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CENVAT CREDIT RULES,2004
AJAY BABU BANDI M.COM,FCMA,ACA
Duties / Taxes Levied Under(a)Basic Excise Duty (BED)
levied on Excisable Goods, and Additional Duty equivalent to BED levied on imported goods.
First Schedule of Central Excise Tariff Act.
(b) Special Excise Duty (SED) levied on Excisable Goods and additional Duty equal to SED levied on imported goods.
Second Schedule of Central Excise Tariff Act.
Eligible Duties [Rule 3]
c) Additional duty of Excise levied on goods of special importance like Sugar and Tobacco. Duty in respect of imported goods is also eligible for credit.
Section 3 of Additional Duties of Excise (Textile and Textile Articles) Act, 1978 / Additional Duties of Excise (Goods of Special Importance) Act, 1957.
d) National Calamity Contingent Duty (NCCD) on certain excisable goods and imported goods.
Section 136 of Finance Act, 2001
e) Education Cess levied on Excisable and Imported Goods
Section 91/93 of Finance (No.2) Act, 2004
f) Additional Duty of Excise on Pan Masala & Certain tobacco products.
Section 85 of Finance Act, 2005
g)Service Tax leviable on Taxable Services
Section 66 of Finance Act, 1994
h) Education Cess leviable on Taxable Services
Section 91/95 of Finance (No.2) Act, 2004
i) Additional Duty Leviable on specified goods
Section 3 of Customs Tariff Act.
j) Secondary and Higher Education Cess leviable on Excisable Goods
Sections 136 / 138 of Finance Act, 2007
h) Secondary and Higher Education Cess on Taxable Services
Sections 136 / 138 of Finance Act, 2007
Additional Duty leviable u/s 3(5) of Customs Tariff Act, 1975
CENVAT Credit shall not be utilized for payment of Clean Energy Cess payable in respect of clearances of specified goods
CENVAT Credit of Basic Excise Duty if it is paid on any goods in respect of which the benefit of an exemption
CENVAT Credit of Additional Customs Duty(ACT) u/s 3 paid on Import Ships, Boats and other Floating structures---up to 85%
Ineligible Credits:
“Manufacturer” or “Produce” includes the Principal Manufacturer, who is liable to pay the Excise Duty, even if he does not actually produce such goods –
Articles of Jewellery / other articles of Precious Metals
Articles of apparel (whether knitted or not) and other made-up textile articles
Meaning of Manufacturer / Producer for CENVAT Credit Rules [Rule 2(naa)]
First Stage Dealer [Rule 2(ij)] Purchases the goods under an invoice
directly from- Manufacturer Importer… or Their consignment Agent,
Depot etc. Second Stage Dealer [Rule 2(s)] … A Dealer who purchases goods from
First Stage Dealer
First Stage/ Second Stage Dealer
Final Products means Excisable Goods manufactured or Produced from Input or using input service [Rule 2(h)]
It also includes Waste and Scrap generated during manufacturing Process
Output Service means any service provided by a Provider of Service located in taxable territory
Final Product /Output Service
Capital Goods[Rule 2(a)
of CENVAT credit Rules, 2004]
Chapter
Goods Covered
82 Tools, Implements, Cutlery, Spoons and Fork and their parts of base metal.
84 Nuclear Reactors, boilers, Machinery and Mechanical Appliances and their parts.
85 Electrical Machinery, Equipment including their parts. Sound Recorders and Reproducers, Television Image & Sound Recorders and Reproducers, and their parts and accessories.
90 Optical, Photographic, Cinematographic, Measuring, Checking, Precision, Medical or Surgical Instruments and Apparatus including their parts.
All Goods falling under –
Chapter Goods CoveredHeading
6805Natural or Artificial Abrasive Powder or Grain on the base of a textile material / Paper / Paper Board.
Heading 6804
Grinding Wheels and the like.
Pollution Control Equipment including their Components, Spares and Accessories,
Moulds, Dies, Jigs and Fixtures, Refractories and Refractory materials,
Tubes, Pipes and Fittings thereof, Storage Tank,
Motor Vehicles and their chassis Dumpers and Tippers Credit of the Capital Goods is also allowable
to Provider of Output Service. Capital Goods which are used outside the
factory of Manufacturer of Final Products for generation of electricity for captive use within the factory shall be eligible for CENVAT Credit
Motor Vehicle designed for transportation of goods/used for –
Providing an Output Service of renting of such Motor Vehicle; or
Transportation of Inputs and Capital Goods used for providing an Output Service; or
Providing an Output Service of Courier Agency
Motor Vehicle designed to carry passengers-
Transportation of passengers or Renting of such Motor Vehicle, or Imparting motor driving skills
Components, Spares and Accessories of Motor Vehicles, Dumpers or Tippers used to provide taxable services
Inputs [Rule 2(k)]
All goods used in the factory by the Manufacturer of the final product, or
Any goods including accessories, cleared along with the final product, the value of which is included in value of final product,
Goods used for providing free warranty for final products, or
All goods used for generation of electricity or steam for captive use, or
All goods used for providing any Output Service
“Input” means –
Light Diesel Oil, High Speed Diesel Oil or Motor Spirit, (commonly known as Petrol),
Any goods used for – Construction of a Building or a Civil
Structure or a part thereof, (or) Laying of Foundation / Structures to
support Capital goods Capital Goods Motor Vehicles
Exclusions:
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
Any goods which have NOT relationship with the manufacture of a final product
Exclusions:
Input Service [Rule 2(l)]
Any service used (directly/indirectly) in relation to-
Manufacture of goodsClearance of Final Products upto place of removal
For Manufacturer
Any service used for provision of output service
For Service Provider
Input service includes services used in relation to –
Setting up, Modernization, Renovation or Repairs of –Factory,
Premises of Output Service Provider, or An office relating to such Factory or Premises,Advertisement or Sales Promotions,Market Research,Storage up to the place of Removal,Procurement of Inputs,
Inclusions…
Accounting Auditing Coaching and Training Computer Networking Credit Rating Financing
Inclusions…The following list of services –
Inward transportation of Inputs or Capital Goods
Outward Transportation upto the place of removal
Recruitment and Quality Control Share Registry and Security
Inclusions…The following list of services –
Service Portion in the execution of a works contract and construction services in so far as they are used for –
o Construction of a building or a civil structure or a part there4of, or
o Laying of foundation / structures for support of capital goods,
Exclusion from Input Services
Services of General Insurance, Servicing and repairs and Maintenance in relation to Motor Vehicles, Which do not qualify as Capital Goods. However credit shall be available in respect of these services to –
Manufacturers, in respect of Motor Vehicles manufactured by them.
Insurance Companies, in respect of Motor Vehicles insured and re-insured by them.
Outdoor Catering Beauty Treatment Health Services Cosmetic and Plastic Surgery Club Membership Health and Fitness Centres Life Insurance, Health Insurance and Travel Benefits to employees on vacation
such as Leave or Home Travel Concession
Services provided in relation to…
Exempted Goods/Services [Rule 2(d) & 2(e)]
means excisable goods which are exempt from the whole of the Excise Duty leviable thereon, and includes goods which are chargeable to “Nil” Rate of duty and Goods in respect of which benefit of exemption is availed
Exempted Goods
Taxable Services which are exempt from the whole of the Service Tax leviable thereon,
Services on which no Service Tax is leviable u/s 66B of the Finance Act, 1994 and
Taxable Services whose part of value is exempted based on the condition that No CENVAT Credit shall be taken on inputs and input services , used for providing such taxable service
Exempted Services means-
Practical Questions
Item Eligibility Reasoning
1. High Speed Diesel oil
Not eligible Excluded from the definition of Inputs u/r 2(k).
2. Parts used to manufacture Capital Goods within the Factory
Eligible Inputs include all goods used in the Factory, and which has relationship with production [Rule 2(k)]
3. Light Diesel oil used to generate electricity consumed within the Factory
Not eligible Excluded from the definition of Inputs under Rule 2(k).
4.Steel Sheets used to erect a Storage Tank.
Not Eligible Inputs exclude goods for laying of foundation / structures to support Capital Goods. [rule 2(k)]
5.Safety appliances used by Workmen
Eligible Inputs include all goods used in the Factory, and which has relationship with production Rule 2(k)]
6.Dies Eligible Dies are Capital Goods u/r 2(a). Hence , they are eligible for CENVAT Credit as CG, and not as Inputs.
7.Detergent used for washing glass bottles, before filling aerated water, by Soft Drink Manufacturer, in his bottling plant.
Eligible Inputs include all goods used in the Factory, and which has relationship with production [Rule 2(k)].
8.Cement and Paints used for maintaining Factory Building
Not Eligible Inputs include all goods used in the Factory, and which has relationship with production [Rule 2(k)]. Since such goods have not direct connection with production, it is not eligible.
9.Pollution Control Equipment and their spares
Eligible Pollution Control Equipments and their spares are Capital Goods under Rule 2(a). Hence, they are eligible for CENVAT Credit as Capital Goods.
10.Storage Tank Eligible Storage Tanks are Capital Goods under Rule 2(a). Hence, they are eligible for CENVAT Credit as Capital Goods.
11.Equipments used in Office
Not Eligible Capital Goods does not include equipment or appliance used in an office. If used by a service provider for service, Eligible.
12.Paints used for packing material
Eligible Packing Material used is eligible for CENVAT Credit.
13.Lubricating Oil Eligible The definition of inputs includes Lubricating Oils.
14.Service Tax paid on Audit Fees
Eligible Definition of input service under Rule 2(1) includes auditing service.
Availment & Utilization
CENVAT Credit may be utilized for payment of –
Excise Duty on removal of Final Products, Inputs, Semi-Processed Goods and Capital Goods.
Amount under Rule 16(2) of Central Excise Rules, 2002, i.e. removal of re-conditioned and repaired goods.
Service Tax.
Purpose of Utilization
Cut-Off Time for Utilizing Credit: CENVAT Credit available as on the last day of the Month / Quarter can be utilized for payment of Service Tax / Duty for that month / quarter
Example…For April, A Ltd has CENVAT credit of `50,000. The Service tax/duty payable is `75,000 (to be paid on or before May 5th).
Credits to CENVAT Account between 1st to 5th May is ` 10,000.
In this case, the credit for April is restricted to ` 50,000.
The subsequent credits of ` 10,000 before the due date of payment, cannot be claimed as credit for the month of April
Restriction on utilization [Rule 3(7)] Additional Excise Duty (Textile and Textile
Articles) National Calamity Contingency Duty [NCCD] EC on Excisable Goods / Taxable Services SHEC on Excisable Goods / Taxable Services Additional Excise Duty leviable u/s 157 of the
Finance Act, 2003 and 85 of Finance Act, 2005. Additional Excise Duty leviable u/s 85 of the
Finance Act, 2005. Additional Duty leviable u/s 3 of the Customs
Tariff Act, 1975
Utilised only for payment of the respective duty on…..
Removal of Final Product, Input or Semi-Processed Input.
Providing any Output Service.
Restriction….
Additional Customs Duty cannot be claimed as credit against Service tax payable on taxable service
Important ….
Inputs used inside the Factory
Place of Receipt of Input---i.e.,Factory Inputs Received in Place other than
Factory---the Supreme Court has held that the credit on explosives used for blasting mines to produce limestone in manufacture of cement is eligible as input, even if mines are situated away from the Factory
Case : Madras Cements Ltd
Inputs used inside the Factory
CENVAT Credit is allowed even if Inputs are used outside the Factory, but Capital Goods should necessarily be used within the factory.
For a Service Provider, any inputs used for providing Output Service is available as Credit.
It is not necessary that the same must be used within the Registered Premises of the Output Service Provider.
Special Points
Inputs stored outside the Factory
[Rule 8]
Approving Authority: DCCE/ACCE having jurisdiction over the Factory of a Manufacturer of the final products
Permission: Nature of Permission: AC / DC may permit
(by order) to store duty paid Inputs (which have been claimed as CENVAT Credit), outside the Factory.
Considerations: AC / DC will consider the following factors for grant of permission –
Nature of goods, Shortage of storage space.
Conditions: The AC/DC may specify such conditions and limitations as they deem fit while granting permission.
Consequences of non-compliance: If the Input is not used as per the rules, the Manufacturer should pay an amount equal to the credit availed in respect of such input.
Conditions subject to which credit can be allowed [Rule 4]
Receipt: Input should be received in Factory of the Manufacturer or Premises of Output Service Provider.
Delivery: Service Provider to take credit of Inputs or Capital Goods whenever the goods are delivered to him, subject to maintenance of documentary evidence of their delivery and location.
Time of Credit: Credit can be taken immediately on receipt of inputs in the Factory / Service Providing Premises.
Amount of Credit: Credit can be claimed on duties paid on inputs received as shown in the Invoice of the Supplier.
Nexus with production / Service: Inputs should be used in relation to manufacture, or used directly for provision of taxable output service.
No responsibility for duty payment: The person availing CENVAT Credit is not responsible to ensure that duty paid to Manufacturer of Inputs or Capital Goods has been deposited by such Manufacturer.
No CENVAT Credit for Buyer of fully exempt goods:
If a Manufacturer collects Excise Duty on fully exempt goods, then such Excise Duty cannot be claimed by the Buyer of such goods as CENVAT Credit, since it does NOT qualify as “Duty of Excise” as per CENVAT Credit Rules, 2004.
However, the above Excise Duty collected by the Manufacturer shall be remitted by him to the Central Government
Inputs written off in Books of Accounts
[Rule 3(5B)]
Situation: Where Inputs / Capital Goods (before their usage) are written off in the books of accounts either fully / partially or provision is made to write off fully / partially
Consequences : The Manufacturer should pay an amount equivalent to the CENVAT Credit taken in respect of the said Input or Capital Goods.
Subsequent use: If the Input / Capital Goods is subsequently used in the manufacture of Final Products, the Manufacturer can take the credit of the CENVAT Credit paid earlier
Partial Write off: Reversal is required only if full write off is made in the books of accounts. So no reversal is required if only part of the value is written off.
Writing off of Work in progress (WIP) Situation 1 If such WIP has reached a stage, where it is
considered as Finished Goods Effect The duty has to be paid, unless it is
remitted for destruction u/r 21 of Central Excise Rules.
Writing off of Work in progress (WIP) Situation 2 Otherwise, WIP considered as Input Effect Input Credit on such WIP is to be reversed
Destruction of Goods [Rule 3(5C)]
Under Rule 3(5C) of CENVAT Credit Rules, 2004, the Assessee is required to reverse the CENVAT Credit availed in respect of inputs used in relation to manufacture of final products on which the duty liability has been remitted
Destruction of Goods is NOT an Exemption
Capital Goods [Rule 4]
Mode of Acquisition: Mode of acquisition of Capital Goods is immaterial, Credit can be availed, even if the Capital Goods are acquired on Lease, Hire Purchase or Loan Agreement, from a Financing Company
Amount of Credit: The amount of credit is based on usage and period as follows …..
Quantum Time ConditionUpto 50% of Duty Paid
At the time of receipt of goods in the factory of Manufacturer / Premises of the Output Service Provider (See Exception)s
-
Balance Any of the subsequent Financial Years
The Manufacturer / Service provider should be possession of the Capital goods in such subsequent years for claiming credit.
100% 50% at the time of receipt of the goods in the premises.
50% at the time of removal.
Capital Goods are received and cleared in the same financial year.
Exception to General Restriction of 50%: SSIs – 100% CENVAT Credit on Capital Goods in the first year.
An Assessee who is eligible to avail of the exemption under a notification based on value of clearances in a financial year is allowed to CENVAT Credit in respect of Capital Goods of the whole amount of duty paid on such Capital Goods in the same financial year
CENVAT Credit on Capital Goods received outside the factory of the Manufacturer of the Final Products for generation of electricity for captive use within the Factory, shall be limited upto 50% in the same financial year, and balance credit in the subsequent financial years
CENVAT on Capital Goods cannot be availed if used exclusively in –
Manufacture of dutiable goods on which concessional rate is availed,
Provision of Service whose part value is exempted on the condition that no credit of inputs and input services is taken
Input Services-Conditions for Credit
Availment [Rule 4]
Invoice Basis: CENVAT Credit in respect of Input Service shall be allowed, on or after the day on which the Invoice Bill / Challan referred is received.
Payment within 3 Months: If the amount of the Invoice is not paid within 3 months, then the credit availed on Invoice Basis shall be reversed.
If the amount is however paid subsequently, then such credit can again be availed.
Return of Payment: If any payment made towards an Input
Service is refunded, or a Credit Note is received by the Manufacturer / Service Provider who has taken credit, he shall pay an amount equal to the CENVAT Credit availed in respect of the amount so refunded / credited.
Time of Payment of Amounts: Any amount payable under this Rule shall
be paid by debiting the CENVAT Credit or by payment on or before the 5th day of the following month / quarter, except for the month / quarter ending March, when the payment is to be made on or before 31 March. In case of failure to pay, the amounts can be recovered under Rule 14.
Reverse Charge: 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 the Service Tax is paid
CENVAT Credit-Special Situations
Definition [Rule 2(m)] : Input Service Distributor is an office of a Manufacturer / Service Provider which receives all invoices for taxable services consumed, and makes payment against such invoices
It then distributes the credit of Service Tax paid to different units, which actually provides taxable service / manufactures excisable goods
Input Service Distributor
Input Service Distributor should issue a duly signed Invoice or Bill or a challan in respect of credit distributed for each of the recipient of such credit
Invoice / Bill
Contents – Details of credit received and distributed during that period
Form – Details should be submitted in Form ST-3
Time Limit- Last day of the month following the month in which it relates …i.e., 31st October / 30th April
Submitted to -Jurisdictional Superintendent of Central Excise
Half yearly Return
Manner of Distribution of credit by an Input Service
Distributor under Rule 7
Distribution – the ISD may distribute the CENVAT credit in respect of the Service Tax paid on the Input Service, to its manufacturing units or units providing output service
Conditions – The credit distributed should not
exceed the amount of Service tax paid thereon
The credit of Service Tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods of providing of exempted services shall not be distributed
Conditions …–
The credit of Service Tax attributable to service used wholly in a unit shall be distributed only to that unit
The credit of Service Tax attributable to service used in more than one unit shall be distributed pro-rata on the basis of the Turnover during the previous month/quarter of the concerned unit, to the sum total of the Turnover during the previous month/quarter of all the units to which the service relates
Distribution of credit on Inputs and Capital Goods [Rule7A] by Input Credit
Distributor
Duty paid on Inputs/Capital Goods..can be distributed in case of Premises or Office of the Output Service Provider
Hence, an Output Service Provider can take credit on inputs and Capital Goods received based on an Invoice /Bill/Challan issued by an office or Premises (Input Credit Distributor) of the Output Service Provider ,which receives invoices, towards purchases of Inputs and Capital Goods
Provisions relating to First and Second Stage Dealer shall apply to such office or Premises
Removal of Input & Capital Goods [Rule
3(5)]
Consequences of Removal of Input Goods from the premises of the Output Service Provider…..
Reversal of Credit: where Inputs are removed from the Service provider’s Premises , without being used in providing output services , credit availed should be reversed
Removal of Capital Goods :…credit availed should be reversed
Removal of Capital Goods after Usage:…credit availed should be reversed on a percentage basis….
Goods sent for Job Work/Duty paid by Job
Worker [Rule 4(5)]
CENVAT credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to job worker for
Further processing Testing Repair re-conditioning etc.. Goods should be received in the factory
within 180 days
Credit of duty paid by Job Worker [Rule
3]--can be utilized by
the manufacturer
Providing both Exempted Excisable
& Exempted Goods[Rule 6]
For both Inputs and Input Services (used in relation to manufacture of dutiable Final Products and Output Services)
CREDIT AVAILABLE… For Capital Goods , Inputs and Input
Services
Separate Accounts are maintained
Option A: Pay 6% of value of Exempted
Goods/services..
Avail…Full credit
No Separate Accounts are maintained
Option B:
Avail…Full credit INITIALLY…but apply principles of provisional payment and Year End Adjustment for credit attributable to Exempt Final products and Services
No Separate Accounts are maintained
Option C: For INPUTS… Maintain separate accounts and avail credit
For INPUT SERVICES Follow option B
No Separate Accounts are maintained
Refund of CENVAT credit
Export of Goods/Services –Refund of CENVAT
Credit [Rule 5]
All Exports on or after 1st April 2012 Refund: Maximum Amount reversed = Export Turnover of (Goods+Services) divided
by Total Turnover multiplied by Net CENVAT credit
Applicable for
Submit refund claim only one claim in a quarter
However if a person exports Goods and Services simultaneously…may submit 2 claims in a quarter
Safeguards ,Conditions and Limitation for Refund
Books , Records & Returns
ELIGIBLE Documents
CENVAT credit can be taken only if all are contained in the said document
Significance of Documents…
Manufacturer should submit a monthly return within 10 days from the close of each month
If availing exemption – 20 days First Stage Dealer /Second Stage Dealer .. 15 days Service Provider /Input Service Distributor –
submit ST-3 , within 1 month from the close of half year
Filing of Returns to Superintendent of Central Excise
