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Overview of Cenvat Credit

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Overview of Cenvat Credit Excise and Service Tax Bimal Jain FCA, ACS, LLB, B.Com (Hons) Member of Indirect Tax Committee of PHD/ FICCI/ Assocham – PowerPoint PPT presentation

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Title: Overview of Cenvat Credit


1
  • Overview of Cenvat Credit
  • Excise and Service Tax

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
2
Message
Nothing is certain except Death Taxes
3
Supply 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.

5
Cenvat 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?

6
Cenvat 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)

24
POT 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)

25
POT - 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

26
POT 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

29
EXPORT 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.

35
Cenvat 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

42
Thank 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
India Desktel91-11-22757595   Mobile91
9810604563 bimaljain_at_a2ztaxcorp.com www.a2ztaxcorp
.com
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