Discussion on Cenvat Credit Rules, 2004CA Sri Harshaharsha@sbsandco.com byOverview of the Rules2

2www.sbsandco.comImportant Definitions Rule 2 (a)3Manufacturer/Service Provider Capital Goods4goods falling under Chapter 82, 84, 85, 90, heading 6805 and 6804 1st schedule to CETA; pollution control Equipment; components, Spares and Accessories of the above;moulds and dies, jigs and fixtures;refractories and refractory materials;tubes and pipes and fittings thereof;storage tank;motor vehicles other than those falling under TH 8702, 03, 04, 11 and their chassis but including dumpers and tippers

Used in the factory of manufacturer of final products but does not include any equipment/appliance used in office; or Outside the factory of manufacturer of final products for generation of electricity for captive use within the factory;For providing Output Service Service Provider5Service Provider6components, spares and accessories of motor vehicles which are the capital goods for the assessee

Important Definition Rule 2 (d)7Important Definition Rule 2 (e)8Important Definitions Rule 2 (k)9Manufacturer/Service Provider Inputs10all goods used in the factory by the manufacturer of the final product;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;all goods used for generation of electricity or steam for captive use;all goods used for providing any output service;But excludes:Light Diesel Oil, High Speed Diesel Oil or Motor Spirit, commonly known as Petrol; Any goods used for construction or execution of works contract of a building or civil structure or a part thereof; laying of foundation or making structures of capital goods Except for provision of works contract or constructions services 66ECapital Goods except when used as parts or components in the manufacture of final product; motor vehicles; any goods, such as food items, goods used in a guesthouse, residential colony, club or recreation facility and clinical establishment such goods primarily used for employee consumption; Any goods which have no relationship whatsoever with the manufacture of final product Important Definitions Rule 2 (l)11Input Service Nexus with provision of output service and/or manufactureSpecific Inclusions irrespective of Nexus TheorySpecific Exclusions irrespective of Nexus Theory12Manufacturer/Service Provider Input Service13Limb I:

Used by a provider of output service for providing an output service; Used by a manufacturer directly or indirectly in or in relation to manufacture and clearance up to Place Of Removal

Limb II: 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

Manufacturer/Service Provider Input Service14Limb III: but excludes

service portion in the execution of works contract and construction services including mentioned under Section 66E(b) in so far as they are used for construction or execution of works contract of a building or a civil structure or a part thereof; or laying of foundation or making of structures for support of capital goods,except for the provision of one or more of the specified services

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

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 manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person ; or an insurance company in respect of a motor vehicle insured or reinsured by such person; or

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

Important Definition Rule 2 (p)15Important Definition Rule 2 (qa)16Manufacturer/Producer of Final Products/Provider of Output Service

ED I and II Schedule of CETA; Additional Duty leviable under Section 3(1) of Customs Tariff Act; Additional Duty leviable under Section 3(5) of Customs Tariff Act; Ed Cess and SHE Cess on above; Service tax 66A and 66B; Ed Cess and SHE Cess on above; Other Additional Duties leviable under various allied laws

17On Inputs, Capital Goods and Input Services Service Provider cannot avail the credit of ACD 3(5)

Rule 3 (1) Cenvat Credit- Availment Cenvat Credit may be utilised for payment of: Any duty of Excise on any Final Product; Amount = Cenvat taken on Inputs If such Inputs are removed as such; Amount = Cenvat taken on CG If such CG are removed as such; Amount = Rule 16(2) of Central Excise Rules, 2002 Service Tax on any output service

Provided CC shall be used only to the extent such credit is available on the last day of the month/quarter for payment of duty No credit of ACD 3(5) shall not be used for payment of ST Liability; CC cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient.

18Rule 3 (4) Cenvat Credit- Utilization Rule 3 (5) (5A) (5B) (5C) Special CircumstancesInputs/Capital Goods Removed as Such = Reversal of CC equivalent to CC availed(a) CG removed after use = reduced by %age points calculated for each quarter or year from the date of availment of CCIf inputs/CG before being put to use = written off fully or partially = pay an amount equal to CC availed19Goods manufactured & payment of duty are order to remitted = reverse CC availed on Inputs (b) CG removed as scrap = manufacturer shall pay amount equal to ED on TVIf amount calculated is less than amount equal to ED on TV, then reversal shall be ED on TV

Rule 4 Conditions for availing Cenvat CreditCC on inputs can be availed immediately after receiving them in the factory/premises of OSPCC - CG can be availed immediately after receiving them in the factory/premises of OSP subject to a maximum of 50% in the first year20CC on Input Services can be availed immediately after the doc referred in Rule 9 is receivedThe balance can be availed in subsequent years subject to availability of such CG exemption to certain CGs.Manufacturer/OSP shall not take credit after 6 months from the date of issue of document referred in Rule 9(1)Manufacturer/OSP shall not take credit after 6 months from the date of issue of document referred in Rule 9(1)Rule 4 (7) Timing of availment for CC on Input ServiceProvided if the payment of input service + service tax is not paid within 3 months from the date of invoice, the CC availed shall be reversedCredit shall be allowed only after payment of service tax to the central government 21Credit shall be allowed only after payment of value of input service + service tax as indicated in the vendors bill. After the payment of value of input service + service tax, re-credit can be takenRule 5, 5A, 5B Refund of Cenvat CreditManufacturer/OSP can avail refund of CC on inputs & input services Export of Services/Goods without payment of duty/ service taxManufacturer cleared goods in terms of Notification No 20/2007- CE dated 25.04.2007 22SP falling under the reverse charge obligation not in a position to utilize the CC, he can claim refund of such CC Not in a position to use the CC, he can claim the refund of such CC27/2012-CX (NT) dated 18.06.2012 Conditions Notified12/2014-CE (NT) dated 03.03.14 Conditions NotifiedRule 6 Obligation for Manufacturer/OSPCC on Input/Input Service shall not be allowed which are exclusively used for manufacture of exempted goods and/or provision of exempted servicesCC on CG shall not be allowed if such CG are used exclusively for provision of exempted services or manufacture of exempted goods23Clearances to SEZ, 100% EOU, EHTP, STP and other notified are immune from restriction of CC in specified casesHowever, there is no restriction for availment of CC on CG if such CG is used for both taxable and non-taxable activities. Rule 6 Obligation for Manufacturer/OSPIf manufacturer/OSP avails CC in respect of common inputs/input services which are used for both taxable and non-taxable activities, then 24If the manufacturer/OSP does not wish to maintain separate set of accounts for recording consumption of common inputs and input services, then He has an option to maintain separate book of accounts for consumption of inputs and input services and CC can availed in respect of taxable activitiesRule 6 Obligation for Manufacturer/OSP25Pay an amount = 6% of value of the exempted goods and exempted servicesPay an amount as determined under Rule 6(3A)For Inputs = Maintain Separate books and For Input Services = Pay an amount as determined in 6 (3A) Concept:ISD Rule 2(m) means an office of provider of output service, which receives invoices issued under Rule 4A of STR, 1994 for purchase of input services and issues invoices for the purposes of distributing credit of service tax paid.

ISD may distribute Cenvat Credit of Service Tax paid on Input Services to various units providing Output Services subject to certain conditions.

This method is convenient when the HO receives various services which are common to all the other units of the service provider.

26Rule 7 Manner of distribution of CC by ISDConditions: The ISD can distribute the credit subject to following conditions:

the credit distributed does not exceed amount of service tax paid;

the credit of service tax attributable to a service used by one or more units exclusively engaged in provision of exempted services cannot be distributed;

the credit of service tax attributable to a service used wholly by a unit shall be distributed to such unit;

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

Expn -1 Unit includes premises of service provider whether registered or otherwise; Expn- 2 Total Turnover has to be determined as per Rule 5 of CCR, 2004 Expn- 3 Relevant Period If assesse has turnover in the FY preceding to the distribution of credit such FYIf assesse does not have turnover for some or all the units - the last quarter having turnover

27Rule 7 Manner of distribution of CC by ISD Rule 8 Storage of Inputs outside the factory of the manufacturer: AC/DC may in exceptional circumstances may allow storage of goods outside the factory without reversal of CC on inputs subject to certain conditions.

Rule 9 Documents and Accounts: Provides documents and accounts to be maintained by manufacturer/OSP for availing and distribution of the CC

Rule 9A Information relating to Principal Inputs: Provides filing of an annual declaration to the Superintendent in relation to the principal inputs in respect of goods manufactured or to be manufactured by him and quantity of such principal inputs required to manufacture final products.

28Other Rules 8, 9, 9ARule 10 Transfer of Cenvat Credit: Manufacturer- shifts his factory to another site or factory is transferred on account of change in ownership or an account of sale, merger, amalgamation, lease or transfer of factory to a JV with the specific provisions for transfer of liabilities, then the manufacturer shall be allowed to transfer of CC lying unutilized to the new company/site. Output service provider shifts or transfers his business on account of change in ownership or an account of sale, merger, amalgamation, lease or transfer of factory to a JV with the specific provisions for transfer of liabilities, then the OSP shall be allowed to transfer of CC lying unutilized to the new company/site.

The transfer of CC shall be allowed only if the stock of inputs as such or in process, or the CG is also transferred along with the factory or business premises to the new site or ownership and the inputs, or CG, on which credit has been availed of are duly accounted for to the satisfaction of the DC/AC.

29Other Rules 10 Rule 14 Recovery of CC wrongly taken or erroneously refunded:

Where the CC is irregularly availed and utilised, or erroneously refunded, the same shall be recovered along with interest from manufacturer or OSP 11A & 11AA - CEA + 73 & 75 - FA. Rule 15 Confiscation and Penalty:

Manufacturer/OSP takes or utilised CC wrongly or in contravention to the provisions the goods shall be confiscated and liable to penalty not exceeding ED on such goods and ST on such services or Rs 2,000/- which ever is greater.

Manufacturer Liable to Penalty under Section 11 AC of Central Excise Act, 1944 Intention to evade payment of duty

OSP Liable to Penalty under Section 78 of Finance Act, 1994 Intention to evade payment of duty

30Rules 14 & 15 Interest & Penalty for Irregular CC Availment Frequently Asked Questions Cenvat Credit31Whether the capital goods has to be owned for availing cenvat credit on such goods?Can depreciation be claimed on the ED component after availing the cenvat credit of such ED?Is registration mandatory to claim cenvat credit?Can all services used in or in relation to business can be claimed as cenvat credit?Can ST paid under RCM/PCM can be availed as credit?Can cenvat credit be used for payment of interest and penalty under ST or CE Laws?Can cenvat credit can be used for payment of ST liability under RCM/PCM?Can cenvat credit can be availed on the basis of the supplementary invoice issued by SP?Can a trader is entitled to avail credit on ST paid towards GTA services?Can ST paid on catering services procured for employees can be availed as credit? I am exporter, can I claim credit of ST paid on input services?

Frequently Asked Questions Cenvat Credit32I have irregularly availed cenvat credit but has not utilised the same, whether I am liable to pay interest? Please explain the position prior to 17.03.2012 also? I am a mall owner. I have availed various input services for construction of such mall, can I avail the credit of such services and knock off the output ST liability on Rental Incomes? Please explain the position prior to 01.04.2012?I am a chartered accountant intending to renovate my office. I have engaged a contractor for carrying such renovation. Can I avail ST paid on the contractors service bills?I am a business entity engaged in development of software. I engage cabs for pick and drop of my employees. Can I avail service tax paid on such cab services?I am a business entity engaged in provision of restaurant services. Can I avail the complete credit of service tax paid on my input services or is there any restriction on the availment? Is the restriction of availment of cenvat credit 6 months is prospective or retrospective?I have paid service tax on reverse charge obligation pertaining to Dec 2012 in Dec 2014. Can I avail the said credit of service tax since 6 months has been lapsed from Dec 2012? 33Thank You for your patient hearing !

Please reach me for any queries harsha@sbsandco.com +91 95 81 00 03 27