total duty paid by the suppliers of inputs was as follows:

B.E.D

Rs.16000,

E.C. and S.H.E.C

Rs.480

Excise duty paid on capital goods received during the month was as follows:

B.E.D.

Rs.40,000,

E.C. and SHEC

Rs.1200

For the month of December, 2012 you are required to determine:

(i) the credit available for utilization;

(ii) the permissible extent to which such available credit may be utilised against payment of B.E.D.,S.E.D., N.C.C.D., and E.C.; and

(iii) The B.E.D., S.E.D., and E.C. payable through account current (P.L.A.).

Solution

CENVAT credit available for utilization

ExciseSEDNCCDECSHECTotal

Opening balance24,000-2,00052026026,780

Inputs received in December 2103------

Capital Goods received in December 201220,00040020020,600

Total44,000-2,00092046047,380

ExciseSEDNCCDECSHECTotal

Duty payable 36,00018,000 1,000 1100 550 56,650

Credit available 44,000 2,000 920 460

Through CC 36,000 8,0001,000 920

By cash- 10,000- 18090 10,270

Surplus carried forward --1,000--1,000

Problem No 16

An assessee cleared various manufactured final products during January 2013. The duty payable for January 2013 on his final products was as follows - Basic - Rs. 2,00,000 EC and SHEC - as applicable.

During the month, he received various inputs on which total duty paid by suppliers of inputs was as follows

Basic duty - Rs. 50,000,

Education Cess - Rs. 1,000,

SHEC - Rs. 500.

Excise duty paid on capital goods received during the month was as follows

Basic duty - Rs. 12,000.

Education Cess - Rs. 240.

SHEC - Rs. 120.

Service tax paid on input services was as follows - Service Tax - Rs. 10,000. Education cess - Rs. 200 SAH Education Cess - Rs. 100.

How much duty the assessee will be required to pay by GAR-7 challan for the month of January 2013, if assessee had no opening balance in his PLA account2 What is last date for payment?

Answer

CENVAT credit available for January 2013

Excise Duty/ST ECSHECTotal

Inputs50,0001,00050051,500

Capital Goods6,000120606,180

Input Service10,00020010010,300

Total66,0001,32066067,980

Payment of duty through CC and through GAR 7

Duty AmountPayment through CCPayment through GAR 7

Excise 2,00,00066,0001,34,000

EC4,0001,3202,680

SHEC2,0006601,340

According to Rule 8 of CER, the duty shall be paid within 5 days after the end of the month but where e-payment is made, instead of 5 days, 6 days are allowed. It is also to be noted that e-payment is compulsory for the assessee who has paid duty of Rs. 10.00 lacs or more during the preceding financial year.Problem No. 17 An assessee purchased various inputs and credit of duty on inputs was taken up instantly. Later on, some inputs were pilfered from the store room of the assessee. The proper officer raised a demand under section 11A of the Central Excise Act, 1944, and as per CENVAT Credit Rules, 2004, for recovery of CENVAT credit wrongly taken on inputs lost from store room. Examine the case in the light of central excise provisions.

Answer

According to Rule 4(1) of CCR, the assessee can avail CC on inputs as soon as those are received.

Rule 2(k) provides that only those goods are the inputs which are used in the factory.

Goods received in the factory are eligible for CC but if those goods are not used then the CC already availed shall be reversed.

In the given case, if inputs are pilfered before use, then CC credit availed on the inputs pilfered shall be reversed by the assessee.

Therefore, the action taken by the Central Excise Officer is justified.

Case Laws

Recommended by ICAI

for

May and Nov. 2013 Exams

Commissioner Vs. SAIL (2012) SCFacts - SAIL mines ores from the mine.

The ore was crushed, grinded, washed and concentrated with the object of removing foreign particles.

The Department contended that the process carried out amounts to manufacture.

Decision Since no new articles comes into process by the activity carried out, there is no manufacture.

CCE Vs. Osnar Chemicals Pvt. Ltd. (2012) SC

Facts Osnar supplies bitumen at the customers site. At the site, bitumen is heated and some polymer is added for improving the utility of bitumen.

Dispute The Department contents that the process of heating and adding polymers with bitumen for improving the utility amounts to manufacture.

Decision The process carried out by the assessee does not result into new articles. Further, the process carried out by the Assessee is also not specified under schedule to the CETA. Therefore, the process does not amount to manufacture.

Grasim Industries Ltd. UOI (2011) SC

Facts Assessee removed worn out parts of the machine replaced during repairs without paying duty.

Dispute - The Department contents that the worn out parts replaced during repairs also attract duty and the goods should have been removed after paying duty.

Decision Process of repairs does not amount to manufacture. Therefore, worn out parts replaced during repairs cannot be said to have been manufactured. Therefore, demand of duty is not justified.

Medley Pharmaceuticals Ltd. Vs. CCE&C (2011) SC

Facts Pharmaceutical samples removed without payment of duty.

Dispute Samples also attract duty?

Decision Samples given to doctors are not allowed to be sold by law but it does not mean those samples are not marketable. Since samples given to doctors satisfy all the requirements of Dutiability, duty is payable on samples also even though those are not allowed to be sold.

Usha Rectifier Corpn. (I) Ltd. Vs. CCE (2011) SC

Fact- The assessee assembled some testing instrument within the factory for captive use but did not pay duty.

Dispute Duty is payable on goods assembled within the factory, even though not sold.

Decision According to submission of the assessee, the testing instruments were assembled so as to avoid import. This implies that those instruments are marketable. Duty becomes payable even on equipments assembled within the factory for captive use.

CCE Vs. GTC Industries Ltd. (2011)(Mumbai)

Facts Assessee embossed the word PULL on the aluminum foil for its being used in the packing of cigarettes.

Dispute The Department contends that the process of embossing aluminum foil amounts to manufacture and attracts duty.

Decision The court opined that the process of embossing word PULL on the aluminum foil does not result into a new article. Therefore, the process does not amount to manufacture and, thus, duty is not attracted.

Note- This case has become redundant. Please ignore. Nicholas Piramal India Ltd. Vs. CCEx (2010) SC

Facts Certain goods manufactured by the assessee are having shelf life of 2-3 days.

Dispute The assessee claims that due to short shelf life goods are not marketable and, thus, do not attract duty.

Decision Short shelf life means the goods are not capable of being brought to the market and sold. Goods having shelf life of 2-3 days are having sufficient life for being brought to the market and sold. Goods being marketable, subject to other requirements of dutiability, are liable to duty.

Bata India Ltd. Vs. CCEx. (2010) SC

Facts Certain goods manufactured by the assessee are not sold or marketable generally.

Dispute The Revenue contents that the goods generally not marketable but capable of being sold even in hypothetical conditions are also said to be marketable and, thus, liable to duty.

Decision The Apex Court opined that hypothetical possibility of goods being marketable is not sufficient. The goods should be marketable in the o