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INTRODUCTION

Credit mechanism is vital for effective operation of
Value Added Tax system

Introduced for the first in 1986 as ‘Modvat credit’,
initially credit mechanism was available only for ‘inputs’.

Subsequently, the credit facility was extended to ‘capital
goods’ in the year 1994.

Modvat credit was renamed as ‘Cenvat Credit’ in the
year 2000.
Introduction

Cenvat Credit Rules, 2004- Notification No.23/2004CE dt.10.9.04 – which replaced Cenvat Credit Rules,
2002 & Service Tax Credit Rules, 2002 – unified
credit on goods and services.

Unifies credit on goods and services by including the
definition of ‘input services’ and widening of the
definition of ‘input’. This was meant to pave way for
introduction of GST.
FIRST
STEP
–
UNIFICATION
CENVAT CREDIT RULES, 2004
INTRODUCTION
INPUT BASKET
INPUT GOODS
INPUT SERVICES
CAPITAL GOODS
OUTPUT BASKET
OUTPUT
GOODS
OUTPUT
SERVICES
INTRODUCTION
OUTPUT PROVIDERS
MANUFACTURER
SERVICE
PROVIDER
BOTH MFG
AND
SERVICES
Capital Goods – Rule 2(a)
Capital Goods means – (A) the following goods, namely,
All goods falling under Chapter 82, 84, 85, 90, heading 6805, grinding
wheels and the like, and parts thereof falling under heading 6804 of
Excise Tariff
Pollution control equipment;
Components, spares & Accessories of above goods
Moulds and dies, jigs and fixtures | refractories & refractory materials
Tubes and pipes and fittings thereof | Storage Tank
Motor vehicles other than falling under 8702,8703, 8704 & 8711 &
their chassis but including dumpers and tippers and their parts
 Used in the factory (other than for office purpose)
 Outside factory for generation of power
 Used for providing output service
Capital Goods – Rule 2(a)
Goods which qualify as Capital goods for service providers only -
Nature of goods
Nature of Usage
(B) Motor vehicles and
their chassis
designed for
transport of goods.
Renting of Motor vehicles
Transportation of inputs, capital goods
Providing courier agency services
(C) Motor vehicles and
their chassis
designed to carry
passengers
Transport of passengers
Renting of motor vehicles
Imparting motor driving skills
(D) Components & Spares of such vehicles which qualify as capital
goods
Important issues

CCE v. Rajasthan Spinning and Weaving Mills
Ltd. - 2010 (255) E.L.T. 481 (S.C.)
◦ Credit allowed on steel plates and M.S. channels
etc used for fabricating chimney for Diesel
Generator
◦ Chimney is a Pollution control equipment - Any
equipment used for getting rid of effluents to be
treated as accessory to specified capital goods
and credit thereon admissible
◦ User test adopted - the question whether an
item falls within the purview of “capital goods”
would depend upon the user it is put to
Important issues – component or
accessory

Saraswathi Sugar Mills, 2011 (270) E.L.T. 465
(S.C)
◦ Structural used for installation of sugar mill- not
capital goods ( does not qualify to be components) .
◦ Iron and Steel structures would not go into
composition of vacuum pans, crystallizers etc. and are
not essential requirements in sugar manufacturing
unit. Held that iron and steel structures are not
components of capital goods used in sugar
manufacturing plant.
◦ Whether qualifies as accessory not examined by
Supreme Court.
Cenvat credit on spares of ropeway

Supreme Court in the case of Birla
Corporation Ltd. v CCE 2005 (186) ELT 266
(SC), dealing with this issue held that the
spares of ropeway used for transporting
crushed limestone from mines located 4.2
kms away to factory, the appellant is
entitled to Modvat credit on the spare of
ropeway.
‘Inputs’
Inclusions
Goods used in the factory by the manufacturer
Note: Clause (F) excludes any goods which have no relationship
whatsoever with the manufacture of a final product
Earlier definition >> All goods-……….used in or in relation to
manufacture, whether directly or indirectly, whether
contained in the final product or not ……….. , within the
factory of production
Goods used outside the factory:
Supreme Court in Vikram Cements 2006 (194) E.L.T. 3 (S.C.) held
that goods like explosives used in mines also qualify as
inputs.
Any goods which have even slightest relationship with
manufacturing activity would qualify as inputs unless specifically
excluded
‘Inputs’
Inclusions
Goods including accessories cleared along with final
products
 If the value of such goods is included in the value of the final product.
Goods used for free warranty supply
 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.
goods used for generation of electricity or steam for
captive use
 Such power generation need not be within factory
goods used for providing any output service
• All goods used for providing any output service is
covered
Inputs
Exclusions:
ₓ LDO, HSD and Petrol
ₓ Goods used for
(a) construction or execution of works contract of a
building or a civil structure or a part thereof
(b) laying of foundation or making of structures for
support of capital goods,
[Except for service providers who do works contract or
construction service as per Declared Service u/s 66E(b)]
ₓ Capital goods except when used as parts or components
in the manufacture of a final product
ₓ Motor vehicles
Inputs
Exclusions:
ₓ Any goods such as



ₓ
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;
any goods which have no relationship whatsoever with
the manufacture of a final product
Important issues
Whether inputs used for construction of /
manufacture of capital goods qualify as inputs?
 Erstwhile definition specifically provided for
said activity
 CCE Vs. SLR Steels Ltd., 2012 (280) E.L.T. 176
(Kar.)

◦ Goods used for construction of storage tank and
pollution control equipment qualify as inputs even if
Storage tank/ pollution control equipment is
immovable property
Manufacturer vs Manufacture
CCE v Rashtriya Ispat Nigam Ltd. 2011 (271) ELT 338
(AP), High Court held that the Steel sheets and coal
used for fabrication of capital goods and parts during
process of repair to machinery in the factory of the
manufacturer and, as such, fall within the ambit of the
definition of capital goods as the same is used by the
manufacturer.
 High Court distinguished between the words
‘manufacturer’ which is used in the definition of
capital goods and the word ‘manufacture', and has
given a view that essence under the definition is used
by the manufacturer within factory and not merely
manufacturing activity.

Important issues
Whether inputs used for construction of /
manufacture of capital goods qualify as inputs?
 Under present provisions only use in
construction or fabrication of civil structures
or support structures to capital goods is
excluded.

◦ Construction /manufacture of storage tank /
pollution control equipment is not specifically
excluded.
Important issues

Credit on goods used for repair of machinery
◦ Certainly has relationship with manufacturing
activity

Goods used for testing of finished products
◦ Eligible inputs :Flex Engineering -2012 (276) E.L.T.
153 (S.C.)
◦ Without testing machines are not fit for sale
Important issues

Packing Materials:
◦ Erstwhile rules specifically included ‘Packing
materials’
◦ Primary packing : without which goods cannot be
cleared. So credit still eligible as they have relation
with manufacture.
◦ Kwality Biscuits 2011 (272) ELT 364 (Kar.)without packing final products cannot be sold.
◦ Secondary packing: Could it be termed as
accessory. (adds benfit ).
Important issues

Credit on bought out items (combo pack)
◦ Prime Health Care Products 2011 (272) ELT 54 (Guj)

Credit on plastic droppers/ measurement
units supplied along with drugs
◦ Okasa Ltd. 2009 (241) ELT 359 (Bom.)
◦ In terms advisory from Drug Controller of Indiaof
Without which drug cannot be sold

Credit on promotional materials:
◦ Perfetti Van Mele India Pvt. Ltd. v CCE 2010(254)
ELT 620 (P&H) - Credit was denied
Input Service
Input service Means:
Service
Provider
Services used for providing an output service
Manufacturer
Used
by manufacturer
whether directly or indirectly
in or in relation to
 Manufacture of Final products
Clearance of final products upto the place
of removal
Input Service
Input service includes following services:
Services used in relation to modernisation, renovation or repairs
of a factory or office relating to such factory
Services used in relation to modernisation, renovation or repairs
of premises of service provider or office relating such 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
Input service
Exclusions:
ₓ Services portion in execution of works contract and
construction services under declared service [S. 66E(b)]
to the extent the above services used in
(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.
However, the above services are eligible as input services
for providing one or more of the above specified services
– i.e., Construction and Works Contract services.
× 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
Input service
Exclusions:
General Insurance, servicing, repair & maintenance of
vehicles which are not capital goods, except when used
by :
a) Manufacturer of such motor vehicles in respect of
motor vehicle manufactured by him
b) Insurance company in respect of motor vehicle
insured or reinsured by such company
Input service
Exclusions:
ₓ Services 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
 Travel benefits extended to employees on vacation
such as Leave or Home Travel Concession,
when such services are used primarily for personal
use or for consumption of any employee

Means, includes & excludes definition
CCE vs. Heavy Engineering Corporation Ltd. 1990
(49) ELT 531 (Tri) – held that the inclusion clause
would enjoy a broader scope whereas the
exclusion clause would be restricted to the items
mentioned therein.
 RBI v. Peerless General Finance and Investment Co.
Ltd., AIR 1987 SC 1023 – held that interpretation
must depend on the text and the context as they
are the bases of interpretation and when there is
express exclusion clause, all such exclusions
would get excluded irrespective of ‘means
and includes’ part of the definition.

Effect of amendment
Phrases “construction of factory / office”,
“activities relating to business such as” were
deleted w.e.f. 1.4.2011
 Exhaustive definition is made more restrictive
 On one hand tax everything under the sky
(negative list) but on other hand more
restrictive definitions on credit side
 Artificial barriers are created.

Coca Cola’ case- 2009(15) S.T.R. 657(Bom.)


Availability of input service credit on advertising of
soft drinks procured by the manufacturers of
‘concentrates’.
In relation to activities of business:
◦ Phrase has a wider scope
◦ Can not be restricted to certain activities
◦ Legislature has not employed any qualifying words such
as
 ‘important activities’,
 ‘main activities’,
 ‘essential activities’
◦ All services relating to business are eligible
ABB’ case 2011-TIOL-395-HC-KAR-ST





Expression “activities relating to business” covers
transportation upto customer’s place and word “relating”
widens scope.
Input service not restricted to services specified after
expression “such as” as it is purely illustrative.
Definition of input service having different limbs providing
independent benefit.
Credit admissible if one limb is satisfied even if others are
not satisfied
Hence, outward transportation of finished goods
from the place of removal is covered by the
definition of 'input service' upto 31.03.2008.
Calcutta High Court has taken contrary view in
CCE vs Vesuvisous India Ltd 2014 (34) STR 26.
GTC Industry’s Case-2008 (12) S.T.R. 468 (Tri. - LB)
credit of tax on these taxable services
allowed that go to form part of assessable
value for payment of excise duty
 Expenses towards canteen and provision
of subsidized canteen forms part of cost
of production as evident from para 4.1 of
CAS-4
 Cost of food forms part of expenditure
incurred having bearing on cost of
production

CCE vs. Stanzen Toyotetsu India (P) Ltd. 2001
(23) STR 444 (Kar)
Canteen
Services Credit
allowed
Facility provided as per statutory obligation under section 46 of the
Factories Act, 1948 – hence becomes a condition of service as far as the
employees are concerned; the expense was also considered while fixing
the price of the final product. Facility was a welfare measure and not a
charity provided by the employer.
Group
insurance
services –
credit
allowed
Workmen’s Compensation Act, 1923 as well as the Employees’ State
Insurance Act cast an obligation on the employer to provide insurance to
the employees, the same although a welfare measure is a statutory
obligation cast upon the manufacturer and is hence cenvatable.
Rent-a-cab
service –
credit
allowed
Services provided for factory workers to reach the factory on time and
hence has a direct bearing on the manufacture.
Toyota Kirloskar Motor P Ltd – 2011 (24) S.T.R.
645 (Kar)



Photography & Shamiana services utilised for ‘Rajyotsava Day’
celebrations
Held that these services have nexus with manufacture of final
product as well as relating to it business. The State function
arranged once a year is for welfare of employees for
preservation of State’s culture, hence has nexus with business of
manufacture of final product.
Keeping in view the sentiments of the particular state and as a
reasonable employer, if company wants satisfy the aspirations of
the people in a lawful manner, he cannot be found fault with,
since the assessee in no way personally benefitted from this.
Maintenance of residential colony




CC & C.Ex., Hyd Vs. ITC Ltd., 2013 (32) STR 288 (A.P.)
Maintenance of residential colony for its employees at remote
location is not provided, it would not be feasible to carry on its
manufacturing activity. Staff colony is directly and intrinsically
linked to manufacturing activity.
Therefore services like lawn mowing, garbage collection and
cleaning, harvesting, swimming pool maintenance, weeding etc
to be considered as ‘input services’ under Rule 2(l)
However, certain other High Courts have taken
contrary view. See Bombay High Court in CCE
vs Manikgarh Cement 2010 (20) STR 456.
Important issues
Nature of
input service
Eligi
bility
Relevant decision and discussion
Construction
of building
given on rent
Yes
Sai Sahmita Storages (P) Ltd. 2011-TIOL-863-HC-APCX,
Navaratna S G Highway Prop Pvt Ltd Vs CST, 2012TIOL-1245-CESTAT-AHM
Period under appeal pertains to period prior to
amendment of definition
Insuranceemployee
Yes
MICRO LABS LTD-2011 (270) E.L.T. 156 (Kar.)
specific restriction in the new rules.
Whether credit elgible - If it could be proved has
relation to manufacture or providing service
Insurance on
stock, assets,
cash etc.
relating to
business
Yes
OUDH SUGAR MILLS LTD -2012 (282) E.L.T. 541
(Tri. D)
No specific restriction in the new rules.
Credit could be availed - If it could be proved has
relation to manufacture or providing service
Important issues
Nature of input
service
Eligibil Relevant decision and discussion
ity
Out door
catering
Under erstwhile definitions, courts allowed.
Specific restriction under present rules
Renting of
immovable
proper
Yes
No specific restriction under new definition
Security
services
Yes
Specifically covered under definition (includes portion)
Gujarat Heavy Chemicals Ltd. 2011 (22) S.T.R. 610 (Guj.)
Hiring of
equipments
Yes
No restriction.
Need to substantiate that said equipment has nexus
with the manufacturing or service activity
Landscaping
around factory
Yes
Millipore India Pvt. Ltd-2012 (26) S.T.R. 514 (Kar.)
It falls within concept of modernization, renovation,
repair etc. of office premises or factory
What about rent paid for vehicle parking area??
Exempted Service – 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.
Output Service – Rule 2(p)
(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 service tax is liable to
be paid by the recipient of service.’
Rule 3(1)
Who are eligible to
avail credit
Manufacturer / output service provider
What are the duties
and taxes on which
credit could be
availed
 Duty of excise
Additional duties underAdditional Duties of
Excise (Textile and Textile Articles) Act, 1978 ,
Additional Duties of Excise (Goods of Special
Importance) Act, 1957
National Calamity Contingent duty
Additional duty of customs under section 3
Ed. Cess and SHE cess
Service tax and cess on such tax
What are the duties
1% / 2% duty paid in terms of Notification No.
/taxes on which credit 1/2011 or serial numbers 67 and 128 of
is specifically not
Notification No. 12/2012-C.E.,
allowed
Rule 3
(1) Inputs and
inputs services
consumed by jobworker who
claims exemption
under
Ntfn.214/286
The principal manufacturer could avail
credit of duty or tax paid on inputs /
input services used by job worker in
manufacture of intermediate products
(2) & (3) Credit
on inputs lying
stock
Credit on inputs lying in stock (or in
process or in finished goods) on the
date when finished goods become
dutiable or the output services
become taxable could be availed
Utilisation of Cenvat



Rule 3(4) – Cenvat credit may be utilised for payment of:
(a) Excise duty on final product
(b) Cenvat credit reversal on removal as such of input / CG
(c) Amount payable under Rule 16(2)
(d) Service Tax on output service
Explanation inserted w.e.f., 1.7.2012:
“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”
Karnataka High Court decision in M/s Aravind Fashions Ltd
2012 (25) S.T.R. 583 (Kar.)

What is position regarding ‘Joint Charge’ recipient?
Rule 3(4)-Utilization of credit
Restriction on
utilisation of credit
Credit of additional customs duty under
section 3(5) of Cus. Tariff Act not to be utilised
for payment of service tax
1% or 2% duty in terms of Notification No.
1/2011
Utilisation of credit
for payment of
service tax on
reverse charge
Cenvat credit shall not be used for payment of
service tax in respect of services where the
person liable to pay tax is the service recipient
Amount of credit
that could be
utilised
Credit available as on the last day of the month /
quarter to which payment relates, shall be
utilised.
Not the credit available on date of payment
Rule 3(5) – Removal of inputs or
capital goods as such
Removal of
inputs/capit
al goods as
such
Reverse the proportionate credit
availed
Remove under cover of invoice
 person who receives such goods could
avail credit on the basis of such invoice.
Exceptions  removal by service provider for
provision of service outside the premises
 inputs removed for providing free
warranty
Rule 3(5A) Removal of CG as such ‘after use’
(5A)
Removal of
capital
goods after
use
Exceptions
 Reverse the proportionate credit availed after
availing depreciation on straight line method on the
basis of following percentages:
•Capital goods other than computers: 2.5% /
quarter
Year
%
•Computers: I year
10% per quarter
II Year
8% per quarter
III year
5% per quarter
IV &V
1% per quarter
Where the amount calculated above is less than
duty leviable on transaction value, then the duty
leviable on transaction value would be payable
Where capital goods are cleared as waste and scrap, the
manufacturer shall pay an amount equal to the duty leviable on
transaction value.
Rule 3
(5B)
Inputs or capital
Reverse credit availed
goods Written off or
providing [fully /
Later when used, credit could be
partially] in books of availed back
accounts
(5C) Remission of duty
Where duty on the goods
manufactured are remitted in terms of
Rule 21 of CER,2002
Credit of inputs used for manufacture
of such goods shall be reversed.
(6)
Credit reversed / paid under Rule 3(5) or 3(5A) could be availed
by person receiving such inputs or capital goods
(7)
Credit on goods
procured from EOU
Formula prescribed
Summary is that credit to the extent of
CVD is available
Important issues under Rule 3

No one to one correlation between input and
final product:
◦ HMM Limited Vs. Collector of Central Excise, New
Delhi, 1996 (87) E.L.T. 593 (S.C)
◦ Bharat Litho Co. Ltd.V CCEx. Delhi, 2004 (172)
E.L.T. 327 (Tri.-Delhi).

Utilization of credit relating to manufacture for
payment of service tax on renting:
◦ Lakshmi Technology & Engineering Indus. Ltd, 2011
(23) S.T.R. 265 (Tri. – Chennai)
Rule 4
When credit could be availed
Capital goods
 50% on or after receipt of capital goods in
the factory or premises of output service
provider / outside factory for power generation
Balance 50% in any time after completion of
financial year
Inputs
Immediately after receipt of inputs factory or
premises of output service provider / place
where services are provided (subject to
maintenance of documents)
Input services
Receipt of the invoice / challan etc.
Rule 4
When credit could be availed
100% credit on
capital goods
in the year of
receipt
 where capital goods are cleared as such in
the same year
 credit of Additional duty of customs under
sec. 3(5)
Where a manufacturer is eligible to availe SSI
exemption (400 Lakhs home consumption)
Credit on capital goods available even if such goods are procured
on Lease, Hire purchase or loan agreement
Simultaneous availment of both credit and depreciation on such
duty which is availed as credit not allowed.
Rule 4(5) –Job work
Removal of inputs / Without payment / reversal
capital goods for
job work
Process covered
Further processing, testing, repair, reconditioning or for the manufacture of
intermediate goods necessary for the
manufacture of final products or any other
purpose
Time limit for
receiving back the
goods
Within 180 days from the date of clearance
What happens if
not received
Reverse the credit.Avail credit after receipt
of goods
Rule 4-Jobwork

Cenvat credit shall be allowed on the jigs, fixtures,
moulds and dies sent by a manufacturer to another
manufacturer or a job worker

Goods sent to job worker can be removed directly
from job worker’s premises with the Deputy / Asst.
Commissioner’s permission – Rule 4(6)
Rule 4(7) credit on Input Service
When to avail credit on input service
when whole of service tax is payable by
service provider
On or after receipt of
invoice
if payment of value of taxable service and  Reverse credit already
service tax is not made within 3 months availed
of date of invoice
Avail credit on after
payment
If payment (part or full) is returned or credit note
is issued
Reverse proportionate credit
When to avail credit on input service
On or after payment of
when whole or of service tax or part of value of service and service
tax is payable by service provider
tax mentioned in invoice
Due date for reversals
 5th of next month or
quarter / 31st march
Cenvat Credit: Reverse / Joint charge



Rule 4(7) of CCR, 2004 was amended w.e.f., 1.4.2011 to
provide for availing Cenvat credit on ‘input services’
immediately “on or after the receipt” of invoice / bill etc.
In case of input service where service tax is paid on ‘reverse
charge’ by the recipient of service, Cenvat credit can be availed
“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
Where the person (manufacturer or service provider) who
avails the input service gets a refund or credit note, he would
have to reverse credit in respect thereof.
R 5 – Refund of Credit
New set of Rules governing refund on export of goods and
services
DOF 334/1/2012 dated 16.3.2012 states “No more will an exporter
be asked whether an input service has been used in export to claim a
cenvat refund.
New Rules would be applicable for exports made on or after
1.4.2012- Option to assessee to follow old rules for 1 year
from 1.4.2012
Refund formula:
Refund=
Export turnover of goods+ Export turnover of services) X Net CENVAT credit
Total turnover
RULE 5
Terms used
Explanation
Refund
amount
maximum refund that is admissible
Net
CENVAT
credit
Total CENVAT credit availed on inputs and input
services by the manufacturer or the output
service provider. However, reversal of credits on
remission of duty shall be reduced
Export
turnover of
goods
means the value of final products and intermediate
products cleared during the relevant period and
exported without payment of Central Excise duty
under bond or letter of undertaking
RULE 5
Term used
Export
turnover of
services
Explanation
Export turnover of services =
Payments received during the relevant period for
export services +(plus)
export services whose provision has been
completed for which payment had been received
in advance in any period prior to the relevant
period –
(minus)
advances received for export services for which
the provision of service has not been completed
during the relevant period;
RULE 5
Terms used
Total
Turnover
Explanation
sum total of the value of (a) all excisable goods cleared during the relevant
period including exempted goods, dutiable goods
and excisable goods exported;
(b) export turnover of services as determined in
(D) above, during the relevant period; and
(c) the value of all other services, during the
relevant period
(d) all inputs removed as such in terms of Rule
3(5), during the relevant period
RULE 5
Terms used
Explanation
Other
aspects
No refund where drawback is claimed on
such exports
Export of services means exports as
provided Rule 6A of Service Tax Rules,1994
Value of service for the purpose of this
rule shall be, value as determined in Rule
6(3) and 6(3A)
RULE 5Terms used
Explanation
Valuation of service for refund
Taxable
service
in terms of section 67 of Finance Act, 1994 read
with valuation rules
Trading:
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) or ten per cent of the cost of goods
sold, whichever is more
Other
Exempted
service
Actual value of service
RULE 5
Notification Notification No. 27/2012-C.E. (N.T.), dated
18-6-2012
Provides for conditions and procedures
Simple application form and simple CA certificate provided
Other features:
Quarterly
application
Amount of refund claimed shall not be more than credit balance at the end of
the quarter
Amount for which refund is claimed, shall be debited in the Cenvat account
In case refund sanctioned is less than claimed, re-credit of such amount which
is not granted as refund, could be obtained.
 Assessee engaged in exporting both goods as well as services may submit
separate claim for good and services.
RULE 5A & 5B
Sec.
5A
5B
Particulars
Refund of unutilised credit on account of clearance of
goods under Notification No. 20/2007 CE [ clearance by
manufacturer located in North East states]
Refund of Cenvat credit to service provider which are
covered under reverse charge mechanism (Manpower
supply, Works contract, security services, rent a cab etc.)
Notification 12/2014-ST dated 3.3.2014 issued to
operationalise scheme to provide refund on half yearly
application basis.
Notification No.12/2014-ST issued under
Rule 5B:
Refund available to the service providers of those
services which are subject to ‘Partial Reverse
charge’ as follows:
(i) renting of a motor vehicle designed to carry
passengers on non abated value, to any person who
is not engaged in a similar business;
(ii) supply of manpower for any purpose or security
services; or
(iii) service portion in the execution of a works
contract;

Notification No.12/2014-ST issued under
Rule 5B:
Service providers are entitled to claim refund of
unutilised CENVAT credit taken on inputs and
input services during the relevant half year for
providing partial reverse charge issues.
 Explanation:
Unutilised CENVAT credit taken on inputs and
input services during the half year for providing
partial reverse charge services = (A)– (B)

Notification No.12/2014-ST issued under
Rule 5B:
Where,
A
B
=
CENVAT credit
taken on inputs and
input services
during the half year
(*)
turnover of output service under
partial reverse charge during the
half year
total turnover of goods and services
during the half year
=
Service tax paid by the service provider
for such partial reverse charge services during the
half year;
Notification No.12/2014-ST issued under
Rule 5B: Other conditions





the refund shall not exceed service tax liability paid /payable
by the recipient of service on the partial reverse charge
services provided during the relevant half year;
the refund amount shall be debited in CENVAT credit
account at the time of making the claim;
Where refund sanctioned is less than the refund claimed,
then the claimant may take back the credit of the difference
between the amount claimed and the amount sanctioned;
the claimant shall submit not more than one claim of refund
under this notification for every half year;
the refund claim shall be filed after filing of service tax
return
Rule 6- Definitions
Exempted
goods
-Excisable goods exempt from whole of duty of excise
-NIL rates goods
Goods leviable to 1% / 2% duty in terms of Notification
1/2011-C.E.,
Exempted
Services
-
Output
service
-
-
Service exempt from service tax
Services covered under negative list
Services which are partially exempt under the
condition of non availment of cenvat credit
Does not include export of service
Services provided by provider of service located in
taxable territory.
Does not include
Services covered under Negative list
Services on which recipient is liable to service
tax to the extent of 100%
Rule 6
Sub
Rule
Scope of the provisions
(1)
No Credit on • In or in relation to the manufacture of
Inputs
exempted goods or
• for provision of exempted services
No Credit on •
input services
•
(2)
Used in or in relation to the manufacture of
exempted goods and their clearance upto the
place of removal or
for provision of exempted services
Common inputs / input services are used for
manufacture of both dutiable as well as
exempted goods or provides taxable as well as
exempted services then separate records shall
be maintained.
Avail credit only to the extent of taxable goods and
services
Rule 6
Separate records
Inputs Receipt, consumption and inventory of inputs used
in or in relation to the
• manufacture of exempted goods;
• manufacture of dutiable final products
for the provision of
• Exempted services;
• Taxable services
Input
Receipt and use of input servicesservices In or in relation to the
• manufacture of exempted goods
• clearance of final products upto the place of removal;
• manufacture of dutiable final products
For the provision of
• exempted services; and
• output services
Options available under R. 6
Common Inputs/
input services
Separate records
maintained
Option I
Payment of 6% of
value of
exempted goods
/ Exempted
Services
Option II
NO
Reversal of
appropriate
credit
Follow Rule 6(3A)
and reverse
proportionate
Credit attributable
to exempted goods
YES
Rule 6(2)
Avail appropriate
Cenvat Credit
Option III
Inputs – Separate records
Input services- Follow option II
Rule 6
Specific to some service providers
Banking and Reverse or pay an amount equal to 50% of the
other
Credit availed during the month
financial
institutions
Other important points
 Reversal under Rule 3 would be deemed to be credit not
taken
 no Credit on inputs/ inputs exclusively used for exempted
activity
Rule 6(4) – No credit on CG which are exclusively used in
manufacture of exempted goods or provision of exempted
service. Except where final products are exempt under SSI Not
Rule 6 – Non-applicability
Rule 6 not Applicable to certain clearances
Clearance of To EOU, SEZ, Export, ICB projects,. Certain Power
goods
projects
Rule 6 not Applicable to SEZ & Exports
Sub-rule To the taxable services provided, without payment of
(7)
service tax, to a SEZ Unit or SEZ Developer for their
authorised operations.
Sub-rule a service provided shall not be an exempted service
(8)
when:
(a) Service satisfies the conditions under Rule 6A of
Service Tax Rules, 1994 and payment is to be
received in convertible foreign currency; and
(b) such payment has not been received for a period
of 6 months or extended period allowed by RBI
RULE 7
REF
Nature of Amendment
Rule Provides for input service distribution
7
Following new conditions added:
(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 by one or more units exclusively engaged
in manufacture of exempted goods or providing of
exempted services shall not be distributed;
REF
Nature of Amendment
Rule 7 (c) credit of service tax attributable to service used
wholly by a unit shall be distributed only to that unit; and
(d) credit of service tax attributable to service used by
more than one unit shall be distributed pro rata on the
basis of the turnover of such units during the relevant
period to the total turnover of all its units, which are
operational in the current year, during the said relevant
period.”
Explanation 1.- For the purposes of this rule, ‘unit’
includes the premises of a provider of output service and
the premises of a manufacturer including the factory,
whether registered or otherwise.
Explanation 2.- For the purposes of this rule, the total
turnover shall be determined in the same manner as
determined under rule 5.’
Input Service Distributor
 Explanation
3.- For the purposes of this rule, the ‘relevant
period’ shall be,(a) If the assessee has turnover in the ‘financial year’
preceding to the year during which credit is to be
distributed for month or quarter, as the case may be, the
said financial year; or
(b) If the assessee does not have turnover for some or all
the units in the preceding financial year, the last quarter
for which details of turnover of all the units are available,
previous to the month or quarter for which credit is to
be distributed.”.
Substituted by Notification No. 05/2014 – Central Excise
(N.T.) dated 24.02.2014.
Rule 7A – Distribution of credit on input and
capital goods by service provider

Service provider shall be allowed to take credit
on input and capital goods received
◦ On the basis of invoice or bill or challan issued by the
office or premises of the said service provider
◦ Such office or premises receives invoices, issued in
terms of Central Excise Rules, 2002 towards inputs
and capital goods.

Provisions of CCR, 2004 and other rules as
applicable to First Stage Dealer / Second Stage
Dealer shall mutatis mutandis apply to such
premises or office of service provider
Other Rules
Rule 8: Storage of input outside the factory of
the manufacturer.
 In
exceptional
circumstances, Deputy
Commissioner or Assistant Commissioner
may permit storage inputs outside factory
subject to terms and conditions

Cenvat Credits – Documents and Accounts
Rule 9 (1) - Cenvat credit shall be taken by
manufacturer or service provider on the basis
of following documents:
a) Invoice issued by
(I) A manufacturer for clearance of inputs or capital goods
from factory or depot or inputs or capital goods as such
(II) An Importer
(III) An importer from his depot or consignment agent of
importer registered in terms of Central Excise Rules, 2002
(IV) First Stage Dealer / Second Stage Dealer
b) A Supplementary invoice issued by the
manufacturer
Rule 9 – Documents and Accounts
(bb) A Supplementary invoice issued by Service
Provider
(c) A bill of entry
(d) A certificate issued by appraiser of customs in
respect of goods imported through a Foreign Post
Office.
(e) a challan evidencing payment of service tax by the
person liable to pay service tax
(f) An invoice or bill or challan issued by provider of
input services on or after 10.9.2004.
(g) An invoice or bill or challan issued by Input
Service distributor under Rule 4A of Service Tax
Rules, 1994
Returns under Cenvat Credit Rules, 2004
Rule 9(7) – Monthly return on Cenvat credit
availed within ten days from the close of each
month - in Form ER1.
SSI units - Quarterly return within twenty days
after the close of the quarter – in Form ER3.
 Rule 9(8) - First stage dealer/ Second stage dealer,
‘Registered Importer’ shall submit the Return
within fifteen days from the close of each quarter
of a year to the Superintendent of Central Excise.
 Rule 9(9) – Service Provider shall submit a half
yearly return in form specified, by notification, by
the Board to the Superintendent of Central
Excise, by the end of the month following the
particular quarter or half year – in Form ST3 on or
before 25th of next month following the half year.

Information relating to principal inputs

Rule 9A (1) – Annual information statement in the
Form ER 5 relating to the principal inputs before 30th
April of each financial year.
Rule 9A(3) - A monthly return in Form ER-6 in
respect of information regarding the receipt and
consumption of each principal inputs reference to the
quantity of final products manufactured by him before
10th day of close of each month.
However, ER5 and ER6 to be filed only if:
(a) the products manufactured fall under Chapters
22,28,29,30,32,33,34,38,40,48, 54.02, 54.03, 55.01, 5502,
55.03, 55.04, 72, 73, 74, 76, 84, 85, 87,90 and 94; and All
goods falling under Heading Nos 54.02, 54.03, 55.01,
55.02, 55.03 and 55.04
(b) the manufacturer is paying excise duty of Rs. One
crore or more
Transfer of Cenvat Credit – Rule 10

Unutilised cenvat credit can be transferred by
manufacturer or output service provider in case
factory is transferred on account of :
◦ Change in ownership
◦ Sale
◦ Merger
◦ Amalgamation
◦ Lease
◦ Transfer of factory to a joint venture
Subject to the condition that transfer is duly
accounted to the satisfaction of AC/DC of CE
Transitional provision – Rule 11

Any amount of credit earned under:
a) Cenvat Credit Rules, 2002
b) Service Tax Credit Rules, 2002
remaining unutilised as on 10.9.2004 shall be
allowed as Cenvat Credit by the manufacturer/
output service provider
Other Provisions
Rule 12A–Procedure and facilities for LTU: Notwithstanding
anything contained in CCR, 2004:
 (1) A large tax payer unit (LTU) may remove inputs, with
few exceptions, without payment of an amount specified in
Rule 3(5) under the cover of a transfer challan or invoice,
from any of his registered premises to his other registered
premises for further use in the manufacture or production of
final products in recipient premises subject to condition:
(a) the final products are manufactured using the inputs and
cleared on payment of excise duty leviable within 6 months,
from the date of receipt of inputs in the recipient premises;
or
(b) the final products are manufactured using the said inputs
and exported out of India, under bond /LUT within 6 months

Rule 12A-LTU
Further LTU has to satisfy any other conditions
prescribed by Commissioner of Central Excise,
Large Tax payer Unit.
Explanation 1. — The transfer challan or invoice
shall be serially numbered and shall contain the
registration number, name, address of the large
tax payer, description, classification, time and
date of removal, mode of transport and vehicle
registration number, quantity of the goods and
registration number and name of the consignee :

Rule 12A – LTU procedure



Where the recipient unit which manufactures the final
products using the said inputs does not clear the same on
payment of excise duty or the said goods are not exported
within 6 months, or such inputs are cleared as such, then
recipient unit has to pay cenvat amount taken on such inputs
by the sender premises with interest under rule 14 of these
rules.
Provided where capital goods are used exclusively in the
manufacture of exempted goods, or such capital goods are
cleared as such from the recipient premises, cenvat credit
taken on such capital goods by the sender premises shall be
paid by the recipient premises with interest under rule 14.
However, the above procedure / exemption is not applicable
to EOUs, EHTPs & STPs as well as certain exemption
notifications
Rule 12A - LTU
A large tax payer may transfer, CENVAT credit from one
registered manufacturing premises or premises providing
taxable service to his other such registered premises by, (i) making an entry for such transfer in the record
maintained under rule 9;
(ii) issuing a transfer challan containing registration
number, name and address of the registered premises
transferring the credit as well as receiving such credit, the
amount of credit transferred and above referred
particulars,
 The recipient premises can take CENVAT credit on the
basis of such transfer challan as mentioned in clause (ii)
subject to the limitations prescribed under clause (b) of
sub-rule (7) of rule 3 :

Rule 12AAA – Power to impose restrictions in
certain types of cases provisions
Notwithstanding anything contained in these rules
 Central Government is empowered impose restriction
for preventing misuse of cenvat credit provisions.
 Such restrictions may be on manufacturer, first stage and
second stage dealer or an exporter
 specify the nature of restrictions including restrictions on
utilization of CENVAT credit and suspension of
registration in case of a dealer and type of facilities to be
withdrawn and procedure for issue of such order by the
Chief Commissioner of Central Excise.
Notification under Rule 12AAA
Notification No.16/2014-CE (NT) dated 21.03.2014 Chief Commissioner of CE may order for withdrawal of
facilities or impose restrictions in the following cases:
(a) removal of goods without the cover of an invoice and
without payment of duty;
(b) removal of goods without declaring the correct value
for payment of duty, where a portion of sale price, in
excess of invoice price, is received by him or on his behalf
but not accounted for in the books of account;
(c) taking of CENVAT Credit without the receipt of goods
specified in the document based on which the said credit
has been taken;
CONTINUED …

Notification under Rule 12AAA
(d) taking of CENVAT Credit on invoices or other
documents which a person has reasons to believe as
not genuine;
(e) issuing duty of excise invoice without delivery of
goods specified in the said invoice;
(f) claiming of refund or rebate based on the duty of
excise paid invoice or other documents which a person
has reason to believe as not genuine;
(g) removal of inputs as such on which Cenvat credit has
been taken, without paying an amount equal to credit
availed on such inputs in terms of sub-rule (5) of rule 3
of the Cenvat Credit Rules, 2004,
Rule 13 – Power of Central Government to notify
goods for deemed CENVAT credit
Notwithstanding anything contained in Rule 3, Central
Government by notification
 Declare the input or input service on which excise duty /
CVD / service tax paid, shall be deemed to have been paid
at such rate or such amount as may be specified in that
notification , and
 Allow CENVAT credit of such duty or tax deemed to have
been paid in such manner and subject to such conditions
as may be specified in that notification even if the input or
input service are not used directly by the manufacturer of
final products, or by the provider of [output] service,
declared in that notification, but contained in the said final
products or used in providing the [output] service.
Recovery of Cenvat – Rule 14
Where cenvat credit is taken and utilised
wrongly or erroneously refunded:
 Such cenvat credit along with interest shall
be recovered under the above Rule and the
following provisions will be applicable:
◦ Section 11A & 11AB of CE Act, 1944
◦ Section 73 & 75 of Finance Act, 1994

Confiscation & Penalty
Rule 15(1) – Wrong availment of Cenvat credit on
inputs without taking reasonable steps to ensure
payment of duty or contravenes any provisions of
Rules – Minimum Rs.2,000
 Rule 15(2) – Availment or utilisation of cenvat credit of
input or capital goods on account of fraud, wilful misstatement, collusion or suppression of facts or
contravention of any provisions of Rules – Section
11AC of Central Excise Act, 1944
 Rule 15(3) - Availment or utilisation of cenvat credit of
input service on account of fraud, wilful mis-statement,
collusion or suppression of facts or contravention of
any provisions of Rules – S. 78 of Finance Act, 1994

Confiscation & Penalty
 Rule

15A – General Penalty
A new Rule 15 A has been inserted w.e.f.
01.03.2008 which stipulates that if an
assessee has contravened the provisions of
the Rules and no penalty is prescribed in the
Rules for such contravention, he will be liable
for a maximum penalty of Rs. 5000/-
Thank you
V.RAGHURAMAN
B Com, FCA, LLB, ACS, Grad. CWA
Email id: [email protected]