Overview of Cenvat Credit

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• Overview of Cenvat Credit
• Excise and Service Tax

Bimal Jain FCA, ACS, LLB, B.Com (Hons) Member of
Indirect Tax Committee of PHD/ FICCI/
Assocham Member of GST committee of ICAI/
ICSI Member of Indirect tax faculties of
ICAI/ICSI/ICWAI
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Message
Nothing is certain except Death Taxes
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Supply Chain GST
Goods
Services
Inputs CG Services
Manufacturing
Rendering of Services
Trading Intra State/ Inter State/ Exports
Receiver Intra state/ Inter State/ Exports
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Present Power of levy

• Goods
• Central Govt
• Import BCD,CVD, SAD
• Manufacturing CE/ AED
• Surcharges and Cesses
• State Govt
• VAT
• Entry Tax/Octroi
• CST

• Services
• Central Govt
• Service tax
• State Govt
• No Power except luxuries tax, entertainment
  Tax, etc.

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Cenvat Credit Rules, 2004

Capital Goods Inputs Input Services
Manufacturing of Goods Rendering of Services

• Availment of Credit Vs. Utilization of Credit
• Change in the definition of Inputs/ Input
  Services/ Exempted Services/ Exempted Goods
• Change in Rule 6 Taxable/ Exempted Supplies
• Unsettling the settled jurisprudence
• - Coca Cola India (2009) 22 STT 130 ABB Ltd
  (2009) 21 STT 77 (CESTAT)
• These changes really needed before GST?

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Cenvat Credit Capital Goods

• Rule 2(a) of CCR, 2004 ? Capital Goods" means-
• the following goods, namely-
• All goods falling under Chapter 82, Chapter 84,
  Chapter 85, Chapter 90, heading 6805, (ii)
  Pollution control equipment (iii) Components,
  spares and accessories of the goods specified at
  (i) and (ii) (iv) Moulds and dies, jigs and
  fixtures (v) refractories and refractory
  materials (vi) Tubes and pipes and fittings
  thereof (vii) storage tank and
• Continue

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Cenvat Credit Capital Goods

(viii) Motor vehicles other than those falling
under tariff headings 8702, 8703, 8704, 8711 and
their chassis, but including dumpers and tippers
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Cenvat Credit Capital Goods

Used- (1) in the factory of Manufacturer of the
final products, but does not include any
equipment or appliance used in an office
or (1A) outside the factory of Manufacturer of
the final products for generation of electricity
for captive use within the factory or
(2) for providing output service
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Cenvat Credit Capital Goods

(B) Motor vehicle designed for transportation of
goods including their chassis registered in the
name of the service provider, when used for- (i)
providing an output service of renting of such
motor vehicle or (ii) transportation of inputs
and capital goods used for providing an output
service or (iii) providing an output service of
courier agency
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Cenvat Credit Capital Goods

(C) Motor vehicle designed to carry passengers
including their chassis, registered in the name
of the provider of service, when used for
providing output service of- (i) transportation
of passengers or (ii) renting of such motor
vehicle or (iii) imparting motor driving
skills (D) components, spares and accessories
of motor vehicles which are capital goods for the
assessee
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Cenvat Credit Inputs

Rule 2(k) of CCR, 2004 ? Inputs means (i) all
goods used in the factory by Manufacturer of the
final product or (ii) any goods including
accessories, cleared along with the final
product, the value of which is included in the
value of the final product and goods used for
providing free warranty for final products
or (iii) all goods used for generation of
electricity or steam for captive use or (iv)
all goods used for providing any output service
but excludes-
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Cenvat Credit Inputs

Continued.. Explanation. For the purpose of
this clause, free warranty means a warranty
provided by the manufacturer, the value of which
is included in the price of the final product and
is not charged separately from the
customer
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Cenvat Credit Inputs

• Exclusions..
• (A) light diesel oil, high speed diesel oil or
  motor spirit, commonly known as petrol
• (B) any goods used for -
• construction or execution of works contract of a
  building or a civil structure or a part thereof
  or
• (b) laying of foundation or making of structures
  for support of capital goods,
• except for the provision of service portion in
  the execution of a works contract or construction
  service as listed under clause (b) of section 66E
  of the Act

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Cenvat Credit Inputs

Continued.. (C) Capital goods except when used as
parts or components in the manufacture of a final
product (D) Motor vehicles (E) any goods,
such as food items, goods used in a guesthouse,
residential colony, club or a recreation facility
and clinical establishment, when such goods are
used primarily for personal use or consumption of
any employee and (F) any goods which have no
relationship whatsoever with the manufacture of a
final product.
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Cenvat Credit Input Services

• Rule 2(l) of the CCR, 2004 ? input service
  means any service, -
• used by a provider of output service for
  providing an output service or
• (ii) used by a Manufacturer, whether directly or
  indirectly, in or in relation to the manufacture
  of final products and clearance of final products
  up to the place of removal

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Cenvat Credit Input Services

Continued and includes services used in relation
to modernization, renovation or repairs of a
factory, premises of provider of output service
or an office relating to such factory or
premises, advertisement or sales promotion,
market research, storage upto the place of
removal, procurement of inputs, accounting,
auditing, financing, recruitment and quality
control, coaching and training, computer
networking, credit rating, share registry,
security, business exhibition, legal services,
Inward transportation of inputs or capital goods
and outward transportation upto the place of
removal but excludes,-
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Cenvat Credit Input Services

Continued (A) service portion in the execution
of a works contract and construction services
including service listed under clause (b) of
section 66E of the Finance Act (hereinafter
referred as specified services) in so far as they
are used for - (a) construction or execution of
works contract of a building or a civil structure
or a part thereof or (b) laying of foundation
or making of structures for support of capital
goods, except for the provision of one or more
of the specified services or
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Cenvat Credit Input Services

Continued (B) Services provided by way of
renting of a motor vehicle, in so far as they
relate to a motor vehicle which is not a capital
goods or (BA) Service of general insurance
business, servicing, repair and maintenance , in
so far as they relate to a motor vehicle which is
not a capital goods, except when used by - (a) a
manufacturer of a motor vehicle in respect of a
motor vehicle manufactured by such person or
(b) an insurance company in respect of a motor
vehicle insured or reinsured by such person
or
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Cenvat Credit Input Services

Continued (C) such as those provided in relation
to outdoor catering, beauty treatment, health
services, cosmetic and plastic surgery,
membership of a club, health and fitness centre,
life insurance, health insurance and travel
benefits extended to employees on vacation such
as Leave or Home Travel Concession, when such
services are used primarily for personal use or
consumption of any employee
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Cenvat Credit Availment

• Important to check Whether CG/ Inputs/ Input
  Services
• Whether Registration is must for taking credit?
• Whether Refund can be denied prior to
  Registration?
• Varizon Data Services (I) (P) Ltd. Vs. CST,
  Chennai 2012-TIOL-1512-CESTAT-MAD

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Cenvat Credit Utilization

• Rule 3(4) ? Cenvat credit can be utilized for
  payment of-
• - Excise duty on any final product
• - Payment of CENVAT credit taken on Inputs are
  removed as such or after being partially
  processed
• - Payment of CENVAT on capital goods are removed
  as such
• - Amount under Rule 16(2) of C E Rules, 2002
  Repair/ Reconditioning, etc.
• - Service tax on any output service
• Restricts Utilization of credit as available by
  end of Month/ Quarter
• CENVAT credit Shall not be used for payment of
  service tax in respect of Reverse Charge/ for
  payment of ED on Goods Notification no.
  1/2011-CE dated. 1-3-2011
• SAD credit shall not be used for payment of
  Service Tax

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Cenvat Credit Utilization

• Rule 3(4) ? Cenvat credit can be utilized for
  payment of-
• Whether there is need for one to one co-relation
  of CENVAT credit availed on input services
  towards payment of output services?
• Jyoti Structures Ltd. Versus Commissioner of
  Central Excise, Nasik 2012 (10) TMI 335- CESTAT,
  Mumbai

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Condition for availing Cenvat Credit

• Rule 4? Conditions for availing Cenvat Credit
• Inputs - Immediately on receipt within the
  factory of Manufacturer or in the premises of the
  provider of output service
• Capital goods 50 in the year of receipt and
  balance 50 in the subsequent year Rule 4(2)
• Cenvat credit on capital goods shall be allowed
  even if the capital goods are acquired by him on
  lease, hire purchase or loan agreement, from a
  financing company Rule 4(3)
• Cenvat credit not available in case the
  depreciation U/S 32 of the Income-tax Act, 1961
  is claimed
• Job work - Goods can be removed for job work
  provided they are received back within 180 days
  Rule 4(5)
• Goods sent to job worker can be removed directly
  from Job Workers premises with Commissioners
  permission Rule 4(6)

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POT Cenvat Credit

• Obligation Liability ?
• - Service Provider 68(1)
• - Service Recipient -68(2)
• Point of Taxation (POT) ? Point in time when a
  service shall be deemed to have been
  providedRule 2(e). This point will determine
  Due date of payment of service Tax? Monthly/
  Quarterly
• Notification No. 04/2012-ST dt. March 17, 2012 ?
  Point of Taxation (Amendment) Rules, 2012 (W.e.f
  1/4/2012)

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POT - General Rule 3

• POT, the earliest of the following-
• Date of Receipt of Money (Advance)
• When Invoice is issued within 30 days from date
  of receipt of money ? Date of receipt of Money
• When Invoice is issued within 30 days from date
  of completion of Service? Date of Invoice
• When Invoice is not issued within 30 days from
  date of completion of Service? Date of Completion
  of Service

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POT Collection basis

• Rule 6 of STR (1/4/2012) ? Service tax on
  Collection basis - Individuals and Partnership
  firms (including LLP) - aggregate value of
  taxable services lt Rs. 50 lakhs in the previous
  FY, the service provider shall have the option to
  pay tax on collection basis on taxable services
  up to Rs. 50 lakhs in the current FY

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POT Reverse Charge

• Rule 7 Overriding clause - Determination of
  POT-U/S 68(2) - Recipients of Service - Date on
  which payment is made Provided that, where the
  payment is not made within a period of 6 months
  of the date of invoice, the POT shall be
  determined as if this rule does not exist ? Non
  Payment within 6 months ? Normal POT ? Date of
  Invoice -1/10/2012 Date of Payment -15/04/2013
  Interest/ Change of Rate ??

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Cenvat Credit Input Service

• Input service credit can be taken on or after
  date of receipt of invoice
• Payment to SP is not made with in 3 months from
  date of invoice - Then Reverse Credit and
  re-avail after payment
• Payment under Reverse charge - On or after the
  day on which payment is made of the value of
  input service and the service tax paid or payable
  as indicated in invoice, bill or, as the case may
  be, challan
• Payment or part thereof is returned or credit
  note is issued by SP, proportionate credit shall
  be reversed or paid
• Invoice / bill issued prior to 1.4.2011 - Credit
  after the date of payment of value of service

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EXPORT OF SERVICES Rule 6A N. 36

• Services to qualify as export if
• Service provider located in Taxable Territory
• Service recipient located in Non Taxable
  Territory
• Service provided is a service other than in
  Negative list
• Payment is received in convertible foreign
  exchange in RBI defined time period
• Place of Provision of Service determined as per
  the POP Rules is outside India

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Cenvat Credit Exempted Service R 2(e)

• i. Taxable service which is exempt from the whole
  of the service tax leviable thereon or
• ii. Service, on which no service tax is leviable
  under section 66B of the Finance Act or
• iii. Taxable service whose part of value is
  exempted on the condition that no credit of
  inputs and input services, used for providing
  such taxable service, shall be taken
• But shall not include a service which is
  exported in terms of Rule 6A of the Service Tax
  Rules, 1994.
• Rule 6 of CCR applicable for Reversal of Cenvat
  credit for exempted Service

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Service Tax CCR

• Refund to Exporter Rule 5 No Nexus required
  between exports and input services used in such
  exports ? Duties or taxes paid on any goods or
  services that qualify as inputs or input services
  will be entitled to be refunded in the ratio of
  the export turnover to total turnover in line
  with Circular No. 868/6/2008-CE dated 09.05.2008
• Refund amount (Export turnover of goods Export
  turnover of services) x Net CENVAT credit/ Total
  turnover

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Cenvat Credit Abatement

• Abatement ? For provision of Taxable Output
  Services ? Notification no. 13/2012ST dt.
  17-3-2012 superseded by Notification no.
  26/2012-ST dt. 20-6-2012 (Effective ? 1/7/2012)
• ALL abatement Merged into One Notification 12
  Services
• Change in abatement Rates for Specified Services
  ? Prior/ Post 1/7/2012
• TTL Consideration 100
• Less Abatement _at_ 50 50
• Net Consideration 50
• Service Tax 12.36 6.18

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Cenvat Credit Abatement

• Abatement ? Notification no. 26/2012-ST dt.
  20-6-2012 ? Conditional Abatement with benefit of
  Cenvat Credit available
• Notification No. 12/2003-ST Dated 20/6/2003
  Notification No. 1/2006-ST Dated 1/3/2006
  (Rescinded)
• - Capital Goods Rule 2 (a) of CCR, 2004
• - Inputs Rule 2(k) of CCR, 2004
• - Input Services Rule 2 (l) of CCR, 2004

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Exemption vs. Cenvat credit

• Notification No 1/2006-ST provides various
  abatements in specified services with a condition
  that CENVAT Credit will not be claimed by the
  Assessee
• What if ? Assessee used to claim the benefit of
  both Abatement and CENVAT, ? Entire benefit of
  Abatement will be disallowed and Service Tax
  will be calculated on the 100 gross value of
  services provided or to be provided
• What happen ? if the assessee wish to reverse the
  credit so claimed - Litigation was there.
• Now, recently, CESTAT in the case of KHYATI TOURS
  TRAVELS Versus COMMISSIONER OF C. EX.,
  AHMEDABAD 2011 (24) S.T.R. 456 (Tri. - Ahmd.)
  held that, later on if reversal of CENVAT credit
  is there, then benefit under notification cannot
  be denied.

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Cenvat Credit Works Contract

• Overruled in LB CESTAT Delhi CCE vs. BSBK
  Pvt. Ltd. (2010) 26 STT 263 Turnkey project
  can be vivisected service element involved in
  works contract.
• Other Services ? Works/ Composite Contract e.g.
• Erection, Installation, Commissioning Services
  1/7/2003 67
• Commercial or Industrial Construction Services
  10/9/2004- 67/ 75
• Construction of Residential Complex Services
  16/6/2005- 67/75
• Management, Maintenance or Repair Services
  1/7/2003 No abatement
• Difference between Works Contract Other
  Services ? When State Sales Tax/VAT payable on
  transfer of property in execution of Works
  Contract

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Cenvat Credit Valuation Rules

• Valuation under Service Tax for Works Contract
  Services Rule 2A ?Notification no. 11/2012-ST
  dt. 17-3-2012 ? superseded by Notification no.
  24/2012-ST dt. 6-6-2012 ( W.e.f 1/7/2012)-
• Pay service tax on Actual Service portion-
  Gross Consideration LESS Value of Property LESS
  VAT/ Sales tax, if any ADD Value of other
  services
• Composition ? Pay Service tax at composite rate
• Pay ST on 40 value of original works
• Pay ST on 60 value of all other works contract
• Pay ST on 70 value of maintenance or repair or
  reconditioning or restoration or servicing of any
  goods

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Cenvat Credit Valuation Rules

• Works Contract Composition Rules, 2007 rescinded
  - 4.8 ? Notification no. 35/2012-ST dt.
  20-6-2012

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Service Tax CCR

• Rule 3(5) and 3(5A) - Duty payable on CG/ Scrap
  at higher of TV or Depreciated Value effective
  from 17.03.12
• Rule 4(1) 4(2) ? Time when CENVAT could be
  taken - Allow credit without bringing them into
  premises subject to due documentation regarding
  their delivery and location
• Rule 6(3) ? Rate for Cenvat reversal for Exempt
  Services/ Goods has been revised from 5 to 6
• Rule 9(1)(e) ? Availment of credit on the tax
  payment Challan in case of payment of service tax
  by all service receivers on reverse charge

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Service Tax CCR

• Rule 7 ? Distribution of Credit by Input Service
  Distributor (ISD)
• To extent Service Utilized by respective Unit or
• Pro rata basis of the turnover of the concerned
  unit to the sum total of the turnover of all the
  units to which the service relates
• Open Issues-
• Whether unaudited monthly/ Quarterly figures
  acceptable to Dept.
• What happen for Capital Intensive project where
  Turnover starts only after a reasonable period

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Service Tax CCR Rule 6

Common Inputs or input services
Option I for inputs Option III for input services
Payment of 6 of value of exempted goods /
services
Follow Rule 6(3A) and reverse proportionate
Credit attributable to exempted goods/ services
Maintenance of Separate records
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Service Tax CCR

• Rule 10A ? Transfer of unutilized Cenvat credit
  of SAD Manufacturer having two or more
  factories can transfer unutilized Cenvat credit
  of SAD from one excise unit to another on
  strength of a transfer challan (W.e.f 1/4/2012)
  Quarterly basis - Not available for Units
  availing Area based Exemption
• Rule 14 ? No interest on wrong availment of
  Cenvat credit but not utilized - amended to
  provide that interest is chargeable if Cenvat
  credit is wrongly availed and utilized. Thus,
  no interest is chargeable if Cenvat credit is
  wrongly availed but remains unutilized
• Rule 15 ? No Change relating to Penalty - Penalty
  may be charged even if Cenvat credit wrongly
  availed but not utilized

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