Todays Coverage. CA Madhukar N Hiregange 2

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2 Todays Coverage Objective & Scheme of Cenvat Credit Understanding definitions Conditions for credit Few Value Additions possibilities Few Directional Case Laws Future Safeguards Q & A 15 Minutes CA Madhukar N Hiregange 2

3 Course Material Detailed Coverage beyond ppt: A. Common Errors in CCR B. Many Issues in Credit C. Common Disputes D. Rule 6(3) More on -> Online Free Download Understanding ST hiregangeacademy.com CA Madhukar N Hiregange 3

4 Mechanism of Cenvat Credit Manufacturer/dealer/Service Provider pass on taxes paid. SPormanufacturercanavailtheabovecredits ifeligibleunderccr if used to provide taxable services or manufacture of dutiable goods. Capture the credit availed& utilization in financial records Credit availed& utilized disclosed in the return

5 Outline of Cenvat Credit Cenvat Credit beneficial piece of legislation unless specifically excluded cannot be denied. Sec. 94(1)(eee), Finance Act Service tax credit(w.e.f ) Case - Formica India division V/s CCE 1995 (77) E.L.T. 511 (S.C.)- Arti 265 Finalproductisdutiable Cenvatoninputsusedcannotbedenied 5

6 Objectives of Cenvat Credit 1. Minimize cascading effect Cenvat chain continues-reduces cost of goods and services 2. Levy of tax on mainly on value addition. 3. Check on tax evasion- market control. 4. Smooth, proper tax collection. 5. Reduce outflow of ED or ST -Better WC management

7 Cenvat Credit Rules, 2004 Cenvat Credit Rules, 2002 Service Tax Credit Rules, 2002 Cenvat Credit Rules, 2004 Why?? - Provide cross sectional credit of goods and services -SmallsteptowardsGST - Credit available for set-off increases.

8 Important Definitions 1. Inputs Inclusions: i. Goods used in factory of manufacturer of final product ii. Goods + accessories cleared along with FP and for providing free warranty iii. Goods used in electricity/steam generation captive use iv. Goods used in providing output service Exclusions: A. light diesel oil, high speed diesel oil or motor spirit (petrol) B. Goods used for: a) Construction/WC Building / civil structure b) Foundation/structure for Capital Goods except by WC C. Capital Goods except when used as part of Final Product. D. Motor Vehicles E. Goods personal use of employees F. Goods no relationship with manufacture of final product.

9 Important Definitions 2. Capital Goods, includes: (i) all goods falling under Chapter 82, Chapter 84 Chapter 85, Chapter 90, heading 6805, heading 6804 of the First Schedule to the Excise Tariff Act; (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; (viii) motor vehicles other than those falling under tariff headings 8702, 8703,8704,8711 and their chassis but including dumpers and tippers

10 Important Definitions 3. Input Services Inclusions: i. Used for providing output service ii. Used for manufacture and clearance of FP upto place of removal iii. Services in relation to: Modernisation, renovation, repairs of factory Advertisement, market research, storage Procurement of I/P Accounting/auditing/finance Legal services Inward/outward transportation of goods, etc. Exclusions: A. Services in relation to WC & construction to the extent used for- Construction/WC of building/ civil structure Foundation/structure for CG, except when used for specified services B. Renting of Motor Vehicle (NOT capital goods). C. Service of general insurance, repairs, etcofmotorvehicle,usedby ManufactureroftheMV Insurance company D. Outdoor catering, beauty treatment, health services, life & health insurance, travel benefits for employees, for personal use, etc.

11 Kinds of Cenvat Credit 1. BED specified in the First Schedule to the CETA, SED specified in the Second Schedule to the CETA, Section 3 of the Additional Duties of Excise (T & TA) Act, Section 3 of the Additional Duties of Excise (GSI) Act, NCCD leviable under section 136 of the Finance Act, EC & SHEC leviable on excisable goods 7. Section 3 of the Customs Tariff Act, equivalent to the duty of excise (CVD); 8. Section 3(5) of the Customs Tariff Act (Additional CVD) 9. Service tax leviable under section 66B of the Finance Act 10. EC & SHEC leviable on taxable services; and 11. Additional duty of excise leviable under Section 85 of Finance Act,

12 Conditions for Availing Cenvat Credit UnderRule4ofCCR: 1. Thecreditoninputs immediatelyonreceiptoftheinputsinthefactory input services credit is allowed on or after the receipt of the invoice or bill. 3. W.e.f Timelimit 6months Input&InputServices 4. Reverse charge credit taken on/after payment of ST 5. JointChargeamount+STtoserviceprovider. 6. Where such amount not paid within 3 months credit revered. Can beretaken when such amount is paid. 7. Creditallowedondocumentsasperrule9 8. Maintain proper records

13 Capital Goods credit Capital Goods To avail credit- Ownership of Capital goods not required. Equipment or appliance used in an office Not Capital Goods Only50%ofthecreditallowedintheyearofpurchase. 50% credit- does not apply when SSI exemption claimed Exception: components, spares, accessories, moulds, tools, dies, refractories and refractory material.

14 Capital Goods credit Capital Goods Removal of Capital Goods in the year of purchase- 100% credit allowed in the same financial year. Construction of Malls- eligibility of credit on capital goods [escalators, lifts, DG sets etc]???- Judicial confirmation awaited. Exclusively used for manufacturing exempted goods or providing exempted service- Credit not eligible.

15 Value Addition under CCR, 2004 Creditsthatcanbeavailed&notavailed-alisttobepreparedeveryyear. Credits objected by the revenue or/ doubtful credits- to be availed but not utilised. Option to pay tax and avail the credits or Exemption notification? - to be examined. Additional duty under section 3(5) of the Customs Tariff Act (Additional CVD)- Service providers not eligible to take credit. No restriction for manufacturers. Inputs or input services used in the manufacture of intermediate products by a job worker- Credit allowed subject to the utilisation by manufacturer for further use in relation to manufacture.

16 Value Addition under CCR, 2004 Reverse charge and Joint charge credits- missed (as they are paid by the assessee himself). Clearance of goods for direct exports- not exempt sales- Credit can be availed on inputs used for manufacture of goods cleared for direct exports. Credit for inputs [beyond chap. 22], input services & capital goods- Restaurants can avail. Motor vehicle credit- allowed if used for providing output services: motor driving school, mining, transportation of passenger/ goods, construction, courier, logistics, freight forwarders or mere renting of motor vehicles.

17 Value Addition under CCR, 2004 Motor vehicle credit-allowed if used for providing output services: motor driving school, mining, transportation of passenger/ goods, construction, courier, logistics, freight forwarders or mere renting of motor vehicles. Inputs used as consumables in service contracts-credit to be examined. Paper credit for photography or in study material for coaching classes. Credit of duty paid on inputs and input services to be availed within six months (w.e.f., )-System to be in place to ensure credits are taken.

18 Directional Case Law Post removal? Place of removal for export port and post factory services i.e. for instance C&F agent services eligible for credit Dynamic Industries Ltd Vs Commissioner(2014(8) TMI 713 Gujarat HC) Concept of business relevant in light of nexus with manufacturing Credit allowed on advertising services pertaining to another unit- Greaves Cotton Ltd Vs CCE Chennai II&IV (2014 (8) TMI 654 CESTAT Chennai) relying on Coca Cola India Pvt. Ltd Vs CCE Pune (2009 (8) TMI50BombayHC) 18

19 Directional Case Law -Eligibility Gardening service credit not eligible -unless nexus with business activity established- Sri Rama Vilas Service Ltd Vs CESTAT (310)ELTA24(MadHC) Credits allowed on insurance and garden maintenance services Wheels India Ltd Vs Commissioner LTU Chennai (2014 (8) TMI 497 CESTAT Chennai) Common services i.e. like dredging for instance benefiting more than one assessee could disentitle any one assessee to credit WelspunMaxsteelLtdVsCCE(2014(7)TMI28CESTATMumbai) 19

20 Directional Case Law -Eligibility Cleaning service a pre-requisite for manufacturing, hence credit eligible as Input service Paper Products Ltd Vs CCE Mumbai III(2014(5) TMI 425 CESTAT Mumbai) Catering service is input service- M/S Resil Chemicals Pvt Ltd Vs Cce, Bangalore TIOL-1702-CESTAT-BANG Employee group accident + medical policies credit Eligible - Commr. Of Service Tax, Bangalore Versus Team Lease ServicesPvt.Ltd. 2014(36)STR543(Kar) 20

21 Directional Case Law -GTA Cenvat credit on Outward GTA - in favour - post CCE Vs VesuviousIndiaLtd. 2014(34)STR26(Cal) Credits on GTA - neither treated the GTA as a part of input service, norincludedtheamountpaidinpriceofgoods-lafargeindialtdvs Commissioner Of Central Excise, Raipur TIOL-1720-HC- CHHATTISGARH-CX Cenvat credit on outward transportation is allowed when the sales are made on FOR destination basis and place of removal would be customer s premises - Ultra Tech Cement Ltd. Vs. C.C.Ex. and ST, Rohtak[2014-TIOL-1934-CESTAT-DEL] 21

22 Directional Case Law-ImmProp. Credits steel and cement used in manufacture of storage tank is eligible even if the tank becomes immoveable property - CCE vs Doodhganga Krishna SSK Niyamit 2013 (297) E.L.T. 361 (Kar.), CCE vs SLR Steels(2012(280)ELT176(Kar HC DB) Credits related to immoveable property- not restricted- M/S Navratan S G Highway Properties Pvt Ltd Vs Cst, Ahmedabad TIOL-1703-CESTAT- AHM Construction of residential complex within factory premisesineligible CCE Vs Bajaj Hindustan Ltd (24) STR 497 (Tri Del) 22

23 Directional Case Law-Proc Pre-registration credits - Mportal India wireless Solutions P.Ltd Vs CST 2012 (27) STR 134 (Kar) and Showa India Pvt Ltd vs Comm (P &H) 2014(34)STRJ100(P&H) Separate record not maintained for dutiable as well as exempted goods- proportionate credit related to non-dutiable goods to be reversed- Colgate Palmolive(India) Limited Vs Commissioner(Bom) 2014(36)STRJ232 23

24 Directional Case Law-Misc Credits of ST on invoice not containing full particular - rectifiable Defect- Sandvik Asia Ltd. Versus Commissioner Of Central Excise, Ahmedabad 2014 (36)STR428(Tri-Ahmd) Cenvat credit not deniable on re-usable inputs (Plastic crates) - Hindustan CocaColaBeveragesPvt.Ltd.VsCCE 2009(236)ELT195 Rule 6- Trading Credits - Thyssenkrupp Industries (I) Pvt Ltd Vs Commissioner Of Central Excise, Pune TIOL-1825-CESTAT- MUM No interest is payable on Cenvat credit wrongly availed but not utilized CCEVsStrategicEngineeringPvtLtd 2014(310)ELT509(MadHC) 24

25 Future Safeguard Examine applicability of Rule 6 Intimate department understanding of transactions - methodology adopted- RPAD Review Audit to ensure no benefit missed out Internal/ External to include Credit of VAT + Cenvat Be aware of changes at least at time of budget Get ready for GST

26 Acknowledgement to Vidhya R