Transcript Name of presentation

CENVAT CREDIT
INTERNATIONAL TAX CA. GROUP
New Delhi
December 13, 2014
Presented by:
CA Gaurav Gupta
FCA, LLB, DISA
Partner
MGS & Co.
Concept of Cenvat Credit
Inputs
Rs 20 + Excise Duty of Rs 2
Service provider
Value Adds Rs 40
Customer
Total Value of services
received = Rs 100 +
Service tax of Rs 10
Input services
Rs 40 + Service tax of Rs
4
Government
Service tax of Rs 4
Cenvat Credit Rules, 2004
CA Gaurav Gupta
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Overview
Rules
Particular
1
•
•
2
Definitions. Certain important definition:
2(a) : Capital Goods
2(d) : Exempted goods
2(e) : Exempted Service
2(k) : Input
2(l) : Input Service
3
• Availability of Cenvat Credit of what?
• Available options of utilisation of Cenvat Credit
• Reversal of Cenvat Credit on removal as such of inputs and capital
goods / removed after being put to use / written off
Extends to whole of India except state of J&K.
Applicable from 10.9.04
Cenvat Credit Rules, 2004
CA Gaurav Gupta
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Overview
Rules
Particular
4
Conditions for allowing Cenvat Credit i.e. when to take Cenvat Credit
5
Refund of Cenvat Credit
6
Obligation of a manufacturer or producer of final products and a provider
of output service providing both taxable as well as exempt
7
Manner of Distribution of Cenvat Credit by ISD
8
Storage of input outside the factory of the manufacturer
9
• Required documents for claiming Cenvat Credit
• Maintenance of records
10.
Transfer of Cenvat Credit
11.
Transitional Provisions.
Cenvat Credit Rules, 2004
CA Gaurav Gupta
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Overview
Rules
Particular
12, 12A
Miscellaneous Specific provisions
13
Power of Central Government to notify goods for deemed CENVAT
credit
14
Recovery of CENVAT credit wrongly taken or erroneously refunded
15
Confiscation and Penalty
15A
General Penalty
16
Supplementary provisions
Cenvat Credit Rules, 2004
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Conditions – Rule 3
RULE 3. CENVAT credit. — (1) A manufacturer or producer of final products or a provider of output
service shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of –
Excise Duty
AED on
Textiles
AED on
Goods of special
importance
NCCD
Service Tax
Additional Duty
of Customs – Section 3
Additional Duty
of Customs
– Section 3(5)
Education Cess
Secondary and
Higher Education
Cess
paid on (i) any input or capital goods received in the factory of manufacture of final product or by the provider
of output service on or after the 10th day of September, 2004; and
(ii)
any input service received by the manufacturer of final product or by the provider of output
services on or after the 10th day of September, 2004,
Cenvat Credit Rules, 2004
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Conditions – Rule 3
RULE 3.
-
-
Includes duties or cess paid on any input or input service, as the case may be, used in the
manufacture of intermediate products, by a job-worker availing exemption under No. 214/86Central Excise
Available credit when goods/ services become taxable – Cenvat Credit on stock in hand on the
date when such goods/ services becomes taxable:
Manufacturer:
- inputs lying in stock
- in process
- inputs contained in the final
Cenvat Credit Rules, 2004
Service Provider:
- inputs lying in stock
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Conditions – Rule 3
Excise on any
final product
Cevnat
Credit
utilisatiion
CENVAT credit
taken on inputs
when removed
as such or after
being partially
processed
Cenvat Credit Rules, 2004
Duty paid goods which are
brought to any factory for being
re-made, refined, re-conditioned
or for any other reason
An amount
under sub-rule
(2) of rule 16 of
Central Excise
Rules
Rule 3(4)
CA Gaurav Gupta
CENVAT credit
taken on
capital goods
removed as
such
Service Tax
8
Conditions – Rule 3
Should qualify as
either inputs, input
services or capital
goods
Must be used for the
provision of output
service and to a
provider of output
service
Should not be used
exclusively for
providing exempt
service
There should be a
proper duty paying
document (invoice,
bill, etc.)
Special rule when
used for both taxable
and Exempted
Service
• “provider of taxable service” includes person liable for paying Service Tax.
• “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”
Cenvat Credit Rules, 2004
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What is not an output
service
- Negative List
- Where recipient is liable to pay
• Insurance agent providing services to person carrying on business of insurance agency
• Specified service recipient in case of Goods transport agency
• Sponsorship services provided to a body Corporate or partnership firm located in taxable
territory
• Services by Arbitral Tribunal when provided to any business entity located in taxable territory
• services provided or agreed to be provided by individual advocate to a Business entity located
in taxable territory
• services provided or agreed to be provided by way of support service by Government or local
authority to Business entity located in taxable territory
• services provided or agreed to be provided by way of renting or hiring any motor vehicle
designed to carry passenger on abated value by any individual, Hindu Undivided Family or
proprietary firm or partnership firm, located in the taxable territory to any company formed
or registered under the Companies Act, 1956 (1 of 1956) or a business entity registered as
body corporate located in the taxable territory.
• service provided or agreed to be provided by any person who is located in non-taxable
territory to any person located in taxable territory
Cenvat Credit Rules, 2004
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Restrictions
• No Cenvat against exempted Services / exempted goods or goods not exigible to
excise
• Effective July 1, 2012, an explanation has been inserted after Rule 3(4) to provide
that 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.
Creates an blockage in Cenvat Chain as complete service gets
taxed and not mere value addition
• Interest liability cannot be discharged through Cenvat Credit - CCE, Raigad v.
Maharashtra Seamless Ltd. [2009-TIOL-84-CESTAT-MUM]
• Cenvat credit shall be utilized only to the extent such credit as is available on the
last day of the month or quarter, as the case may be, for payment of duty or tax
relating to that month or the quarter.
Cenvat Credit Rules, 2004
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Restrictions
• CENVAT credit shall not be utilised for payment of any duty of excise on goods in
respect of which the benefit of an exemption under Notification No. 1/2011-C.E., dated
the 1st March, 2011 is availed - Advolerem payment of Excise on certain products at
reduced rate of 1%
• 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
• No reversal on removal of inputs or capital goods outside premises for provision of
output services
• No reversal where any inputs are removed outside the factory for providing free
warranty for final products
• Rule 3(7) - Credit of the education cess can be utilized for payment of the
education cess
• Rule 3(7) - Credit of the Secondary and Higher Education Cess can be utilized
for payment of the Secondary and Higher Education Cess
• There is no restriction then Cenvat credit of Basic Excise Duty can be used for
payment of Education Cess & Secondary Education Cess - 2009 (233) ELT 0221 (Tri.
– Ahmd.) Commissioner of Central Excise, Vapi Versus Donear Inds. Ltd.
Cenvat Credit Rules, 2004
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Important Points
Can Cenvat be taken for period prior
to Registration
Yes – Sutham Nylocots v. CCE, Coimbatore [(2005)
188 ELT 26 (Tri-Chennai)],
Digital Color Lab v.Commissioner of Central Excise
I, Jaipur-I[2012] 27 taxmann.com 232 (New Delhi –
CESTAT)
Is it necessary to render taxable
service before availing Cenvat Credit
No - Jindal Steel & Power Ltd. v.
CCE, Raipur [2008-TIOL-1450CESTAT-DEL]
Does Cenvat on input be reduced on
reduction in value of inputs
No. Mahaveer Surfactants (P) Ltd. v.
CCE, Pondicherry [2008-TIOL-1447CESTAT-MAD]
Can I avail credit relating to prior
periods relatable to last year returns
Yes, Central Bank of India v. Commissioner
of Central Excise & Service Tax, Coimbatore
[2012] 26 taxmann.com 274 (Chennai CESTAT) – However restricted to six months
wef September 1 2014
Important Points
Can Cenvat Credit when not
disputed at Provider’s end, cannot be
disputed at receiver’s end
Can Mere procedural lapse form
basis for rejection of available
Cenvat Credit
Can Cenvat Credit to bona fide
Recipient be denied for non payment
by provider
No.
CCE, Ahmedabad-III v Nahar Grinities
Limited [2014] 45 taxmann.com 190
(Gujarat)]
No –
Vimal Enterprise v UOI [2006 (195) E.L.T.
267 (Guj.)]
Salzer Controls Limited v. CCE, [2003
(160) E.L.T. 1169 (Tri. - Che)]
Raj Khosla & Co. Pvt. Ltd. v. CST, New
Delhi reported 2008 (07) LCX0297
No.
CCE, Jhalandhar v Kay Kay
Industries [CIVIL APPEAL No. 7031
of 2009]
Important Points
Can I pay interest and penalty from
Cenvat Credit
No–
Sutham Nylocots v. CCE, Coimbatore [(2005) 188
ELT 26 (Tri-Chennai)]
Can I use Cenvat paid under reverse
charge on September 5 for August
towards payment of output liability of
August
No –
credit as is available on the last day of the
month or quarter, as the case may be, for
payment of duty or tax relating to that month
or the quarter
Reversal on
removal
Rule
Removal of
Reversal
3(5)
inputs or capital goods removed
as such
Amount equal to the credit availed in respect of such
inputs or capital goods and such removal shall be made
under the cover of an invoice referred to in rule 9 .
Note: in this case, 100% Cenvat Credit is available if
Capital goods are removed in the first year
3(5A)(i)
capital goods removed after
being used
CENVAT Credit taken reduced by the percentage points
calculated by specified percentage or Duty payable on
transaction value; whichever is Higher
3(5A)(ii)
capital goods cleared as waste
and scrap
An amount equal to the duty leviable on transaction value
3(5B)
Input or
capital goods before put to use;
Amount equivalent to the CENVAT credit taken in respect
of the said input or capital goods
is written off fully or partially or
where any provision to write off
fully or partially has been made
in the books of account
An assesse can reavail such Credit if such goods are
used later for manufacture of excisable goods / provision
of taxable services
Cenvat Credit Rules, 2004
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Important Points
Do I need to pay duty on Removal of
scrap of input once it is put to use
Yes, but only on value of waste
-Tata Oil Mills Co. Ltd. [1998 (102) ELT (479)
-- Nahar Spinning Mills v CCE [2010 56 ELT
92(CESTAT)]
Will sale of factory mean removal of
Inputs and capital goods
No
- Metzeller Automotive v CCE [2004
(167) ELT 208 (CESTAT)]
Do I need to reverse Cenvat Credit
on inputs cleared for exports
No. Rico Auto v CCE [2003 (57) RLT
653]
In case of damage of Capital goods
by floods, fire etc. do I need to pay
Cenvat Credit on amount received
from insurance company
No, but on value of waste or scrap of he
Capital goods so sold
- Total Oil India v CCE [2012 (276) ELT
377(CESTAT)]
Conditions for availing
Cenvat Credit
Rule 4
Conditions for
Aviailing Cenvat
credit on Inputs
Cenvat Credit Rules, 2004
Condition for
availing Cenvat
credit on Input
Services
CA Gaurav Gupta
Conditions for
availing Cenvat
credit on capital
goods
18
Conditions for Input
Definition: Inclusions
Exclusions
• all goods used in the factory by the
manufacturer of the final product; or
• any goods including accessories, cleared along
with the final product, the value of which is
included in the value of the final product and
goods used for providing free warranty for final
products; or
• all goods used for generation of electricity or
steam for captive use; or
• all goods used for providing any output service;
Cenvat Credit Rules, 2004
• Diesel / Petrol;
• Goods used for construction or laying of
foundation of capital goods, except for the
provision of service portion in the execution of a
works contract or construction service;
• capital goods except when used as parts in
manufacture of final product;
• motor vehicles;
• when used primarily for personal use or
employee consumption
• any goods which have no relationship
whatsoever with the manufacture of a final
product
CA Gaurav Gupta
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Conditions for Input
• CENVAT credit in respect of inputs may be taken immediately on receipt of the
inputs in the factory of manufacturer or in the premises of output service provider
• Post July 1, 2012, Cenvat Credit in respect of inputs may be taken by the provider
of an output service without any restriction of receipt in his premises subject to
condition that documentation in this regard for their delivery and location is
received .
• There is no condition for making payment to manufacturer of excisable goods
before credit is availed on such inputs. [Praveen Jain & Co. Pvt. Ltd v CCE reported
in 2012 (25) S.T.R. 196 (Tri. - Del.)]
Cenvat Credit Rules, 2004
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Conditions for Input
• The Cenvat Credit is allowable even if any input goods are sent as such or after
being partially processed to a job worker for further processing, testing, repair, reconditioning, etc.
• In, the Punjab & Haryana High Court held that there is no requirement to reverse
the Credit on input services of GTA when inputs are removed as such under Rule
3(5) as the said Rule talks about the Cenvat credit taken on inputs or capital goods
and does not refer to the Cenvat on input service.
Cenvat Credit Rules, 2004
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Conditions for Capital
Goods
Specified goods which are
considered as capital goods
(Part A)
Capital
Goods
Motor Vehicles for
transportation of goods
considered as capital goods
for specified service
provider (Part B)
Cenvat Credit Rules, 2004
Component, spares and
accessories of motor
vehicle. (Part D)
Specified Motor vehicle
designed to carry
passengers
(Part C)
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Conditions for Capital
Goods
Part A
• Following goods falling under the Chapters, heading or sub-heading of First
Schedule to the Excise Tariff Act, 1985:
o all goods falling under Chapter 82 (i.e. tools, implements, cutlery, spoons,
forks and parts of these goods, made of base metal);
o all goods falling under Chapter 84 (i.e. machinery and mechanical appliances
and parts thereof);
o all goods falling under Chapter 85 (i.e. electrical or electronics machinery and
equipments);
o all goods falling under Chapter 90 (i.e. photographic, measuring, checking,
precision instruments and apparatus, etc.);
o all goods falling under CET Schedule [heading 6805, grinding wheels and the
like and parts thereof falling under heading 6804.
Cenvat Credit Rules, 2004
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Conditions for Capital
Goods
Part A
•
•
•
•
•
•
•
Pollution control equipments;
Components, spares and accessories of the goods specified at (i) and (ii);
Moulds and dies, jigs and fixtures;
Refractories and refractory materials;
Tubes and pipes and fittings thereof;
Storage tank.
Motor vehicles and other than those falling under tariff heading 8702, 8703, 8704,
8711 and their chasis but excluding dampers and tippers.
Cenvat Credit Rules, 2004
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Conditions for Capital
Goods
Part B
Motor vehicle which are:
• designed for transportation of goods including
their chassis
• are registered in the name of the service
provider,
• and 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
Cenvat Credit Rules, 2004
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Conditions for Capital
Goods
Part C
Motor vehicle which are:
• 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
Cenvat Credit Rules, 2004
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Conditions for Capital
Goods
Part D
Components, spares and accessories of motor vehicles,
dumpers or tippers used to provide taxable services
specified taxable services, namely:
(i) transportation of passengers; or
(ii) renting of such motor vehicle; or
(iii) imparting motor driving skills
(iv) providing an output service of renting of such
motor vehicle; or
(v) transportation of inputs and capital goods used for
providing an output service; or
(vi) providing an output service of courier agency
Cenvat Credit Rules, 2004
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Conditions for Capital
Goods
When can be Cenvat credit on Capital Goods taken
• Cenvat Credit in respect of capital goods is allowed to be taken in two
different years. In the first instance when capital goods are received in the
premises during a given financial year, he can take credit to the extent of 50%
in that financial year. The balance of Cenvat credit may be taken in any
subsequent financial year.
• CENVAT credit of the additional duty leviable under sub-section (5) of section
3 of the Customs Tariff Act, in respect of capital goods shall be allowed
immediately on receipt of the capital goods in the factory of a manufacturer
• The only condition is that the capital goods should be in the possession of the
provider of output service in such subsequent years.
• In DCW Limited v. CCE [(2009) 93 RLT 295], the Tribunal has held that the
restriction on availment of Cenvat credit on capital goods to the extent of 50%
each year applies to the education cess as well.
Cenvat Credit Rules, 2004
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Conditions for Capital
Goods
When can be Cenvat credit on Capital Goods taken
• Cenvat credit in respect of the capital goods shall be allowed to a
manufacturer, provider of output service even if the capital goods are
acquired by him on lease, hire purchase or loan agreement, from a financing
company
• Cenvat credit in respect of capital goods shall not be allowed in respect of that
part of the value of capital goods which represents the amount of duty on
such capital goods, which the manufacturer or provider of output service
claims as depreciation under section 32 of the Income-tax Act, 1961
• The CENVAT credit shall also be allowed in respect of jigs, fixtures, moulds and
dies sent by a manufacturer of final products to, (i) another manufacturer for the production of goods; or
(ii) a job worker for the production of goods on his behalf, according to his
specifications
Cenvat Credit Rules, 2004
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Conditions for Input
Services
Inputs service
Means any
Service
Used by
service
provider for
providing
output
service
Includes
Services
used in
modernisati
on, repair,
of premise,
computer
networking
Cenvat Credit Rules, 2004
market
research,
advertisem
ent, sale
promotion,
business
exhibition
Recruitmen
t, coaching
& training
Accounting,
auditing,
financing,
quality
control,
legal, share
registry,
credit
rating
CA Gaurav Gupta
Storage
upto place
of removal,
procureme
nt of inputs
Inward
transport of
inputs & CG
/ outward
transport
upto place
of removal
30
Conditions for Input
Services
Inputs service
Means any
Service
Excludes
Used by service
provider for
providing output
service
Specified
services used in
laying of
foundation or
making of
structures for
support of
capital goods
except when
used in the
provision of such
specified
services
Specified
services used in
construction of a
building except
when for certain
specified
services
Cenvat Credit Rules, 2004
Services of
renting of motor
vehicles so far
as they relate to
a motor vehicle
which is not a
capital good.
CA Gaurav Gupta
Services used
primarily for
personal
consumption or
use of an
employee like
outdoor catergin,
beauty treatment
etc.
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
31
Conditions for Input
Services
Important Points
• 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 :
• Where the service tax is paid on reverse charge on input services 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 paid or payable as indicated in
invoice, bill or, as the case may be, challan referred to in rule 9
• In case the payment of the value of input service and the service tax paid or payable as
indicated in the invoice etc, is not made within three months of the date of the invoice, bill or,
as the case may be, assessee shall pay an amount equal to the CENVAT credit availed on such
input service
• In case the said payment is made, the assessee shall be entitled to take the credit of the
amount equivalent to the CENVAT credit paid earlier
Cenvat Credit Rules, 2004
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Conditions for Input
Services
Important Points
• In case any payment or part thereof, made towards an input service is refunded or a credit note
is received by the assessee, he shall pay an amount equal to the CENVAT credit availed in
respect of the amount so refunded or credited
• In respect of invoices issued before the 1st day of April, 2011, Cenvat Credit on input services
shall be allowed, 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.
Cenvat Credit Rules, 2004
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Important Points
Services which are not expressly
mentioned in the definition of input
service it cannot be said that they do
not constitute input service
Yes,
-CCE v Stanzen Toyotetsu India (P) Ltd
Is one to one correlation is required
between Input Services and Output
services is required
No
- M/s Capiq Engineering Pvt. Ltd. V
CCE Vadodara [2008-TIOL-1967CESTAT-AHM]
Important Points
Sl. No.
1.
Decision
Input service
CCE, Mumbai-V v. M/s. GTC Industries Outdoor caterer service
Ltd. [2008-TIOL-1634-CESTAT-MUM-LB =
2008 (12) S.T.R. 468 (Tri.)]
2.
M/s. Finolex Cables Ltd. v. CCE, Pune-I, Insurance of plant and machinery
[2009-TIOL-122-CESTAT-MUM = 2009
(14) S.T.R. 303 (Tri.-Mumbai)]
3.
CCE, Nasik v. Cable Corporation of India Hiring of cars for transportation of
Ltd. [2008-TIOL-1180-CESTAT-MUM = employees
2008 (12) S.T.R. 598 (Tri.-Mumbai)]
Cenvat Credit Rules, 2004
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Important Points
Sl. No.
4.
Decision
Input service
CCE & C, Aurangabad v. M/s. Endurance Group Mediclaim policy and Workmen’s
Systems India Pvt. Ltd. [2009-TIOL-210- accident policy.
CESTAT-MUM = 2009 (237) E.L.T. 204 (Tri.Mumbai)]
5.
Ferromatik Milacron India Ltd. v. CCE, Outdoor caterer
Ahmadabad
[2009-TIOL-01-CESTAT-AHM
=
2009 (15) S.T.R. 282 (Tri.)]
6.
Milipore India Ltd. v. CCE, Bangalore [2009 (1) Medical and personal accident policy (2)
(13) S.T.R. 616 (Tri. – Bang.) = 2009 (236) Group Personal accident policy (3) Insurance
E.L.T.145 (Tri. - Bang.)]
(4) Personal accident policy (5) Personal
vehicle services (6) Landscaping of factory
garden (7) Catering
Cenvat Credit Rules, 2004
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Important Points
Sl. No.
7.
Decision
Input service
CCE, Raipur v. BeekayEngg. & Castings Mobile/landline
phones,
Rent-a-cab
Ltd. [2009-TIOL-1326-CESTAT-DEL = 2009 service, General insurance premium on
(16) S.T.R. 709 (Tri. - Del.)]
fire,
machinery
breakdown,
group
gratuity, group accident policy, Courier,
C&F services, etc.
8.
M/s. StanzenToyotetsu India Pvt. Ltd. v. Canteen, transportation and group
CCE, Bangalore [2009-TIOL-697-CESTAT- health insurance for employees.
BANG = 2009 (14) S.T.R. 316 (Tri.)]
9.
M/s. Cadmach Machinery Co. Pvt. Ltd. v. Outdoor
CCE,
Ahmedabad
CESTAT-AHM]
Cenvat Credit Rules, 2004
[2009-TIOL-1503- operator
catering
services
services,
and
repair
tour
and
maintenance of vehicles.
CA Gaurav Gupta
37
Important Points
Sl. No.
10.
Decision
CCE,
Chennai-II v.
Clayton
Ltd.
M/s.
Input service
Sundaram Employees’
[2010-TIOL-69-CESTAT- employees’
MAD]
11.
medical
insurance
personal
and
accident
insurance.
M/s. Hindustan Coca-Cola Beverages Mediclaim policy, security at depots,
Pvt. Ltd. v. CCE, Hyderabad [2010-TIOL- vehicle insurance, car rentals, pest
160-CESTAT-BANG = 2010 (19) S.T.R. 93 control activities
(Tri. – Bang.)
12.
M/s. Dr. Reddy’s Lab Ltd. v. CCE, Air travel agent, Rent -a-Cab Operation
Hyderabad
[2010-TIOL-194-CESTAT- scheme, Outdoor catering service and
BANG = 2010 (19) S.T.R. 71 (Tri. - Bang.)]
Cenvat Credit Rules, 2004
servicing of motor vehicle.
CA Gaurav Gupta
38
Important Points
Important Points
• Payment of Service Tax under Reverse charge from Cenvat Credit
Effective July 1, 2012, an explanation has been inserted after Rule 3(4) to provide
that 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.
• Payment is mandatory for input services and not inputs
There is no condition for making payment to manufacturer of excisable goods
before credit is availed on such inputs. [Praveen Jain & Co. Pvt. Ltd v CCE
reported in 2012 (25) S.T.R. 196 (Tri. - Del.)]
Cenvat Credit Rules, 2004
CA Gaurav Gupta
39
Cenvat Credit – Rule 6
Rule
Rule 6(1)
Provisions
Cenvat credit of inputs and input services used for the provision of exempted services not to
be allowed except in the case of a job worker
Rule 6(2)
Allowability of Cenvat Credit by a provider of taxable as well as exempted services when
separate records are maintained in respect of Cenvat credit on inputs and input services used
in provision of taxable as well as exempt services
Rule 6(3)
Allowability of Cenvat Credit by a provider of taxable as well as exempted services when
separate records are not maintained in respect of Cenvat credit on inputs and input services
used in provision of taxable as well as exempt services
Rule 6(4)
Rule 6(5)
No Cenvat Credit shall be allowed on Capital goods when used exlusively for exempted services
This rule provided that Cenvat credit of sixteen services which are common, would be
applicable in full even if an assessee is providing exempted services also. The Rule is now
withdrawn w.e.f. 1-4-2011.
Rule 6(6) Rule provides that no disallowance under above Rules would apply in case of excisable goods
cleared to a unit in specified zones.
Rule 6(6A) Rules removes restrictions on the availability of Cenvat credit on taxable services when such
taxable services are provided to a unit in Special Economic Zone for authorized operations.
Cenvat Credit Rules, 2004
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Cenvat Credit – Rule 6
Exempted goods shall include all goods which:
• Are exempt from the whole of the duty of excise leviable thereon
• Are chargeable to “Nil” rate of duty goods in respect of which the benefit of an
exemption under Notification No. 1/2011-CEor under entries at serial numbers 67
and 128 of Notification No. 12/2012-CEis availed
Exempted goods shall not include goods cleared:
• to a unit in a SEZ or to a developer of a SEZ for their authorised operations
• to a hundred per cent. export-oriented undertaking; or
• to a unit in an Electronic Hardware Technology Park or Software Technology Park;
• to the UN or international organization for official use or to their funded projects
• for the use of foreign diplomatic missions or consular missions or diplomatic agents
• for export under bond in terms of the provisions of the Central Excise Rules, 2002;
• Specified imported goods
• supplies made for setting up of solar power generation projects or facilities.
Cenvat Credit Rules, 2004
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Cenvat Credit – Rule 6
Exempted services shall include all services:
• Which are exempt from the whole of the Service tax leviable thereon
• On which no service tax is leviable under section 66B of the Finance Act
• 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
Exempted services shall not include all services provided without payment of tax to:
• to a unit in a SEZ or to a developer of a SEZ for their authorised operations
• Services fulfiling conditions under Rule 6A of Service Tax Rules, 1994 and whose
consideration is received within a period of six months or such extended period as
maybe allowed from time-to-time by the RBI, from the date of provision
Cenvat Credit Rules, 2004
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Cenvat Credit – Rule 6
Provider of Taxable as well as exempt
Services
Do Not Maintain
seperate Accounts
[Rule 6(3)]
Maintain Seperate
Accounts [Rule
6(2)]
For
Taxable
services
Cenvat
credit is
Avialable
For
exempted
services
Cenvat
Credit is
not
available
Option I
Option II
Option III
Credits on all inputs /
input services available
and service tax is to be
paid as follows on the
output services
Credits on all
inputs / input
services
available
Maintain
Seperate
records for
Inputs only
On taxable
Services
Pay Service
tax at normal
rates
Cenvat Credit Rules, 2004
On Exempted
services
Pay 6% of
value of
exempted
goods/
services
Cenvat credit to
be Reversed on
proportionate
basis
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Cenvat Credit – Rule 6
•
Payment of an amount under sub-rule (3) shall be deemed to be CENVAT credit not taken for the purpose of an
exemption notification wherein any exemption is granted on the condition that no CENVAT credit of inputs and
input services shall be taken.
•
“Value” for the purpose of sub-rules (3) and (3A), —
(a) shall have the same meaning as assigned to it under section 67 of the Finance Act, read with rules made
thereunder or, as the case may be, the value determined under section 3, 4 or 4A of the Excise Act, read
with rules made thereunder;
(b) in the case of a taxable service, when the option available under sub-rules (7), (7A), (7B) or (7C) of rule 6
of the Service Tax Rules, 1994, has been availed, shall be the value on which the rate of service tax under
section 66B of the Finance Act, read with an exemption notification, if any, relating to such rate, when
applied for calculation of service tax results in the same amount of tax as calculated under the option
availed;
(c)
in case of 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;
(d) in case of trading of securities, shall be the difference between the sale price and the purchase price of
the securities traded or one per cent. of the purchase price of the securities traded, whichever is more;
(e) shall not include the value of services by way of extending deposits, loans or advances in so far as the
consideration is represented by way of interest or discount
Cenvat Credit Rules, 2004
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Cenvat Credit – Rule 6
Cenvat credit on Capital
Goods
Used for providing exempt services
No Cenvat credit is
Avialable
Cenvat Credit Rules, 2004
Used for providing Taxable as well
as exempt services
Full Cenvat credit
Available
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Cenvat Credit – Rule 6
Important Point
Whether an assessee availing option (i)
in respect of certain exempted
goods/services can also avail option (ii)
in respect of other exempted goods or
services simultaneously
Assessee opting for option (i) is required
to pay an amount equivalent to 10% of
value of exempted goods or 8% of value
of exempted services. How to determine
"value" for the said purpose
Cenvat Credit Rules, 2004
Clarification
No, Circular No. 868/6/2008-CX dated
09.05.2008. Once exercised – same full FY
No, Circular No. 868/6/2008-CX dated
09.05.2008.
Value of exempted goods = As per Section 4/4A
of CEA, 1994 (Transaction Value u/s 4 in case
goods chargeable to specific rate of duty)
Value of exempted services = Gross amount
charged for providing exempted service (without
abatement)
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Cenvat Credit – Rule 6
Important Point
Whether input services distributor can
also opt for option (i) or option (ii)
Clarification
No, Circular No. 868/6/2008-CX dated
09.05.2008.
Whether services exported equates to
exempted services
No, Circular No. 868/6/2008-CX dated
09.05.2008.
Whether services where place of
provision is J&K equates to exempted
services
Yes
Cenvat Credit Rules, 2004
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Cenvat Credit –
special cases
Entity
A banking company and a
financial institution including a non-banking
financial company, engaged in providing
services by way of extending deposits, loans
or advances
Cenvat Credit Rules, 2004
Reversal requirement
Shall pay for every month an amount equal to
fifty per cent. of the CENVAT credit availed on
inputs and input services in that month
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Cenvat Credit Document
•
Original or Duplicate Invoice, Dealer’s Invoice, Bill of Entry, Supplementary Invoice
•
Permissible documents (with requisite particulars as provided in respective Rules) on which Cenvat
Credit can be availed:
o
Invoice issued by manufacturer, importer, first/second stage dealer
o
supplementary invoice, bill or challan issued by a manufacture / provider of output service,
o
a bill of entry; or
o
certificate issued by an appraiser of customs in respect of goods imported through a Foreign
Post Office; or
o
a challan evidencing payment of service tax, by the service recipient
o
an invoice, a bill or challan issued by a provider of input service
o
an invoice, bill or challan issued by an input service distributor
•
Documents required in original – photocopies not permitted.
•
Endorsed Invoice/Bill of Entry permissible
•
In case of defect in document , Cenvat can be availed with Permission of AC/DC
Cenvat Credit Rules, 2004
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Input Service
Distributor
•
HO or Branch or Depot can pass on credit to factories / premises
•
Conditions imposed for an ISD to transfer input service tax credit to its units:
•
Credit distributed does not exceed the amount of service tax paid
•
Credit attributable to exclusive exempt unit shall not be distributed
•
Credit attributable to service used wholly in a unit shall be distributed only to that unit; and
•
Credit attributable to service used in more than one unit shall be distributed pro-rata on the basis
of the turnover of the concerned unit during the relevant period
•
They have to register, file returns etc.
•
Monthly Invoice
•
No credit where input service exclusively for exempted goods or exempted service
•
Distribution on turnover basis of previous month
Cenvat Credit Rules, 2004
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Recovery and Penalty
•
Rule 14 of Cenvat Credit Rules provides that where the Cenvat credit has been taken and 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 11AA of the
Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such
recoveries.
•
Thus, in order to effect recovery under Rule 14:
o
o
Cenvat credit has been taken; and
utilized wrongly or has been erroneously refunded
•
Interest under Section 75 shall apply – 18%/ 24% /30%
•
Penalty under Section 76 and 78 shall apply to such cases
Cenvat Credit Rules, 2004
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Thank you
CA Gaurav Gupta
Partner
MGS & Co.
507 B, D-Mall, Netaji Subhash Palace, Delhi - 110034
+91 11 32962487
+91 11 2735 2487
+91 98110 13940
[email protected]
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