Transcript Document

Overview of Cenvat Credit
Excise and Service Tax
Bimal Jain
FCA, ACS, LLB, B.Com (Hons)
Member of Indirect Tax Committee of PHD/ FICCI/ Assocham
Member of GST committee of ICAI/ ICSI
Member of Indirect tax faculties of ICAI/ICSI/ICWAI
Message
Nothing is certain except
Death & Taxes
2
Supply Chain – GST
Goods
Manufacturing
Services
Inputs
CG
Services
Trading – Intra State/
Inter State/ Exports
Rendering of Services
Receiver – Intra state/
Inter State/ Exports
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Present Power of levy
Goods
Services
Central Govt
Central Govt
• Import – BCD,CVD, SAD
• Manufacturing – CE/ AED
• Surcharges and Cesses
• Service tax
State Govt
State Govt
• No Power except luxuries tax,
entertainment Tax, etc.
• VAT
• Entry Tax/Octroi
• CST
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Cenvat Credit Rules, 2004
Capital Goods
Inputs
Input Services
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Manufacturing of Goods
Rendering of Services
Availment of Credit Vs. Utilization of Credit
Change in the definition of Inputs/ Input Services/ Exempted
Services/ Exempted Goods
Change in Rule 6 – Taxable/ Exempted Supplies
Unsettling the settled jurisprudence
- “Coca Cola India (2009) 22 STT 130 & ABB Ltd (2009) 21 STT 77
(CESTAT)”
These changes really needed before GST?
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Cenvat Credit – Capital Goods
Rule 2(a) of CCR, 2004  “Capital Goods" means:-
(A) the following goods, namely:(i) All goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter
90, heading 6805, (ii) Pollution control equipment; (iii) Components,
spares and accessories of the goods specified at (i) and (ii); (iv)
Moulds and dies, jigs and fixtures; (v) refractories and refractory
materials; (vi) Tubes and pipes and fittings thereof; (vii) storage tank
and
Continue
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Cenvat Credit – Capital Goods
(viii) Motor vehicles other than those falling under tariff headings
8702, 8703, 8704, 8711 and their chassis, but including dumpers and
tippers
S.No.
Tariff Heading
Description of Motor Vehicle
1
8702
Motor Vehicles for the transport of ten or more persons, including
driver
2
8703
Motor Cars/ other motor vehicles principally designed for the
transport of persons including station wagons and racing cars
3
8704
Motor Vehicles for transport of goods
4
8711
Motor Cycles (including mopeds) and cycles fitted with an auxiliary
motor, with or without side-cars
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Chassis of all the Motor Vehicle prescribed above
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Cenvat Credit – Capital Goods
Used(1) in the factory of Manufacturer of the final products, but does not
include any equipment or appliance used in an office; or
(1A) outside the factory of Manufacturer of the final products for
generation of electricity for captive use within the factory; or
(2) for providing output service;
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Cenvat Credit – Capital Goods
(B) Motor vehicle designed for transportation of goods including
their chassis registered in the name of the service provider, when
used for(i) providing an output service of renting of such motor vehicle; or
(ii) transportation of inputs and capital goods used for providing an
output service; or
(iii) providing an output service of courier agency
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Cenvat Credit – Capital Goods
(C) Motor vehicle designed to carry passengers including their
chassis, registered in the name of the provider of service, when used
for providing output service of(i) transportation of passengers; or
(ii) renting of such motor vehicle; or
(iii) imparting motor driving skills
(D) components, spares and accessories of motor vehicles which are
capital goods for the assessee
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Cenvat Credit – Inputs
Rule 2(k) of CCR, 2004  “Inputs” means
(i) all goods used in the factory by Manufacturer of the final product;
or
(ii) any goods including accessories, cleared along with the final
product, the value of which is included in the value of the final
product and goods used for providing free warranty for final
products; or
(iii) all goods used for generation of electricity or steam for captive
use; or
(iv) all goods used for providing any output service; but excludes11
Cenvat Credit – Inputs
Continued..
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;
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Cenvat Credit – Inputs
Exclusions..
(A) light diesel oil, high speed diesel oil or motor spirit, commonly
known as petrol;
(B) any goods used for (a) construction or execution of works contract of a building or a civil
structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital
goods,
except for the provision of service portion in the execution of a
works contract or construction service as listed under clause (b) of
section 66E of the Act;
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Cenvat Credit – Inputs
Continued..
(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.
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Cenvat Credit – Input Services
Rule 2(l) of the CCR, 2004  “input service” means any service, (i) used by a provider of output service for providing an output
service; or
(ii) used by a Manufacturer, whether directly or indirectly, in or in
relation to the manufacture of final products and clearance of final
products up to the place of removal
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Cenvat Credit – Input Services
Continued…
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 and training, computer networking,
credit rating, share registry, security, business exhibition, legal
services, Inward transportation of inputs or capital goods and
outward transportation upto the place of removal; but excludes,16
Cenvat Credit – Input Services
Continued…
(A) service portion in the execution of a works contract and
construction services including service listed under clause (b) of
section 66E of the Finance Act (hereinafter referred as specified
services) in so far as they are used for (a) construction or execution of works contract of a 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
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Cenvat Credit – Input Services
Continued…
(B) Services provided by way of renting of a motor vehicle, in so far
as they relate to a motor vehicle which is not a capital goods; or
(BA) Service of general insurance business, servicing, repair and
maintenance , in so far as they relate to a motor vehicle which is not
a capital goods, except when used by -
(a) a manufacturer of a motor vehicle in respect of a motor vehicle
manufactured by such person ; or
(b) an insurance company in respect of a motor vehicle insured or
reinsured by such person; or
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Cenvat Credit – Input Services
Continued
(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;
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Cenvat Credit – Availment
 Important to check Whether CG/ Inputs/ Input Services
 Whether Registration is must for taking credit?
 Whether Refund can be denied prior to Registration?
Varizon Data Services (I) (P) Ltd. Vs. CST, Chennai [2012-TIOL-1512CESTAT-MAD]
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Cenvat Credit – Utilization
 Rule 3(4)  Cenvat credit can be utilized for payment ofExcise duty on any final product
Payment of CENVAT credit taken on Inputs are removed as
such or after being partially processed
Payment of CENVAT on capital goods are removed as such
Amount under Rule 16(2) of C E Rules, 2002 – Repair/
Reconditioning, etc.
Service tax on any output service
 Restricts Utilization of credit as available by end of Month/
Quarter
 CENVAT credit Shall not be used for payment of service tax in
respect of Reverse Charge/ for payment of ED on Goods –
Notification no. 1/2011-CE dated. 1-3-2011
 SAD credit shall not be used for payment of Service Tax
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Cenvat Credit – Utilization
 Rule 3(4)  Cenvat credit can be utilized for payment of-
Whether there is need for one to one co-relation of
CENVAT credit availed on input services towards
payment of output services?
Jyoti Structures Ltd. Versus Commissioner of Central Excise, Nasik
[2012 (10) TMI 335- CESTAT, Mumbai]
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Condition for availing Cenvat Credit
 Rule 4 Conditions for availing Cenvat Credit
- Inputs - Immediately on receipt within the factory of Manufacturer
or in the premises of the provider of output service
- Capital goods – 50% in the year of receipt and balance 50% in the
subsequent year – Rule 4(2)
- Cenvat credit on capital goods shall be allowed even if the capital
goods are acquired by him on lease, hire purchase or loan
agreement, from a financing company – Rule 4(3)
- Cenvat credit not available in case the depreciation U/S 32 of the
Income-tax Act, 1961 is claimed
- Job work - Goods can be removed for job work provided they are
received back within 180 days – Rule 4(5)
- Goods sent to job worker can be removed directly from Job
Worker’s premises with Commissioner’s permission – Rule 4(6)
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POT & Cenvat Credit
• Obligation & Liability 
- Service Provider – 68(1)
- Service Recipient -68(2)
• Point of Taxation (POT)  ‘Point in time when a
service shall be ‘deemed to have been
provided’[Rule 2(e)]. This point will determine Due
date of payment of service Tax Monthly/
Quarterly
• Notification No. 04/2012-ST dt. March 17, 2012 
Point of Taxation (Amendment) Rules, 2012 (W.e.f
1/4/2012)
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POT - General Rule 3
 POT, the earliest of the following:- Date of Receipt of Money (Advance)
- When Invoice is issued within 30 days from
date of receipt of money  Date of receipt of
Money
- When Invoice is issued within 30 days from
date of completion of Service Date of Invoice
- When Invoice is not issued within 30 days from
date of completion of Service Date of
Completion of Service
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POT – Collection basis
• Rule 6 of STR (1/4/2012)  Service tax on
Collection basis - Individuals and Partnership
firms (including LLP) - aggregate value of
taxable services < Rs. 50 lakhs in the previous
FY, the service provider shall have the option
to pay tax on collection basis on taxable
services up to Rs. 50 lakhs in the current FY
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POT – Reverse Charge
 Rule 7 – Overriding clause - Determination of
POT-U/S 68(2) - Recipients of Service - Date on
which payment is made Provided that, where the
payment is not made within a period of 6 months
of the date of invoice, the POT shall be
determined as if this rule does not exist  Non
Payment within 6 months  Normal POT  Date
of Invoice -1/10/2012 & Date of Payment 15/04/2013 – Interest/ Change of Rate ??
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Cenvat Credit – Input Service
 Input service credit can be taken on or after date of
receipt of invoice
- Payment to SP is not made with in 3 months from date of
invoice - Then Reverse Credit and re-avail after payment
- Payment under Reverse charge - On or after the day on
which payment is made of the value of input service and
the service tax paid or payable as indicated in invoice, bill
or, as the case may be, challan
- Payment or part thereof is returned or credit note is
issued by SP, proportionate credit shall be reversed or paid
- Invoice / bill issued prior to 1.4.2011 - Credit after the
date of payment of value of service
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EXPORT OF SERVICES – Rule 6A –N. 36
 Services to qualify as export if:

Service provider located in Taxable Territory

Service recipient located in Non Taxable Territory

Service provided is a service other than in Negative list

Payment is received in convertible foreign exchange in RBI
defined time period

‘Place of Provision of Service’ determined as per the POP
Rules is outside India
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Cenvat Credit – Exempted Service –R 2(e)
i.
Taxable service which is exempt from the whole of the service
tax leviable thereon; or
ii. Service, on which no service tax is leviable under section 66B of
the Finance Act; or
iii. 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.

Rule 6 of CCR applicable for Reversal of Cenvat credit for
exempted Service
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Service Tax – CCR

Refund to Exporter – Rule 5 – No Nexus required between
exports and input services used in such exports  Duties or
taxes paid on any goods or services that qualify as inputs or
input services will be entitled to be refunded in the ratio of the
export turnover to total turnover in line with Circular No.
868/6/2008-CE dated 09.05.2008

Refund amount = (Export turnover of goods+ Export turnover of
services) x Net CENVAT credit/ Total turnover
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Cenvat Credit – Abatement

Abatement  For provision of Taxable Output Services 
Notification no. 13/2012–ST dt. 17-3-2012 – superseded by
Notification no. 26/2012-ST dt. 20-6-2012 (Effective  1/7/2012)

ALL abatement Merged into One Notification – 12 Services

Change in abatement Rates for Specified Services  Prior/ Post
1/7/2012
•
•
•
•
TTL Consideration
Less: Abatement @ 50%
Net Consideration
Service Tax 12.36%
= 100
= 50
= 50
= 6.18
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Cenvat Credit – Abatement

Abatement  Notification no. 26/2012-ST dt. 20-6-2012 
Conditional Abatement with benefit of Cenvat Credit available

Notification No. 12/2003-ST Dated 20/6/2003 & Notification No.
1/2006-ST Dated 1/3/2006 (Rescinded)
-
Capital Goods – Rule 2 (a) of CCR, 2004
Inputs – Rule 2(k) of CCR, 2004
Input Services – Rule 2 (l) of CCR, 2004
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Exemption vs. Cenvat credit
 Notification No 1/2006-ST provides various abatements in specified
services with a condition that CENVAT Credit will not be claimed by
the Assessee
 What if  Assessee used to claim the benefit of both Abatement
and CENVAT,  Entire benefit of “Abatement” will be disallowed
and Service Tax will be calculated on the 100% gross value of
services provided or to be provided
 What happen  if the assessee wish to reverse the credit so
claimed - Litigation was there.
 Now, recently, CESTAT in the case of KHYATI TOURS & TRAVELS
Versus COMMISSIONER OF C. EX., AHMEDABAD 2011 (24) S.T.R. 456
(Tri. - Ahmd.) held that, later on if reversal of CENVAT credit is there,
then benefit under notification cannot be denied.
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Cenvat Credit – Works Contract

Overruled in LB – CESTAT Delhi – CCE vs. BSBK Pvt. Ltd. (2010) 26
STT 263 – “Turnkey project can be vivisected & service element
involved in works contract”.

Other Services  Works/ Composite Contract –e.g.
-
Erection, Installation, Commissioning Services – 1/7/2003 – 67%
Commercial or Industrial Construction Services – 10/9/2004- 67%/ 75%
Construction of Residential Complex Services – 16/6/2005- 67%/75%
Management, Maintenance or Repair Services – 1/7/2003– No abatement

Difference between Works Contract & Other Services  When
State Sales Tax/VAT payable on transfer of property in execution of
Works Contract
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Cenvat Credit – Valuation Rules

Valuation under Service Tax for Works Contract Services –Rule
2A Notification no. 11/2012-ST dt. 17-3-2012  superseded
by Notification no. 24/2012-ST dt. 6-6-2012 ( W.e.f 1/7/2012):-

Pay service tax on Actual Service portion:- Gross Consideration
LESS Value of Property LESS VAT/ Sales tax, if any ADD Value of
other services;

Composition  Pay Service tax at composite rate
 Pay ST on 40% value of original works
 Pay ST on 60% value of all other works contract
 Pay ST on 70% value of maintenance or repair or
reconditioning or restoration or servicing of any goods
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Cenvat Credit – Valuation Rules

Works Contract Composition Rules, 2007 rescinded - 4.8% 
Notification no. 35/2012-ST dt. 20-6-2012
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Service Tax – CCR

Rule 3(5) and 3(5A) - Duty payable on CG/ Scrap at higher of TV or
Depreciated Value [effective from 17.03.12]

Rule 4(1) & 4(2)  Time when CENVAT could be taken - Allow
credit without bringing them into premises subject to due
documentation regarding their delivery and location

Rule 6(3)  Rate for Cenvat reversal for Exempt Services/ Goods
has been revised from 5% to 6%

Rule 9(1)(e)  Availment of credit on the tax payment Challan in
case of payment of service tax by all service receivers on reverse
charge
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Service Tax – CCR
 Rule 7  Distribution of Credit by Input Service Distributor (ISD)
- To extent Service Utilized by respective Unit or
- Pro rata basis of the turnover of the concerned unit to the sum
total of the turnover of all the units to which the service relates
 Open Issues:-
- Whether unaudited monthly/ Quarterly figures acceptable to
Dept.
- What happen for Capital Intensive project where Turnover starts
only after a reasonable period
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Service Tax – CCR –Rule 6
Common Inputs or
input services
Maintenance
of Separate
records
Payment of
6% of value
of exempted
goods /
services
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Follow Rule
6(3A) and
reverse
proportionate
Credit attributable
to exempted
goods/ services
Option I
for inputs
Option III
for input
services
Service Tax – CCR

Rule 10A  Transfer of unutilized Cenvat credit of SAD –
Manufacturer having two or more factories can transfer
unutilized Cenvat credit of SAD from one excise unit to another
on strength of a transfer challan (W.e.f 1/4/2012) – Quarterly
basis - Not available for Units availing Area based Exemption

Rule 14  No interest on wrong availment of Cenvat credit but
not utilized - amended to provide that interest is chargeable if
Cenvat credit is “wrongly availed and utilized”. Thus, no interest
is chargeable if Cenvat credit is wrongly availed but remains
unutilized

Rule 15  No Change relating to Penalty - Penalty may be
charged even if Cenvat credit wrongly availed but not utilized
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Bimal Jain
A2Z Taxcorp LLP I Tax and Law Practitioners
F-30/31/32, Pankaj Grand Plaza
1st Floor, Mayur Vihar, Phase–I,
Delhi – 110091 India
Desktel:+91-11-22757595
Mobile:+91 9810604563
[email protected]
www.a2ztaxcorp.com