Cenvat Credit Rules CCR Good Notes

CENVAT CREDIT RULES.
2004
CA VISHAL BHATTAD PH.NO. 9890953771 WWW.IDTFORUM.COM P A G E | 98
AMENDMENTS
FOR MAY-12 EXAMINATION
CENVAT CREDIT
RULES, 2004
BY C.A. VISHAL BHATTAD
CENVAT CREDIT RULES. 2004
CENVAT CREDIT RULES,2004
DEFINITIONS
Rule 2(a) Capital goods
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; and
(vii) storage tank,
used
(B) motor vehicle
registered in the
name of provider
of output service
for providing
taxable service as
specified as below
Courier agency
Tour operator
Rent-a-cab
scheme operator
Cargo handling
agency
Goods transport
agency
Outdoor caterer
Pandal or
shamiana
(C) dumpers or
tippers, falling
under Chapter
87 of the First
Schedule to the
Central Excise
Tariff Act, 1985,
registered in the
name of
provider of
output service
for providing
taxable services
as specified as
below
Site formation
and clearance,
excavation &
earthmoving
& demolition
& etc.
Mining of
mineral, oil or
gas.
(D)
components,
spares and
accessories of
motor
vehicles,
dumpers or
tippers, as the
case may be,
used to
provide
taxable
services as
specified in
sub-clauses
(B) and (C)
Manufacturer OSP
(1) in the
factory of the
manufacturer
of the final
products, but
does not
include any
equipment or
appliance
used in an
office; or
(Inserted in F.A.
2011)
(1A) outside the
factory of the
manufacturer of
the final
products for
generation of
electricity for
captive use
within the
factory
(2) for
providing
output service;
Clause (B),(C)& (D) are only for OSP
providing aforesaid specified services. Thus
the benefit of Motor vehicle, Dumpers or
Tippers and related accessories is not
available to manufacturer.
MADRAS CEMENTS LTD. 2010 (S.C.)
Brief Facts: Assessee manufacture cement and avail
of Cenvat credit of the duty paid on machinery,
equipments and parts and accessories thereof used in
the mines of limestone. Show cause notice was issued
to them for disallowing the Cenvat credit of the duty
paid on machinery, equipments and parts and
accessories thereof used in the mines of limestone.
Issue : whether the Cenvat credit of duty paid on machinery, equipments and parts and
accessories thereof used in the mines of limestone is available to them under Cenvat credit
rules,2004
Decision: As regards the Cenvat credit on capital, goods, if the mines are captive mines so that they
constitute one integrated unit together with the concerned cement factory, Cenvat credit on capital
goods will be available to the assessee.
On the other hand, if the mines are not captive mines but they supply to various other cement
companies of different assessee, and it is found that the said goods were being used in the lime
stone mines outside the factory of the assessee, Cenvat credit on capital goods used in such mines
will not be available to the concerned assessee under the appropriate Cenvat Rules.
In order to get a clear finding on the issue, all the matters are remanded to the respective original
authorities for decision only on the above issue.
CAPITAL GOODS
MANUFACTURER OSP
Used in the
factory for
manufacture
of F.P.
Used in the
office
attached to
factory.
Used in the
factory but not in
manufacturing
process.
Used in the
stores of
factory
Used in the
office outside
the factory.
Used in the
premise for
providing output
service.
Used outside
the premise
for providing
output service.
MANUFACTURER OSP
As Capital
goods
As Inputs Providing specified services
e.g. Courier agency, Tour
operator or etc.
In case of other
services
MOTOR VEHICLE
Cenvat Credit
available
Cenvat Credit
available
Cenvat Credit
available
Cenvat Credit
not available
Cenvat Credit
not available
Cenvat Credit
available
Cenvat Credit
available
Cenvat Credit
not available
Cenvat Credit
not available
Cenvat Credit is available
as C.G.
Cenvat Credit is not
available as
Inputs & C.G.
If the mines are captive mines so that
they constitute one integrated unit
together with the concerned cement
factory, Cenvat credit on capital goods
used in mines will be available to the
assessee.
Rule 2(k) Input
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 &
goods used for
providing free warranty for
final products; or
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.
(iii) all goods used
for generation of
electricity or steam
for captive use; or
Comment: All goods
used inside &
OUTSIDE the factory
for generation of
are eligible for
Cenvat credit.
Provided that entire
production of
used in factory for
any purpose
(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.
(i.e. LDO,
HSD &
petrol)
B) any goods used for-
(a) construction 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 any taxable service
specified below
Port services in a port
Port services in other
port
Airport or a civil
enclave
Commercial or
industrial construction
Construction of
complex
Works contract.
(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.
Refer NOTE -1
Refer NOTE -2
Applicable
to OSP
Refer NOTE -3
Refer
NOTE -1
Comment: Capital goods excluded from the definition of Inputs
because it is already covered in Rule 2(a) for which credit is available
upto 50% in 1
st
year and balance in subsequent year.
But if any goods falling under the definition of Capital Goods - Rule
2(a) (e.g. component or parts) used by the manufacturer in the
manufacture of a final product then credit is available as Inputs (i.e.
100 % credit)
Input
means
i) all goods used in the factory by the manufacturer of the final product.
but excludes
(F) any goods which have no relationship whatsoever with the manufacture of a final product.
TRU letter
The definition of input contained in rule 2(k) has been revised. The requirement (old definition)
that goods should be used in or in relation to the manufacture of final products whether
directly or indirectly and whether contained in the final product or not has
been removed.
Comment: Scope of Inputs is substantially widened. Henceforth, all goods used in the factory by the
manufacturer of the final product, except those specified in the negative list and goods having no
relationship whatsoever with the manufacture of final product, would qualify for treatment as inputs.
Board clarification
How is the no relationship whatsoever with the manufacture of a final product to be
determined?
Credit of all goods used in the factory is allowed except in so far as it is specifically denied.
The expression no relationship whatsoever with the manufacture of a final product must be
interpreted and applied strictly and not loosely.
Only credit of goods used in the factory but having absolutely no relationship
with the manufacture of final product is not allowed.
Goods such as furniture and stationary used in an office within the factory are goods used in the factory
and are used in relation to the manufacturing business and hence the credit of same is allowed.
Authors opinion: Example given by board (furniture and stationary used in office) is unimaginable. If we
refer this example then it seems that everything which is used in factory (production premise & connected
office) is eligible for credit.
Personally author is not agree on this example because furniture and stationary used in office are any way not
having relationship with manufacturing of Final product.
It need Right clarification. Till next clarification students have to fallow this Circular.
NOTE -1: Eligibility of credit if all goods used in a factory
Input
Means
(ii) any goods including accessories, cleared along with the final product, the value of which is
included in the value of the final product &
goods used for providing free warranty for final products.
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.
EXAMPLE-1 Any goods or Accessories, cleared along with the final product
FACTORY
MANUFACTURE
DROPPER
EYE MEDICINE
EYE MEDICINE
WITH DROPPER
PACKING
Price of Rs 110
medicine
(includes price of
Dropper )
VALUE OF EYE
MEDICINE
Rs 110
CUSTOMER
EXAMPLE-2 Any goods or Accessories, cleared along with the final product
FACTORY
ASSESMBLY
Price of Rs 17500
MOBILE (includes price
of battery, charger,
hands free)
VALUE OF MOBILE
Rs
17500
CUSTOMER
MOBILE
PACK
MOBILE
CHARGER
MOBILE
ACCESSORIES
BATTERY
NOTE -2: Eligibility of credit if any goods supplied with F.P. Or under free warranty
Cenvat credit
is available as
Inputs
Cenvat credit
is available as
Inputs
Cenvat credit
is available as
Inputs
EXAMPLE 3: Goods used for providing free warranty for final products
Correspondingly amendment also made under Rule 3(5)
As per proviso to Rule 3(5) If any inputs are removed as such outside the factory for providing
free warranty for final products, Cenvat credit availed on such Inputs need not to be
pay or reversed.
Input excludes
B) any goods used for-
(a) construction 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 any taxable service specified below
(i.e. credit
available if any goods used for following services)
Port services in a port or other port (i.e. Construction in port or other port)
Airport or a civil enclave(i.e. Construction in Airport)
Commercial or industrial construction
Construction of complex
Works contract.
Comment: Let us discuss with the help of following examples
500 motor
purchased @ RS
3000 + E.D. RS
300
400 motors used in
manufacture of
washing machine
Sold to the customer
Price RS 15000
Warranty RS 2000
Charges
Total value RS 17000
E.D.@10% RS 1700
(1 year warranty for
replacement of
components)
During a month 100 motors supplied free under
warranty replacement to various customers.
Such 100 motors are eligible for cenvat credit as
Inputs
NOTE -3: Non eligibility of credit if any goods used for construction
For Manufacturer
EXAMPLE-1: Any goods used for construction of a building of manufacturer
EXAMPLE-2: Any goods used for laying of foundation or making of structures
for support of capital goods
FATORY BUILDING
Any goods
used for
construction of
a building or a
civil structure or
a part thereof
Not eligible
for Cenvat
credit as
inputs
Any goods
used for laying
of foundation
or making of
structures for
support of
capital goods
Not eligible
for Cenvat
credit as
inputs
CAPITAL
GOODS
Structures for
support of
capital goods
FATORY BUILDING
FOR OSP
EXAMPLE-3: Any goods used for construction of a building of OSP
EXAMPLE 4 If goods are used for providing Construction service or etc.
Any goods
used for
construction of
a building of
OSP
Not eligible
for Cenvat
credit as
inputs
CONSTRUCTION OF
BUILDING OF OSP
If goods are used for providing Following services Cenvat credit is available to Contractor
Port services in a port or other port
(i.e. Construction in port or other port)
Works contract.
Port services in a port or other
port (i.e. Construction in port
or other port)
Airport or a civil enclave(i.e.
Construction in Airport)
Commercial or industrial
construction
Works contract
COSTRUCTION
CONTRACTOR
Subject restriction on credit under
N/N 1/2006 of S.T.(Abatement)
N/n 12/2003 of S.T.(Material sold)
Works contract composition
scheme
Rule 2(l) Input service
Means & include services used in relation to
setting up
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,
activities relating to
business, such as
accounting,
auditing,
financing,
recruitment and
quality control,
coaching and
training,
computer
networking,
credit rating,
share registry,
and security,
business
exhibition,
legal services,
inward
transportation of
inputs or capital
goods and
outward
transportation
upto the place of
removal
but excludes services
(A) following specified services
architect
Port services in other port
Airport or a civil enclave
construction
Works contract.
in so far as they are used for-
(a) construction 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.
(B) following specified
services
general insurance
rent-a-cab scheme operator
authorised service station
supply of tangible goods
in so far as they relate to a
motor vehicle
except when used for
the provision of taxable
services for which the credit
on motor vehicle is available
as capital goods
(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
For OSP
Used by
provider of
taxable
service for
providing
an output
service
For
manufacturer
Used by
manufacturer
whether directly
or indirectly
In or in relation
to
O Manufacture
of final
product or
O Clearance of
FP upto place
of removal
Any service
Deleted by F.A. 2011
Refer NOTE -2
Refer NOTE -1
Refer NOTE -3
Refer NOTE -4
Refer NOTE -5
Deleted by F.A.
2011 Refer
NOTE -1
New services
Inserted in the
list of input
service
ANALYSIS OF DEFINATIONS
MANUFACTURER OSP
C.G.
Rule 2(a)
INPUTS
Rule 2(k)
INPUT
SERVICE
Rule 2(l)
C.G.
Rule
2(a)
INPUTS
Rule 2(k)
INPUT
SERVICE
Rule 2(l)
Requirement
of Definition
for credit
C.G. in the
factory of the
manufacturer of
the final products
except used in
office.
AND
C.G. used
outside the
factory for
generation of
electricity for
captive use.
all goods used in
the factory by
the manufacturer
of the final
product except
negative list
Any service Used
by manufacturer
whether directly or
indirectly
In or in relation to
o Manufacture of
final product or
o Clearance of FP
upto place of
removal
And includes
various services
C.G. used
for providing
output
service
All goods used
for providing
output service
Any service
used for
providing
output service
Conclusions
Inputs, capital goods must be used
in factory order to avail credit
Input services need
used in the factory
of manufacturer for
availing credit on
such input services.
Inputs, capital goods must be
used for providing output
service. Use in premise is not
a condition for credit.
Input services
need not be
used in
premise of osp
for availing
credit on such
input services.
The term setting up is deleted from the definition.
Implication: Any Input service is used for setting up (i.e. construction or etc) the factory or office of
manufacturer or OSP is not eligible for credit.
Board Clarification ( CBEC Circular No. 943/04/2011.)
Is the credit of input services used for repair or renovation of factory or office available?
Clarification: Credit of input services used for repair or renovation of factory or office is allowed. Services
used in relation to renovation or repairs of a factory, premises of provider of output service or an office relating
to such factory or premises, are specifically provided for in the inclusive part of the definition of input services.
The term activities relating to business, such as is deleted from the definition.
Implications: Under old definition following decision was given by H.C.
COCA COLA INDIA PVT. LTD.- 2009 (H.C.)
Wordings used in the definition of Input service Rule 2(l) are activities relating to business such as has very
wider scope. It must follow that all and any activity relating to business falls within the definition .The word
such as, also illustrative and not exhaustive.
Thus In this decision H.C. allowed the credit all and any activity relating to business & court substantially
wider the scope of Inputs service.
But in Budget notification of F.A. 2011 Government has deleted the term activities relating to business,
such as. Implication of this amendment is that the C.G. has given exhaustive meaning to the definition of
Inputs service. Hence only the services which are given in inclusive
part of the definition are eligible for cenvat credit.
NOTE -2
NOTE -1
Input service
excludes
(A) following specified services
architect
Port services in other port
Airport or a civil enclave
Works contract.
in so far as they are used for-
(a) construction 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.
Comment: let us discuss with the help of following examples
EXAMPLE-1: Specified services used for construction of a building of
manufacturer
NOTE -3
CONSTRUCTION OF
FATORY BUILDING
Commercial
or
industrial
construction
Construction
of complex
Port services in a
port or other port
Airport or a civil
enclave
(i.e.Construction at
port or Airport)
Architect
Works
contract.
architect
Port services in a
port
Port services in
other port
Airport or a civil
enclave
Commercial or
industrial
construction
Construction of
complex
Works contract.
Not eligible
for Cenvat
credit as
inputs
EXAMPLE-2 Specified services used for laying of foundation or making of
structures for support of capital goods
EXAMPLE-3 Specified services used for construction of a building of OSP
CAPITAL
GOODS
Structures for
support of
capital goods
FATORY BUILDING
Commercial
or
industrial
construction
Construction
of complex
Port services in a
port or other port
Airport or a civil
enclave
port or Airport)
Architect
Works
contract.
architect
Port services in a
port
Port services in
other port
Airport or a civil
enclave
Commercial or
industrial
construction
Construction of
complex
Works contract.
Not eligible
for Cenvat
credit as
inputs
CONSTRUCTION OF
BUILDING OF OSP
Commercial
or
industrial
construction
Construction
of complex
Port services in a
port or other port
Airport or a civil
enclave
port or Airport)
Architect
Works
contract.
architect
Port services in a
port
Port services in
other port
Airport or a civil
enclave
Commercial or
industrial
construction
Construction of
complex
Works contract.
Not eligible
for Cenvat
credit as
inputs
EXAMPLE 4: If specified services are used for providing Construction
service or etc.
Rule 2(l)(A), the exclusion clause of the definition reads except for the provision of one or
more of the specified services". What are the specified services mean?
The services mentioned in the said clause are 'specified services'. If these services are used for construction
of a building or a civil structure or part thereof, or laying of foundation or making of structures for support
of capital goods, then credit w.r.to service tax paid on these services is not available.
But the credit on these services is available, if these services are used for any of these 'Specified services'.
For example, Architect service will be eligible as input service if used for port service or construction
service or works contract service.
And also if these services used for purposes other than construction of a building or a civil structure or
part thereof or laying of foundation or making structures for support of capital goods (i.e. other purposes
like, finishing services, repair, alteration or restoration), then credit on these input services is available.
Credit of input services used for repair or renovation of factory or office is allowed. Services used in relation
to renovation or repairs of a factory, premises of provider of output service or an office relating to such
factory or premises, are specifically provided for in the inclusive part of the definition of input services. -
CBEC Circular No. 943/04/2011.
If specified services of subcontractor are used for providing Following services Cenvat credit is
available Contractor
Port services in a port or other port
(i.e. Construction in port or other port)
Works contract.
PROVIDING FOLLOWING
SERICES
Port services in a port or other
port (i.e. Construction in port
or other port)
Airport or a civil enclave(i.e.
Construction in Airport)
construction
Works contract
COSTRUCTION
CONTRACTOR
Subject restriction on credit under
N/N 1/2006 of S.T.(Abatement)
N/n 12/2003 of S.T.(Material sold)
Works contract composition
scheme
Commercial
or
industrial
construction
Construction
of complex
Port services in a
port or other port
Airport or a civil
enclave
port or Airport)
Architect
Works
contract.
SUB-
CONTRACTOR
SUB-
CONTRACTOR
SUB-
CONTRACTOR
SUB-
CONTRACTOR
Rule 2(l)(A), the exclusion clause of the definition reads" - . except when used for the
provision of taxable services for which the credit on motor vehicle is available as capital
goods". When the credit on motor vehicle is available as capital goods?
Motor vehicles shall be treated as capital goods, only if registered in the name of service providers
providing the following services:
a. Courier services
b. Tour operator services
c. Rent - a - cab scheme operator services
d. Cargo handling agency services
e. Goods Transport Agency services
f. Outdoor caterer services
g. Pandal or shamiana contractor
The analysis of this exclusion clause is as follows:
If the services mentioned in the clause are used for motor vehicle not registered in the name of above
service providers, the said services used do not qualify as input services and credit not available.
If the services mentioned in the clause are used for motor vehicle registered in the name of above
service providers, the said services used qualify as input services and credit shall be available.
If the services mentioned in the clause are not used for motor vehicle but used for other purpose, the
said services used qualify as input services and credit shall be available.
Services mentioned in this clause are:
General Insurance services
Rent a cab scheme operator's services
Authorized service station's services
Supply of tangible goods services
From the combined analysis of the definition of Inputs as per Rule 2(k) and Input
services as per Rule 2(l), it is clear that inputs/input services used for employees are
not available as credit. Is this position true?
From the analysis of Rule 2(k), it is clear that all goods (Not only food items) used in a guest house,
residential colony, club or a recreation facility and clinical establishment are excluded from the purview of
Inputs only if "such goods" are used Primarily for personal use or consumption of any employee.
From the analysis of Rule 2(l), it is clear that all services (Not only the mentioned services because the words
used are 'such as') when used primarily for personal use or consumption of any employee are excluded
from the purview of Input services.
The following Circular No. 943/04/2011 clarifies the position:
It is not that the credit of only specified goods and services listed in the definition of inputs and input
services shall not be allowed. The list is only illustrative. The principle is that CENVAT credit is not allowed
when any goods and services are used primarily for personal use or consumption of employees.
Some examples to support the above clarification:
Outdoor catering for sales promotion would be eligible, even if some employees attend the
lunch/dinner, since it is not primarily for personal use or consumption of employees.
Mobile phones to employees mainly for business purposes should be eligible even if incidentally used
for personal purposes.
Club membership fee of a director will be eligible as he is not an employee.
NOTE -4
NOTE -5
CLARIFICATIONS ON CENVAT CREDIT RULES, AS AMENDED
BY NOTIFICATIONS PURSUANT TO FINANCE ACT 2011
Sl Issue Board Clarifications
1 Is the credit of only specified
goods and services listed in
the definition of inputs and
input services not allowed
such as goods used in a club,
outdoor catering etc, or is the
list only illustrative?
The list is only illustrative. The principle is that cenvat credit is not
allowed when any goods and services are used primarily for
personal use or consumption of employees.
2 Is the credit of Business
Auxiliary Service (BAS) on
account of sales commission
now disallowed after the
deletion of expression
activities related to
business?
The definition of input services allows all credit on services used for
clearance of final products upto the place of removal. Moreover
activity of sale promotion is specifically allowed and on many
occasions the remuneration for same is linked to actual sale.
Reading the provisions harmoniously it is clarified that credit is
admissible on the services of sale of dutiable goods on commission
basis.
3 Is the credit available on
services received before 1.4.11
on which credit is not allowed
now? e.g. rent-a-cab service
The credit on such service shall be available if its provision had
been completed before 1.4.2011.
Rule2 (naa) manufacturer or producer. (Newly inserted in 2011)
(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) of rule 12AA of the Central 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 4 of the Central Excise Rules, 2002.
Comment: Under Rule4 (1A) liability for payment of duty in relation to goods falling under Chapters 61, 62
or 63 of the First Schedule to the Excise Tariff Act is shifted on raw material supplier. Hence, the corresponding
amendment is made Cenvat credit Rule and Rule 2(nna) is inserted to cover raw material supplier as
manufacturer for taking cenvat credit of Inputs supplied to the job worker.
Rule 3(1) Eligible duties & taxes for Cenvat Credit
Rule 3 relating to the utilisation of the CENVAT credit amended
to provide that a manufacturer or producer of final products/a
provider of taxable service shall be allowed to take credit of the
service tax leviable under section 66A of the Finance Act, 1994.
Under Rule 3(1) following proviso are inserted
Provided that CENVAT credit of such duty of excise shall not be allowed to be taken when paid on any
goods in respect of which the benefit of an exemption under notification No.1/2011- CE, dated the 1st March,
2011 is availed;
Provided that CENVAT credit shall not be allowed in excess of eighty-five per cent of the additional duty
of customs paid under sub-section 3(1)of the Customs Tariff Act(ACD3(1)), on ships, boats and other
floating structures for breaking up falling under tariff item 8908 00 00 of the First Schedule to the Customs
Tariff Act
Reason for amendment
The process of obtaining the goods and material mainly melting scrap and re-rollable scrap of steel, by braking
up of ship is deemed to be process of manufacture in terms of section note of CETA. In braking of the ship,a
number of used serviceable articles such as pumps, Air conditioners, furniture, wooden panel are also
generated. These are generally sold as second hand goods by ship braking units but no excise duty is payable
on such goods as do not emerge from a manufacturing process.
At the same time, ship breaking units are allowed to availed full credit of additional duty of customs paid on
the ship when it is imported for breaking it. This resulting in misuse of the Cenvat credit scheme. Rule 3 has
been amended to prescribe that Cenvat credit shall not be allowed in excess of 85% of additional duty of
customs paid on ship imported for braking.
RULE 4: CONDITIONS FOR AVAILMENT OF
CENVAT CREDIT
RULE 4(1) RULE 4(2)
INPUTS
CAPITAL
GOODS
RULE 4(7)
INPUT SERVICE
Cenvat credit of
inputs may be
taken immediately
on their receipt in
the factory of the
manufacturer or
premises of OSP
The cenvat credit shall be taken in
respect of capital goods received in
a factory or in the premises of the
provider of output service or
outside the factory of the
manufacturer of the
final products for
generation of electricity
for captive use within
the factory at any point of time
in a given financial year
If capital goods not removed
as such in the same financial
year
Cenvat credit available in
a given financial year is
upto 50% of excise duty
paid on such capital
goods.
Provided that 100%.
Credit is available
in same financial
year for ACD 3(5)
(Spl. CVD)
Provided that ssi
can take 100% credit
in same financial
year.
If capital goods removed
as such in the same
financial year
Cenvat credit available =
100% of excise duty paid
on such capital goods.
Remaining cenvat credit shall be taken in any
subsequent financial year subject to condition that
such capital goods must be in possession of
manufacturer or osp.
The condition of possession in subsequent year is not
applicable to
A. Component, spares & accessories.
B. Refactories & refactories material
C. Module & dies
D. Goods falling under heading 6805 & 6804
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 thereon.
Provided further that in case the
payment of the value of input service and
the service tax thereon 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 thereon
Explanation I. For abovementioned
payment manufacturer /OSP can utilized
the credit
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.
Definition of Exempted Goods is amended
Rule 2( 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 and goods in respect of which
the benefit of an exemption under notification No. 1/2011-CE, dated the 1st March,
2011 is availed
Notification No. 1/2011 Levy of 1% Excise Duty without Cenvat Credit on
130 items. (COMPOSITION SCHEME OF EXCISE)
However, in respect of 130 items which were fully exempt earlier are brought under excise duty. There are two
excise duty rates specified for such items.
Concessional rate of 1% is available only if the Cenvat credit is not availed under notification 1/2011
otherwise all these items attract 5% Excise duty(If assessee want avail Cenvat credit) as prescribed vide
notification 2/2011-CE
1% composition scheme under excise on 130 items
Object: simplified procedure for payment of excise duty with minimum physical interference of department.
Benefit:
Simplified procedure is being prescribed for them so that physical interface with them is minimized and
the levy does not pose a compliance burden on them.
Visits to such units should not be required in the normal course. If at all the need arises, the officer
visiting them should do so only with the prior authorization of the Assistant Commissioner or the
Deputy Commissioner Central Excise of the jurisdictional division.
A simple format for this quarterly return
Limitations
Since units that exclusively manufacture items attracting the duty of 1% are neither allowed to take Cenvat
credit nor to pass it on to their buyers. It means entire burden of 1% is on assessee
EXCISABLE GOODS
EXEMPTED GOODS NIL RATED GOODS DUTIABLE GOODS
PARTLY
EXEMPTED
GOODS
FULLY
EXEMPTED
GOODS
(Inserted F.A.2011)
EXEMPTION UNDER
N/N 1/2011
(COMPOSITION
SCHEME)
For cenvat purpose
these goods are treated
as Dutiable goods
For cenvat purpose these goods
are treated as Exempted goods
Option 1
Rule 6(2) Where a manufacturer avails of CENVAT credit in respect of any inputs or input services
and manufactures such final products which are chargeable to duty as well as exempted goods , then,
the manufacturer shall maintain separate accounts for -
(a) the receipt, consumption and inventory of inputs used
(i) in or in relation to the manufacture of exempted goods;
(ii) in or in relation to the manufacture of dutiable final products
(b) the receipt and use of input services
(i) in or in relation to the manufacture of exempted goods and their clearance upto the place
of removal;
(ii) in or in relation to the manufacture of dutiable final products, excluding exempted
goods, and their clearance upto the place of removal;
and shall take CENVAT credit only on inputs or Input service used in dutiable Final product
Option 2
Rule 6(3) Notwithstanding anything contained in sub-rules (1) and (2),
the manufacturer of goods opting not to maintain separate accounts, shall follow any oneof
the following options, as applicable to him, namely :-
(i) pay an amount equal to 5% of value of the exempted goods
or
(ii) pay an amount as determined under sub-rule (3A);
or
(Inserted by notification to F.A.2011)
(iii) maintain separate accounts for the receipt, consumption and inventory of inputs
as provided for in clause (a) of sub-rule (2), take CENVAT credit only on inputs
under sub-clauses (ii) of said clause (a)
and
pay an amount as determined under sub-rule (3A) in respect of input services.
(The provisions of sub-clauses (i) and (ii) of clause (b) and sub-clauses (i) and (ii) of clause (c) of sub-
rule (3A) shall not apply for such payment )
Provided that if any duty of excise is paid on the exempted goods, the same shall be
reduced from the amount payable as above.
Explanation I. - If the manufacturer of goods, avails any of the option under this sub-
rule, he shall exercise such option for all exempted goods manufactured by him and such
option shall not be withdrawn during the remaining part of the financial year.
Explanation II.- For removal of doubt, it is hereby clarified that the credit shall not be
allowed on inputs used exclusively in or in relation to the manufacture of exempted goods
and on input services used exclusively in or in relation to the manufacture of exempted
goods and their clearance upto the place of removal.
Explanation III. - No CENVAT credit shall be taken on the duty or tax paid on any
goods and services that are not inputs or input services.
If a manufacturer uses common inputs for both exempted and
dutiable goods
Let us discuss with help of following chart
Summary
Options Record Take credit at the time
of receipt
Subsequently pay
Rule
6(3)(i)
No Separate record Full credit of Input or
Input service commonly
used
5% value of
exempted goods
Rule
6(3)(ii)
Input service commonly
used
amount as
determined under
sub-rule (3A)
Rule
6(3)(iii)
Separate record s
for inputs
No separate records
for Input service
Inputs- Credit relatedto
dutiable goods
Inputs service-Full credit
In respect of Input
service, amount
computed as per
Rule 6(3A) & no
payment required
for inputs
If a manufacturer uses common inputs & Input service for both exempted and dutiable
goods
INPUTS INPUT SERVICE
OR
OR
RULE 6(2) OPTION -1
Manufacturer shall maintain
separate accounts for the
receipt, consumption and
inventory of inputs or input
service used in
EXEMPTED
GOODS
DUTIABLE
GOODS
Cenvat credit
not available
on inputs or
input service
used in
Exempted
goods
Cenvat credit
available on
inputs or
input service
used in
dutiable
goods
RULE 6(3) OPTION -2
OR
Manufacturer of goods opting not to
maintain separate accounts, shall
follow any oneof the
following options, as applicable to
him, namely :-
Avail the full credit of inputs & Input
service commonly used & thereafter
Provided that if any duty of excise
is paid on the exempted goods (i.e.
1% payment under N/N 1/2011),
the same shall be reduced from the
amount payable as above.
Comment: If manufacturer is
manufacturing Dutiable goods as well
as exempted goods covered under 130
items of N/N 1/2011 then amount
payable under Rule 6(3)(i) is 4% (5%-
1%)
(i) pay an
amount
equal to 5%
of value of
the
exempted
goods
(ii) pay an
amount as
determined
under sub-
rule (3A)
(Inserted by notification to
F.A.2011)
(iii) Maintain
separate accounts
for the receipt,
consumption and
inventory of inputs
used in Dutiable
goods & take
CENVAT credit
only on inputs
Dutiable goods &
also full credit of
Input service
and
pay an amount as
determined under
sub-rule (3A) in
respect of input
services.
Refer page
no.125
Definition of exempted services is amended
Rule 2(e) Exempted Services
means taxable services which are exempt from the whole of the service tax leviable thereon,
and
includes services on which no service tax is leviable under section 66 of the Finance Act and
taxable services 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.
Explanation.- For the removal of doubts, it is hereby clarified that "exempted
services" includes trading.
EXEMPTED SERVICE
NON TAXABLE SERVICE
(Not covered u/s 65(105)
TAXABLE SERVICE
(Covered u/s 65(105)
Partly
exempted
Service
Fully
exempted
service
(Inserted F.A.2011)
Taxable services 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
E.g. Exemption under n/n
1/2006 of s.t. (abatement)
scheme)
For cenvat purpose
these goods are treated
as Chargeable Service
For cenvat purpose these goods
are treated as exempted service
SERVICE
CHARGEABLE SERVICE
Trading
(Refer page
no.123 )
Option 1
Rule 6(2) Where a provider of output service avails of CENVAT credit in respect of any inputs or
input services and provides such output service which are chargeable to tax as well as exempted
service , then, provider of output service shall maintain separate accounts for -
(a) the receipt, consumption and inventory of inputs used
(i) for provision of exempted service
(ii) for the provision of output services excluding exempted services; and
(b) the receipt and use of input services
(i) for the provision of exempted services; and
(ii) for the provision of output services excluding exempted services
and shall take CENVAT credit only on inputs or Input service used in output
services excluding exempted services
Option 2
Rule 6(3) Notwithstanding anything contained in sub-rules (1) and (2),
The provider of output service, opting not to maintain separate accounts, shall follow any one
of the following options, as applicable to him, namely :-
(i) pay an amount equal to 5%
(under old provision 6%)
of value of the exempted services
or
(ii) pay an amount as determined under sub-rule (3A);
or
(Inserted by notification to F.A.2011)
(iii) maintain separate accounts for the receipt, consumption and inventory of inputs
as provided for in clause (a) of sub-rule (2), take CENVAT credit only on inputs
under sub-clauses (ii) of said clause (a)
and
pay an amount as determined under sub-rule (3A) in respect of input services.
(The provisions of sub-clauses (i) and (ii) of clause (b) and sub-clauses (i) and (ii) of clause (c) of sub-
rule (3A) shall not apply for such payment )
Provided further that if any part of the value of a taxable service has been exempted on the
condition that no CENVAT credit of inputs and input services, used for providing such taxable
service (e.g. Exemption under notification 1/2006 of S.T. (Abatement scheme) ), shall be taken
then the amount specified in clause (i) shall be five per cent. of the value so exempted.
Explanation I. - If the provider of output service, avails any of the option under this sub-
rule, he shall exercise such option for all exempted services provided by him, and such
option shall not be withdrawn during the remaining part of the financial year.
Explanation II.- For removal of doubt, it is hereby clarified that the credit shall not be
allowed on inputs used exclusively in for provision of exempted services and on input
services used exclusively in for provision of exempted services.
Explanation III. - No CENVAT credit shall be taken on the duty or tax paid on any goods
and services that are not inputs or input services.
Let us discuss with help of following chart
If OSP uses common inputs & input services for both exempted
and Chargeable services
Summary
Options Record Take credit at the
time of receipt
Subsequently pay
Rule
6(3)(i)
Input service
commonly used
5% value of exempted
goods
Rule
6(3)(ii)
Input service
commonly used
amount as determined
under sub-rule (3A)
Rule
6(3)(iii)
Separate record s
for inputs
No separate records
for Input service
Inputs- Credit related
to dutiable goods
Inputs service-Full
credit
In respect of Input
service, amount
computed as per Rule
6(3A) & no payment
required for inputs
If OSP uses common inputs & Input service for both exempted and Chargeable services
INPUTS INPUT SERVICE
OR
RULE 6(2) OPTION -1 RULE 6(3) OPTION -2
OR
OSP shall maintain separate
accounts for the receipt,
consumption and inventory of
inputs or input service used in
EXEMPTED
SERVICES
CHAGEABLE
SERVICES
Cenvat credit
not available
on inputs or
input service
used in
Exempted
services
Cenvat credit
available on
inputs or
input service
used in
chargeable
services
OSP opting not to maintain separate
accounts, shall follow any one
of the following options, as
applicable to him, namely :-
Avail the full credit of inputs & Input
service commonly used & thereafter
Important comment: Exempted service
includes trading.
Value of trading= Sale price less cost of
goods sold (excluding the expenses
incurred towards their purchase)
OR
10% of the cost of goods sold,
Whichever is more. (Refer page no.
25 & 26)
(i) pay an
amount
equal to
5% (under
old provision
6%) of value
of the
exempted
services
OR
(ii) Pay an
amount as
determined
under sub-
rule (3A)
(Inserted by notification to
F.A.2011)
(iii) Maintain
separate accounts
for the receipt,
consumption and
inventory of inputs
used in Dutiable
goods & take
CENVAT credit
only on inputs
chargeable services
& also full credit of
Input service
and
pay an amount as
determined under
sub-rule (3A) in
respect of input
services.
Refer page no.
125
TRADING OF GOODS
Various service provider carrying trading of goods along with provision of service e.g. A.S.
Foundation providing commercial training & coaching service & also sales books.
Service providers were using Inputs or Input services exclusively in trading or commonly in output
service & trading and availing entire credit on such Inputs or Input services against payment of
service on output service.
Hence to plug this loophole Govt amended the definition of exempted service & trading is included in
it.
EXAMPLE
Input & Input service
exclusively used in
Trading
Inputs & inputs service
commonly used in
Trading & output
service
Training &
coaching
Trading of
book or
registers
Exempted service
Pay 5% of value of
trading
Chargeable service
S.T.=10.3%(GAC)
Value of trading =
1) Sale price (excluding taxes) cost of goods sold
i.e. purchase price (except expenses incurred for purchase)
OR
2) 10% of the cost of goods sold,
whichever is more.
Example: Sale price of books & Register Rs 500000
Purchase price of books & Register Rs Rs 400000
(Purchase price includes expenses of freight & handling Rs 30000)
Calculate value of trading & amount payable under Rule 6(3)(i)
Ans: value of trading =
1) Rs 500000 Rs 370000(Rs 400000 Rs 30000)
or
2) 10% (370000)= Rs 37000
Whichever is more
Thus value of trading = Rs 130000
Amount payable under rule 6(3)(i)= 5%(130000)= Rs 6500
A.S.FOUNDATION
Board Clarification:
1. Can the credit of Inputs or Input services used exclusively in trading be availed?
Clarification: Trading is an exempted service. Hence the credit of any inputs or input services used
exclusively in trading cannot be availed.
How the credit is available if Inputs or Input services commonly used in trading & output
service?
Trading is an exempted service. If Inputs or Input services commonly used in trading & output service
then provision of Rule 6(2) or Rule 6(3) as explained above is applicable.
How to determine the value of trading (exempted service) under Rule 6(3) (i) for payment 5% of
value of exempted service?
In case of trading, value shall be the difference between the sale price and the cost of goods sold
(determined as per the generally accepted accounting principles without including the expenses
incurred towards their purchase i.e. freight, handling charges or etc)
or
10% of the cost of goods sold,
whichever is more.
While calculating the value of trading what principle to follow- FIFO, LIFO or one to one
correlation?
The method normally followed by the concern for its accounting purpose as per generally accepted
accounting principles should be used.
Are the taxes and year end discounts to be included in the sale price and cost of goods sold while
calculating the value of trading?
Generally accepted accounting principles need to be followed in this regard. All taxes for which set off
or credit is available or are refundable/ refunded may not be included. Discounts are to be included.
Method of determination of amount payable under Rule 6(3)(iii) of Cenvat Credit Rules
2004
(Authors Note for sake of reading)
Provisional calculations
Month Wise Calculation Provisional (for financial year)
Provisionally determine the CC attributable to input services used in exempted goods and
exempted services
E
= Total Value of Exempted Services + Exempted Goods (during preceding FY)
F
= Total value of exempted and taxable and exempted services and total value of
dutiable and exempted goods manufactured and removed (during preceding FY)
G
= CC taken on input services during the month
Final Calculation
Month Wise Calculation Final (for financial year)
Final determination of the CC attributable to input services used in exempted goods and exempted
services
M = Total Value of Exempted Services +Exempted Goods (during current FY)
N = Total value of exempted and taxable and exempted services and total value of dutiable and exempted goods
manufactured and removed (during current FY)
P = CC taken on input services during the current FY
Consequence of Final Determination:
1 Where the amount of CC after final determination is more than the amount paid monthly - The
difference is to be paid on or before 30
th
June, next year. For delayed payment, interest @24%
shall be paid.
2 Where the amount of CC after final determination is less than the amount paid monthly - The
difference is to be self adjusted.
3 Intimation shall be submitted with the Superintendent in the prescribed form within 15 days
from the date of payment or adjustment.
Provisional CC
attributable to inputs
services used in
exempted services or
exempted goods
= (E / F) * G
CC attributable to
inputs services used
in exempted services
or exempted goods
= (M / N) * P
Rule 6(3-B) Payment 50% of credit if inputs & Input services
commonly used in Banking services [Newly inserted]
(Provision of Rule 6(3)(i) i.e. 5% of value of exempted service is not applicable)
A banking company and a financial institution including a non-banking financial
company, providing taxable service shall pay for every month(after taking full credit on
inputs & Input services) an amount equal to 50% of the CENVAT credit availed on inputs
and input services in that month.
Notes:-
1. Various banking services are exempt e.g. bill discounting, interest on cash credit,bank O/D or etc.
Thus, credit admissible shall not be full.
2. As per the new rule, these service provider shall initially avail full credit of input and input services
and then pay an amount equal to 50% of credit so availed on monthly basis. Credit of capital goods
shall remain admissible in full (without requirement of any payment).
example:
ICICI Bank has provides taxable as well as exempted services. For the Month of April the value of
taxable services is Rs.200 lakhs and exempted services is Rs 80 lakhs. It has availed full credit of Rs.8
lakhs on the inputs and inputs services used in providing taxable and exempted services and also a
cenvat credit of Rs.5 lakhs on the capital goods used in providing taxable service as well as exempted
service. Compute the amount of ST payable by bank for the month.
Amount (Rs.)
ST on taxable services [200 Lakhs x 10.30%] 20,60,000
Less: Cenvat Credit
[A] Credit of common input and input service
Total credit availed 8,00,000
Less: 50% payment (4,00,000)
[B] Credit of common Capital goods (50% in first F.Y.) 2,50,000
6,50,000
Net ST payable 13,50,000
Rule 6(3-C) Payment 20% of credit if inputs & Input services
commonly used in Life insurance or ULIP [Newly inserted]
(Provision of Rule 6(3)(i) i.e. 5% of value of exempted service is not applicable)
A provider of output service providing Life Insurance Service or ULIP service shall pay for
every month (after taking full credit on inputs & Input services) an amount equal to 20% of the
cenvat credit availed on inputs and input services in that month.
Note:-
1. Life Insurance service provider many times gives composite policy (Risk + saving policy) .Only the
Risk component is taxable & Saving component is not taxable. That being so, they could have
availed credit only of the extent of providing the taxable service.
Segregation of credit was posing practical difficulties and was giving rise to disputes. To end those
disputes, Rule 6(3-C) has been specially inserted to provide for special method of allowance of credit
to Life Insurance Service provider. As per the new rule, life insurance service provider shall initially
avail full credit of input and input services (common) and then pay an amount equal to 20% of credit
so availed on monthly basis. Credit of capital goods shall remain admissible in full (without
requirement of any payment).
Rule 6(6A) [Newly inserted]
Any taxable services are provided, without payment of service tax, to a unit in a special
economic zone or to a developer of a special economic zone for their authorised
operations then service provider can take full credit of capital goods, inputs & input
services exclusively or commonly used in such service
When inputs or capital goods, on which CENVAT credit has been taken, are removed as such
from
(include sale, transfer to another factory or premise or etc.)
the factory, or premises of the provider of output service,
E the manufacturer of the final products or provider of output service, as the case may be,
E shall pay an amount equal to the credit availed in respect of such inputs or capital goods and
E such removal shall be made under the cover of an invoice referred to in rule 9.
Provided that such payment shall not be required to be made where any inputs or capital goods are
removed outside the premises of the provider of output service for providing the output service.
(Newly inserted) Provided further that such payment shall not be required
to be made where any inputs are removed outside the factory for providing
free warranty for final products.
Provided further that if the capital goods, on which CENVAT Credit has been taken, are removed
after being used, the manufacturer or provider of output services shall pay an amount equal to the
CENVAT Credit taken on the said capital goods reduced by the percentage points calculated by
straight line method as specified below for each quarter of a year or part thereof from the date of
taking the CENVAT Credit, namely:-
(a) for computers and computer peripherals:
for each quarter in the first year @ 10%
for each quarter in the second year @ 8%
for each quarter in the third year @5%
for each quarter in the fourth and fifth year @1%
(b) for capital goods, other than computers and computer peripherals @ 2.5% for each quarter.
If the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the
duty leviable on transaction value.
If the value of any,
(i) input, or
(ii) capital goods before being put to use,
on which CENVAT credit has been taken is written off fully or partially or where any provision to
write off fully or partially has been made in the books of account then the manufacturer or OSP shall
pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods .
Provided that if the said input or capital goods is subsequently used in the manufacture of final
products or providing output service, the manufacturer or OSP 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.
Rule 3(5): Input Or Capital Goods Removed As Such
Rule 3(5A): Capital Goods Removed As waste & scrap
Rule 3(5B): Eligibility of Cenvat Credit If Value of
Inputs or Capital Goods Written Off fully.
Newly
inserted
OTHER IMPORTANT AMENDMENTS OF CENVAT
100% CREDIT ON CAPITAL GOODS IN FIRST FINANCIAL YEAR FOR
SSI
Rule Prior to amendment Amendment made by the notification no. 6/2010-
dated 27.02.2010
Rule 4(2)(a) Cenvat credit in respect of capital
goods could be taken only for an
amount not exceeding 50% of the
duty paid on such capital goods in
the year of receipt of such capital
goods in the factory (in case of
both SSI and non-SSI)
Third proviso to rule 4(2)(a) has been inserted
which provides as follows:-
An assessee eligible to avail SSI exemption
regardless of whether he actually claims it or opts
to pay duty is allowed to take the cenvat credit in
respect of capital goods for the whole amount of
the duty paid on such capital goods in the same
financial year.
Removal of jigs, moulds, dies, fixtures and dies to another manufacturer
permitted without reversal of cenvat credit
Rule Prior to amendment Amendment made by the notification no.
6/2010-ce (nt) dated 27.02.2010
Rule 4(5)(b)
Removal for
job work
The cenvat credit, in respect of jigs,
fixtures, moulds and dies sent by a
manufacturer of final products to a
job worker for the production of
goods on his behalf according to
his specifications is allowed.
Comment: payment is not
required if such capital goods not
received within 180 days.
Rule 4(5)(b) has been substituted with the new
clause which provides as follows:-
Cenvat credit is allowed, in respect of jigs,
fixtures, moulds and dies sent by
manufacturer of final products to:-
(a) another manufacturer for the production of
goods, or
(b) a job worker for the production of goods on
his behalf according to his specifications
Comment: facility of nonpayment of amount
extended to vendor manufacturer.Thus if any
mould & dies removed to vendor for
production of goods then no need to pay any
amount under Rule 4(5) even though not
received within 180 days.
Amendments in rule 9-Documents and accounts
[Notification No. 13/2011-C.E. (N.T.) dated 31.03.2011]
(a) Sub-rule (1)
Sub-rule (1) enumerates the documents on the basis of which the CENVAT credit shall be taken by the
manufacturer or the provider of output service or input service distributor, as the case may be. Clause
(bb) inserted prescribes the following additional document to be furnished:-
A supplementary invoice, bill or challan issued by a provider of output service, in terms of the
provisions of Service Tax Rules, 1994 except where the additional amount of tax became recoverable
from the provider of service on account of non-levy or non-payment or short-levy or short-payment
by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any
of the provisions of the Finance Act or of the rules made thereunder with the intent to evade payment
of service tax.
The aforesaid amendment is effective from 01.04.2011.
(b) Proviso to sub-rule (7)-SSI required to file the return within 10 days of the close of the quarter
With effect from 01.03.2011, the proviso to rule 9(7) has been amended so as to provide that SSI shall
file a quarterly return in the form specified, by notification, by the Board within ten days after the
close of the quarter to which the return relates.
(c) Proviso to sub-rule (8)
With effect from 01.06.2011, the quarterly return of CENVATABLE invoices submitted by the
first/second stage dealer under rule 9(8) of the CENVAT Credit Rules, 2004 shall be filed
electronically unconditionally.
[Notification No. 21/2010 CE (NT) dated 18.05.2010]
BOARD CIRCULARS
CIRCULAR NO. 122/03/2010 ST DATED 30.04.2010 (V. IMP)
ISSUE1: whether cenvat credit of the service tax paid can be claimed under rule 4(7) of the
cenvat credit rules, 2004 when payments are made through debit/credit notes, debit/credit entries
in books of account or by any other mode as mentioned in explanation (c) to section 67 of the
finance act, 1994 for transactions between associate enterprises?
CLARIFICATION: It is clarified that cenvat credit is admissible in the said case. Rule 4(7) does
not indicate the form of payment and does not place any restriction on payment through debit in the
books of accounts. If the service charges as well as the service tax have been paid in any prescribed
manner which is entitled to be called gross amount charged, credit will be allowed under said rule.
ISSUE2: whether cenvat credit of the service tax paid can be claimed where a service receiver
does not pay the full invoice value and the service tax indicated thereon due to some reasons?
CLARIFICATION: It is clarified that cenvat credit of service tax can be availed where a service
receiver does not pay the full invoice value and the service tax indicated thereon due to reasons like
discount, unsatisfactory service etc. Provided he has paid the amount of service tax (whether
proportionately reduced or the original amount) to the service provider. The credit taken would be
equivalent to the amount that is paid as service tax. However, in case of subsequent refund or extra
payment of service tax, the credit would have to be altered accordingly.
IMPORTANT CASE LAWS OF CENVAT
Ind-Swift Laboratories Ltd. [2011] (SC) (Most expected)
Facts: Assessee is a manufacturer of bulk drug. He has
availed cenvat credit wrongly(on fake invoices) & also
utilized for payment of excise duty.
Department issued SCN against the assessee for recovery
of cenvat credit along with interest. Department demanded
the interest from the date of availment of Cenvat Credit
upto the date of payment .Assessee has paid the amount of
credit, but argued that interest shall be calculated from the
date of utilization of credit as the credit was encashed only
on that date.
Legal provision:
RULE 14 of Cenvat Credit rule, 2004.
Recovery of CENVAT credit wrongly taken or erroneously refunded.
Where the CENVAT credit has been taken or utilized wrongly or has been erroneously
refunded, the same along with interest shall be recovered from the manufacturer or the provider
of the output service and the provisions of sections 11A and 11AB of the Excise Act or sections 73
and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.
Decision:
Rule 14 of the CENVAT Credit Rules, 2004 provides that if any CENVAT credit has been taken
OR utilized wrongly, the same along with interest shall be recovered from the manufacturer /
service provider and the provisions of Excise section 11A / 11AB or Service Tax sections 73/75 shall
apply therefor.
The use of word OR makes it clear that even if the credit is taken wrongly, then also, it becomes
recoverable along with interest.
The provisions of interest u/s 11AB will apply from the date of wrong availment of CENVAT
Credit. It is wrong to say the interest u/s 11AB will apply only from the date of wrong utilization of
credit.
Interest from the date of wrong availment of credit is justified because once the credit
is taken, the manufacturer / service provider is at liberty to utilize the same,
immediately thereafter, subject to the rules.
[CBEC Circular of the same view: The CBEC has taken the same view in its Circular No.
942/3/2011-CX., dated 14-3-2011. Hence, even if the wrongly availed credit is reversed
before utilization, interest under Rule 14 read with section 11AB shall be payable from the
date of such wrong availment to the date of such reversal.]
YEAR 2011
In case of wrong availment
of cenvat Credit the interest
is chargeable under sec
11AB from the date of
wrong availment of credit &
not from date when it is
utilised.
TATA ADVANCED MATERIALS LTD. 2011 (271) E.L.T. 62 (KAR.)
Facts: The assessee purchased some capital goods and
paid the excise duty on it. Since, said capital goods
were used in the manufacture of excisable goods, he
claimed the CENVAT credit of the excise duty paid on
it. However, after three years the said capital goods
(which were insured) were destroyed by fire. The
Insurance Company reimbursed the amount to the
assessee, which included the excise duty, which the
assessee had paid on the capital goods. Excise
Department demanded the reversal of the CENVAT
credit by the assessee on the ground that the assessee
had availed a double benefit.
Issue: The assessee claimed the CENVAT credit on the duty paid on capital goods which were
later destroyed by fire. The Insurance Company reimbursed the amount inclusive of excise
duty. Is the CENVAT credit availed by the assessee required to be reversed?
Decision: CENVAT credit was validly taken is indefeasible and can be reversed only in
accordance with the provisions of act or rules.
In the instant case, the Insurance Company, in terms of the policy, had compensated the assessee.
The High Court observed that merely because the Insurance Company had paid the assessee the
value of goods including the excise duty paid, it would not render the availment of the CENVAT
credit wrong or irregular. It was not a case of double benefit as contended by the Department.
Accordingly, in absence of any provision in the act or the rules requiring reversal of credit, departments
demand is seeking reversal of credit was invalid in law.
Ecof Industries Pvt. Ltd. 2011 (271) E.L.T. 58 (Kar.)
facts: the assessee was engaged in manufacturer of
excisable goods in kolar & cuttack. Its head office,
located in chennai, was registered as Input Service
Distributor. The head office had paid service tax for
services received by the head office and its units from
various service providers. Thereafter, it had distributed
the credit of service tax to its various units including
the unit at kolar. The assessee availed and utilized the
said credit for payment of central excise duty on their
final products.
Revenue contended that since the service tax was paid
in respect of services obtained by cuttack unit, the
credit of the said service tax paid could not be utilized
by kolar unit.
Decision: as per Rule2 (m) of Cenvat credit rules, 2004 provides that ISD means an office, which
receives invoices toward purchases of inputs services and issues invoices for distributing of
credits thereof to various locations of same assessee. As per rule 7 Cenvat credit rules
2004 provides two conditions for distributing of credits
(i) credit distributed should not exceeds service tax paid
(ii) credit in respect of services used exclusively in manufacture or provision of exempted goods or
services shall not be distributed
High Court elucidated none of aforesaid provisions provides that credit distributed should relate
to or should be in proportion to services used for various units
However, the head office is expected to register itself as an input service distributor and
thereafter, is entitled to distribute the credit of such input services in the manner prescribed
under law. The High Court therefore held that Kolar unit had rightly availed the CENVAT
credit of the service tax paid by its head office.
The assessee claimed the
CENVAT credit on the duty
paid on capital goods which
were later destroyed by fire.
The Insurance Company
reimbursed the amount
inclusive of excise duty.
Cenvat credit shall not be
denied.
ISD can distribute the credit of
service tax from one unit to
another unit. None of
provisions of Cenvat Credit
Rules provides that credit
distributed should relate to or
should be in proportion to
services used for various units
PRIME HEALTH CARE PRODUCTS 2011 (272) E.L.T.
54 (GUJ.)
Facts: the assessee was engaged in the manufacture of
tooth paste. It was sold as a combo pack of tooth paste
and a bought out tooth brush. The assessee availed
cenvat credit of central excise duty paid on the tooth
brush. Revenue contended that the tooth brush was not
an input for the manufacture of the tooth paste and the
cost of tooth brush was not added in the M.R.P. of the
combo pack and hence, the assessee had availed cenvat
credit of duty paid on tooth brush in contravention of
the provisions of the cenvat credit rules, 2004.
Issue: whether combo-pack of bought out tooth brush sold alongwith tooth paste manufactured
by assessee eligible as input under the cenvat credit rules, 2004?
Decision: the high court noted that the process of packing and re-packing the input, that was,
toothbrush and tooth paste in a unit container would fall within the ambit of manufacture [as
per section 2(f)(iii) of the central excise act, 1944.
Further, the word input was defined in rule 2(k) of the cenvat credit rules, 2004 which also
included accessories of the final products cleared along with final product. There was no dispute
about the fact that on toothbrush, excise duty had been paid. The toothbrush was put in the
packet along with the tooth paste and no extra amount was recovered from the consumer on the
toothbrush*.
Considering the definition given in the rules of input and the provisions contained in rule 3, the
high court upheld the tribunals decision that the credit was admissible in the case of the assessee.
Note: the definition of inputs under rule 2(k) has been substituted vide notification no. 3/2011-c.e. (n.t.)
dated 1-3-2011.
As per the new definition, any goods includes accessories of the final products cleared along with the final
product. However, it has also added the condition that the value of such accessory should be included in the
value of the final product.
In the aforesaid judgment, since no extra amount was recovered from the customer on the toothbrush, it
implies that the value of the toothbrush was included in the value of the final product i.e. Toothpaste.
Hence, the judgment holds good as per the provisions of the new definition.
Combo-pack of bought out
tooth brush sold alongwith
tooth paste manufactured by
assessee eligible as input
under the cenvat credit rules,
2004
Biopac India Corporation Ltd. [2010] (H.C.)
Issue: If capital goods are destroyed by fire
in a factory then is it required to reverse
Cenvat credit?
Decision: NO
If capital goods are destroyed by fire, the Department cannot seek reversal of CENVAT credit
availed in respect thereof. CENVAT Credit Rules seek reversal of credit only when capital goods
are removed : as such, or, as such after being used, or, as waste or scrap. Since destruction by fire
doesn't fall in any of the said cases, therefore, there can't be any liability of payment of any
duty/CENVAT credit. When the capital goods are destroyed after being used for some years; it
could not be said that the CENVAT credit was not admissible on them.
Bansal alloys & metals ltd.-2010 (tri)(imp)
Brief facts: assessee is engaged in the
manufacture of iron and steel ingots and availed
cenvat credit of service tax on inward
transportation of inputs procured. Subsequently,
assessee removed the inputs as such after
reversal of cenvat credit on input availed by
them under rule 3(5) of cenvat credit rules, 2004.
Department contended that assessee
transportation service is related to input
removed as such, hence credit of service tax
pertaining such inward transportation service
required to reversed.
Decision: Rule 3(1) provides that the manufacturer shall be allowed to take credit of the
duty paid on any input or capital goods and any input service.
Rule 3(5) of the rules provides that the manufacturer of final product, or provider of output
service, as the case may be, at the time of removal of input or capital goods as such from the
factory, shall pay an amount equal to the credit availed in respect of such input or capital
goods.
From the plain reading of rule 3(5) it is clear that the manufacturer shall be required to pay an
amount equal to the credit in respect of such input or capital goods.
Rule 3(5) does not indicate for payment of equal amount in respect of credit of input service.
So, reversal of credit on input service in respect of goods transportation agency service is not
justified.
YEAR 2010
If capital goods are destroyed by
fire in a factory then is it not
required to reverse cenvat credit
As per rule 3(5) it is clear that the
manufacturer shall be required to
pay an amount equal to the credit in
respect of such input or capital
goods removed as such.
rule 3(5) does not indicate for
payment of equal amount in respect
of credit of input service.

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