Transcript Slide 1

CENVAT CREDIT CRITICAL
ISSUES
PRESENTATION ON
23.01.2015
KR RAMANKUTTY
CHARTERED ACCOUNTANT
ERNAKULAM
THE CASCADING EFFECT
PROFIT
INPUT TAX OR DUTY
LABOUR & OVERHEADS
COST
MATERIAL COST
EXCISE DUTY PAYABLE ON SALE PRICE WHICH INCLUDES INPUT TAX
THE CASCADING EFFECT REMOVED
PROFIT
LABOUR & OVERHEADS
COST
MATERIAL COST
EXCISE DUTY PAYABLE ON SALE PRICE WHICH DOES NOT INCLUDES INPUT TAX
THE PLAN TO AVAIL THE CREDIT
TO KNOW
• WHAT ARE THE GOODS / SERVICES ON WHICH
DUTY/TAX CREDIT CAN BE TAKEN?
• WHAT ARE THE DUTIES / TAXES ELIGIBLE FOR
CREDIT ?
• WHAT ARE THE
RESTRICTIONS ?
LEGAL
PERMISSIONS
AND
CENVAT CREDIT CRITICAL ISSUES
A SCHEME INTRODUCED TO ARREST THE CASCADING EFFECT OF DUTY / TAX
ON COST IN THE YEAR 1986 AS MODVAT SCHEME .
 INITIALLY INTRODUCED ON GOODS , EXTENDED TO CAPITAL GOODS FURTHER
EXTENDED TO SERVICES IN 2002 AND CROSS UTILIZATION OF GOODS AND
SERVICES FROM 2004.
A SCHEME TO GRANT CREDIT IN RESPECT OF SPECIFIED E.DUTY/CVD /S.TAX
PAID ON RAW MATERIAL PURCHASE/CAPITAL GOODS PURCHASE/SERVICES
AVAILED IN CONNECTION WITH MANUFACTURE OF DUTIABLE FINAL PRODUCT
/TAXABLE OUTPUT SERVICES AND USE THE CREDIT FOR PAYMENT OF CENTRAL
EXCISE DUTY /OR SERVICE TAX.
THE OBJECTIVE IS TO ARREST THE CASCADING EFFECT OF TAX ON COST.
CENVAT CREDIT RULE 2004 AS AMENDED
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RULE -1
SHORT TITLE , EXTENT AND COMMENCEMENT
RULE -2
DEFINITIONS
RULE -3
VARIOUS COMPONENTS OF DUTY
RULE -4
CONDITIONS FOR ALLOWING CREDIT
RULE -5
REFUND OF CREDIT U/R 5,5A,5B
RULE -6
CONSUMPTION OF COMMON INPUTS IN DUTIABLE AND NON-DUTIABLE
PRODUCTS
RULE -7&7A
INPUTS SERVICE DISTRIBUTOR-MANNER OF DISTRIBUTION OF CREDIT BY
DISTRIBUTOR
RULE- 8 STORAGE OUTSIDE THE FACTORY AC/DC TO GRANT PERMISSION TO
STORE CENVAT CREDIT AVAILED INPUT OUTSIDE THE FACTORY IN EXCEPTIONAL
CIRCUMSTANCES.
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RULE -9
SPECIFIED DOCUMENTS FOR AVAILING CENVAT CREDIT, THE STATUTORY
REGISTER TO BE MAINTAINED UNDER RULE 9(5).
• RULE -9A
• INFORMATION RELATING TO PRINCIPAL INPUTS AND THE QUANTITY TO
BE USED IN THE MANUFACTURE OF FINAL PRODUCT TO BE FILED WITH
THE SUPDT. ANNUALLY BY 30TH APRIL.
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RULE -10
TRANSFER OF CENVAT CREDIT ON SHIFTING OF FACTORY TO ANOTHER SITE OR
DUE TO CHANGE OF OWNERSHIP ON ACCOUNT OF SALE/MERGER ETC.
RULE-11
TRANSITIONAL PROVISION
RULE-12
INPUT MANUFACTURED - SPECIFIED AREAS IN NORTH-EAST REGION ETC.
RULE-12A
PROCEDURE FOR LTU
RULE-12AAA
POWER TO IMPOSE RESTRICTIONS IN CERTAIN TYPE OF CASES
RULE -13
POWER TO NOTIFY FOR DEEMED CENVAT CREDIT
RULE- 14
RECOVERY OF CREDIT WRONGLY TAKEN OR ERRONEOUSLY REFUNDED WITH
INTEREST
RULE -15 CONFISCATION AND PENALTY
ELIGIBILITY OF GOODS AND SERVICES & THE VARIOUS DUTIES AND TAXES
 DUTY PAID ON RAW MATERIALS (INPUTS), CAPITAL GOODS AND
SERVICES USED FOR MANUFACTURE OF DUTIABLE GOODS OR TAXABLE
SERVICES PROVIDED.
 MANUFACTURER IS ENTITLED FOR TAKING CREDIT OF DUTY PAID ON
INPUT MATERIAL, CAPITAL GOODS AND SERVICES USED FOR
MANUFACTURE AND CLERENCE OF THE PRODUCTS FROM THE PLACE OF
REMOVAL.
 DUTY CREDIT UNDER RULE 16 – GOODS RETURNED TO THE FACTORY.
 SERVICE PROVIDER IS ALSO ENTITLED FOR THE SAME BENEFITS.
 WHAT ARE ALL THE GOODS/SERVICES ELIGIBLE FOR CREDIT, WHAT ARE
THE DUTIES /TAXES ELIGIBLE FOR CREDIT ARE DEPENDENT UPON THE
CENVAT CREDIT RULES – SET OF 16 RULES. THE ELIGIBILITY OF GOODS
FOR MANUFACTURE OR SERVICE ARE LISTED UNDER THE CATEGORY OF
CAPITAL GOODS AND INPUT. ELIGIBLE SERVICES ARE DEFINED UNDER
INPUT SERVICES.
CAPITAL GOODS ELIGIBLE FOR CREDIT:
• 1. GOODS DEFINED BY TARIFF HEAD
• ALL GOODS FALLING UNDER CHAPTER 82, CHAPTER 84, CHAPTER 85,
CHAPTER 90, [HEADING 6805, GRINDING WHEELS AND THE LIKE, AND
PARTS THEREOF FALLING UNDER HEADING 6804] OF THE FIRST
SCHEDULE TO THE EXCISE TARIFF ACT;
• AND COMPONENTS , SPARES AND ACCESSORIES OF THE ABOVE –> CAN
FALL UNDER ANY CHAPTER
• CVD -PROJECT IMPORTS 9801 RULE 3(1) EXPL Cost A
• 2. GOODS DEFINED BY DESCRIPTION
• POLLUTION CONTROL EQUIPMENT; AND COMPONENTS , SPARES AND
ACCESSORIES OF THEREOF
• MOULDS AND DIES, JIGS AND FIXTURES;
• REFRACTORIES AND REFRACTORY MATERIALS;
• TUBES AND PIPES AND FITTINGS THEREOF;
• STORAGE TANK, [AND]
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CAPITAL GOODS
3. GOODS DEFINED BY DESCRIPTION & TAFIFF HEAD
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MOTOR VEHICLES OTHER THAN THOSE FALLING UNDER TARIFF HEADINGS 8702, 8703,
8704, 8711 AND THEIR CHASSIS [BUT INCLUDING DUMPERS AND TIPPERS AND
PARTS], FOR MANUFACTURERS
MOTOR VEHICLES FOR SERVICE PROVIDERS REFER (B) (i) (ii) (iii) AND (C ) (i) (ii) (iii)
COMPONENTS & PARTS FOR (B) & (C)
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CG: MANUFACTUER  Used in the factory [or outside the factory
(Generation of power)] but office equipments excluded .
• CG:SERVICE PROVIDER used for providing output service
• Office equipments included.
• THE GENERAL PRINCIPLES:
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ELIGIBILITY DEPENDS UPON THE LAW PREVAILING ON THE DATE OF RECEIPT.
OWNERSHIP IMMATERIAL.
NO CONDITION THAT SHOULD BE USED FOR MANUFACTURE , USED IN FACTORY
NOT ELIGIBLE FOR ITx DEPRECIATION ON EXCISE DUTY PART
50% OF DUTY IN THE FIRST YEAR AND 50% IN NEXT YEAR NOT AVAILED IN THE
FIRST YEAR 100 % IN SECOND YEAR AS PER CASE LAW .
100 % IN THE FIRST YEAR ONLY FOR ADDL DUTY OF CUSTOMS UNDER 3(5) OF
CUSTOMS TARRIF ACT- NOT ELIGIBLE FOR SERVICE PROVIDER
CERTAIN POINTS TO NOTE
• CPITAL GOODS ARRIVED AT SITE BEFORE CENTRAL EXCISE REGISTRATION
OBTAINED FOR NEW PLANT – TAKE CREDIT ONLY AFTER REGISTRATION ,
DESIRABLE TO INFORM RANGE SUPDT/AC AND GET ACK LETTER .[cir
88/88/94 dated 26.12.1994].
• CG LIKE PIPE LINE EXTENDING OUTSIDE THE FACTORY FOR DISCHARGIG
EFFLUENT –CONVEYOR/ROPE WAY EXTENDING OUTSIDE- PIPE LINE
FROM SHORE TO SPM UNDER THE SEA • CG USED OUTSIDE THE FACTORY – BUT INTERALLY CONNECTED WITH
MFG ELIGIBLE – VIKRAM CEMENT SUPREME COURT.
• PARTS/ COMPONENTS /ACCESSORIES OF SPECIFIED CG NEED NOT FALL
UNDER 82-82-85-90 , BUT USAGE TO BE ASCERTAINED TO FIX THE
ELIGIBILITY . PART OF A PART IS ALSO A PART ELIGIBLE
• STORAGE TANK CONSTRUCTED AT SITE BECOMING IMMOVABLE
PROPERY- CREDIT ELIGIBLE ON CEMENT -MS/HS SHEETS ANGLES
CHANNELS USED FOR CONSTRUCTION OF TANK – PLATES USED REPAIR
ALSO ELIGIBLE .
• SPECIFICALLY EXCLUSION FOR ANGLES CHANNES,CTD/TMT BARS –[expl2: to input def] ALSO IN VANDANA GLOBAL
REMOVAL OUTSIDE THE FACTORY
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REMOVAL CAPITAL GOODS OUTSIDE :
CG FOR JOB WORK – RETURN WITHIN 180 DAYS – OR REVERSE –R 4(5)(a)
AS SRCAP – duty on the transaction value
USED CAPITAL GOODS- FOLLOW RULE 3 (5A)(a) @ 2.5% of Cenvat /qtr or
duty on transaction value which ever is greater
SALE – (removal as such) – REVERSE FULL CENVAT AVAILED- R 3(5)
ISSUES CAPITAL GOODS EXTENDING OUTSIDE THE FACTORY
PART OF THE MACHINERY WORN OUT REMOVED AS SCRAP
CAPITAL GOODS EXPORTED FOR REPAIRS – WHETHER REVERSAL?
ACCOUNTING CONTROL FOR CG & REMOVAL
STEEL PLATES USED FOR REPAIR OF TANK / MATERIALS USED FOR REPAIR
OF CAPITAL GOODS -
INPUTS
• (i) all goods used in the factory by the manufacturer of the
final product; or
• (ii) any goods including accessories, cleared along with the
final product, the value of which is included in the value of
the final product and goods used for providing free warranty
for final products; or
• (iii) all goods used for generation of electricity or steam for
captive use; or
• (iv) all goods used for providing any output service;
• This is subject to exclusions in clause (A) to (F)
INPUT SERVICE
• (l) “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,
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 up to 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 up to the place of
removal;
Exclusions (A) to (C ) PL REFER
INPUT SERVICE
• THE MEANS PART OF THE DEFINITION
• THE INCLUSIIVE PART OF THE DEFINITION
• DELETION OF THE WORDS “ACTIVITY RELATING TO BUSINESS” THE
IMPACT
• ISSUES ARISING OUT OF “OUTWARD TRANSPORTATION UPTO THE PLACE
OF REMOVAL”………………………”STORAGE UPTO PLACE OF REMOVAL”
• INPUT SERVICE NOT FALLING WITHIN THE INCLUSIVE PART
• STATUTORY REQUIREMENTS LIKE RUNNING OF CANTEEN, POLLUTION
CONTROL /EFFLUENT TREATMENT PLANT/ENVIRONMENT LAWS LIKE
GARDENING /CULTIVATION OF PLANT, TREES ETC……….ADMISSIBILITY ?
• THE FUNDAMENTAL PRINCIPLES: IF THE PROCESS IS INTEGRALLY
CONNECTED WITH THE PRODUCTION BUT FOT THE PROCESS THE
PRODUCT CANNOT BE PRODUCED, THE INPUT USED IN THE PROCESS IS
ELIGIBLE FOR CENVAT CREDIT- JK COTTON MILLS (SC) , EASTEND PAPER
MILLS (SC)
DOCUMENTS FOR AVAILING THE CREDIT
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RULE 9 OF THE CCR – INVOICE, SUPPLMENTARY INVOICE, BOE , CHALLAN,
INVOICE OR BILL ISSUED BY THE SERVICE PROVIDER ETC.
• SUPPLEMANTARY INVOICE PRECAUTIONS : - INDEMINITY BOND
ETC.
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ANY COPY OF THE INVOICE CAN BE USED.
INVOICE ADDRESSED TO HO CAN BE TAKEN BY BRANCH OR PLANT.
ENDORSED COPY OF THE DOCUMENTS , XEROX COPY OF THE DOCUMENTS
NOT SPECIFIED IN THE RULE.RELIEF CAN BE OBTAINED FROM TRIBUNAL OR
COURT SUBJECT TO FACTUAL EVIDENCE AND OTHER CONDITIONS.
LOSS OF ALL COPIES OF INVOICE. PRESCRIBED PROCEDURE AS PER THE OLD
RULE LIKE LODGING FIR OBTAIN RANGE SUPRINDENT CERTIFICATE OF
MATERIAL RECIEPT ETC CROSS VERIFICATION WITH THE RANGE OF THE
SUPPLIER-EXTRA COPY OF THE INVOICE FROM THE SUPPLIER OR XEROX
COPY. IN EXCEPTIONAL CASE CREDIT IS ALLOWED.
TIME LIMIT INTRODUCED FROM 2014 SEPT ONWARDS – 6 MONTHS FROM
DATE OF INVOICE. INVOICE ISSUED PRIOR TO 01/09/2014 WHETHER HIT BY
TIME BAR? WHETHER TIME BAR CAN BE CONTESTED? OSRAM SURYA (SC).
TIME LMIT APPLIES ONLY FOR INPUT OR INPUT SERVICES AND NO
RESTRICTION FOR CG. FOR TAKING RECREDIT TIME LIMIT WILL NOT APPLY.
VARIOUS DUTIES AND TAXES ELIGIBLE
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DETAILED LIST RULE 3(1) .IN SHORT CENTRAL EXCISE DUTY , CESS,
ADDITIONAL DUTY OF CUSTOMS UNDER SECTION 3(3) OF THE CTA (KNOWN
AS CVD) ADDITIONAL DUTY OF CUSTOMS UNDER SECTION 3(5),DUTY PAID
AT THE TIME OF DEBONDING OF EOU, DUTY PAID UNDER TARIFF 9801PROJECT IMPORT ETC ETC.
ADDITIONAL DUTY OF CUSTOMS UNDER SECTION 3(5) IS NOT ELIGIBLE FOR
SERVICE PROVIDER.
FOR CAPITAL GOODS ONLY 50 % OF CREDIT IN THE FIRST YEAR AND NEXT
50% IN THE NEXT YEAR. AS PER TRIBUNAL DECISIONS 100% IS ELIGIBLE IN
THE NEXT YEAR IF 50% IS NOT AVAILED IN THE FIRST YEAR. THE DUTY PAID
UNDER ADDITIONAL DUTY OF CUSTOMS UNDER SECTION 3(5) THERE IS NO
RESTRICTION OF 50%.
INPUT CREDIT AVAILABILITY RESTRICTED TO QUANTITY OF RECIEPT (GRN
QTY). EVAPORATION LOSS OR NATURAL LOSS DUE TO ANY OTHER REASON
PERMITTED WITHIN REASONABLE LIMIT(0.1% - 0.5% BY TRIBUNAL
DECISIONS).
REVERSE CHARGED SERVICE TAX CREDIT CAN BE TAKEN SUBJECT TO
ELGIBILITY. WEF 11.07.2014 WHEN ST IS PAID CREDIT CAN BE TAKEN IN THE
CASE OF FULL REVERSE CHARGE , IN THE CASE OF PARTIAL THE FULL
PAYMENT TO SERVICE PROVIDER TO BE MADE. REFER TO PROVISIO ADDED
TO RULE 4 (7).
UTILISATION
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FOR DUTY PAYMENT ON FINAL PRODUCT
FOR REMOVAL OF INPUT OR CAPITAL GOODS AS SUCH.
DUTY PAYMENT UNDER RULE 16 OF THE CENTRAL EXCISE.
SERVICE TAX ON OUTPUT SERVICE.
WHETHER CAN BE UTILISED FOR PAYMENT OF INTEREST AND PENALTY
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• WHETHER CAN BE UTILISED FOR MAKING PRE-DEPOSIT OF DUTY FOR
COMPLYING WITH SECTION 35F OF CENTRAL EXCISE?
• THE BALANCE OUTSTANDING ON THE LAST DAY OF THE MONTH AFTER
STATUTORY REVERSAL ONLY CAN BE UTILISED FOR PAYMENT ON 05TH
OF THE NEXT MONTH.
• FUND PLANING FOR EXCISE/SERVICE TAX – REVERSE CHARGE LIABILITY
REMOVAL OF INPUT OR CAPITAL GOODS OUTSIDE THE
FACTORY
• FOR JOB WORK - RETURN WITHIN 180 DAYS IF NOT REVERSE CREDIT
AND TAKE RECREDIT WHEN GOODS ARE RETURNED.
• REMOVAL AS SUCH - PAYBACK THE CENVAT CREDIT UNDER AN
INVOICE.
• REMOVAL AFTER USAGE (CG) - 2.5% OF DUTY CREDIT PER QUARTER
OR DUTY ON THE TRANSACTION VALUE WHICHEVER IS HIGHER TO
BE PAID.DIFFERENT RATE FOR COMPUTERS.
• WRITE OFF IN THE BOOKS (EG NON MOVING STOCK). REVERSE FULL
CREDIT AND TAKE RECREDIT WHEN PUT TO USE.
• REMISSION OF DUTY REVERSE SERVICE TAX + ED CONSUMED IN THE
FINAL PRODUCT. TAKE A TECHNICAL CERTIFICATION + COST
ACCOUNTANT CERTIFICATE FOR THE CREDIT TO BE REVERSED.
COMMON INPUT/ INPUT SERVICE CONSUMED IN DUTIABLE OR NON DUTIABLE
PRODUCT/ SERVICES
• COMMON INPUT OR INPUT SERVICE CONSUMED IN DUTIABLE AND NON
DUTIABLE PRODUCT/TAXABLE AND NON TAXABLE SERVICE RESTRICTION IN
THE RULE.
• ONLY PROPORTIONATE CREDIT PERMITTED IF NO SEPARATE ACCOUNTING IS
MAINTAINED. ALTERNATIVELY AN AMOUNT EQUAL TO 6% OF THE VALUE OF
EXCEMPTED GOODS OR SERVICES IS TO BE PAID.
• THE FORMULA GIVEN IN RULE 6 (3A) APPEARS INCORRECT AND IS BEING
CHALLENGED IN COURT. THYSSENKRUPP INDUSTRIES (2014-TIOL-1825T
MUM).
• THE SIMPLE FORMULA TO BE USED IS :
• EXCEMPTED GOODS OR SERVICES/ TOTAL VALUE OF SERVICES x TOTAL
CENVAT………………………………………….(THIS IS THE FORMULA). THE
SUGGESTED FORMULA WOULD BE ????
• FORMULA FOR BANK & NBFC IS RULE 6 (3B) i.e 50% OF THE CREDIT FOR THE
MONTH.
• THE ABOVE RULE IS NOT APPLICABLE TO EXPORT UNDER BOND, TO
CLEARANCES TO EOU & SEZ, ELECTRONICS HARDWARE TECHNOLOGY PARK
OR SOFTWARE TECHNOLOGY PARK, SUPPLIES TO UN ETC.
REFUND OF CENVAT CREDIT RULE-5
• REFUND TO MFG/EXPORTER – UNUTILISED CREDIT ENTITLED FOR
REFUND. RULE 5 (1)
• REVERSE CHARGE SERVICE TAX WHICH CANNOT BE UTILISED BY THE
SERVICE PROVIDER. RULE 5(B)
RECOVERY OF WRONG CREDIT
• TAKEN AND UTILISED WRONGLY, SHOWCAUSE NOTICE TO FOLLOW –
PERIOD OF SCN DEPENDING UPON WHETHER SUPPRESSION IS
ALLEGED OR NOT. 12 MONTHS (11A APPLIED) OR 18
MONTHS(SECTION 73 APPLIED) OR 5 YEARS ( IF SUPPRESSION
ALLEGED).
• PENALTY UPTO THE DUTY CREDIT OR SERVICE TAX UNDER 15 (1)
• PENALTY UNDER 15 (2) READ WITH 11 (AC) INCASE OF SUPPRESSION
OF FACT.
• NO INTEREST PAYABLE FOR THE WRONG CREDIT AVAILED BUT NOT
UTILISED.
NOW YOU SPEAK
THANK YOU
CA KR RAMANKUTTY FCA
[email protected]
9020360665