Chapter 4- CENVAT Credit Rules, 2004 Purchased IN/INS/CG (Rs. 100) On these paid Excise duty/customs duty*/service tax (Rs.10) Avail the CC (Rs. 10) USED Utilise this CC for payment of OPG/OPS (Rs. 140) Liabilities of Excise duty/ Service Tax (Rs. 14) PMT. (Rs.4) Balance 4.1 Capital goods (CG) [Rule 2(a)] Manufacturer Service provider Goods covered under 8 points Goods covered under 8 points Motor Vehicles for transport of goods & passengers - Used in factory - Outside factory for generation of electricity for captive use - Immovable properties are not CG, except storage tank Used in providing output service When used for providing specified services Page1
4.2 Inputs [Rule 2 (k)] Means (i) All goods used in factory; or (ii) Accessories, goods used for providing free warranty ; or (iii)used for generation of electricity or steam for captive use; or (iv) Used for providing any output service. But Excludes A. Light diesel oil, high speed diesel oil or motor spirit commonly known as petrol, etc.; B. Goods used in construction, except when used for providing construction services; C. Capital goods except when used as parts or components in Mfr. Of final goods; D. Motor vehicles; E. Goods used primarily for personal use of employees; F. Goods which no relationship whatsoever with the mfr. of final goods. 4.3 Input Services [Rule 2(l)] Means any service (i) Used for providing output service; or (ii) Used in or in relation to the - Manufacturer of final goods and - Clearance of final goods upto the place of removal and includes various specified services But Excludes A. Construction services, except when used for providing construction services; B. Renting of Motor Vehicle, if motor vehicle (MV) is not CG. BA. Servicing, repairs and maintenance service and general insurance service in respect of MV which are not CG, except for - Manufacturer of MV and - Insurance company. C. Services used primarily for personal use of the employees. 4.4 Who can avail CC - Manufacturer (Mfrr.) - Service Provider (SP) - Input service Distribution (ISD) - First Stage Dealer (FSD) - Second Stage Dealer (SSD) 4.5 CC in respect of INS (i) On the basis of invoice of SP, provided full Payment is made within 3 months; (ii) Where Reverse Charge Mechanism (RCM) applies, on the basis of ST Payment challan, provided full payment has been made by SR to S.P. & Govt. Page2
4.6 Eligible duties/ taxes for CC Excise Customs Service Tax 1. BED 1. AED u/s 3(1) 1. Service tax 2. SED & EC & SHEC 2. EC 3. ADE (GSI) paid thereon 3. SHEC 4. ADE (TTA) 2. ACD u/s 3(5) 5. ADE (TTW) 6. EC 7. SHEC 8. NCCD 9. ADE paid u/s 85 of FA, 2005 4.7 CC of goods procured from 100% EOU/STP/EHTP (i) ACD u/s 3(1) of CTA & EC & SHEC paid thereon (ii) ACD u/s 3(5) of CTA 4.8 CC on CG 1. Available when CG are received in the factory of Mfrr. 2. Available when CG are received at the place of providing OPS by SP. 3. Can be availed only upto 50% in the year of acquisition, remaining in any subsequent FY, provided CG are in possession of assessee in such subsequent FY. 4. Removed of CG Rule 3(5) Rule 3 (5A) Rule 3(5B) As Such (without use) after being used CG fully or partly w/off in BOA, without use 100% CC shall be (a) As CG (b) As W&S Reverse CC Reversed. Proportionate Duty on T.V. Avail CC when CG is used CC or duty on T.V., WIH. 5. As per Rule 3(6), buyer can avail CC of amount reversed under Rule 3(5) & Rule 3(5A). 4.9 CC on Inputs (IN) 1. Available when IN are received in the factory of the mfrr (or permitted warehouse of mfrr as per rule 8). 2. Available when IN are received at the place of providing OPS by SP. 3. CC available even on the inputs which are lost during transit, if loss is within normal limits. 4. Removal of Inputs Rule 3(5), 3(5B) & 3(6) are same as in case of CG. 5. As per rule 3(5C), if any remission of duty is allowed on OPG as per rule 21 of CER, then CC availed on IN used in such OPG shall be reversed. 6. IN, partially processed IN & CG can be sent to the Job worker without reversal of CC, provided processed goods or CG is received back within 180 days. Page3
4.10 Transitional Provisions Apply when OPG/OPS become exempt from taxable or vice versa (Rule 3(2) and 3(3)); or Apply when avails for SSI exemption and transit to taxability or vice versa (Rule 11). 4.11 Refund of CC availed on IN & INS is allowed in case of export of OPG/OPS, in proportion of Export t/o of OPG/OPS to total t/o (Rule 5). 4.12 Refund of unutilized balance of CC of duties paid on IN used in factories located in specified areas of north-east region of India, is allowed u/r 5A. 4.13 Refund of unutilized balance of CC of duties / taxes paid on IN & INS used in providing OPS on which partial RCM applies, is allowed u/r 5B. 4.14 Common IN, INS and CG used for taxable as well as exempt OPG/OPS (Rule 6) (i) Entire CC is allowed in respect of duties paid on common CG used for taxable & exempt OPG / OPS. (ii) But, in respect of IN & INS, which are used commonly for taxable as well as exempt OPG / OPS, CC will be allowed only in respect of those IN & INS which are used in taxable OPG / OPS. And, for this purpose, either maintain separate records or if assessee can not maintain separate records, then first avail CC on all IN & INS and then reverse CC attributable to IN & INS used for exempted OPG / OPS as per mechanism given in rule 6. 4.15 Input Service Distributor (ISD) Rule 7 ISD is an office of the Mfrr or SP where invoices for INS are received. ISD can distribute the CC of INS to its other premises under the cover of a challan. CC can be distributed pro rata on the basis of t/o of all the units during the relevant period. 4.16 Rule 7A SP can distribute the CC of duties paid on IN & CG to any of its other premises under the cover of a challan. 4.17 Rule 8 Based on the nature of the IN and shortage of space in the factory, the AC/DC may authorize mfrr to store IN in a warehouse outside the factory. Mfrr can avail CC on suc IN when those are received in the warehouse. Page4
(28, 29 and 30 April, 2014) (CENVAT Credit Rules, 2004) 4.18 Rule 9 Documents, Records & Returns CC can be availed only on the basis of documents evidencing payment of Central Excise Duty, Customs Duty & Service tax. The Mfrr / SP shall maintain proper records containing all the details in respect of IN, INS and CG, as the burden to prove admissibility of CC shall lie upon the Mfrr or SP. Page5
4.19 Rule 9A Information relating to Principal Inputs An annual declaration by 30 th April of each FY, declaring the quantity of principal Inputs required per unit quantity of OPG. Monthly return in respect of utilization of principal IN and OPG manufactured, within 10 days from the end of each month. Annual return in respect of utilization of principal IN on or before 30 th November. 4.20 Rule 10 Transfer of CC Shifting of location Merger or amalgamation Change of ownership Transfer of factory / business to Joint Venture Subject to certain conditions. 4.21 Rule 10A Transfer of CC of ACD u/s 3(5) of CTA A mfrr can transfer unutilized balance of CC of ACD u/s 3(5) of CTA from one of his registered premises to his another registered premises. 4.22 Rule 12 The goods manufactured in the factories located in the specified areas of North East region, Kutch District of Gujrat, State of Jammu & Kashmir and State of Sikkim are exempt from so much of the duty of excise as is equivalent to the amount of duty paid by the mfrr of the goods other than the amount of duty paid by utilizing the CC (this exemption is granted by way of refund route). 4.23 Rule 12A Large Tax Payers (LTP) LTP may opt for scheme of centralized assessment for the Income tax, Central Excise and Service Tax by large tax payer unit (LTU). If it opts for scheme, then- LTP can transfer unutilized CC from one premises to another under the cover of an invoice or a transfer challan. LTP can also transfer IN, Semi Finished Goods & CG from one premises to another withour reversal of CC, provided IN and Semi Finished Goods have been removed on payment of duty within 6 months. 4.24 Rule 12AAA The CG has power to impose certain restrictions on mfrr, fsd, ssd or an exporter in order to prevent misuse of the provisions of CC. 4.25 Rule 13 Deemed CC The CG may declare certain IN & INS on which CC shall be deemed to be allowed at the rate or amount prescribed by CG by issue of notification, irrespective of actual duty / taxes paid. 4.26 Rule 14 Recovery Where the CC has been taken and utilized wrongly or erroneously refunded, the same along with interest shall be recovered from the mfrr or sp. Page6
(28, 29 and 30 April, 2014) (CENVAT Credit Rules, 2004) 4.27 Rule 15 Confiscation & Penalty 4.28 Rule 15A General Penalty Rs. 5,000/- 4.29 Special Audits Sec. 14A Valuation Audit Sec. 14AA CC Audit Page7