ISSUES RELATED TO CENVAT CREDIT IN FILING SERVICE TAX RETURNS

Transcription

1 1 ISSUES RELATED TO CENVAT CREDIT IN FILING SERVICE TAX RETURNS 1116, Raheja Chambers, Nariman Point, Mumbai INDIA Tel : Fax: mail@mzs.co.in

2 Cenvat Credit Inputs Text Input Text Services Capital Text Goods

3 3 Exempted Service

4 Exempted Service 4 Rule 2(e) i. Exempt from whole of Service Tax ii. No service tax leviable u/s 66 iii. iv. Services partially exempt on the condition that no credits on inputs/input services shall be taken Includes trading

5 Zero rated and exempt transactions Basic principle is that Cenvat credit available only when tax payable on final product or output services In zero rated transaction, tax not payable on final product, but Credit of input taxes is available (e.g. exports) In exempted transaction, tax is not payable on final product and input credit is not available

6 6 Cenvat Credit Exempt Services As per Rule 6(1) credit on inputs and input services used exclusively for the purpose of providing exempt services shall not be allowed

7 7 5A (d) Rule 6(2) If a service provider is providing both taxable services & exempt services, he is required to maintain separate books of accounts. The books of accounts are required to be maintained as follows (w.e.f 1 st March, 2011) : Rates of 10% and 8% have been changed to 5% w.e.f. 1 st April, 2011

8 8 a. Inputs The receipt, consumption & inventory of inputs used: i. In or in relation to the manufacture of exempted goods ii. In or in relation to manufacture of dutiable final products excluding exempted goods iii. For the provision of exempted services iv. For the provision of output services excluding exempted services b. Input Services The receipt & use of input services: i. In or in relation to the manufacture of exempted goods & their clearance up to place of removal ii. In or in relation to the manufacture of dutiable final products, excluding exempted goods & their clearance up to the place of removal iii. For the provision of exempted services iv. For the provision of output services excluding exempted services

9 9 When separate sets of books of accounts are not maintained : Rule 6(3) 5AA (c) & (d) Options as per Rule 6(3) Pay amount equal to 5% of value of exempted services Pay an amount equal to proportionate Cenvat credit attributable to exempted output services Maintain separate accounts for inputs and pay amount as determined under rule 6(3A) in respect of input services

10 Rule 6 Formula as given under Rule 6(3A): (To be worked out monthly) i. Credit on Inputs attributable to exempted services. Exempted services in L.Y. * Credit on inputs All services in L.Y. ii. Credit of input services attributable to exempted services Exempted services in L.Y * Credit input services All services After the year is complete Exempted Services in the year * Credit on input services All Services

11 Rule 6 Rule 6(3A)(a) Intimate in writing to the Superintendent of Central Excise to give the necessary details Rule 6(3A)(d) - The service provider has to pay the difference between the amounts determined under sub-clause (c) & sub-clause (b) on or before 30 th June of the succeeding financial year Rule 6(3A)(e) Interest on delayed 24% p.a. Rule 6(3A)(f) Adjust the excess amount on his own Rule 6(3A)(g) Intimate to the jurisdictional Superintendent within a period of 15 days of such payment or adjustment

12 Rule 6 Rule 6(3A)(h) If the amount stated under Rule 6(3A)(b) cannot be determined due to the reason that no taxable service was provided or no dutiable good was manufactured during the preceding financial year, then the output service provider is not required to determine & pay such amount provisionally for each month, but shall determine the Cenvat Credit attributable to exempted goods or exempted services for the whole year as prescribed under Rule 6(3A)(c) & pay the amount so calculated on or before 30 th June of the succeeding financial year Rule 6(3A)(i) - Where the amount determined under Rule 6(3A)(h) is not paid within the said due date, i.e., the 30 th June, the provider of output service shall, in addition to the said amount, be liable to pay 24 % p.a. from the due date till the date of payment

13 Rule 6 Rule 6(3B) - Banking company, financial institutions & NBFCs providing banking & financial services need to pay 50% of Cenvat credit taken on inputs & input services per month Rule 6(3C) - Life insurance & management of investment under ULIP service providers need to pay 20% of cenvat credit taken on inputs & input services per month Rule 6(3D) - A person paying an amount under Rule 6 (3) should be allowed benefit of exemptions available as if he has not availed cenvat credit

14 Rule 6 Rule 6(4) Cenvat Credit on capital goods used exclusively for the purpose of providing exempted services shall not be allowed to be claimed Rule 6(6A) The provisions of sub-rules (1), (2), (3) & (4) of rule 6 shall not be applicable in case the taxable services are provided, without payment of service tax, to a Unit in a Special Economic Zone or to a Developer of a Special Economic Zone for their authorized operation

15 15 Value for rule 6(3) and (3A) shall have the same meaning as assigned to it under section 67 of the Finance Act, read with rules made there under or, as the case may be, the value determined under section 3, 4 or4a of the Excise Act, read with rules made thereunder in the case of a taxable service, when the option available under sub-rules (7), (7B) or (7C) of rule 6 of the Service Tax Rules, 1994, or the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007 has been availed, shall be the value on which the rate of service tax under section 66 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 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

16 16 5AA (f) If there is more than 1 challan pertaining to the same period, the assessee is to write all the challan nos separated by a, (comma) The challan nos. are to be written in the specific format : 7 digit BSR Code 8 digit date (ddmmyyyy) 5 digit challan serial number The system always shows an error which states that the challan no. does not exist in the database

17 Utilization of Cenvat Credit 17 The first column is of opening balance of CENVAT Credit lying with the assessee. The issue is that every time the closing balance of CENVAT Credit mentioned in the return of one period does not match with the opening balance of the subsequent return

18 Rule 3 CENVAT Credit Rule 3(1) : CENVAT Credit shall be allowed in the following duties : i. Central Excise Duty (1 st Schedule) ii. iii. iv. National Calamity Contingent Duty Countervailing Duty (CVD)(Sec 3, Customs Tariff Act) Service Tax Rule 3(3) : In case a service ceases to be exempt, then the output service provider shall be allowed to take CENVAT Credit of the duty paid on the inputs lying in stock on the date from which the service ceases to be exempt

19 19 Nature of CENVAT Credit Excise duty Service Tax Can be utilized against the liability of EC on Excise duty/service Tax SHEC on Excise duty/service Tax Int/Penalty Excise duty a a a a x Service Tax a a a a x EC on Excise duty/service Tax SHEC on Excise duty/service Tax x x a x x x x x a x

20 Rule 3 Rule 3(4) : CENVAT Credit can be utilized for : i. an amount equal to CENVAT credit taken on inputs if such inputs are removed as such or after being partially processed ii. iii. iv. Exceptions: an amount equal to the CENVAT credit taken on capital goods if such capital goods are removed as such Such payment not to be made when the inputs or capital goods are removed for providing output service service tax on any output service i. CENVAT Credit not to be taken on goods cleared under notification no. 1/2011 CE. ii. iii. CENVAT Credit accumulated till month/quarter end only to be utilized Credit of Special Additional duty (SAD) not to be utilized for payment of service tax

21 Rule 3 Capital goods removed before being fully used - Pay an amount equal to CENVAT credit as reduced by the percentage points calculated by SLM for each quarter or part thereof from the date taking CENVAT Credit i. For computers & computer peripherals Year Rate 1 10 % 2 8 % 3 5% 4 1% 5 1 % ii. For capital goods other than stated above to be 2.5% per quarter

22 Rule 3 i. Rule 3 (5A) : If capital goods cleared as scrap or waste, manufacturer to pay an amount equal to the duty leviable on the value of the transaction What is the provision for service providers i. Rule 3(5B) : Pay an amount equivalent to the CENVAT Credit claimed on inputs and capital goods whose value is written off fully or partially or such a provision has been made in the books of accounts iii. However if the said inputs or capital goods are subsequently used for providing taxable services, the service provider shall be entitled to claim CENVAT Credit of the amount equivalent to the CENVAT Credit paid earlier Rule 3(6) : In case of amounts paid under sub-rules (5) & (5A), such amounts shall be eligible to be claimed as CENVAT Credit by the transferee for removal of such goods

23 Rule 3 Rule 3(7)(a) : CENVAT credit in respect of inputs or capital goods produced or manufactured, by a 100% EOU or by a unit in an Electronic Hardware Technology Park(EHTP) or in a Software Technology Park(STP) shall be calculated in the following manner : {X multiplied by [(1+BCD/200) multiplied by (CVD/100)]}

24 24

25 25 Conditions for availing CENVAT credit on inputs 5B (b)(i)

26 26 Rule 2(k) Input Input means all goods used for providing any output service; but excludesi. light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol; ii. iii. iv. any goods used for- A. construction 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 following taxable service a. Port services b. Other Port Service c. Airport Services d. Commercial or industrial Construction Services e. Construction Of Complex Services f. Works Contract Service capital goods except when used as parts or components in the manufacture of a final product; motor vehicles; v. 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

27 27 Sr.no Rule Condition 1. 4(1) The CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the premises of the provider of output service 2. 6(1) Inputs should not be for wholly exempt output service

28 28 Conditions for availing CENVAT credit on capital goods 5B (b)(ii)

29 Rule 2(a) - Capital Goods Capital Goods means i. 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; ii. iii. iv. pollution control equipment; components, spares and accessories of the goods specified at (i) and (ii) moulds and dies, jigs and fixtures; v. refractories and refractory materials; vi. vii. tubes and pipes and fittings thereof; and storage tank, used for providing output service

30 Rule 2(a) - Capital Goods 30 Motor vehicle registered in the name of provider of output service for providing the following services i. Courier Agency Service ii. iii. iv. Tour Operator Service Rent-a-Cab operator Service Cargo Handling Service v. GTA Service vi. vii. Outdoor Caterer Service Pandal or Shamiana Service

31 Rule 2(a) - Capital Goods 31 Dumpers or tippers, falling under Chapter 87 of the First Schedule to the Central Excise Tariff Act, 1985, registered in the name of provider of output service for providing the following taxable services i. Site Formation and Clearance, Excavation and Earthmoving and Demolition Services ii. Mining Service Components, spares and accessories of motor vehicles, dumpers or tippers, as the case may be, used to provide taxable services as specified earlier

32 32 Sr.no Rule Condition 1. 4(2) 50% in the same financial year Balance duty allowable in the subsequent year if the possession of the assets remains with service provider Credit for the whole amount shall be allowed provided such goods are cleared within the same year 2 4(3) CENVAT Credit allowable even if acquired on lease/hire purchase/loan agreement

33 33 Conditions for availing CENVAT credit on capital goods 3 4(4) Depreciation u/s 32 of The Income Tax Act,1961, pertaining to the duty paid not to be claimed 4 6(4) Credit not available in respect of Capital goods used exclusively for the provision of exempted services

34 34 Conditions for availing CENVAT credit on Input Service 5b (b)(iii)

35 Rule 2(l) - Input Services Input Service means any service used by a provider of taxable service for providing an output service; and includes services used in relation to: i. modernization, renovation or repairs of premises ii. advertisement or sales promotion, market research, iii. storage upto the place of removal, procurement of inputs, inward transportation of inputs or capital goods and outward transportation up to the place of removal iv. accounting, auditing, financing, credit rating, share registry, business exhibition, legal services v. recruitment and quality control, coaching and training, computer networking, security but excludes the following services i. Architects Services ii. Ports Services iii. Other Ports Services iv. Airport Services v. Commercial or industrial construction service vi. Construction of Complex Service vii. Works Contract Service

36 Rule 2(l) - Input Services 36 Used fori. construction of a building or a civil structure or a part thereof; or ii. 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 It also excludes i. General Insurance Service ii. iii. iv. Rent-a-cab operator Authorized Service Station Services Supply of Tangible Goods Services 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 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;

37 37 Sr.no Rule Condition 1. 4(7) The 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 is received. Unless the payment is made within 3 months of date of invoice, credit to be reversed and claimed once payment is made 2. 6(1) Inputs should not be for non-taxable/wholly exempt output service

38 Provisions to 4(7) i. If credit in respect of an input service is claimed and the payment for such input service is refunded or a credit note has been received, the service provider is to pay an amount equivalent to the amount so refunded ii. For invoices issued before 1 st April, 2011, in respect of input services, credit to be taken on or after the date of payment

39 Input Service Distributor (ISD) 39 5B (b)(iv) As per Rule 2(m) Input Service Distributor means an office Provider of output service, which i. Receives Invoices Input Services ii. Issues Invoices - Distribution

40 Rule 7 : Manner of Credit Distribution by ISD 40 Conditions : i. The credit distributed does not exceed the amount of service tax paid thereon. ii. Credit of service tax attributable to service used in a unit exclusively providing exempted service shall not be distributed. Distribution of credit by input service distributor in respect of inputs and capital goods not allowed.

41 LTU 41 5B (b)(v) A large tax payer is a provider of taxable services who pays i. Service tax of 500 lakhs or more in cash or through account current ii. Duty of excise of more than rupees five hundred lakhs in cash or through account current iii. Advance tax of more than rupees ten hundred lakhs, under the Income Tax Act, 1961

42 Facilities for large taxpayer (Rule 12A) 42 Transfer (conditional) : i. Goods without payment of duty ii. Cenvat Credit

43 43 Obligations, Records & Accounts (Rule 9) Returns: i. Service Provider/Input Service Distributor to file half yearly return in FORM ST-3 within one month of the end of half year[rule 9(9) & [Rule 9(10)]. ii. Revised return to be filed within 60 days from the date submission of original return. [Rule 9(11)] Contradicts with Service Tax Rules

44 44 Rule 9 Eligible documents to take Cenvat credit: Invoice i. Manufacturer ii. Importer iii. I/II stage dealer iv. Service provider v. Input service distributor. Supplementary invoice i. Manufacturer ii. Importer Bill of entry Certificate issued by appraiser goods imported through a foreign post office TR-6/ GAR 7 Challan in case of reverse charge i. Insurance auxiliary ii. Import of services iii. GTA service iv. Sponsorship service.

45 Rule 9 45 Eligible documents to contain all the particulars prescribed under i. Central Excise Rules, 2002, i.e., ii. a. Serial Number b. Registration number c. Address of the concerned central excise division d. Name of the consignee e. description, classification, time and date of removal, mode of transport and vehicle registration number, rate of duty, quantity and value, of goods f. duty payable thereon. Service Tax rules, 1994, i.e. a. the name, address and the registration number of such person b. the name and address of the person receiving taxable service c. description, classification and value of taxable service provided or to be provided d. the service tax payable thereon

46 46 Can be allowed by DC/AC if following details are present: i. Details of duty/ tax payable ii. iii. iv. Description of goods/taxable services Assessable value Registration number v. Name & Address.

47 47 Records in respect of inputs & capital goods i. Receipt - Value ii. Disposal - Duty paid iii. Consumption - Cenvat credit taken & utilized iv. Inventory - Supplier Records in respect of input services i. Receipt - value ii. Consumption - Tax paid - Cenvat credit taken & utilized - Provider

48 48 Penalties(Rule 15) Particulars of Contravention In respect of Penalty Availment or Utilization of Input goods/capital Goods liable for confistication & CENVAT Credit wrongly or in goods/input services Penalty & not exceeding the contravention of any provisions amount of duty or Rs 2,000 /- whichever is higher. Wrong availment /utilization of CENVAT Credit due to fraud, collusion, willful misstatement, suppression or contravention of any provision with intent to evade payment of duty. Input goods/capital goods / Input Services Over and above the penalty stated in item no. 1,the penalty U/s 11AC of the Central Excise Act, 1944 and section 78 of the Finance Act, 1994 shall be equal to the duty or tax evaded

49 Rule 5 : Refund of CENVAT Credit CENVAT Credit on Input or input service used for providing output service which is exported, shall be utilized towards payment of service tax on other output service Amount shall be refunded in case adjustment is not possible subject to conditions specified by the Central Government The following have been provided : i. No credit of additional duty leviable under section 3(5) of the Customs Tariff Act, 1962 shall be utilised for payment of service tax on any output service ii. No refund of credit shall be allowed in case the output service provider claims rebate of service tax under the Export of Service rules, 2005 Refund has been availed. How to show in the return?

50 Rule 10 : Transfer of CENVAT Credit Rule 10(2) : If the provider of output service shifts or transfers his business due to change in ownership, sale, merger, amalgamation, lease or transfer of the business to a joint venture with the specific provision of transfer of liabilities of such business, then, the output service provider shall be allowed to transfer the CENVAT Credit lying unutilized in his accounts to such business Rule 10(3) : transfer of CENVAT Credit as stated above shall be allowed only if the stock of inputs as such or in process, or the capital goods is also transferred along with the premises to the new site or ownership, & the inputs, or capital goods, on which credit has been availed of are duly accounted to the satisfaction of the Deputy or Assistant Commissioner of Central Excise, as the case may be

51 Rule 14 CENVAT Credit wrongly taken Where CENVAT Credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest is to be recovered from the output service provider & the provisions of section 11A & 11B shall of the excise act shall apply mutatis mutandis for effecting such recoveries

52