Title: Overview of Cenvat Credit
1- Overview of Cenvat Credit
- Excise and Service Tax
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Bimal Jain FCA, ACS, LLB, B.Com (Hons) Member of
Indirect Tax Committee of PHD/ FICCI/
Assocham Member of GST committee of ICAI/
ICSI Member of Indirect tax faculties of
ICAI/ICSI/ICWAI
2Message
Nothing is certain except Death Taxes
3Supply Chain GST
Goods
Services
Inputs CG Services
Manufacturing
Rendering of Services
Trading Intra State/ Inter State/ Exports
Receiver Intra state/ Inter State/ Exports
4 Present Power of levy
- Goods
- Central Govt
- Import BCD,CVD, SAD
- Manufacturing CE/ AED
- Surcharges and Cesses
- State Govt
- VAT
- Entry Tax/Octroi
- CST
- Services
- Central Govt
- Service tax
- State Govt
- No Power except luxuries tax, entertainment
Tax, etc. -
5Cenvat Credit Rules, 2004
Capital Goods Inputs Input Services
Manufacturing of Goods Rendering of Services
- Availment of Credit Vs. Utilization of Credit
- Change in the definition of Inputs/ Input
Services/ Exempted Services/ Exempted Goods - Change in Rule 6 Taxable/ Exempted Supplies
- Unsettling the settled jurisprudence
- - Coca Cola India (2009) 22 STT 130 ABB Ltd
(2009) 21 STT 77 (CESTAT) - These changes really needed before GST?
6Cenvat Credit Capital Goods
- Rule 2(a) of CCR, 2004 ? Capital Goods" means-
- the following goods, namely-
- All goods falling under Chapter 82, Chapter 84,
Chapter 85, Chapter 90, heading 6805, (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 - Continue
7 Cenvat Credit Capital Goods
(viii) Motor vehicles other than those falling
under tariff headings 8702, 8703, 8704, 8711 and
their chassis, but including dumpers and tippers
8 Cenvat Credit Capital Goods
Used- (1) in the factory of Manufacturer of the
final products, but does not include any
equipment or appliance used in an office
or (1A) outside the factory of Manufacturer of
the final products for generation of electricity
for captive use within the factory or
(2) for providing output service
9 Cenvat Credit Capital Goods
(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
10 Cenvat Credit Capital Goods
(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
11 Cenvat Credit Inputs
Rule 2(k) of CCR, 2004 ? Inputs means (i) all
goods used in the factory by Manufacturer of the
final product or (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-
12 Cenvat Credit Inputs
Continued.. Explanation. For the purpose of
this clause, free warranty means a warranty
provided by the manufacturer, the value of which
is included in the price of the final product and
is not charged separately from the
customer
13 Cenvat Credit Inputs
- Exclusions..
- (A) light diesel oil, high speed diesel oil or
motor spirit, commonly known as petrol - (B) any goods used for -
- 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 -
14 Cenvat Credit Inputs
Continued.. (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.
15 Cenvat Credit Input Services
- Rule 2(l) of the CCR, 2004 ? input service
means any service, - - 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 -
16 Cenvat Credit Input Services
Continued 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 upto 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 upto the place of
removal but excludes,-
17 Cenvat Credit Input Services
Continued (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 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 one or more
of the specified services or
18 Cenvat Credit Input Services
Continued (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, except when used by - (a) a
manufacturer of a motor vehicle in respect of a
motor vehicle manufactured by such person or
(b) an insurance company in respect of a motor
vehicle insured or reinsured by such person
or
19 Cenvat Credit Input Services
Continued (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
20 Cenvat Credit Availment
- Important to check Whether CG/ Inputs/ Input
Services - Whether Registration is must for taking credit?
- Whether Refund can be denied prior to
Registration? - Varizon Data Services (I) (P) Ltd. Vs. CST,
Chennai 2012-TIOL-1512-CESTAT-MAD -
21 Cenvat Credit Utilization
- Rule 3(4) ? Cenvat credit can be utilized for
payment of- - - Excise duty on any final product
- - Payment of CENVAT credit taken on Inputs are
removed as such or after being partially
processed - - Payment of CENVAT on capital goods are removed
as such - - Amount under Rule 16(2) of C E Rules, 2002
Repair/ Reconditioning, etc. - - Service tax on any output service
- Restricts Utilization of credit as available by
end of Month/ Quarter - CENVAT credit Shall not be used for payment of
service tax in respect of Reverse Charge/ for
payment of ED on Goods Notification no.
1/2011-CE dated. 1-3-2011 - SAD credit shall not be used for payment of
Service Tax -
22 Cenvat Credit Utilization
- Rule 3(4) ? Cenvat credit can be utilized for
payment of- - Whether there is need for one to one co-relation
of CENVAT credit availed on input services
towards payment of output services? - Jyoti Structures Ltd. Versus Commissioner of
Central Excise, Nasik 2012 (10) TMI 335- CESTAT,
Mumbai -
23 Condition for availing Cenvat Credit
- Rule 4? Conditions for availing Cenvat Credit
- Inputs - Immediately on receipt within the
factory of Manufacturer or in the premises of the
provider of output service - Capital goods 50 in the year of receipt and
balance 50 in the subsequent year Rule 4(2) - Cenvat credit on capital goods shall be allowed
even if the capital goods are acquired by him on
lease, hire purchase or loan agreement, from a
financing company Rule 4(3) - Cenvat credit not available in case the
depreciation U/S 32 of the Income-tax Act, 1961
is claimed - Job work - Goods can be removed for job work
provided they are received back within 180 days
Rule 4(5) - Goods sent to job worker can be removed directly
from Job Workers premises with Commissioners
permission Rule 4(6) -
-
24POT Cenvat Credit
- Obligation Liability ?
- - Service Provider 68(1)
- - Service Recipient -68(2)
- Point of Taxation (POT) ? Point in time when a
service shall be deemed to have been
providedRule 2(e). This point will determine
Due date of payment of service Tax? Monthly/
Quarterly - Notification No. 04/2012-ST dt. March 17, 2012 ?
Point of Taxation (Amendment) Rules, 2012 (W.e.f
1/4/2012)
25POT - General Rule 3
- POT, the earliest of the following-
- Date of Receipt of Money (Advance)
- When Invoice is issued within 30 days from date
of receipt of money ? Date of receipt of Money - When Invoice is issued within 30 days from date
of completion of Service? Date of Invoice - When Invoice is not issued within 30 days from
date of completion of Service? Date of Completion
of Service
26POT Collection basis
- Rule 6 of STR (1/4/2012) ? Service tax on
Collection basis - Individuals and Partnership
firms (including LLP) - aggregate value of
taxable services lt Rs. 50 lakhs in the previous
FY, the service provider shall have the option to
pay tax on collection basis on taxable services
up to Rs. 50 lakhs in the current FY
27 POT Reverse Charge
- Rule 7 Overriding clause - Determination of
POT-U/S 68(2) - Recipients of Service - Date on
which payment is made Provided that, where the
payment is not made within a period of 6 months
of the date of invoice, the POT shall be
determined as if this rule does not exist ? Non
Payment within 6 months ? Normal POT ? Date of
Invoice -1/10/2012 Date of Payment -15/04/2013
Interest/ Change of Rate ??
28 Cenvat Credit Input Service
- Input service credit can be taken on or after
date of receipt of invoice - Payment to SP is not made with in 3 months from
date of invoice - Then Reverse Credit and
re-avail after payment - Payment under Reverse charge - On or after the
day on which payment is made of the value of
input service and the service tax paid or payable
as indicated in invoice, bill or, as the case may
be, challan - Payment or part thereof is returned or credit
note is issued by SP, proportionate credit shall
be reversed or paid - Invoice / bill issued prior to 1.4.2011 - Credit
after the date of payment of value of service
29EXPORT OF SERVICES Rule 6A N. 36
- Services to qualify as export if
- Service provider located in Taxable Territory
- Service recipient located in Non Taxable
Territory - Service provided is a service other than in
Negative list - Payment is received in convertible foreign
exchange in RBI defined time period - Place of Provision of Service determined as per
the POP Rules is outside India
30 Cenvat Credit Exempted Service R 2(e)
- i. Taxable service which is exempt from the whole
of the service tax leviable thereon or - ii. Service, on which no service tax is leviable
under section 66B of the Finance Act or - iii. Taxable service whose part of value is
exempted on the condition that no credit of
inputs and input services, used for providing
such taxable service, shall be taken - But shall not include a service which is
exported in terms of Rule 6A of the Service Tax
Rules, 1994. - Rule 6 of CCR applicable for Reversal of Cenvat
credit for exempted Service
31 Service Tax CCR
- Refund to Exporter Rule 5 No Nexus required
between exports and input services used in such
exports ? Duties or taxes paid on any goods or
services that qualify as inputs or input services
will be entitled to be refunded in the ratio of
the export turnover to total turnover in line
with Circular No. 868/6/2008-CE dated 09.05.2008 - Refund amount (Export turnover of goods Export
turnover of services) x Net CENVAT credit/ Total
turnover
32 Cenvat Credit Abatement
- Abatement ? For provision of Taxable Output
Services ? Notification no. 13/2012ST dt.
17-3-2012 superseded by Notification no.
26/2012-ST dt. 20-6-2012 (Effective ? 1/7/2012) -
- ALL abatement Merged into One Notification 12
Services - Change in abatement Rates for Specified Services
? Prior/ Post 1/7/2012 - TTL Consideration 100
- Less Abatement _at_ 50 50
- Net Consideration 50
- Service Tax 12.36 6.18
33 Cenvat Credit Abatement
- Abatement ? Notification no. 26/2012-ST dt.
20-6-2012 ? Conditional Abatement with benefit of
Cenvat Credit available - Notification No. 12/2003-ST Dated 20/6/2003
Notification No. 1/2006-ST Dated 1/3/2006
(Rescinded) - - Capital Goods Rule 2 (a) of CCR, 2004
- - Inputs Rule 2(k) of CCR, 2004
- - Input Services Rule 2 (l) of CCR, 2004
-
34 Exemption vs. Cenvat credit
- Notification No 1/2006-ST provides various
abatements in specified services with a condition
that CENVAT Credit will not be claimed by the
Assessee - What if ? Assessee used to claim the benefit of
both Abatement and CENVAT, ? Entire benefit of
Abatement will be disallowed and Service Tax
will be calculated on the 100 gross value of
services provided or to be provided - What happen ? if the assessee wish to reverse the
credit so claimed - Litigation was there. - Now, recently, CESTAT in the case of KHYATI TOURS
TRAVELS Versus COMMISSIONER OF C. EX.,
AHMEDABAD 2011 (24) S.T.R. 456 (Tri. - Ahmd.)
held that, later on if reversal of CENVAT credit
is there, then benefit under notification cannot
be denied.
35Cenvat Credit Works Contract
- Overruled in LB CESTAT Delhi CCE vs. BSBK
Pvt. Ltd. (2010) 26 STT 263 Turnkey project
can be vivisected service element involved in
works contract. - Other Services ? Works/ Composite Contract e.g.
- Erection, Installation, Commissioning Services
1/7/2003 67 - Commercial or Industrial Construction Services
10/9/2004- 67/ 75 - Construction of Residential Complex Services
16/6/2005- 67/75 - Management, Maintenance or Repair Services
1/7/2003 No abatement - Difference between Works Contract Other
Services ? When State Sales Tax/VAT payable on
transfer of property in execution of Works
Contract
36 Cenvat Credit Valuation Rules
- Valuation under Service Tax for Works Contract
Services Rule 2A ?Notification no. 11/2012-ST
dt. 17-3-2012 ? superseded by Notification no.
24/2012-ST dt. 6-6-2012 ( W.e.f 1/7/2012)- - Pay service tax on Actual Service portion-
Gross Consideration LESS Value of Property LESS
VAT/ Sales tax, if any ADD Value of other
services - Composition ? Pay Service tax at composite rate
- Pay ST on 40 value of original works
- Pay ST on 60 value of all other works contract
- Pay ST on 70 value of maintenance or repair or
reconditioning or restoration or servicing of any
goods -
37 Cenvat Credit Valuation Rules
- Works Contract Composition Rules, 2007 rescinded
- 4.8 ? Notification no. 35/2012-ST dt.
20-6-2012 -
38 Service Tax CCR
- Rule 3(5) and 3(5A) - Duty payable on CG/ Scrap
at higher of TV or Depreciated Value effective
from 17.03.12 - Rule 4(1) 4(2) ? Time when CENVAT could be
taken - Allow credit without bringing them into
premises subject to due documentation regarding
their delivery and location - Rule 6(3) ? Rate for Cenvat reversal for Exempt
Services/ Goods has been revised from 5 to 6 - Rule 9(1)(e) ? Availment of credit on the tax
payment Challan in case of payment of service tax
by all service receivers on reverse charge
39 Service Tax CCR
- Rule 7 ? Distribution of Credit by Input Service
Distributor (ISD) - To extent Service Utilized by respective Unit or
- Pro rata basis of the turnover of the concerned
unit to the sum total of the turnover of all the
units to which the service relates - Open Issues-
- Whether unaudited monthly/ Quarterly figures
acceptable to Dept. - What happen for Capital Intensive project where
Turnover starts only after a reasonable period
40 Service Tax CCR Rule 6
Common Inputs or input services
Option I for inputs Option III for input services
Payment of 6 of value of exempted goods /
services
Follow Rule 6(3A) and reverse proportionate
Credit attributable to exempted goods/ services
Maintenance of Separate records
41 Service Tax CCR
- Rule 10A ? Transfer of unutilized Cenvat credit
of SAD Manufacturer having two or more
factories can transfer unutilized Cenvat credit
of SAD from one excise unit to another on
strength of a transfer challan (W.e.f 1/4/2012)
Quarterly basis - Not available for Units
availing Area based Exemption - Rule 14 ? No interest on wrong availment of
Cenvat credit but not utilized - amended to
provide that interest is chargeable if Cenvat
credit is wrongly availed and utilized. Thus,
no interest is chargeable if Cenvat credit is
wrongly availed but remains unutilized - Rule 15 ? No Change relating to Penalty - Penalty
may be charged even if Cenvat credit wrongly
availed but not utilized
42Thank You !
Bimal Jain A2Z Taxcorp LLP I Tax and Law
Practitioners F-30/31/32, Pankaj Grand Plaza
1st Floor, Mayur Vihar, PhaseI, Delhi 110091
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