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R.J. Luthia & Associates, Chartered Accountants 1
THE CHAMBER OF TAX CONSULTANTS
3, Rewa Chambers, Ground Floor, 31, New Marine Lines, Mumbai -
400 020 Tel.: 2200 1787 / 2209 0423 Fax: 2200 2455 E-mail:
[email protected]
Visit us at: Website: http://www.ctconline.org
Study Course on Service Tax for Beginners - 2013
CENVAT CREDIT RULES, 2004
By CA RAJIV LUTHIA
Organized By THE CHAMBER OF TAX CONSULTANTS
On Friday, the 30th August,2013
At
Ground Floor, Hotel City Point, Dadar TT Circle, Dadar
(East).
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R.J.Luthia & Associates, Chartered Accountants 2
CENVAT CREDIT RULES, 2004
Introduced vide Notification No.23/2004-CE (NT) dated 10th
September, 2004.
In supersession of CENVAT Credit Rules, 2002 & Service Tax
Credit Rules, 2002.
Rule 2-Credit of service tax not available/utilizable in the
state of Jammu & Kashmir.
Capital Goods means
(A) the following goods, namely:- (a) 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;
Chapter 82 includes tools, implements, cutlery, spoons, forks
etc. of base metal and parts thereof. Chapter 84 includes items
such as nuclear reactors, boilers, machinery and mechanical
appliances and parts thereof. Chapter 85 includes electrical
machinery and equipments and parts thereof, sound recorders and
reproducers, television image and sound recorders and reproducers
and parts and accessories of such articles. Chapter 90 includes
optical, photographic, cinematographic, measuring, checking,
precision, medical or surgical instruments and apparatus and parts
and accessories thereof. Heading 6805 includes natural and
artificial abrasive powder or grain, on a base of textile material,
of paper, of paperboards or of other materials, whether or not, cut
to shape or sewn or otherwise made up. Heading 6804 includes
millstones, grindstones, grinding wheels and the like, without
framework, for grinding, sharpening, polishing, trueing or cutting,
hand sharpening or polishing stones, and parts thereof, of natural
stone, of agglomerated natural or artificial abrasives, or of
ceramics, with or without parts of other material.
(b) Pollution control equipment; (c) Components, spares and
accessories of the goods specified at (i) and (ii) (d) Moulds and
dies, jigs and fixtures; (e) Refractories and refractory
materials;
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R.J.Luthia & Associates, Chartered Accountants 3
(f) Tubes and pipes and fittings thereof; (g) Storage tank; and
(h) 1Motor vehicle other than those falling under tariff heading
8702, 8703,
8704, 8711 & their chassis 2(but including dumpers &
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) 2(motor vehicle designed for
transportation of goods including their
chassis registered in the name of the service provider, when
used for- (a) providing an output service of renting of such motor
vehicle; or (b) transportation of inputs & capital goods used
for providing an output
service; or (c) providing an output service of courier agency;)
(C) 2(motor vehicle designed to carry passengers including their
chassis,
registered in the name of provider of service, when used for
providing output service of
(a) transportation of passengers; or
(b) renting of such motor vehicle; or (c) imparting motor
driving skills;) (D) 1(Components, spares and accessories of motor
vehicles which are
capital goods for the assessee)
CENVAT Credit Rules provides following conditions for availment
of credit on capital goods:
Sr.No. Rule Condition
1. 4(2)(a) Credit in respect of capital goods shall be allowed
only up to 50% of the duty paid on such capital goods in the same
financial year & the credit for balance duty is allowed in the
subsequent year if the possession of the asset remains with service
provider or the manufacturer.
Provided entire CENVAT shall be allowed for capital goods which
is removed as such in the same financial year
CENVAT of additional duty U/s.3(5) of Customs
1 Inserted Vide Notification No. 18/2012- CE(NT) w.e.f 1st
April, 2012 2 Inserted Vide Notification No. 28/2012-CE(NT) w.e.f
1st July, 2012
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R.J.Luthia & Associates, Chartered Accountants 4
Tariff Act shall be allowed immediately on receipt of capital
goods in the factory of manufacturer.
W.e.f 1st April, 2010 SSI units are eligible to take CENVAT
Credit of whole amount of duty paid on
capital goods in the same financial year subject to certain
conditions specified in the notification.(Notification No.06/2010
CE(NT) dt. 27th February, 2010)(3rd Proviso)
W.e.f. 1st April,2012.CENVAT for capital goods is allowed to the
service provider when such CG are delivered to service provider
subject to maintenance of documentary evidence of delivery and
location of CG.
2. 4(3) CENVAT Credit on capital goods is also allowable even if
the capital goods are acquired on lease/hire purchase/loan
agreement from financing company
3. 4(4) No CENVAT Credit on that part of value of capital goods
which represents the amount of duty on which manufacturer/service
provider has claimed depreciation U/s.32 of The Income Tax Act,
1961
4. 4(5)(a) CENVAT Credit also allowed on Inputs & CG
partially processed sent to job worker for further process or
manufacture etc. on maintenance or relevant records thereto &
Input/CG received back in factory within 180 days.
5. 4(5)(b) CENVAT Credit also allowed in respect of jigs,
fixtures, moulds and dies sent by manufacturer to a job worker for
manufacturing goods on his behalf.
6. 6(4) The capital goods shall not be exclusively used for
purpose of manufacture of the exempted goods (other than vide
notification where exemption is granted based upon value or
quantity) or for providing exempted services.
7. 3(5) 3(5A)
When inputs or CG on which CENVAT are taken are removed as such
from the factory of manufacturer or premises of SP, the
manufacturer is required to pay an amount equal to credit availed
except where :-
a. Such input or CG are removed outside the
premises of SP for providing output service.
b. such input are removed outside the factory as free warranty
of final products(w.e.f. 1st April,2011)
When Capital goods are removed after being used as CG or scarp
or waste, the manufacturer or
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R.J.Luthia & Associates, Chartered Accountants 5
provider of output service to pay :-
an amount equal to the CENVAT Credit taken on the said capital
goods reduced by 2.5 per cent for each quarter of a year or part
thereof from the date of taking the Cenvat Credit of the
capital
goods which are removed; or
The amount of duty payable on transactional value.
Whichever is higher.
In case CG are Computer & Computer Peripherals, the
manufacturer or provider of output service to pay the percentage
mention here below or duty on transactional value whichever is
higher.
For each quarter in the first year @10%
For each quarter in the second year @8%
For each quarter in the third year @5%
For each quarter in the fourth & fifth year @1%
(Notification No.18/2012-CE (NT) dated 17th
March,2012).
8. 3(5B) In case value of inputs/capital goods (before being put
to use) on which CENVAT taken is written off fully or partially or
provision to write off fully or partially made in books, then
manufacturer or service provider to pay amount equivalent to CENVAT
taken. If such input/capital goods is subsequently used by Mfg/SP,
they shall be entitled to take the amount of CENVAT paid
earlier.
9. Explanation. If Mfg/ SP fail to pay amount as referred rule
3(5) / 3(5A) / 3(5B) in time, same shall be recovered as per Rule
14 i.e. recovery of Cenvat wrongly taken w.e.f. 1st March,2013.
(Not. No. 3/2013- CE(N.T) dated 1st March,2013).
Rule 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
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R.J.Luthia & Associates, Chartered Accountants 6
(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) 3any 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 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 warrant 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.
CENVAT Credit Rules provides following conditions for availment
of credit on inputs:
Sr.No. Rule Condition
1. 4(1) Credit on input may be taken immediately on receipt of
the input in the factory of manufacturer or premise of output
service provider or 4(delivered to provider of output service
subject to maintenance of documentary evidence of delivery &
location of inputs)
2. 6(1) Inputs should not be used for wholly exempted services
or goods.
3 Substituted vide Notification No. 28/2012-CE (NT) w.e.f 1st
July, 2012 4 Inserted Vide Notification No. 18/2012-CE (NT) w.e.f
1st April, 2012
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R.J.Luthia & Associates, Chartered Accountants 7
Rule 2(l)-Input Service means any service, - (i) Used by a
provider of 5output 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 modernization, 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 & 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 &
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 building or a civil
structure or a part thereof; or (b) Laying of foundation or
making of structures for support of capital
goods, except for the provision of one or more of the specified
services; or
(B) 6(Services provided by way of renting of motor vehicle, in
so far as they relate to a motor vehicle which is not a capital
goods; or)
(BA) 5(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 & plastic surgery,
membership of a club, health & 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.
5 Substituted for taxable service vide Notification No.
28/2012-CE (NT) w.e.f 1st July, 2012 6 Substituted vide
Notification No. 28/2012-CE (NT) w.e.f 1st July, 2012
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R.J.Luthia & Associates, Chartered Accountants 8
CENVAT Credit Rules provides following conditions for availment
of credit on input Services:
Sr.No. Rule Condition
1. 4(7) CENVAT Credit in respect of input service shall be
allowed
on or after the day when invoice, bill or challan as the case
may be is received. -Provided in case the liability of service tax
is discharged under reverse charge mechanism, CENVAT Credit in
respect of such input service is allowed on or after the day on
which payment for value of input service & service tax thereon
is made. (1st Proviso) -Provided further that in case the payment
for value of input service & service tax thereon is not made
within 3 months from the date of invoice/bill/challan, the
manufacturer/service provider to pay an amount equal to CENVAT
Credit availed on such input service. Manufacturer/service provider
is entitled to take such CENVAT Credit on payment of value of input
service & service tax thereon. (2nd Proviso) -Provided also
that in case where any payment towards an input service is refunded
or credit note is received, manufacturer/service provider to pay an
amount equal to the CENVAT Credit availed in respect of the amount
refunded/credited. Such amount to be paid on or before due date for
payment of excise duty/service tax. (3rd Proviso) -Provided also
that CENVAT Credit in respect of input services, for which
invoice/bill/challan is issued before 01/04/2011, is allowed on or
after the day on which payment for value of input service &
service tax thereon is made. (4th Proviso)
Such amount is to be paid by manufacturer/service provider on or
before due date for payment of excise duty/service tax. In case
manufacturer/service provider fails to pay such amount, the same is
liable to be recovered along with interest & penalty as
provided in Rule 14. (Explanation 1)
2. 6(1) Inputs Service should not be used for wholly exempted
services or goods.
Point at which CENVAT Credit is available-
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R.J.Luthia & Associates, Chartered Accountants 9
For input service
Payment of value of service and service tax thereon for the
invoice/bill issued before 1st April,2011
For the invoice issued after 1st April,2011, the date on which
the invoice/bills is received subject to conditions.
In case of liability to discharge service tax is under reverse
charge mechanism, the CENVAT credit shall be allowed after the date
of payment of value of service & service tax thereon.
For input goods
Receipt of goods in the premises 7(deliver to provider of output
service subject to maintenance of documentary evidence of delivery
& location of inputs) Credit on input may be taken immediately
on receipt of the input in the factory of manufacturer or premise
of output service provider or 8(delivered to provider of output
service subject to maintenance of documentary evidence of delivery
& location of inputs)
For capital goods
Receipt of goods in the premises 9(deliver to provider of output
service subject to maintenance of documentary evidence of delivery
& location of Capital Goods)
Rule 2(d)-Exempted goods means a excisable goods which are
exempt from whole of the duty of excise leviable thereon, &
includes goods which are chargeable to NIL rate of duty goods in
respect of which the benefit of exemption under notification
no.1/2011-CE dated 1st March, 2011 or under entries at serial nos.
67 & 128 of notification no. 12/2012-CE dated 17th March, 2012
is availed.
10(Rule 2(e)-Exempted Service means a 1) Taxable service which
is exempt from the whole of the service tax
leviable thereon; or 2) Service, on which no service tax is
leviable under section 66B 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)
8(Rule 2(p)-Output Service means any service provided by a
provider of service located in the taxable territory but shall not
include a service (1) specified in section 66D of The Finance Act;
or (2) where the whole of the service tax is liable to be paid by
the recipient
of service.)
7 Inserted Vide Notification No. 18/2012-CE (NT) w.e.f 1st
April, 2012 8 Inserted Vide Notification No. 18/2012-CE (NT) w.e.f
1st April, 2012 9 Inserted Vide Notification No. 18/2012-CE (NT)
w.e.f 1st April, 2012 10 Substituted Vide Notification No.
28/2012-CE (NT) w.e.f 1st July, 2012
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R.J.Luthia & Associates, Chartered Accountants 10
INPUT SERVICE DISTRIBUTOR:-
Rule 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.
The input service distributor may distribute the CENVAT Credit
in respect of service tax paid on the input service to its
manufacturing unit or unit providing output service subject to
following conditions namely (Rule 7):
a. The credit distributed against a document referred to in Rule
9 does
not exceed the amount of service tax paid thereon. b. Credit of
service tax attributable to service used in a unit exclusively
engaged in manufacture of exempted goods or providing of
exempted services shall not be distributed.
c. 11(Credit of service tax attributable to service used wholly
in a unit
shall be distributed to that unit only); and
d. 12(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 relevant period of the concerned unit to the
sum total turnover of all the units to which the service relates
during the same period.)
e. The relevant period shall be the month/quarter previous to
the
month/quarter during the CENVAT credit is distributed f. Total
turnover shall be as determined in the manner prescribed in
Rule 5 of The CCR, 2004. g. In case of assessee do not have any
total turnover in the said period,
the ISD shall distribute credit only after the end of such
period wherein the total turnover of its unit is available.
Rule-3-Manufacturer/producer of final product or provider of
13(output) service shall be allowed to take credit of:
a. Basic excise duty except duty paid on any good in respect of
which
benefit of exemption under notification 1/2011-CE dated 1st
March,
11 Inserted vide Notification No. 18/2012-CE (NT) w.e.f 1st
April, 2012 12 Substituted vide Notification No. 28/2012-CE( NT)
w.e.f 1st July, 2012 13 Substituted for taxable vide Notification
No. 28/2012-ST w.e.f 1st July, 2012
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R.J.Luthia & Associates, Chartered Accountants 11
2011 availed & duty paid on goods specified under serial
nos. 67 & 128 of notification no. 12/2012-CE dated 17th March,
2012 availed.
b. Special excise duty c. Additional duty on textile and textile
articles d. Additional duty on goods of special importance
e. National calamity contingent duty f. Education cess on
excisable goods g. Secondary & Higher Education cess on
excisable goods h. Additional duty U/s. 3 of the Customs Tariff
Act, 1975 (CVD) i. Additional duty leviable U/s.3(5) of Customs
Tariff Act,197514 j. Additional duty of excise of tea k. Service
tax paid U/s 66 & 66A of the Finance Act, 1994 l. 15Service tax
paid U/s 66B of The Finance Act, 1994 m. Education cess on service
tax n. Secondary & Higher Education cess on service tax o.
Additional duty of excise on pan masala & tobacco products Paid
on; i) any input or capital goods received in the factory of
manufacturer of
final product or premises of the provider of the output service
on or after 10th September,2004.
ii) any input service received by the manufacturer of final
product or by the provider of output services on or after 10th
September,2004
including the said duties or tax or cess paid on any input or
input service as the case may be used in the manufacture of
intermediate products by a job worker availing the benefit of
exemption specified in the notification of the Government of India
in Ministry of Finance No.214/86/CE dated 25th March,1986 published
in the Gazette of India.
CENVAT Credit can be utilized for payment of (Rule 3(4));
a. Any excise duty on final product; b. CENVAT Credit taken on
input if such inputs are removed as such; c. CENVAT Credit taken on
capital goods if such capital goods are
removed as such; d. Amount under Rule 16(2) of the Central
Excise Rules, 2002. (payment
of CENVAT on account of sales return) e. Service Tax on any
output service.
Provided that while paying duty/tax, the CENVAT Credit shall be
utilized only to the extent of such credit available on the last
day of month or quarter as the case may be for payment of duty/tax
relating to the month or quarter.
14
Provider of output service shall not be eligible to take credit
of such additional duty. 15 Inserted Vide Notification No.
28/2012-CE(NT) w.e.f 1st July, 2012
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R.J.Luthia & Associates, Chartered Accountants 12
Provided CENVAT credit shall not be utilized for payment of duty
on goods for which exemption under notification no.1/2011-CE is
availed. (Goods on which 1% duty is levied) Explanation-CENVAT
credit cannot be used for payment of service tax in
respect of services where the person liable to pay tax is the
service recipient. Proviso to Rule 3(7)(b) Nature of CENVAT
Credit
Can be utilized against liability of
Excise Duty
Service Tax
EC on Excise Duty/Service Tax
SHE Cess on Excise Duty/ Service
Tax
Int/Penalty
Excise Duty Service Tax EC on Excise Duty/Service Tax
SHEC on Excise Duty/Serv
ice Tax
Refund of CENVAT (Rule 5):
The manufacturer who clears final/intermediate product for
export without payment of a duty under bond or undertaking which is
cleared for export or provider of output service which is exported
without payment of Service Tax shall be allowed refund of CENVAT
Credit as determined by the formula.
Refund amount = (Export Turnover of goods + Export Turnover of
Service) * NET CENVAT Total turnover
The procedure & conditions for filing refund claim are
prescribed U/n. 27/2012-CX (NT) dated 20th June, 2012
Refund claim is required to be filed within a period of 1
year.
No refund shall be allowed if claim for drawback under customs
& CE Duty Drawback Rules, 1995 is allowed.
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R.J.Luthia & Associates, Chartered Accountants 13
The term, NET CENVAT Credit, Export Turnover of Goods, Export
Turnover of Services, Total Turnover, Relevant Period & such
other relevant terms are defined in the rules.
Refund of CENVAT to service provider providing services taxed on
reverse charge basis (Rule 5B):
A provider of service providing services notified U/s. 68(2)
& being unable to utilize the CENVAT credit availed on Inputs
& Input Services for payment of service tax on such output
services, shall be allowed refund of such unutilized CENVAT credit
subject to procedure, safeguard, conditions & limitation as may
be specified.
Transfer of CENVAT Credit (Rule 10): In case of shift of factory
or transfer on account of change of ownership or merger or
amalgamation etc., the manufacturer/service provider shall be
allowed to transfer unutilized CENVAT Credit lying in his account
to such new account after transfer. The transfer of CENVAT is
allowed only if stock of inputs/WIP is also transferred along with
factory or ownership & input/capital goods on which credit is
availed are duly accounted for to the satisfaction of AC/DC
Obligations, Records & Accounts (Rule 6): a. Rule 6(1)-
provides that the CENVAT credit shall not be allowed on
such quantity of input or input services which is used in
manufacture of exempted goods or for provision of exempted service
except in the circumstances mentioned in Rule 6(2).
b. Rule 6(2)- a manufacturer/provider of output service
availing
CENVAT Credit manufactures/provide dutiable & exempted goods
or services, then such person shall maintain separate account of
receipt, consumption and inventory of input/input service meant for
use in manufacturing dutiable goods and providing output service.
In such case, CENVAT credit of duty/tax shall be allowed only on
that input/input service which is used for manufacturing dutiable
goods/providing taxable output service.
c. Rule 6(3)- manufacturer of dutiable as well as exempted goods
or provider of output service as well as exempted service opts not
to maintain separate account as per rule 6(2), shall follow any one
of the following options:
(i) Pay an amount equal to 166% of value of exempted goods
and
exempted service; or
16 Substituted Vide notification No. 18/2012-CE(NT) w.e.f 1st
April, 2012 for the words 5%
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R.J.Luthia & Associates, Chartered Accountants 14
(if any excise duty is paid on exempted goods, the same shall be
reduced from amount payable) (If any abatement in respect of
taxable services is granted with a condition for non availment of
CENVAT Credit, the amount to be paid shall be 6% of the value so
exempted.) (In case of transport of goods/passenger by rail, the
amount to be paid shall be 2% of the value so exempted.)
(ii) Pay an amount as determined under Rule 6(3A); or
(iii)Maintain separate accounts for receipt, consumption &
inventory of inputs as provided in Rule 6(2)(a), take CENVAT only
on inputs used in or in relation to manufacture of dutiable goods
or for provision of output services and pay an amount as determined
under Rule 6(3A) in respect of input services. Consequently, the
provisions of Rule 6(3A)(b)(i) & (ii) & Rule 6(3A)(c)(i)
& (ii) in respect of inputs shall not apply to such
payment.
Any option U/r 6(3) exercised by manufacturer/service provider,
shall not withdraw the same during the remaining part of the
financial year.
d. Rule 6(3A)(a) of the CENVAT Credit Rules, 2004 provides that
while
exercising the option of proportionate reversal, the provider of
output service/mfg of dutiable goods shall intimate in writing to
the superintendent of CE giving the following particulars
namely:
(i) name, address and registration No. of the manufacturer of
goods or provider of output service;
(ii) date from which the option under this clause is exercised
or proposed to be exercised;
(iii)description of dutiable goods or taxable services; (iv)
description of exempted goods or exempted services; (v) CENVAT
credit of inputs and input services lying in balance as on
the date of exercising the option under this condition;
e. Rule 6(3A)(b) & (c) of the CENVAT Credit Rules, 2004
provides the mechanism for determining the amount equivalent to
CENVAT Credit attributable to inputs/input service used in relation
to provision of exempted services.
f. Rule 6(3A)(d), (e) & (f) of the CENVAT Credit Rules, 2004
provides
that:
The short paid amount arising due to the reversal mechanism
provided under Rule 6(3A) (b) & (c) to be paid on or before
30th June of the succeeding financial year. (Rule 6(3A)(d)
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R.J.Luthia & Associates, Chartered Accountants 15
The interest rate for payment of short paid amount after 30th
June is 24% per annum. (Rule 6(3A)(e)
The excess amount arising due to the reversal mechanism provided
under Rule 6(3A) (b) & (c) to be adjusted suo motu by his own,
by taking credit of such amount. (Rule 6(3A)(f)
g. Service provider shall intimate to the jurisdictional
superintendent of
Central Excise, within a period of 15 days from the date of
payment as per under (Rule 6(3A)(d) or adjustment of the excess
payment in the CENVAT credit (Rule 6(3A)(f), the following
particulars namely:
Month wise detail of CENVAT Credit attributable to exempted
goods & exempted services for the financial year calculated
provisionally on the basis of turnover of the preceding financial
year. (Provisional reversal)
Month wise detail of CENVAT Credit attributable to exempted
goods & exempted services for the financial year calculated on
the basis on the turnover of the current financial year. (Final
reversal)
Amount short paid determined along with the date of payment of
such amount or excess amount to be taken back as credit.
Amount of interest payable, if Any
Credit taken on account of excess payment (Rule 6(3A)(g)
h. Where the amount of CENVAT attributable to exempted
goods/services cannot be determined due to no dutiable goods
manufactured/no taxable services provided in preceding year, the
manufacturer/service provider is not required to do the reversal
exercise every month but should do at the end of the financial year
& pay the amount before 30th June of succeeding year. (Rule
6(3A)(h)
i. Rule 6(3B) provides that a banking company & a financial
institution including NBFC engaged in providing services by way of
extending deposits, loans or advances to pay an amount equal to 50%
of CENVAT credit availed on inputs & input services every
month.
j. Rule 6(3D) provides that in cases where any abatement in
respect of
taxable services is granted with a condition for non availment
of CENVAT Credit on input and input services, payment of amount
under Rule 6(3) shall be deemed to be CENVAT Credit not taken for
the purpose of exemption notification.
k. Explanation I to rule 6 provides that in case of taxable
services where option to pay tax is availed under composition
scheme under :-
Rule 6(7) (i.e. Air Travel Agents); Rule 6(7A) (i.e Insurer
carrying LIC business) 6(7B) (i.e. forex brokers & money
changers); 6(7C) (i.e. distributors of lotteries); or
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R.J.Luthia & Associates, Chartered Accountants 16
the value for the purposes of Rule 6(3) & Rule 6(3A) shall
be the value on which the rate of service tax when applied for
calculation results in the same amount of tax as calculated under
the option availed.
l. As per explanation I to Rule 6, the value for the purposes of
Rule 6(3) & Rule 6(3A) shall be the difference between the sale
price & the cost of goods sold (determined as per the generally
accepted accounting principles without including expenses incurred
towards their purchases) or 10% of cost of goods sold, whichever is
more.
m. 17In case of trading of securities, value shall be difference
sale price & purchase price of the securities traded or 1% of
the purchase price, whichever it more.
n. Value shall not include value of service by way of extending
deposits,
loans or advances if the consideration is represented by way of
interest or discount.
o. Rule 6(4) of the CENVAT Credit Rules, 2004 provides that the
capital goods shall not be exclusively used for purpose of
manufacture of the exempted goods (other than vide notification
where exemption is granted based upon value or quantity)
p. The Provision of Rule 6(1) to (4) shall not be applicable in
case the
excisable goods removed without payment of duty are either:
(i) cleared to a unit in a special economic zone or to a
developer of a special economic zone for their authorized
operations; or
(ii) cleared to a hundred per cent. export-oriented undertaking;
or
(iii) cleared to a unit in an Electronic Hardware Technology
Park or Software Technology Park; or
(iv) supplied to the United Nations or an international
organization for their official use or supplied to projects funded
by them, on which exemption of duty is available under notification
of the Government of India in the Ministry of Finance (Department
of Revenue) No. 108/95-Central Excise, dated the 28th August, 1995,
number G.S.R. 602 (E), dated the 28th August, 1995; or
(iva)supplied for the use of foreign diplomatic missions or
consular missions or career consular offices or diplomatic agents
in terms of the provisions of notification No. 12/2012-Central
Excise dated the 17th March, 2012; or
(v) cleared for export under bond in terms of the provisions of
the
Central Excise Rules, 2002; or
17 Inserted Vide Notification No.28/2012-CE (NT) dated 1st July,
2012
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R.J.Luthia & Associates, Chartered Accountants 17
(vi) gold or silver falling within Chapter 71 of the said First
Schedule, arising in the course of manufacture of copper or zinc by
smelting; or
(vii) all goods which are exempt from the duties of customs
leviable
under the First Schedule to the Customs Tariff Act, 1975 (51 of
1975) and the additional duty leviable under sub-section (1) of
section 3 of the said Customs Tariff Act when imported into India
and are supplied,
(a) against International Competitive Bidding; or
(b) to a power project from which power supply has been tied up
through tariff based competitive bidding; or
(c) to a power project awarded to a developer through tariff
based competitive bidding,
in terms of notification No. 12/2012-Central Excise, dated the
17th March, 2012; or
(viii) Supplies made for setting up of solar power generation
projects or facilities. (Rule 6(6))
q. Rule 6(7) - whereby provision of Rule 6(1) to Rule 6(4) are
not applicable in case the taxable services are provided without
payment of service tax to a developer/unit of SEZ for their
authorised
operations or when a service is exported. r. Rule 6(8) for the
purpose of Rule 6, a service shall not be treated as
exempted service when :-
The service satisfies the conditions specified under Rule 6A of
the Service Tax Rules, 1994 & the payment for the service is to
be received in convertible foreign currency; and
Such payments has not been received for a period of six months
or such extended period as may be allowed by RBI, from the date of
provision.
Documents & Accounts: (Rule 9)
a. CENVAT shall be allowed to manufacturer/Service Provider/ISD
on the basis of following :- i. Invoice issued by
manufacturer/importer/first stage
dealer/second stage dealer. ii. Supplementary invoice issued by
manufacturer/importer of
input or capital goods in terms of provision of central excise
rules, 2002 in case of additional amount of excise, except when
such amount become recoverable from such manufacturer or
importer on account of short levy/non levy on account of fraud,
collusion, suppression, willful misstatement or any other
contravention of any provisions with intent to evade tax.
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R.J.Luthia & Associates, Chartered Accountants 18
iii. Supplementary invoice issued by provider of output service
except when such amount become recoverable from such service
provider on account of short levy/non levy on account of fraud,
collusion, suppression, willful misstatement or any other
contravention of any provisions with intent to evade tax.
iv. Bill of Entry v. Certificate issued by appraisal of customs
in respect of imported
goods through foreign post office. vi. A challan evidencing
payment of service tax by a service
recipient. vii. An invoice/bill/challan issued by service
provider. viii. An invoice/bill/challan issued by ISD.
b. The invoices/Bill/challan should contain all the details
prescribed under CER, 2002 & STR, 1994. In absence of all such
details, AC/DC as the case may be, may allow the CENVAT credit
after being satisfied.
Returns: a. Manufacturer to file monthly return within 10 days
from the end of
the month. However, if manufacturer is availing exemption under
notification based on value/quantity of clearance in a financial
year, he shall file quarterly return. (Rule 9(7))
b. Service provider to file half yearly return in Form ST-3
within one
month of the end of half year (Rule 9(9)).
c. Input service distributor to file half yearly return18 Form
ST-3 within one month of the end of half year (Rule 9(10)).
d. Revised return to be filed within 60 days from the date of
submission
of original return (Rule 9(11)).
Recovery of CENVAT Credit wrongly taken or erroneously
refunded(Rule 14):
19Rule 14 amended w.e.f 17th March, 2012, whereby the
manufacturer/service provider to pay interest only when the CENVAT
credit has been taken and utilized wrongly or has been erroneously
refunded. CBEC vide Circular No. 897/17/2009-CX dated 3rd
September,2009
has clarified that interest is recoverable when credit has been
wrongly
taken, even if it has not be utilized, in terms of Rule 14 of
the CENVAT Credit Rules, 2004 which is clear and unambiguous. It
further clarified
18 Notification No.28/2005-CE (NT) dated 7th June,2005 w.e.f.
16th June, 2005 19 Inserted Vide Notification No. 18/2012-CE(NT)
w.e.f 17th March, 2012
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R.J.Luthia & Associates, Chartered Accountants 19
that the decision of Honble P & H High Court in the case of
CCE, Delhi II Vs. Maruti Udyog Ltd. (2007) 214 ELT 173 (wherein it
was held that assessee is not liable to pay interest in the cases
where credit was only taken and not utilized) was delivered in the
context of erstwhile Rule 57I of the Central Excise Rules, 1994.
The Honble SC has dismissed the SLP filed by the revenue against
the above decision. The order of SC under reference was only a
decision & not a judgment.
Honble P & H High Court in the case of Ind-Swift
Laboratories Ltd. Vs. UOI (2009) 240 ELT 328 held that CENVAT
credit is benefit of duties levied or paid. Interest liability
arises when duty not levied or paid or delays in payment of duties.
Question of payment of interest does not arise on amount of CENVAT
credit availed but not utilized. Interest can not be claimed simply
for taking credit wrongly as availment by itself does not create
any duty liability in view of Section 11AB of CE Act, 1944
read with Rule 14 of the CCR, 2004... However said decision is
reversed by Apex Court
Honble Supreme Court in the case of UOI Vs Ind-Swift
Laboratories Ltd (2011) TIOL 21 SC-CX has held that the interest is
payable from date of taking Credit & not from the date when the
CENVAT credit is utilized. Rule 14 of CCR, 2004 provides that where
CENVAT credit has been taken OR utilized wrongly OR has been
erroneously refunded, the same along with interest would be
recovered from the manufacturer or the provider of the output
service. On the happening of any of the three aforesaid
circumstances such credit becomes recoverable along with interest
from the date of availment of CENVAT Credit.
Honble Karnataka High Court in the case of CST Vs. Bill Forge
Pvt Ltd 2011 (TIOL) 799 held that credit of excise duty in the
register maintained for the said purpose is only book entry. Before
utilization of such credit, the entry has been reversed, it amounts
to not taking of credit. Interest is compensatory in character, and
is imposed on an assessee, who has withheld payment of any tax, as
and when it is due and payable. Interest U/s 14 not payable if
credit reversed before utilization of CENVAT credit.
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R.J.Luthia & Associates, Chartered Accountants 20
Penalties (Rule 15 of the CENVAT Credit Rules,2005 substituted
vide Notification No.06/2010- CE(NT) dt. 27th February, 2010):
Particulars of
contravention
In respect of Penalty
Availment or Utilization of CENVAT Credit wrongly or in
contravention of any provisions
Input goods/ capital goods/ Input Services
Goods liable for confiscation & Penalty not exceeding the
amount of duty/tax or Rs.2,000/- whichever is higher.
Wrong availment/ utilization of CENVAT Credit due to fraud,
collusion, willful misstatement, suppression or contravention of
any provision of CE, Act with intent to evade payment of duty
Input goods/ capital goods/ Input Services
Over and above the penalty stated in item no.1, the penalty
U/s.11AC of The Central Excise Act, 1944 shall be levied i.e. 100%
of the duty sought to be evaded by the manufacturer.
Wrong availment/ utilization of CENVAT Credit due to fraud,
collusion, willful misstatement, suppression
or contravention of any provision of Finance Act, with intent to
evade payment of tax
Input goods/ capital goods/Input Services
Over and above the penalty stated in item no.1, the penalty
U/s.78 of The Finance Act, 1994 shall be levied i.e. 100%
of the service tax sought to be evaded by the service
provider.
General Penalties- For contravention of any provisions of
CCR,2004 for which no penalty is provided
Upto Rs 5,000/-
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R.J.Luthia & Associates, Chartered Accountants 21
Issues
Furnishing of new office.whether amounting to renovation.
Repairing of AC, Computer, furnitureetc of office are works
contract..
Goods used for works contract are eligible as input.when only
service portion is taxable.and valuation rules saysCenvat credit on
input services & capital goods will be available.
Exempted services..on condition of no Cenvat on inputs and input
services..eg. ofrestaurants
Input service.payment in advance?????
Cenvat can not be utlised for payment u/r 3(5A)????