1 Cenvat Credit What is cenvat credit? This is a system or procedure under which a manufacturer of excisable goods who is liable to pay excise duty and a provider of taxable services who is liable to pay service tax is given credit for excise duty, custom duty (ADD & Sp. ADD only) and service tax (Service Tax & KKC only) paid or borne by him on his Capital Goods, Inputs and Input services. The credit so availed by the assessee is allowed to be utilized by him for discharging his own liability of excise duty and service tax. Interest or penalty cannot be paid out of cenvat credit. If actual liability is more than the credit available, the assessee is required to pay the balance amount in cash. If actual credit is more than the tax liability, the excess credit is allowed to be carried forward for unlimited period but, except in few cases, it is not refundable in cash. Excess credit cannot be transferred to any other assessee except as provided under rule 10 (Merger & Amalgamation). Main features of Cenvat Credit Scheme 1. Provisions of these Rules are applicable throughout India but a service provider in the State of Jammu and Kashmir is not entitled for this credit. 2. Main object of the scheme is to avoid cascading effect of duty on final product and service tax on output service by way of allowing credit for the duty on capital goods and inputs and service tax on input service. 3. Input Service Distributor as well as First Stage Dealer and Second Stage Dealers are also given limited credit for specific purpose only. These people cannot utilize the credit in the same manner as it is utilized by the manufacturer and/or service provider. 4. CENVAT Credit is a right of the assessee. If he fails to exercise the right. It is not an offence. 5. If the right to avail credit on inputs and input services is not exercised, in accordance with Rule 4(1) and 4(7) within the prescribed time limit (maximum 1 year from the date of invoice), it will lapse but there is no such time limit is applicable in relation to capital goods. 6. Unutilized credit is allowed to be carried forward and, generally, it is not refundable in cash. 7. The burden of proof regarding admissibility of credit lies on assessee.
2 INDIRECT TAXES Applicability of these Rules Provisions of these Rules are applicable equally to the manufacturers and service providers throughout India except the state of Jammu and Kashmir. In the State of J & K provisions related to service tax are not applicable. Therefore, a service provider cannot avail cenvat credit. However, a manufacturer can avail if he is liable to pay duty. Duties for which credit is available Rule 3(1) Central Excise Customs Service Tax Basic Excise Duty Additional Custom duty Service Tax Note- Credit is not available for (ADD) chargeable under goods subject to duty @ 2% but section 3(1) of the Custom referred as exempted goods for Tariff Act. the purpose of CCR. Special Excise Duty Special Additional Custom Krishi Kalyan Cess Duty (Sp. ADD) chargeable under section 3(5) of the Custom Tariff Act. (Note If the assessee is a service provider, he cannot avail credit for this duty) National Calamity Contingency Duty under the Finance Act, 2001 Notes: 1. The assessee can avail cenvat credit only when he is having possession of the goods (Rule 4). 2. Rule 9 provides that the assessee can avail cenvat credit only on the basis of specified documents and documents should also be in his possession. 3. Credit can always be availed for the amount of duty/ tax shown in the document on the basis of which credit is being taken irrespective of the fact that the assessee who is availing credit has not paid or only part payment is made or part payment itself is made as full and final payment [only in case of BED, SED & NCCD]. 4. If the quantity of goods actually received is less than the quantity referred in the documents then credit shall be availed for proportionately less amount but where
CENVAT CREDIT 3 quantity is more than mentioned in the documents, credit cannot be availed for excess quantity. Example 1 Quantity mentioned 1,000 kg and Duty ` 10,000 Quantity received 990 kg Cenvat Credit shall be taken only for ` 9,900 Example 2 Quantity mentioned 1,000 kg and Duty ` 10,000 Quantity received 1,010 kg Cenvat Credit shall be taken only for ` 10,000 5. Combined reading of Rule 4 and 9 provides that the credit cannot be availed unless goods and documents, both are in possession of the assessee. Therefore, where goods and documents are received by the assessee on different dates then credit cannot be availed earlier than later date. Example 3 Date of purchase 20 th January 2017 Date of receiving the goods 28 th February 2017 Documents received on 3 rd March 2017 In this case credit cannot be availed before 3 rd March 2017 6. If the invoice of a raw material or capital goods is negotiated further by a manufacturer and lower amount is paid still full credit is available to manufacturer. How cenvat credit can be Used Rule 3(4) Credit of Can be used to discharge liability relating to Basic Excise Duty Basic Excise Duty Special Excise Duty Special Excise Duty Additional Custom Duty Service Tax Service Tax NCCD Special Additional Custom Duty Basic Excise Duty Special Excise Duty NCCD Note This credit cannot be used to pay service tax. KKC KKC NCCD NCCD If liability for NCCD is less than the credit available for NCCD, then such excess credit cannot be utilized for any other purpose. If liability for NCCD is more than the credit available then as per a recent judgment the Court has decided that other credits can be used to pay NCCD.
4 INDIRECT TAXES Capital Goods Rule 2(A) Capital goods means:- (A) The following goods, namely:- (i) All goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading 6805, grinding wheels and the like, parts thereof falling under heading 6804, and wagons falling under sub-heading 8606 92 of the First Schedule to the Excise Tariff Act: Chapter 82 Tools, implements, spoons, and forks of base metal and parts thereof of base metal Chapter 84 Machinery, mechanical appliances and parts thereof Chapter 85 Electrical machinery and equipments and parts thereof, sound recorders and reproducers, television images and sound recorders and reproducers, and parts and accessories of such articles Chapter 90 Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus, parts and accessories thereof Heading Grinding wheels and like and parts thereof 6804 Heading 6805 Natural and artificial abrasive powder or grain, on a base of textile material, of paper, of paper board or of other material, whether or not cut to shape or sewn or otherwise made up Wagons Sub-Heading 8606 92 (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 (viii) Motor vehicles other than those falling under tariff headings 8702, 8703, 8704, 8711 and their chassis, but including dumpers and tippers 8702 Motor vehicles for transport of 10 or more persons (including driver) and their chassis 8703 Motor cars and other motor vehicles principally designed for transportation of persons (including station wagons and racing cars) and their chassis 8704 Motor vehicles for transportation of goods (including dumpers) and their chassis 8711 Motor cycles (including mopeds) and cycles fitted with auxiliary motors, with or without side cars and their chassis
CENVAT CREDIT 5 Used (1) In the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or (1A) Outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory; or (2) For providing output service; (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 (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. Note: 1. Factory Manager s office within the factory will be treated as factory only. The capital goods used in office located within factory is also eligible for Cenvat Credit. 2. All capital goods having value upto ` 10,000 per piece are being included in the definition of inputs. 3. A manufacturer cannot avail cenvat credit for capital goods used in the office but where he is also a service provider, he can avail credit on capital goods used in the office also, provided those are used for providing output service. 4. Clearance of Exempted goods or services as well dutiable goods or taxable services from same premises [Rule 6] Rule 6 relating to admissibility of cenvat credit on input and input service to manufacturer or producer of final products and a provider of output service when he produced both taxable as well as exempted output are as under: CENVAT credit shall not be allowed on such quantity of input as is used in or in relation to the manufacture of exempted goods or for provision of exempted services.
6 INDIRECT TAXES CENVAT credit shall not be allowed on input service as is used in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services. Person engaged in manufacture of only exempted goods or services shall not be allowed any credit. Person engaged in both taxable as well as exempt shall follow the following option: o Pay an amount equal to 6% of value of the exempted goods and 7% of value of the exempted services subject to a maximum of the total credit available in the account of the assessee at the end of the period to which the payment relates. In case of transportation of goods or passengers by rail, the amount required to be paid under clause (i) shall be an amount equal to 2% of value of the exempted service. o Pay prorata Cenvat credit towards exempted goods and services o Option shall not be withdrawn during the remaining part of the financial year. o Full credit of input service used for taxable goods or services is allowed in addition to proportionate credit on common input services o Proportionate credit from common credit shall be first attributed to exempted goods and then to exempted services and balance credit shall be available to the provider or manufacturer. 5. As per the definition, in case of manufacturer, cenvat credit is allowed for the capital goods used in the factory. Therefore, CENVAT credit is available even if goods are not used in manufacture but those are used in ancillary activities e.g. testing, quality control, material handling etc. 6. In case of service provider the capital should be used for providing output service. Capital goods may be used anywhere. There is no requirement that the capital goods should be used in the premises of the service provider. 7. Capital goods used in manufacture of exempt intermediary goods are eligible for cenvat credit provided final product is dutiable. 8. A manufacturer can avail credit on capital goods only when goods have been received in the factory. Installation or erection or commissioning of the machine is not relevant. 9. If the capital goods relate to generation of electricity then credit is available even if capital goods are not received in the factory. 10. An assessee (manufacturer) availing SSI exemption (Last Year Turnover upto 12 crore for Jewellery manufacturer & 4 crore for other manufacturer) is authorized to avail cenvat credit to the extent of 100% during the financial year in which capital goods are received provided capital goods are received when assessee is availing exemption.
CENVAT CREDIT 7 Assessee availing SSI exemption Such assessee is entitled to avail credit for 100% of the amount of duty paid in the same financial year in which capital goods are received. Credit for Special Additional Custom Duty can be availed up to 100% in the same financial year in which capital goods are received. Other Assessee Except Sp. ADD, credit during the financial year in which capital goods are received shall be limited to 50% and balance can be availed in any subsequent financial year. However, if the capital goods are removed during the same financial year in which those are received then the assessee is authorized to avail balance credit also in the same financial year. Note: When the CG have been consumed, they are deemed to be in possession for the purpose of balance credit. Note 1 Date of purchase is irrelevant for availing cenvat credit. Note 2 Availing credit is the right of assessee. He may or may not avail credit during the financial year in which capital goods are received. If assessee does not avail credit during the first financial year, he is authorized to avail balance credit in any subsequent financial year. Note 3 If capital goods are removed during the first financial year in which those are received then instead of 50%, the assessee is authorized to avail 100% CENVAT credit during first financial year itself [Rule 4(2)]. Note 4 - Balance credit (50% to 100%) can be availed in any of the subsequent financial years provided the goods are in possession of the assessee. Balance credit can be availed even if machine has not been used. 11. Credit on capital goods can be availed even if those are acquired on lease or hirepurchase basis from a finance company. For availing credit, possession is more important than ownership [Rule 4(3)]. In case of service provider, this will not be applicable for motor vehicles because on motor vehicles a service provider can avail CENVAT credit only if the vehicle is registered in the name of service provider. 12. Credit can be availed for that part of duty which has not been capitalized i.e. it is not depreciated under Income Tax. [Rule 4(4)]
8 INDIRECT TAXES Example Total Amount for which credit is available = ` 50,000 Options available to assessee for availing cenvat credit Option 1 Option 2 Option 3 Avail credit of ` 50,000 Capitalise full amount of Partly capitalize and partly duty cenvat credit Depreciation will not be available in respect of the amount of duty Cenvat credit will not be available for the amount of duty Depreciation will be available on the amount of duty to the extent it has been capitalized and balance can be availed as cenvat credit. Removal of Capital Goods on which credit has been availed Removal as such Rule 3(5) Word removal relates to disposal or transfer to any other place and as such means unused. Where capital goods, on which CENVAT credit has been availed are removed as such then the entire credit available on such goods shall be reversed. Rule 4(2) provides that where capital goods are removed during the same financial year in which those are received, the assessee is authorized to avail 100% cenvat credit. It means where removal is to be done, the assessee shall avail 100% credit and then make reversal of 100% credit already taken. If removal is in any subsequent financial year, since assessee is entitled to avail balance credit, it is presumed that he has already availed 100% credit. Therefore, reversal is for 100% credit is required. Note This requirement will not be applicable where capital goods are removed for providing service outside. Illustration 1: H. Ltd. purchased a boring-drilling machine at a cum-duty price of ` 32,14,476. The Excise duty rate charged on the said machine was @ 12.5%. The assessee claimed depreciation @ 25% on the machine by following Straight Line Method. Using the said information answer the following questions: (i) What is the Excise duty paid on the machine? (ii) What is the amount for which Cenvat credit is allowable under Cenvat Credit Rules? (iii) What is the amount of cenvat credit reversible or duty payable at the time of clearance of the said machinery, if removed as such?
CENVAT CREDIT 9 Solution: Computation of duty, assessable value and CENVAT credit Cum-duty Price 32,14,476 Excise Duty @ 12.5% (32,12,476 X 12.5 / 112.5) 3,57,164 Assessable value 28,57,312 CENVAT Credit allowable during first Financial year 50% 1,78,582 Balance credit allowable in any subsequent financial year 50% 1,78,582 Credit Reversible 100% 3,57,164 Working notes: 1. As per Rule 4(2) of CCR, CENVAT credit is limited to the extent of 50% during the financial year in which capital goods are received and balance can be availed in any of the subsequent financial years, if the capital goods are in possession. 2. As per Rule 3(5), if capital goods are removed as such, 100% of the credit available shall be reversed and as per Rule 4(2), in case of such reversal, the assessee is authorized to avail balance credit also in the first financial year itself. Removal after Use Rule 3(5A) In case of removal of capital goods after partial use, the assessee is authorized to retain prescribed amount of cenvat credit and balance credit shall be reversed. For the purpose of this rule, capital goods have been divided into two categories i.e. computer and peripheral and all other capital goods. Where capital goods are removed after partial use, the assessee is authorized to retain certain percentage of credit and balance shall be reversed by him. Percentage of Credit that can be retained by the assessee Computer and peripherals Other capital goods Period Percentage of retention of credit Period Percentage of retention of credit 1 st year for every 10% three months or part 2 nd year for every 8% three months or part 3 rd year for every 5% For every 3 months 2.5% three months or part or part thereof 4 th and 5 th year for every three months or part 1% The period of three months is to be counted from the date on which credit is availed. Note: If amount of duty payable on transaction value is higher than the amount of CENVAT credit reversible, as calculated above, then such higher amount of duty shall be payable.
10 INDIRECT TAXES Illustration 2: XYZ Limited purchased a pollution control equipment for ` 15,14,250 which is inclusive of excise duty @ 12.5%. The equipment was purchased on 1.6.2015 and disposed off as second hand equipment on 10.10.17 at a price of ` 12,00,000. Rate of excise duty on the date of disposal is 12.5%. You are required to compute the amount of cenvat credit available during the financial year 2015-16 and during 2016-17. What is the amount of duty payable or cenvat credit reversible at the time of removal of those goods? Solution: Computation of the amount of duty = 15,14,250 X 12.5 / 112.5 = 1,68,250 Credit availed and retained 2015-2016 2016-17 CENVAT credit availed 84,125 Cenvat Credit availed on 84,125 on 1.06.2015 (50%) 01.04.2016 Date of removal 10.10.2017 Date of removal 10.10.2017 Period since availing the credit Credit allowed to be retained @ 2.5% for every 3 months or part (10 X 2.5 = 25) Amount of Cenvat credit to be retained Amount of Cenvat credit to be reversed 2 years 4 month and 10 days = 10 quarters Period since availing the credit 25% Credit allowed to be retained @ 2.5% for every 3 months or part (7 X 2.5 = 17.5) 21,031 Amount of Cenvat credit to be retained 63,094 Amount of Cenvat credit to be reversed 1 year 6 months and 10 days = 7 quarters 17.5% 14,722 69,403 Total reversals required as per rates 1,32,497 prescribed (63,094 + 69,403) Amount of duty of ` 12,00,000 @ 12.5% 1,50,000 Since amount of cenvat credit required to be reversed as per prescribed rates is more than the amount of duty computed on transaction value @ 12.5%, higher of the two is payable/reversible i.e. ` 1,50,000 Illustration 3: Hitec Limited purchased 25 computer systems, eligible for capital goods under the Cenvat Credit Rules, 2004 on 01.07.2015 by paying a duty of ` 2,400 on each computer system. However, since these systems became outdated, it sold 20 computer systems out of 25 on 30.06.2017 at a residual value of ` 2,000 each. Determine the amount of cenvat credit required to be reversed during the financial year 2017-18. Solution: Since only 20 systems are disposed off by the assessee, the computation of cenvat credit will be only in relation to those 20 systems.
CENVAT CREDIT 11 2015-2016 2016-17 CENVAT credit availed on 24,000 Cenvat Credit availed on 24,000 1.07.2015 on 20 computer systems (20 x 2400 x 50%) 01.04.2016 on 20 computer systems (50%) Date of removal 30.06.2017 Date of removal 30.06.2017 Period since availing the credit 2 years Period since availing the credit 1 year 3 months Credit allowed to be retained at the proscribed rate Amount of Cenvat credit to be retained Amount of cenvat credit to be reversed 1 st Year 40% and 2 nd year 32% = 72% Credit allowed to be retained at the prescribed rate 1 st year 40% & 2 nd year 8% = 48% ` 11,520 ` 17,280 Amount of Cenvat credit to be retained ` 6,720 Amount of Cenvat credit to ` 12,480 be reversed Total reversals required as per rates (6,720 + 12,480) ` 19,200 prescribed Note: Since rate of duty on transaction value has not been given, comparison is not possible. Illustration 4: Computers purchased on 5 th April 2017 and removed after use on 25 th April 2017. Duty paid at the time of purchase is ` 1,00,000. Compute the amount of cenvat credit reversible by the assessee. Solution: In the given case the assessee has used the computers only for a period of 20 days. It means, as per Rule 3(5A), the assessee can retain 10% of the credit availed in the first year. In the first year credit is limited to 50% i.e. ` 50,000. Out of this amount of credit the assessee can retain 10% i.e. ` 5,000 and balance credit of ` 45,000 is required to be reversed. According to Rule 4(2) where capital goods are removed during the same financial year in which those are received, the assessee is authorized to avail balance credit also but this is allowed to assessee only to facilitate the reversal of credit under Rule 3(5A). The assessee can avail credit of balance amount of ` 50,000 also but nothing can be retained out of this amount. Total reversal required, in the given case, will be aggregate of ` 45,000 and ` 50,000 i.e. ` 95,000. Credit on Inputs Rule 2(k) input means (i) All goods used in the factory by the manufacturer of the final product; or
12 INDIRECT TAXES (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 (A) Light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol; (B) Any goods 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 service portion in the execution of a works contract or construction service as listed under clause (b) of section 66E of the Act; Note: If goods are used for providing declared service being construction service or service portion in works contract, then such goods shall be eligible for credit to the service provider. (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. Availing Credit on Inputs Rule 4(1) For Manufacturer A manufacturer can avail full cenvat credit on inputs as soon as goods are received by him in the factory. However, if the inputs are related to generation of electricity then cenvat credit is available even when such goods are received by the assessee outside the factory. Rule 8 of CCR Depending on nature of goods or shortage of space in the factory, on such terms and conditions as the Commissioner deems fit, may authorize storage of inputs outside the factory in a warehouse and to avail credit thereon in the factory. The place where inputs are allowed to be stored outside the factory shall be treated as a factory for the purpose of CENVAT credit. For Service Provider A service provider can avail full cenvat credit on inputs as soon as inputs are received by him at any place. The receipt of inputs shall be supported by documentary evidence regarding time and place of delivery of goods.
CENVAT CREDIT 13 Note: 1. Credit is available even if goods are used as consumables for the process of manufacture. Sodium Suplhate is burnt during the process of manufacture of paper and paper board. It is eligible for cenvat credit. 2. If some goods are used for manufacture/assembling of capital goods, which are going to be used within the factory, then assessee is entitled to avail credit on such goods also as input. Illustration 5: Determine the amount of CENVAT Credit available to Raj Manufacturing Ltd. in respect of the following items procured by them in the month of November, 2016: Item Excise Duty paid (i) Raw materials 72,000 (ii) Capital goods used for generation of electricity for captive use 1,50,000 within the factory (iii) Goods used in the guest house primarily for personal use. 40,000 (iv) Inputs used for making structures for support of capital goods 1,25,000 (v) Part and components for use in the manufacture of final product 40,000 (vi) Goods for providing free warranty 10,000 (vii) Special purpose motor vehicle (falling under tariff heading 8705) 3,50,000 for use in the factory of manufacturer Note: The aggregate value of clearances of Raj Manufacturing Ltd. for the financial year 2015-16 is ` 480 Lakhs. Solution: Computation of CENVAT credit available to Raj Manufacturing Ltd. Item Excise Duty paid (`) Cenvat Credit (`) (i) Raw materials 72,000 72,000 (ii) Capital goods used for generation of electricity for 1,50,000 75,000 captive use within the factory (iii) Goods used in the guest house primarily for personal 40,000 Nil use. (iv) Inputs used for making structures for support of 1,25,000 Nil capital goods (v) Part and components for use in the manufacture of 40,000 40,000 final product (vi) Goods for providing free warranty 10,000 10,000 (vii) Special purpose motor vehicle (falling under tariff heading 8705) for use in the factory of manufacturer 3,50,000 1,75,000
14 INDIRECT TAXES Note: Since its value of clearances in the financial year 2015-16 is ` 480 lakh, Raj Manufacturing Ltd. is not eligible for SSI exemption in FY 2016-17. Hence, as per Third proviso to rule 4(2)(a) of the CENVAT Credit Rules, 2004, CENVAT credit on capital goods will be restricted to 50% in the first year. Removal of Inputs of which Credit has been availed Removal as such Rule 3(5) As Such means unused Where inputs, on which cenvat credit has been availed are removed as such then the entire credit available on such goods shall be reversed irrespective of any change in value and rate of duty. Note 1: Any such reversal is not required where inputs are required to be removed as such for providing service related to guarantee/warrantee offered along with the goods and the value of which is already included in the value of finished goods. Note 2: Similarly, reversal is not required when inputs are required for providing service outside. Goods written off in the books of account Rule 3(5B) Where any inputs are written off in the books of account, partially or fully or even if a provisions is made for the same, prior to being put to use, then entire credit availed thereon shall be reversed and if such goods are utilized again at any time in future, then credit can be availed once again. Finished Goods destroyed before removal Rule 3(5C) Where any of the finished goods are destroyed before removal and remission of duty is allowed under Rule 21 of the Central Excise Rules, 2002, the assessee shall reverse the credit taken for inputs and input services used in manufacture of such goods. Input Service Rule 2(1) 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; but excludes,-
CENVAT CREDIT 15 (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 thereof; or building or a civil structure or a part (b) Laying of foundation or making of structure for support of capital goods. Except for the provision of one or more of the specified services; or (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; (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; Cenvat credit on Goods procured from 100% EOU or a unit in STP/HTP etc Rule 3(7) According to section 3(1) of the Central Excise Act, 1944, if goods manufactured in 100% EOU or a unit is SEZ/STP/HTP is brought to DTA, excise duty shall be chargeable thereon. Amount of this Excise duty shall be equal to the aggregate of Basic Custom Duty, Additional Custom duty chargeable under section 3(1) of the custom Tariff Act, Special Additional Custom Duty chargeable under section 3(5) of the Custom tariff Act and applicable Education Cess as well as Secondary and Higher Education Cess. Note BCD is 50% exempt in case of removal of goods by 100% EOU to DTA. Also, ADD u/s 3(5) exempt. The CENVAT credit in respect of inputs and capital goods procured from 100% EOU etc shall be limited to aggregate of (a) Additional custom duty chargeable under section 3(1) of the Custom Tariff Act. (b) Education Cess (c) Secondary and Higher Education Cess Illustration 6: From the following determine the amount for which cenvat credit will be available if the goods are manufactured in 100% EOU and brought to DTA for being used in manufacture of dutiable goods. No. of units 1,000 Assessable value ` 750 per unit Rate of Basic Custom Duty 12% Rate of ADD u/s 3(1) 16% Rate of ADD u/s 3(5) 4%
16 INDIRECT TAXES Solution: Computation of amount of cenvat credit Amount ` Cenvat Credit Assessable Value (1,000 x 750) 7,50,000 BCD @ 6%* 45,000 Not available ADD @ 16% (16% x 17,95,000) 1,27,200 Available EC (2% x 1,72,200) 3,444 Available SHEC (1% x 1,72,200) 1,722 Available Total amount of cenvat Credit 1,32,366 * BCD is 50% exempt & ADD u/s 3(5) is exempt. Some More provisions 1. CENVAT Credit allowed on inputs and capital goods received directly in the premises of job worker. 2. CENVAT Credit shall be allowed even if any inputs or CG as such or after being partially processed are sent to a job worker for further processing, and it is established from the records produced that the capital goods are received back in the factory within 2 years and inputs are received back within 180 days of their being sent to a job worker. If the inputs or the CG are not received back within 180 days or 2 years as the case may be the manufacturer shall pay an amount equivalent to the CENVAT Credit. However, the manufacturer can take the CENVAT Credit again when the inputs or CG are received back in his factory. 3. CENVAT Credit shall also be allowed in respect of Jigs, fixtures, moulds and dies sent by a manufacturer of final products (FP) to a job worker for the production of goods on his behalf and according to his specifications. 4. The above provisions would not apply to clearances to FTZ, SEZ, EOU, EHTP, STP, for specified international projects, for exports under Bond. 5. One to one correlation not necessary in Cenvat. No requirement of establishing relation between input/ input services and output services. 6. The unutilized Cenvat Credit at year end can be carried forward. There is no time limit for carrying forward this balance. 7. It is absolutely essential that the service tax element is separately shown in invoice else no Cenvat Credit will be allowed to service recipient. However, amount collected from service provider would be considered to be inclusive of service tax. 8. If the amount of invoice for service provided is renegotiated due to deficient provision or in any other way changed in terms of conditions of the contract (e.g. contingent on the happening or non-happening of a future event), the tax will be payable on the revised amount provided the excess amount is either refunded or a suitable credit note is issued to the service receiver. It does not cover bad debts. Further Board Clarification clearly says that this concession is not available for bad debts.
CENVAT CREDIT 17 9. The CENVAT Credit on input services can be availed on receipt of invoice. However, the payment has to be made within 3 months irrespective of the fact that the service provider may continue to pay service tax on receipt basis. If the payment is not made within 3 months, then the credit availed has to be reversed/paid. However the same can be taken back as credit on making payment. 10. In case of service tax paid by the recipient of service on reverse charge basis, the credit can be taken on making payment of the value of service to the service provider and service tax to the Government. If subsequent to payment made or invoice received, an amount is received back or credit note is received, when the value of service is renegotiated or altered for any reason the credit availed to that extent is required to be reversed/paid. 11. Cenvat Credit of KKC shall be available for payment of KKC only. 12. SBC is not integrated in the cenvat credit chain and the liability of same cannot be discharged by utilizing cenvat credit. 13. CENVAT credit of Service Tax paid on amount charged for assignment by Government or any other person of a natural resource such as radio-frequency spectrum, mines etc. shall be spread over the period of time for which the rights have been assigned. Illustration 7: Briefly answer the question with reference to the provisions of CENVAT Credit Rules, 2004. Mr. Q, a manufacturer, receives an invoice dated 05.03.2017 for inputs purchased by it. Mr. Q has been advised by his consultant that CENVAT credit on said inputs cannot be taken after six months of the date of invoice. You are required to offer your comments, if any. Solution: Time limit for availment of CENVAT credit on inputs is one year of the date of the issue of invoice/bill/challan etc. Thus, in case of the invoice dated 5.03.2017 Mr. Q can take CENVAT credit on inputs after six months of the date of invoice but only upto one year of the date of such invoice. Therefore, the advice of Mr. Q s consultant is not correct. Illustration 8: Mr. Shiven is providing service of Construction of Buildings. He purchased the following items in May, 2016: Items Excise Duty paid in ` Dumpers Electric transformer falling under chapter 85 of Excise Tariff Refrigerator fitted in office Diesel for use in Dumper Car for use of Employees for coming to site and going back Trucks used for the transport of construction material falling under tariff sub-heading 8704 1,06,000 40,000 15,000 25,000 1,50,000 15,000 You are required to determine the amount of CENVAT Credit available with Mr. Shiven.
18 INDIRECT TAXES Solution: Computation of CENVAT credit available with Mr. Shiven Particulars Dumpers (Note-1) Electric transformer falling under Chapter 85 of Excise Tariff (Note-1) Refrigerator fitted in office (Note-2) Car for use of employees for coming to site and going back (Note-3) Trucks, falling under tariff sub-heading 8704, used for the transport of construction material (Note-4) Total CENVAT credit available on capital goods (50% of 1,61,000) (Note-5) Diesel for use in dumper (Note-6) Total CENVAT credit available ` 1,06,000 40,000 Nil Nil 15,000 1,61,000 80,500 NIL 80,500 Notes: 1. As per the definition of capital goods of the CENVAT Credit rules, 2004, following goods are eligible capital goods for the purpose of claiming CENVAT credit:- (a) Dumpers (b) Goods falling under Chapter 85 2. Goods falling under specified Chapters, used for providing output service are eligible capital goods. However, in the given case, since the refrigerator is not used for providing output service, same is not eligible capital goods for service provider. 3. As per the definition of capital goods, motor vehicles for passengers are not eligible capital goods in case of construction service. 4. As per definition of capital goods, motor vehicles used for transportation of inputs used for providing an output service are eligible capital goods. 5. As per Rule 4(2)(a) of the CENVAT Credit Rules, 2004, upto 50% CENVAT credit can be availed in case of capital goods in the year of purchase. 6. Diesel for use in dumper is excluded from the definition of inputs.