indore nc 2016

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National Convention For CA Student, Indore
GYANVESHNA A Quest towards knowledge
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Cenvat Rules

• Almost a decade ago, in 2004, the Central
  government at that time had taken a major step to
  unify the credit regime for goods and services
  covered under the CENVAT Credit Rules, 2002 and
  Service Tax Credit Rules, 2002, respectively. The
  introduction of 'CENVAT Credit Rules, 2004'
  served to be instrumental in codifying the credit
  mechanism into a single law for availing and
  utilization of credit of taxes paid on goods as
  well as services for both the manufacturers and
  the service providers.
• On 10.09.2014 CENVAT credit rules 2004 were
  notified to replace erstwhile CENVAT credit rule,
  2002. These rules have integrated the credit of
  Good and services. In other words, duties on
  excise paid on Input/capital goods and service
  tax paid on input service can be adjusted against
  manufacturers excise duty liability or a service
  providers service tax liability.

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Cenvat Rules

• As per cenvat credit Rule-2004, Cenvat credit can
  avail on the payment of excise duty and service
  tax.
• Cenvat Credit is the credit which is given to
  manufacturer and service provider on the amount
  of taxes paid on purchase of input goods, capital
  goods and receipt of services.
• In that case Manufacturer purchase the input
  goods or services and pay the excise duty or
  service tax on that and after production of final
  product he charge the excise duty on that and
  collect the excise duty from the customer and pay
  to the government.

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Cenvat Rules
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Cenvat Rules

• The difference between he receives the amount of
  tax and he paid the amount of tax at the time of
  purchase of input goods or capital goods or the
  input services is called the cenvat credit.

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Rule-2 CENVAT on Capital Goods

• CENVAT Credit on Capital Goods (Rule 2)
• Definition -
• Capital Goods means-
• Goods namely -
• All goods falling under chapter 82, chapter 84,
  chapter 85, chapter 90, heading No. 6805,
  grinding wheels and the like, and parts thereof
  falling under heading 6804 of the First Schedule
  to Excise Tariff Act
• Pollution control equipment
• components, spares and accessories of the goods
  specified at (i) and (ii) above
• Moulds and dies, jigs and fixtures
• Refractories and refractory material
• Tubes, pipes and fittings thereof and
• Storage Tank
• Used -
• in the factory of the manufacturer of the final
  products, but does not include any equipment or
  appliance used in an office or
• outside the factory of the manufacturer of the
  final products for generation of electricity for
  captive use within the factory or
• for providing output service

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Rule-2 CENVAT on Capital Goods

• Analysis of eligibility of CENVAT Credit on
  Capital goods -
• Eligibility
• Capital goods used in the factory of the
  manufacturer of the final products are eligible
  for CENVAT credit.
• It is not necessary that capital goods should be
  directly used in the manufacture of final
  product.
• Similarly, any capital goods which are used in
  providing taxable output services are eligible
  for CENVAT credit.
• Capital goods obtained on hire purchase/lease/loan
  agreement are eligible to avail the credit.
• Capital goods obtained on hire from a non-finance
  company are eligible for credit.
• Capital goods hypothecated to bank are eligible
  for credit.
• Capital goods used for short duration are
  eligible for CENVAT credit.
• Non-eligibility -
• Capital goods used exclusively for exempted final
  products and output services are not eligible for
  availing the credit.
• Capital goods such as equipment or appliances
  used in the office for manufacturer are not
  eligible for credit.
• Capital goods used outside the factory of
  manufacturer are not eligible for credit except
  the capital goods which are used for generation
  of electricity for captive use.
• CENVAT Credit is not available on that portion of
  the value of capital goods on which depreciation
  is claimed u/s 32 of Income Tax Act.

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Rule-2 CENVAT on Capital Goods

• Credit Availability -
• CENVAT Credit on Capital Goods is availed in the
  following manner
• 50 of duty paid on purchase of capital goods is
  available in the financial year in which capital
  goods is received in the factory.
• Balance 50 may be taken in any of the subsequent
  financial years.
• Credit can be availed in the subsequent years
  only when capital goods are in possession.
• In following cases, full credit is available in
  the year of receipt of capital goods in the
  factory
• In case of the units which are eligible for SSI
  exemption (it is not necessary that unit must
  avail SSI benefit to avail entire 100 credit in
  first year) entire CENVAT credit can be availed
  in first year.
• In case of Additional Customs Duty paid u/s 3(5),
  full 100 CENVAT Credit will be available in
  first year

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Rule-2 CENVAT on Capital Goods

• Removal of capital Goods
• Removal as such (Without being use)
• Full 100 CENVAT credit will be available if
  Capital goods as such cleared in the first
  year. On removal of such capital goods as such
  for sale or disposal, an amount equal to full
  CENVAT credit taken, have to be paid/reversed.
• For computers and other peripherals

Removal of capital goods after use Removal of
capital goods as second hand goods -
Manufacturer or output service provider shall pay
an amount equal to CENVAT credit taken on the
said capital good, reduced by the percentage
points calculated by straight line method as
specified below for each quarter of a year or
part thereof from the date of taking CENVAT
credit, namely

for each quarter in the first year 10
for each quarter in the second year 8
for each quarter in the third year 5
for each quarter in the fourth and fifth year 1
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Rule-2 CENVAT on Capital Goods

• Removal of capital goods after use
• Removal of capital goods as second hand goods -
  Manufacturer or output service provider shall pay
  an amount equal to CENVAT credit taken on the
  said capital good, reduced by the percentage
  points calculated by straight line method as
  specified below for each quarter of a year or
  part thereof from the date of taking CENVAT
  credit, namely

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Rule-3 CENVAT on Input

• CENVAT Credit on Inputs (Rule-3)
• Definition
• The definition of Input contained in Rule2 (k)
  has been revised w.e.f.01/04/2011. Goods used in
  or in relation to the manufacture of the final
  product. For better understanding Inclusions and
  Exclusions are e table below.

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Rule-4 Conditions for Availing CENVAT Credit on
Inputs

• Conditions for Availing CENVAT Credit on Inputs
  -
• Rule 4 of CENVAT Credit Rules 2004 provides
  certain conditions to be fulfilled for availing
  CENVAT Credit.
• CENVAT credit can be availed immediately on the
  receipt of the goods in the registered premises
  of the person who gets the final products
  manufactured.
• Physical receipt of input is prerequisite for the
  availment of credit.
• It is not necessary that input should be directly
  used in the manufacture of final product as the
  word used in the definition is all goods used in
  the factory not all goods used in the
  manufacture of final product.
• In case of removal of input as such, credit
  availed earlier needs to be reversed in full.

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Rule-4 Conditions for Availing CENVAT Credit on
Inputs

• CENVAT Credit on Input Service
• Definition
• Any service used by the provider of taxable
  service for providing output service or used by a
  manufacturer whether directly or indirectly in
  relation to manufacture of final product and
  clearance of final product up to the place of
  removal.

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Rule -7 Manner of distribution of credit by
input service distributor

• The input service distributor may distribute the
  CENVAT credit in respect of the service tax paid
  on the input service to its manufacturing units
  or units providing output service

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Rule-7A Distribution of credit on inputs by the
office or any other premises of output service
provider

• A provider of output service shall be allowed to
  take credit on inputs and capital goods received,
  on the basis of an invoice or a bill or a challan
  issued by an office or premises of the said
  provider of output service, which receives
  invoices, issued in terms of the provisions of
  the Central Excise Rules, 2002, towards the
  purchase of inputs and capital goods.

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Rule-8 Storage of input outside the factory of
the manufacturer

• manufacturer of the final products may, in
  exceptional circumstances having regard to the
  nature of the goods and shortage of storage space
  at the premises of such manufacturer, by an
  order, permit such manufacturer to store the
  input in respect of which CENVAT credit has been
  taken, outside such factory, subject to such
  limitations and conditions as he may specify

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Rule-10 Transfer of CENVAT credit

• If a manufacturer of the final products or
  output service provider shifts his factory to
  another site or the factory is transferred on
  account of change in ownership or on account of
  sale, merger, amalgamation, lease or transfer of
  the factory to a joint venture with the specific
  provision for transfer of liabilities of such
  factory, then, the manufacturer or service
  provider shall be allowed to transfer the CENVAT
  credit lying unutilized in his accounts to such
  transferred, sold, merged, leased or amalgamated
  factory.
• The transfer of the CENVAT credit shall be
  allowed only if the stock of inputs as such or in
  process, or the capital goods is also transferred
  along with the factory or business premises to
  the new site or ownership and the inputs, or
  capital goods, on which credit has been availed
  of are duly accounted for to the satisfaction of
  the Deputy Commissioner of Central Excise or, as
  the case may be, the Assistant Commissioner of
  Central Excise.

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Rule-12 Special dispensation in respect of inputs
manufactured in factories located in specified
areas of North East region, Kutch district of
Gujarat, State of Jammu and Kashmir and State of
Sikkim

• Notwithstanding anything contained in these
  rules, where a manufacturer has cleared any
  inputs or capital goods, in terms of
  notifications of the Government of India in the
  CENVAT credit on such inputs or capital goods
  shall be admissible as if no portion of the duty
  paid on such inputs or capital goods was exempted
  under any of the said notifications.

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Rule-13 Power of Central Government to notify
goods for deemed CENVAT credit

• Notwithstanding anything contained in rule 3,
  the Central Government may, by notification,
  declare the input or input service on which the
  duties of excise, or additional duty of customs
  or service tax paid, shall be deemed to have been
  paid at such rate or equivalent to such amount as
  may be specified in that notification and allow
  CENVAT credit of such duty or tax deemed to have
  been paid in such manner and subject to such
  conditions as may be specified in that
  notification even if, in the case of input, the
  declared input, or in the case of input service,
  the declared input service, as the case may be,
  is not used directly by the manufacturer of final
  products, or as the case may be, by the provider
  of taxable service, declared in that
  notification, but contained in the said final
  products, or as the case may be, used in
  providing the taxable service.

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Rule-15 Recovery of CENVAT credit wrongly taken
or erroneously refunded

• Where the CENVAT credit has been taken or
  utilized wrongly or has been erroneously
  refunded, the same along with interest shall be
  recovered from the manufacturer or the provider
  of the output service and the provisions of
  sections 11A and 11AB of the Excise Act or
  sections 73 and 75 of the Finance Act, shall
  apply mutatis mutandis for effecting such
  recoveries.

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Rule-15A General penalty

• Whoever contravenes the provisions of these rules
  for which no penalty has been provided in the
  rules, he shall be liable to a penalty which may
  extend to five thousand rupees. 

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Conclusion

• The industry was significantly impacted due to
  imposition of these restrictions on credit,
  especially when the coverage of service tax was
  thoroughly widened with the introduction of a
  negative list of service taxation and pruning of
  the list of both exempted goods and services.

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Conclusion

• With the proposed implementation of GST, it is
  expected that the central government will take
  necessary measures to achieve its motive of ease
  of doing business in India.
• Change is the rule of life. Nothing remains the
  same forever everything will change so accept the
  change and enjoy the journey.
• Correlate this quote with the GST, which is the
  change in the system which is beneficial for the
  country so accept it and enjoy it.

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Coming Soon In this monsoon
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