COMMERCIAL COMPLEX

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CENVAT CREDIT FOR INDUSTRIES SERVICES
PROVIDERS DOS AND DONTS BY SMT.R.SUBHA RAJAN,
IRS ASSISTANT COMMISSIONER(AUDIT)
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MAIN FEATURES OF THE CENVAT CREDIT RULES 2004.
I ELIGIBILITY (a) Who is eligible to take
credit? A manufacturer or producer of dutiable
final products or a provider of taxable service
is eligible to take credit. (b) Whether duty
paid on any inputs,Capital Goods and Service
tax can be taken as Cenvat Credit? No, Cenvat
credit can be taken only on specified
inputs,Capital goods and input services under
Rule 2 of Cenvat Credit Rules.
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• II DOCUMENTS
• (1) Credit can be taken only on the basis of the
  following documents
• An invoice/ supplementary invoice issued by the
  manufacturer of inputs/capital goods
• An invoice/ Supplementary invoice issued by the
  importer of Capital Goods/inputs
• An invoice issued by the I stage dealer and the
  II stage dealer.
• Bill of entry
• An invoice, bill or challan issued by the
  service provider/ service distributor
• (2) The Cenvat documents should contain
• Running Sl.No.
• Registration Certificate no.
• Name and address of the consignee
• Description and classification of the goods
  removed
• Rate of duty, quantity, value of the goods and
  duty payable thereon
• Time and date of the removal of goods and
• Mode of transport and vehicle Reg. No.

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• III ACCOUNTING
• Proper records for receipt, disposal, consumption
  and inventory of the inputs and capital goods
• Proper records for the receipt and consumption
  of the input services
• IV CONDITIONS FOR ALLOWING CENVAT CREDIT
• The Cenvat credit in respect of inputs and
  capital goods can be taken immediately on
  receipt.
• The Cenvat credit in respect of input service can
  be taken only after the payment of Service Tax.
• V RECOVERY OF CENVAT CREDIT WRONGLY TAKEN OR
  ERRONEOUSLY REFUNDED
• There is a provision under Rule 14 of the Cenvat
  Credit Rules to recover the wrong credit or
  credit erroneously refunded along with interest.
  There is also provision to impose penalty which
  may extend to Rs. 5000/- or equal to wrong credit
  availed.
• VI Finally, in conclusion, the burden of proof
  regarding the admissibility of the Cenvat credit
  will be upon the manufacturer or provider of
  output service taking such credit

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• CENVAT CREDIT FOR INDUSTRIES
• Before taking credit
• DOs
• check whether the Cenvat document is original and
  addressed to your factory
• check the particulars furnished in the Cenvat
  documents
• check whether the inputs/capital goods are
  actually received inside the factory premises
• check whether the inputs/capital goods are
  specified under Rule 2 of Cenvat Credit Rules
  2004
• check whether the input/capital goods or input
  services are used in or in relation to the
  manufacture of dutiable final products or for
  providing taxable service

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• DONTs
• ltgtDont take credit based on the ineligible
  documents such as extra copy, photo copy, credit
  note etc and documents which do not contain all
  the required particulars
• Dont take credit twice based on the same invoice
• Dont avail Cenvat credit and depreciation under
  Income Tax Act on Capital Goods simultaneously
  Double benefit not allowed.

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• CENVAT CREDIT FOR SERVICE PROVIDERS
• In order to reduce the cascading impact of tax
  on tax and to help restoring competitiveness, a
  credit of the service tax paid on the input
  service is allowed since 2002.
• Presently, the service provider can avail of
  input credit in respect of any of the categories
  of the services and utilize the said service tax
  credit for payment of service tax on any of the
  output services, provided the service should be
  defined as input service under Rule 2 of Cenvat
  credit Rules 2004 and the input service should be
  used for providing taxable service or for
  manufacture of dutiable final products
• Definition of input service
• Input service means any service
• (i) used by a provider of taxable service for
  providing an output service
• (ii) used by the manufacturer, whether directly
  or indirectly in or in relation to the
  manufacture of final products and clearance of
  final products from the place of removal,
• And includes services used in relation to
  setting up, 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, activities
  relating to business, accounting, auditing,
  financing, recruitment and quality control,
  coaching and training, computer networking,
  credit rating, share registry, and security,
  inward transportation of inputs or capital goods
  and outward transportation upto the place of
  removal

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• Definition of Input Service Distributor
• As per Rule 2(m), input service distributor has
  been defined as, -
• input service distributor means an office of
  the manufacturer or producer of final products or
  provider of input service, which receives
  invoices issued under Rule 4A of the Service Tax
  Rules, 1994 towards purchase of input services
  and issues invoice, bill or, as the case may be,
  chellan for the purpose of distributing the
  credit of service tax paid on the said services
  to such manufacturer or producer or provider, as
  the case may be.
• Dos and Donts of Central Excise Assessees are
• applicable to Service Providers also.

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EA 2000 AUDIT UNDER CENTRAL EXCISE AND SERVICE
TAX

• EA 2000 Audit is record based and process
  oriented.
• The Audits are conducted in an uniform,
  scientific and efficient manner as per the
  guidelines given in the Audit manual
• The Audit process is transparent and all the
  issues are discussed with the assessees before
  its finalization.
• The Departmental officers are authorized by the
  Commissioner to visit any registered premises
• The purpose of audit is to check, verify or
  scrutinize the records.
• The Auditors are maintaining a good professional
  relationship with the assessees.

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MOST OF THE DETECTIONS ARE ON

• Non compliance of Rules
• Procedural irregularities
• Leakage of revenue due to deliberate action or
  ignorance on the part of the assessee.

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COMPARATIVE FIGURES OF CENVAT CASES
DETECTED/REALISED(2006-07) - (2007-08)
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SOME IMPORTANT ISSUES REPEATEDLY DETECTED BY THE
DEPARTMENTAL AUDITORS.

• CENTRAL EXCISE ISSUES
• Credit not reversed on capital goods sold /
  removed.
• Non-reversal of credit availed on input used in
  the exempted goods.
• Non-payment of an amount equal to 10 of value of
  goods cleared at NIL rate of duty where CENVATED
  inputs used both in dutiable and exempted goods.
• Irregular availment of CENVAT credit based on
  extra copy/ photocopy of the invoices.
• CENVAT credit taken based on improper document
  such as credit notes, invoices not addressed to
  the unit.
• Simultaneous availment of CENVAT credit and
  depreciation under I.T Act on capital goods.
• CENVAT credit taken on the capital goods which
  are not covered under the definition of capital
  goods.

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• CENVAT credit taken twice on the same invoice.
• Availment of 100 CENVAT credit on capital goods
  in the same financial year instead of 50
• Non-receipt of re-warehousing certificate within
  the stipulated period.
• Short payment of duty on the clearances to
  sister concern
• Non-payment of duty on due date.
• Non-payment interest on belated payment of duty.
• Duty collected and not credited in the government
  account under Section 11D.
• Non-Amortization of value of tools, dies, pattern
  etc., and not included in the assessable value.

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• SERVICE TAX ISSUES.
• Non-payment of service tax on GTA and Renting of
  immovable property (After Budget 2004, Textile
  Units had gone out of Central Excise purview and
  surrendered their RCs but they have failed to
  take GTA Registration )
• Short payment of service tax.
• Non-payment of interest on belated payment of
  service tax.
• Non-payment of service tax on the commission
  received from the foreign agents.
• Non-payment of service tax on the commission paid
  to the agents outside India.
• Payment of Service tax on GTA made through CENVAT
  credit A/c instead of GAR-7.

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• Irregular availment of cenvat credit of Service
  Tax paid on outward freight beyond the place of
  removal.
• Wrong availment of Service Tax credit by Central
  Excise assessee on the services which are not
  used as input for providing out put service or
  manufacturing of final product. (Eg.,Wind Mill )
  
• In the case of Telecommunication service the
  service providers are taking cenvat credit
  wrongly on the Transmission towers which are not
  specified as inputs or capital goods.
• Irregular availment of service tax credit on
  improper document (Documents not in their name).
• Service tax not paid on Technical Know How Fees
  by Central Excise Assessees to their Principal
  based outside the country.
• Non-payment of service tax on maintenance and
  repair charges provided by the CEX assessee.
• Wrong availment of Notification 1/2006 ST dated
  1.3.2006 (Eg., Construction Services
  simultaneous availment of CENVAT credit as well
  as abatement.)

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HOW TO AVOID THESE REPEATED ISSUES DETECTED BY
AUDIT?

• SOME KEY POINTS TO BEAR IN MIND TO AVOID SUCH
  MISTAKES / OMMISSIONS.
• Always be clear about the Rules
• Listen
• Dont hide
• Be accessible
• Participation of top level management in the
  course of audit.

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CONCLUSION

• THE GOVERNMENTs OBJECTIVE IS TO COLLECT CORRECT
  AMOUNT OF TAX LEVIED UNDER TAX LAWS IN A FAIR AND
  TRANSPARENT MANNER.
• THE DEPARMENT NEEDS YOUR COOPERATION TO ACHIEVE
  THE ABOVE OBJECTIVE

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END