Cenvat Credit Rules, 2004 CA V.RAGHURAMAN B.Com, fca, llb, ACS, Grad. cWA

1
Cenvat Credit Rules, 2004CA V.RAGHURAMAN B.Com
, fca, llb, ACS, Grad. cWA
2
INTRODUCTION

• Credit mechanism is vital for effective
  operation of Value Added Tax system
• Introduced for the first in 1986 as Modvat
  credit, initially credit mechanism was available
  only for inputs.
• Subsequently, the credit facility was extended to
  capital goods in the year 1994.
• Modvat credit was renamed as Cenvat Credit in
  the year 2000.

3
Introduction

• Cenvat Credit Rules, 2004- Notification
  No.23/2004-CE dt.10.9.04 which replaced Cenvat
  Credit Rules, 2002 Service Tax Credit Rules,
  2002 unified credit on goods and services.
• Unifies credit on goods and services by including
  the definition of input services and widening
  of the definition of input. This was meant to
  pave way for introduction of GST.

4
FIRST STEP UNIFICATIONCENVAT CREDIT RULES, 2004
5
INTRODUCTION
INPUT BASKET
OUTPUT BASKET
INPUT GOODS INPUT SERVICES CAPITAL GOODS
OUTPUT GOODS OUTPUT SERVICES
6
INTRODUCTION
OUTPUT PROVIDERS
SERVICE PROVIDER
BOTH MFG AND SERVICES
MANUFACTURER
7
Capital Goods Rule 2(a)
Capital Goods means (A) the following goods, namely,
All goods falling under Chapter 82, 84, 85, 90, heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of Excise Tariff
Pollution control equipment
Components, spares Accessories of above goods
Moulds and dies, jigs and fixtures refractories refractory materials
Tubes and pipes and fittings thereof Storage Tank
Motor vehicles other than falling under 8702,8703, 8704 8711 their chassis but including dumpers and tippers and their parts
Used in the factory (other than for office purpose)
Outside factory for generation of power
Used for providing output service
8
Capital Goods Rule 2(a)
Goods which qualify as Capital goods for service providers only - Goods which qualify as Capital goods for service providers only -
Nature of goods Nature of Usage
(B) Motor vehicles and their chassis designed for transport of goods. Renting of Motor vehicles Transportation of inputs, capital goods Providing courier agency services
(C) Motor vehicles and their chassis designed to carry passengers Transport of passengers Renting of motor vehicles Imparting motor driving skills
(D) Components Spares of such vehicles which qualify as capital goods (D) Components Spares of such vehicles which qualify as capital goods
9
Important issues

• CCE v. Rajasthan Spinning and Weaving Mills Ltd.
  - 2010 (255) E.L.T. 481 (S.C.)
• Credit allowed on steel plates and M.S. channels
  etc used for fabricating chimney for Diesel
  Generator
• Chimney is a Pollution control equipment - Any
  equipment used for getting rid of effluents to be
  treated as accessory to specified capital goods
  and credit thereon admissible
• User test adopted - the question whether an item
  falls within the purview of capital goods would
  depend upon the user it is put to

10
Important issues component or accessory

• Saraswathi Sugar Mills, 2011 (270) E.L.T. 465
  (S.C)
• Structural used for installation of sugar mill-
  not capital goods ( does not qualify to be
  components) .
• Iron and Steel structures would not go into
  composition of vacuum pans, crystallizers etc.
  and are not essential requirements in sugar
  manufacturing unit. Held that iron and steel
  structures are not components of capital goods
  used in sugar manufacturing plant.
• Whether qualifies as accessory not examined by
  Supreme Court.

11
Cenvat credit on spares of ropeway

• Supreme Court in the case of Birla Corporation
  Ltd. v CCE 2005 (186) ELT 266 (SC), dealing with
  this issue held that the spares of ropeway used
  for transporting crushed limestone from mines
  located 4.2 kms away to factory, the appellant is
  entitled to Modvat credit on the spare of ropeway.

12
Inputs
Inclusions
Goods used in the factory by the manufacturer Note Clause (F) excludes any goods which have no relationship whatsoever with the manufacture of a final product
Earlier definition gtgt All goods-.used in or in relation to manufacture, whether directly or indirectly, whether contained in the final product or not .. , within the factory of production
Goods used outside the factory Supreme Court in Vikram Cements 2006 (194) E.L.T. 3 (S.C.) held that goods like explosives used in mines also qualify as inputs.
Any goods which have even slightest relationship with manufacturing activity would qualify as inputs unless specifically excluded
13
Inputs
Inclusions
Goods including accessories cleared along with final products If the value of such goods is included in the value of the final product.
Goods used for free warranty supply 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.
goods used for generation of electricity or steam for captive use Such power generation need not be within factory
goods used for providing any output service All goods used for providing any output service is covered
14
Inputs
Exclusions
LDO, HSD and Petrol
Goods used for (a) construction or execution of works contract of a building or a civil structure or a part thereof (b) laying of foundation or making of structures for support of capital goods, Except for service providers who do works contract or construction service as per Declared Service u/s 66E(b)
Capital goods except when used as parts or components in the manufacture of a final product
Motor vehicles
15
Inputs
Exclusions
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
any goods which have no relationship whatsoever with the manufacture of a final product
16
Important issues

• Whether inputs used for construction of /
  manufacture of capital goods qualify as inputs?
• Erstwhile definition specifically provided for
  said activity
• CCE Vs. SLR Steels Ltd., 2012 (280) E.L.T. 176
  (Kar.)
• Goods used for construction of storage tank and
  pollution control equipment qualify as inputs
  even if Storage tank/ pollution control
  equipment is immovable property

17
Manufacturer vs Manufacture

• CCE v Rashtriya Ispat Nigam Ltd. 2011 (271) ELT
  338 (AP), High Court held that the Steel sheets
  and coal used for fabrication of capital goods
  and parts during process of repair to machinery
  in the factory of the manufacturer and, as such,
  fall within the ambit of the definition of
  capital goods as the same is used by the
  manufacturer.
• High Court distinguished between the words
  manufacturer which is used in the definition of
  capital goods and the word manufacture', and has
  given a view that essence under the definition is
  used by the manufacturer within factory and not
  merely manufacturing activity.

18
Important issues

• Whether inputs used for construction of /
  manufacture of capital goods qualify as inputs?
• Under present provisions only use in construction
  or fabrication of civil structures or support
  structures to capital goods is excluded.
• Construction /manufacture of storage tank /
  pollution control equipment is not specifically
  excluded.

19
Important issues

• Credit on goods used for repair of machinery
• Certainly has relationship with manufacturing
  activity
• Goods used for testing of finished products
• Eligible inputs Flex Engineering -2012 (276)
  E.L.T. 153 (S.C.)
• Without testing machines are not fit for sale

20
Important issues

• Packing Materials
• Erstwhile rules specifically included Packing
  materials
• Primary packing without which goods cannot be
  cleared. So credit still eligible as they have
  relation with manufacture.
• Kwality Biscuits 2011 (272) ELT 364 (Kar.)-
  without packing final products cannot be sold.
• Secondary packing Could it be termed as
  accessory. (adds benfit ).

21
Important issues

• Credit on bought out items (combo pack)
• Prime Health Care Products 2011 (272) ELT 54
  (Guj)
• Credit on plastic droppers/ measurement units
  supplied along with drugs
• Okasa Ltd. 2009 (241) ELT 359 (Bom.)
• In terms advisory from Drug Controller of
  Indiaof Without which drug cannot be sold
• Credit on promotional materials
• Perfetti Van Mele India Pvt. Ltd. v CCE 2010(254)
  ELT 620 (PH) - Credit was denied

22
Input Service
Input service Means Input service Means
Service Provider Services used for providing an output service
Manufacturer Used by manufacturer whether directly or indirectly in or in relation to Manufacture of Final products Clearance of final products upto the place of removal
23
Input Service
Input service includes following services
Services used in relation to modernisation, renovation or repairs of a factory or office relating to such factory
Services used in relation to modernisation, renovation or repairs of premises of service provider or office relating such 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
24
Input service
Exclusions
Services portion in execution of works contract and construction services under declared service S. 66E(b) to the extent the above services used in (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. However, the above services are eligible as input services for providing one or more of the above specified services i.e., Construction and Works Contract services.
Services provided by way of renting of motor vehicle in so far as they relate to a motor vehicle which is not a capital goods
25
Input service
Exclusions
General Insurance, servicing, repair maintenance of vehicles which are not capital goods, except when used by Manufacturer of such motor vehicles in respect of motor vehicle manufactured by him Insurance company in respect of motor vehicle insured or reinsured by such company
26
Input service
Exclusions
Services 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 Travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or for consumption of any employee
27
Means, includes excludes definition

• CCE vs. Heavy Engineering Corporation Ltd. 1990
  (49) ELT 531 (Tri) held that the inclusion
  clause would enjoy a broader scope whereas the
  exclusion clause would be restricted to the items
  mentioned therein.
• RBI v. Peerless General Finance and Investment
  Co. Ltd., AIR 1987 SC 1023 held that
  interpretation must depend on the text and the
  context as they are the bases of interpretation
  and when there is express exclusion clause, all
  such exclusions would get excluded irrespective
  of means and includes part of the definition.

28
Effect of amendment

• Phrases construction of factory / office,
  activities relating to business such as were
  deleted w.e.f. 1.4.2011
• Exhaustive definition is made more restrictive
• On one hand tax everything under the sky
  (negative list) but on other hand more
  restrictive definitions on credit side
• Artificial barriers are created.

29
Coca Cola case- 2009(15) S.T.R. 657(Bom.)

• Availability of input service credit on
  advertising of soft drinks procured by the
  manufacturers of concentrates.
• In relation to activities of business
• Phrase has a wider scope
• Can not be restricted to certain activities
• Legislature has not employed any qualifying words
  such as
• important activities,
• main activities,
• essential activities
• All services relating to business are eligible

30
ABB case 2011-TIOL-395-HC-KAR-ST

• Expression activities relating to business
  covers transportation upto customers place and
  word relating widens scope.
• Input service not restricted to services
  specified after expression such as as it is
  purely illustrative.
• Definition of input service having different
  limbs providing independent benefit.
• Credit admissible if one limb is satisfied even
  if others are not satisfied
• Hence, outward transportation of finished goods
  from the place of removal is covered by the
  definition of 'input service' upto 31.03.2008.
  Calcutta High Court has taken contrary view in
  CCE vs Vesuvisous India Ltd 2014 (34) STR 26.

31
GTC Industrys Case-2008 (12) S.T.R. 468 (Tri. -
LB)

• credit of tax on these taxable services allowed
  that go to form part of assessable value for
  payment of excise duty
• Expenses towards canteen and provision of
  subsidized canteen forms part of cost of
  production as evident from para 4.1 of CAS-4
• Cost of food forms part of expenditure incurred
  having bearing on cost of production

32
CCE vs. Stanzen Toyotetsu India (P) Ltd. 2001
(23) STR 444 (Kar)
Canteen Services - Credit allowed Facility provided as per statutory obligation under section 46 of the Factories Act, 1948 hence becomes a condition of service as far as the employees are concerned the expense was also considered while fixing the price of the final product. Facility was a welfare measure and not a charity provided by the employer.
Group insurance services credit allowed Workmens Compensation Act, 1923 as well as the Employees State Insurance Act cast an obligation on the employer to provide insurance to the employees, the same although a welfare measure is a statutory obligation cast upon the manufacturer and is hence cenvatable.
Rent-a-cab service credit allowed Services provided for factory workers to reach the factory on time and hence has a direct bearing on the manufacture.
33
Toyota Kirloskar Motor P Ltd 2011 (24) S.T.R.
645 (Kar)

• Photography Shamiana services utilised for
  Rajyotsava Day celebrations
• Held that these services have nexus with
  manufacture of final product as well as relating
  to it business. The State function arranged once
  a year is for welfare of employees for
  preservation of States culture, hence has nexus
  with business of manufacture of final product.
• Keeping in view the sentiments of the particular
  state and as a reasonable employer, if company
  wants satisfy the aspirations of the people in a
  lawful manner, he cannot be found fault with,
  since the assessee in no way personally
  benefitted from this.

34
Maintenance of residential colony

• CC C.Ex., Hyd Vs. ITC Ltd., 2013 (32) STR 288
  (A.P.)
• Maintenance of residential colony for its
  employees at remote location is not provided, it
  would not be feasible to carry on its
  manufacturing activity. Staff colony is directly
  and intrinsically linked to manufacturing
  activity.
• Therefore services like lawn mowing, garbage
  collection and cleaning, harvesting, swimming
  pool maintenance, weeding etc to be considered as
  input services under Rule 2(l)
• However, certain other High Courts have taken
  contrary view. See Bombay High Court in CCE vs
  Manikgarh Cement 2010 (20) STR 456.

35
Important issues
Nature of input service Eligibility Relevant decision and discussion
Construction of building given on rent Yes Sai Sahmita Storages (P) Ltd. 2011-TIOL-863-HC-AP-CX, Navaratna S G Highway Prop Pvt Ltd Vs CST, 2012-TIOL-1245-CESTAT-AHM Period under appeal pertains to period prior to amendment of definition
Insurance- employee Yes MICRO LABS LTD-2011 (270) E.L.T. 156 (Kar.) specific restriction in the new rules. Whether credit elgible - If it could be proved has relation to manufacture or providing service
Insurance on stock, assets, cash etc. relating to business Yes OUDH SUGAR MILLS LTD -2012 (282) E.L.T. 541 (Tri. D) No specific restriction in the new rules. Credit could be availed - If it could be proved has relation to manufacture or providing service
36
Important issues
Nature of input service Eligibility Relevant decision and discussion
Out door catering Under erstwhile definitions, courts allowed. Specific restriction under present rules
Renting of immovable proper Yes No specific restriction under new definition What about rent paid for vehicle parking area??
Security services Yes Specifically covered under definition (includes portion) Gujarat Heavy Chemicals Ltd. 2011 (22) S.T.R. 610 (Guj.)
Hiring of equipments Yes No restriction. Need to substantiate that said equipment has nexus with the manufacturing or service activity
Landscaping around factory Yes Millipore India Pvt. Ltd-2012 (26) S.T.R. 514 (Kar.) It falls within concept of modernization, renovation, repair etc. of office premises or factory
37
Exempted Service Rule 2(e)

• exempted service means a-
• (1) taxable service which is exempt from the
  whole of the service tax leviable thereon or
• (2) service, on which no service tax is leviable
  under section 66B of the Finance Act or
• (3) 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.

38
Output Service Rule 2(p)

• (p) output service means any service provided
  by a provider of service located in the taxable
  territory but shall not include a service,-
• (1) specified in section 66D of the Finance Act
  or
• (2) where the whole of service tax is liable to
  be paid by the recipient of service.

39
Rule 3(1)
Who are eligible to avail credit Manufacturer / output service provider
What are the duties and taxes on which credit could be availed Duty of excise Additional duties underAdditional Duties of Excise (Textile and Textile Articles) Act, 1978 , Additional Duties of Excise (Goods of Special Importance) Act, 1957 National Calamity Contingent duty Additional duty of customs under section 3 Ed. Cess and SHE cess Service tax and cess on such tax
What are the duties /taxes on which credit is specifically not allowed 1 / 2 duty paid in terms of Notification No. 1/2011 or serial numbers 67 and 128 of Notification No. 12/2012-C.E.,
40
Rule 3
(1) Inputs and inputs services consumed by job-worker who claims exemption under Ntfn.214/286 The principal manufacturer could avail credit of duty or tax paid on inputs / input services used by job worker in manufacture of intermediate products
(2) (3) Credit on inputs lying stock Credit on inputs lying in stock (or in process or in finished goods) on the date when finished goods become dutiable or the output services become taxable could be availed
41
Utilisation of Cenvat

• Rule 3(4) Cenvat credit may be utilised for
  payment of
• Excise duty on final product
• Cenvat credit reversal on removal as such of
  input / CG
• Amount payable under Rule 16(2)
• Service Tax on output service
• Explanation inserted w.e.f., 1.7.2012
• Explanation. - CENVAT credit cannot be used for
  payment of service tax in respect of services
  where the person liable to pay tax is the service
  recipient
• Karnataka High Court decision in M/s Aravind
  Fashions Ltd 2012 (25) S.T.R. 583 (Kar.)
• What is position regarding Joint Charge
  recipient?

42
Rule 3(4)-Utilization of credit
Restriction on utilisation of credit Credit of additional customs duty under section 3(5) of Cus. Tariff Act not to be utilised for payment of service tax 1 or 2 duty in terms of Notification No. 1/2011
Utilisation of credit for payment of service tax on reverse charge Cenvat credit shall not be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient
Amount of credit that could be utilised Credit available as on the last day of the month / quarter to which payment relates, shall be utilised. Not the credit available on date of payment
43
Rule 3(5) Removal of inputs or capital goods as
such
Removal of inputs/capital goods as such Reverse the proportionate credit availed Remove under cover of invoice person who receives such goods could avail credit on the basis of such invoice.
Exceptions removal by service provider for provision of service outside the premises inputs removed for providing free warranty
44
Rule 3(5A) Removal of CG as such after use
(5A) Removal of capital goods after use Reverse the proportionate credit availed after availing depreciation on straight line method on the basis of following percentages Capital goods other than computers 2.5 / quarter Computers
Exceptions Where the amount calculated above is less than duty leviable on transaction value, then the duty leviable on transaction value would be payable
Where capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty leviable on transaction value. Where capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty leviable on transaction value.
Year
I year 10 per quarter
II Year 8 per quarter
III year 5 per quarter
IV V 1 per quarter
45
Rule 3
(5B) Inputs or capital goods Written off or providing fully / partially in books of accounts Reverse credit availed Later when used, credit could be availed back
(5C) Remission of duty Where duty on the goods manufactured are remitted in terms of Rule 21 of CER,2002 Credit of inputs used for manufacture of such goods shall be reversed.
(6) Credit reversed / paid under Rule 3(5) or 3(5A) could be availed by person receiving such inputs or capital goods Credit reversed / paid under Rule 3(5) or 3(5A) could be availed by person receiving such inputs or capital goods
(7) Credit on goods procured from EOU Formula prescribed Summary is that credit to the extent of CVD is available
46
Important issues under Rule 3

• No one to one correlation between input and final
  product
• HMM Limited Vs. Collector of Central Excise, New
  Delhi, 1996 (87) E.L.T. 593 (S.C)
• Bharat Litho Co. Ltd. V CCEx. Delhi, 2004 (172)
  E.L.T. 327 (Tri.-Delhi).
• Utilization of credit relating to manufacture for
  payment of service tax on renting
• Lakshmi Technology Engineering Indus. Ltd, 2011
  (23) S.T.R. 265 (Tri. Chennai)

47
Rule 4
When credit could be availed When credit could be availed
Capital goods 50 on or after receipt of capital goods in the factory or premises of output service provider / outside factory for power generation Balance 50 in any time after completion of financial year
Inputs Immediately after receipt of inputs factory or premises of output service provider / place where services are provided (subject to maintenance of documents)
Input services Receipt of the invoice / challan etc.
48
Rule 4
When credit could be availed When credit could be availed
100 credit on capital goods in the year of receipt where capital goods are cleared as such in the same year credit of Additional duty of customs under sec. 3(5) Where a manufacturer is eligible to availe SSI exemption (400 Lakhs home consumption)
Credit on capital goods available even if such goods are procured on Lease, Hire purchase or loan agreement Credit on capital goods available even if such goods are procured on Lease, Hire purchase or loan agreement
Simultaneous availment of both credit and depreciation on such duty which is availed as credit not allowed. Simultaneous availment of both credit and depreciation on such duty which is availed as credit not allowed.
49
Rule 4(5) Job work
Removal of inputs / capital goods for job work Without payment / reversal
Process covered Further processing, testing, repair, re-conditioning or for the manufacture of intermediate goods necessary for the manufacture of final products or any other purpose
Time limit for receiving back the goods Within 180 days from the date of clearance
What happens if not received Reverse the credit. Avail credit after receipt of goods
50
Rule 4-Jobwork

• Cenvat credit shall be allowed on the jigs,
  fixtures, moulds and dies sent by a manufacturer
  to another manufacturer or a job worker
• Goods sent to job worker can be removed directly
  from job workers premises with the Deputy /
  Asst. Commissioners permission Rule 4(6)

51
Rule 4(7) credit on Input Service
When to avail credit on input service when whole of service tax is payable by service provider On or after receipt of invoice
if payment of value of taxable service and service tax is not made within 3 months of date of invoice Reverse credit already availed Avail credit on after payment
If payment (part or full) is returned or credit note is issued Reverse proportionate credit
When to avail credit on input service when whole or of service tax or part of tax is payable by service provider On or after payment of value of service and service tax mentioned in invoice
Due date for reversals 5th of next month or quarter / 31st march
52
Cenvat Credit Reverse / Joint charge

• Rule 4(7) of CCR, 2004 was amended w.e.f.,
  1.4.2011 to provide for availing Cenvat credit on
  input services immediately on or after the
  receipt of invoice / bill etc.
• In case of input service where service tax is
  paid on reverse charge by the recipient of
  service, Cenvat credit can be availed 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
• Where the person (manufacturer or service
  provider) who avails the input service gets a
  refund or credit note, he would have to reverse
  credit in respect thereof.

53
R 5 Refund of Credit
New set of Rules governing refund on export of goods and services
DOF 334/1/2012 dated 16.3.2012 states No more will an exporter be asked whether an input service has been used in export to claim a cenvat refund.
New Rules would be applicable for exports made on or after 1.4.2012- Option to assessee to follow old rules for 1 year from 1.4.2012
Refund formula Refund Export turnover of goods Export turnover of services) X Net CENVAT credit Total turnover
54
RULE 5
Terms used Explanation
Refund amount maximum refund that is admissible
Net CENVAT credit Total CENVAT credit availed on inputs and input services by the manufacturer or the output service provider. However, reversal of credits on remission of duty shall be reduced
Export turnover of goods means the value of final products and intermediate products cleared during the relevant period and exported without payment of Central Excise duty under bond or letter of undertaking
55
RULE 5
Term used Explanation
Export turnover of services Export turnover of services Payments received during the relevant period for export services (plus) export services whose provision has been completed for which payment had been received in advance in any period prior to the relevant period (minus) advances received for export services for which the provision of service has not been completed during the relevant period
56
RULE 5
Terms used Explanation
Total Turnover sum total of the value of - (a) all excisable goods cleared during the relevant period including exempted goods, dutiable goods and excisable goods exported (b) export turnover of services as determined in (D) above, during the relevant period and (c) the value of all other services, during the relevant period (d) all inputs removed as such in terms of Rule 3(5), during the relevant period
57
RULE 5
Terms used Explanation
Other aspects No refund where drawback is claimed on such exports
Other aspects Export of services means exports as provided Rule 6A of Service Tax Rules,1994
Other aspects Value of service for the purpose of this rule shall be, value as determined in Rule 6(3) and 6(3A)
58
RULE 5-
Terms used Explanation
Valuation of service for refund Valuation of service for refund
Taxable service in terms of section 67 of Finance Act, 1994 read with valuation rules
Trading shall be the difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or ten per cent of the cost of goods sold, whichever is more
Other Exempted service Actual value of service
59
RULE 5
Notification Notification No. 27/2012-C.E. (N.T.), dated 18-6-2012
Provides for conditions and procedures Provides for conditions and procedures
Simple application form and simple CA certificate provided Simple application form and simple CA certificate provided
Other features Quarterly application Amount of refund claimed shall not be more than credit balance at the end of the quarter Amount for which refund is claimed, shall be debited in the Cenvat account In case refund sanctioned is less than claimed, re-credit of such amount which is not granted as refund, could be obtained. Assessee engaged in exporting both goods as well as services may submit separate claim for good and services. Other features Quarterly application Amount of refund claimed shall not be more than credit balance at the end of the quarter Amount for which refund is claimed, shall be debited in the Cenvat account In case refund sanctioned is less than claimed, re-credit of such amount which is not granted as refund, could be obtained. Assessee engaged in exporting both goods as well as services may submit separate claim for good and services.
60
RULE 5A 5B
Sec. Particulars
5A Refund of unutilised credit on account of clearance of goods under Notification No. 20/2007 CE clearance by manufacturer located in North East states
5B Refund of Cenvat credit to service provider which are covered under reverse charge mechanism (Manpower supply, Works contract, security services, rent a cab etc.) Notification 12/2014-ST dated 3.3.2014 issued to operationalise scheme to provide refund on half yearly application basis.
61
Notification No.12/2014-ST issued under Rule 5B

• Refund available to the service providers of
  those services which are subject to Partial
  Reverse charge as follows
• (i) renting of a motor vehicle designed to carry
  passengers on non abated value, to any person who
  is not engaged in a similar business
• (ii) supply of manpower for any purpose or
  security services or
• (iii) service portion in the execution of a works
  contract
• s

62
Notification No.12/2014-ST issued under Rule 5B

• Service providers are entitled to claim refund of
  unutilised CENVAT credit taken on inputs and
  input services during the relevant half year for
  providing partial reverse charge issues.
• Explanation
• Unutilised CENVAT credit taken on inputs and
  input services during the half year for providing
  partial reverse charge services (A) (B)

63
Notification No.12/2014-ST issued under Rule 5B

• Where,
• A
• B Service tax paid by the service provider
  for such partial reverse charge services during
  the half year

CENVAT credit taken on inputs and input services during the half year () turnover of output service under partial reverse charge during the half year
CENVAT credit taken on inputs and input services during the half year () total turnover of goods and services during the half year
64
Notification No.12/2014-ST issued under Rule 5B
Other conditions

• the refund shall not exceed service tax liability
  paid /payable by the recipient of service on the
  partial reverse charge services provided during
  the relevant half year
• the refund amount shall be debited in CENVAT
  credit account at the time of making the claim
• Where refund sanctioned is less than the refund
  claimed, then the claimant may take back the
  credit of the difference between the amount
  claimed and the amount sanctioned
• the claimant shall submit not more than one claim
  of refund under this notification for every half
  year
• the refund claim shall be filed after filing of
  service tax return

65
Rule 6- Definitions

Exempted goods Excisable goods exempt from whole of duty of excise NIL rates goods Goods leviable to 1 / 2 duty in terms of Notification 1/2011-C.E.,
Exempted Services Service exempt from service tax Services covered under negative list Services which are partially exempt under the condition of non availment of cenvat credit Does not include export of service
Output service Services provided by provider of service located in taxable territory. Does not include Services covered under Negative list Services on which recipient is liable to service tax to the extent of 100
66
Rule 6
Sub Rule Scope of the provisions Scope of the provisions
(1) No Credit on Inputs In or in relation to the manufacture of exempted goods or for provision of exempted services
(1) No Credit on input services 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
(2) Common inputs / input services are used for manufacture of both dutiable as well as exempted goods or provides taxable as well as exempted services then separate records shall be maintained. Avail credit only to the extent of taxable goods and services
67
Rule 6
Separate records Separate records
Inputs Receipt, consumption and inventory of inputs used in or in relation to the manufacture of exempted goods manufacture of dutiable final products for the provision of Exempted services Taxable services
Input services Receipt and use of input services- In or in relation to the manufacture of exempted goods clearance of final products upto the place of removal manufacture of dutiable final products For the provision of exempted services and output services
68
Options available under R. 6
Common Inputs/ input services
Rule 6(2)
YES
Avail appropriate Cenvat Credit
Separate records maintained
NO
Option I
Option II
Option III
Reversal of appropriate credit
Payment of 6 of value of exempted goods /
Exempted Services
Inputs Separate records Input services- Follow
option II
Follow Rule 6(3A) and reverse proportionate
Credit attributable to exempted goods
69
Rule 6
Specific to some service providers Specific to some service providers
Banking and other financial institutions Reverse or pay an amount equal to 50 of the Credit availed during the month
Other important points
Reversal under Rule 3 would be deemed to be credit not taken
no Credit on inputs/ inputs exclusively used for exempted activity
Rule 6(4) No credit on CG which are exclusively used in manufacture of exempted goods or provision of exempted service. Except where final products are exempt under SSI Not
70
Rule 6 Non-applicability
Rule 6 not Applicable to certain clearances Rule 6 not Applicable to certain clearances
Clearance of goods To EOU, SEZ, Export, ICB projects,. Certain Power projects
Rule 6 not Applicable to SEZ Exports Rule 6 not Applicable to SEZ Exports
Sub-rule (7) To the taxable services provided, without payment of service tax, to a SEZ Unit or SEZ Developer for their authorised operations.
Sub-rule (8) a service provided shall not be an exempted service when Service satisfies the conditions under Rule 6A of Service Tax Rules, 1994 and payment is to be received in convertible foreign currency and such payment has not been received for a period of 6 months or extended period allowed by RBI
71
RULE 7
REF Nature of Amendment
Rule 7 Provides for input service distribution
Rule 7 Following new conditions added (a) the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon (b) credit of service tax attributable to service used by one or more units exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed
72
REF Nature of Amendment
Rule 7 (c) credit of service tax attributable to service used wholly by a unit shall be distributed only to that unit and (d) credit of service tax attributable to service used by more than one unit shall be distributed pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all its units, which are operational in the current year, during the said relevant period. Explanation 1.- For the purposes of this rule, unit includes the premises of a provider of output service and the premises of a manufacturer including the factory, whether registered or otherwise. Explanation 2.- For the purposes of this rule, the total turnover shall be determined in the same manner as determined under rule 5.
73
Input Service Distributor

• Explanation 3.- For the purposes of this rule,
  the relevant period shall be,-
•   (a) If the assessee has turnover in the
  financial year preceding to the year during
  which credit is to be distributed for month or
  quarter, as the case may be, the said financial
  year or
•   (b) If the assessee does not have turnover for
  some or all the units in the preceding financial
  year, the last quarter for which details of
  turnover of all the units are available, previous
  to the month or quarter for which credit is to be
  distributed..
• Substituted by Notification No. 05/2014 Central
  Excise (N.T.) dated 24.02.2014.

74
Rule 7A Distribution of credit on input and
capital goods by service provider

• Service provider shall be allowed to take credit
  on input and capital goods received
• On the basis of invoice or bill or challan issued
  by the office or premises of the said service
  provider
• Such office or premises receives invoices, issued
  in terms of Central Excise Rules, 2002 towards
  inputs and capital goods.
• Provisions of CCR, 2004 and other rules as
  applicable to First Stage Dealer / Second Stage
  Dealer shall mutatis mutandis apply to such
  premises or office of service provider

75
Other Rules

• Rule 8 Storage of input outside the factory of
  the manufacturer.
• In exceptional circumstances, Deputy Commissioner
  or Assistant Commissioner may permit storage
  inputs outside factory subject to terms and
  conditions

76
Cenvat Credits Documents and Accounts

• Rule 9 (1) - Cenvat credit shall be taken by
  manufacturer or service provider on the basis of
  following documents
• Invoice issued by
• A manufacturer for clearance of inputs or capital
  goods from factory or depot or inputs or capital
  goods as such
• An Importer
• An importer from his depot or consignment agent
  of importer registered in terms of Central Excise
  Rules, 2002
• First Stage Dealer / Second Stage Dealer
• b) A Supplementary invoice issued by the
  manufacturer

77
Rule 9 Documents and Accounts

• (bb) A Supplementary invoice issued by Service
  Provider
• (c) A bill of entry
• (d) A certificate issued by appraiser of customs
  in respect of goods imported through a Foreign
  Post Office.
• (e) a challan evidencing payment of service tax
  by the person liable to pay service tax
• (f) An invoice or bill or challan issued by
  provider of input services on or after 10.9.2004.
• (g) An invoice or bill or challan issued by Input
  Service distributor under Rule 4A of Service Tax
  Rules, 1994

78
Returns under Cenvat Credit Rules, 2004

• Rule 9(7) Monthly return on Cenvat credit
  availed within ten days from the close of each
  month - in Form ER1.
• SSI units - Quarterly return within twenty days
  after the close of the quarter in Form ER3.
• Rule 9(8) - First stage dealer/ Second stage
  dealer, Registered Importer shall submit the
  Return within fifteen days from the close of each
  quarter of a year to the Superintendent of
  Central Excise.
• Rule 9(9) Service Provider shall submit a half
  yearly return in form specified, by notification,
  by the Board to the Superintendent of Central
  Excise, by the end of the month following the
  particular quarter or half year in Form ST3 on
  or before 25th of next month following the half
  year.

79
Information relating to principal inputs

• Rule 9A (1) Annual information statement in the
  Form ER 5 relating to the principal inputs before
  30th April of each financial year.
• Rule 9A(3) - A monthly return in Form ER-6 in
  respect of information regarding the receipt and
  consumption of each principal inputs reference to
  the quantity of final products manufactured by
  him before 10th day of close of each month.
• However, ER5 and ER6 to be filed only if
• (a) the products manufactured fall under
  Chapters 22,28,29,30,32,33,34,38,40,48, 54.02,
  54.03, 55.01, 5502, 55.03, 55.04, 72, 73, 74, 76,
  84, 85, 87,90 and 94 and All goods falling under
  Heading Nos 54.02, 54.03, 55.01, 55.02, 55.03 and
  55.04
• (b) the manufacturer is paying excise duty of
  Rs. One crore or more

80
Transfer of Cenvat Credit Rule 10

• Unutilised cenvat credit can be transferred by
  manufacturer or output service provider in case
  factory is transferred on account of
• Change in ownership
• Sale
• Merger
• Amalgamation
• Lease
• Transfer of factory to a joint venture
• Subject to the condition that transfer is duly
  accounted to the satisfaction of AC/DC of CE

81
Transitional provision Rule 11

• Any amount of credit earned under
• a) Cenvat Credit Rules, 2002
• b) Service Tax Credit Rules, 2002
• remaining unutilised as on 10.9.2004 shall be
  allowed as Cenvat Credit by the manufacturer/
  output service provider

82
Other Provisions

• Rule 12AProcedure and facilities for LTU
  Notwithstanding anything contained in CCR, 2004
• (1) A large tax payer unit (LTU) may remove
  inputs, with few exceptions, without payment of
  an amount specified in Rule 3(5) under the cover
  of a transfer challan or invoice, from any of his
  registered premises to his other registered
  premises for further use in the manufacture or
  production of final products in recipient
  premises subject to condition
• (a) the final products are manufactured using the
  inputs and cleared on payment of excise duty
  leviable within 6 months, from the date of
  receipt of inputs in the recipient premises or
• (b) the final products are manufactured using the
  said inputs and exported out of India, under bond
  /LUT within 6 months

83
Rule 12A-LTU

• Further LTU has to satisfy any other conditions
  prescribed by Commissioner of Central Excise,
  Large Tax payer Unit.
• Explanation 1. The transfer challan or invoice
  shall be serially numbered and shall contain the
  registration number, name, address of the large
  tax payer, description, classification, time and
  date of removal, mode of transport and vehicle
  registration number, quantity of the goods and
  registration number and name of the consignee

84
Rule 12A LTU procedure

• Where the recipient unit which manufactures the
  final products using the said inputs does not
  clear the same on payment of excise duty or the
  said goods are not exported within 6 months, or
  such inputs are cleared as such, then recipient
  unit has to pay cenvat amount taken on such
  inputs by the sender premises with interest under
  rule 14 of these rules.
• Provided where capital goods are used exclusively
  in the manufacture of exempted goods, or such
  capital goods are cleared as such from the
  recipient premises, cenvat credit taken on such
  capital goods by the sender premises shall be
  paid by the recipient premises with interest
  under rule 14.
• However, the above procedure / exemption is not
  applicable to EOUs, EHTPs STPs as well as
  certain exemption notifications

85
Rule 12A - LTU

• A large tax payer may transfer, CENVAT credit
  from one registered manufacturing premises or
  premises providing taxable service to his other
  such registered premises by, -
• (i) making an entry for such transfer in the
  record maintained under rule 9
• (ii) issuing a transfer challan containing
  registration number, name and address of the
  registered premises transferring the credit as
  well as receiving such credit, the amount of
  credit transferred and above referred
  particulars,
• The recipient premises can take CENVAT credit on
  the basis of such transfer challan as mentioned
  in clause (ii) subject to the limitations
  prescribed under clause (b) of sub-rule (7) of
  rule 3

86
Rule 12AAA Power to impose restrictions in
certain types of cases provisions

• Notwithstanding anything contained in these rules
  
• Central Government is empowered impose
  restriction for preventing misuse of cenvat
  credit provisions.
• Such restrictions may be on manufacturer, first
  stage and second stage dealer or an exporter
• specify the nature of restrictions including
  restrictions on utilization of CENVAT credit and
  suspension of registration in case of a dealer
  and type of facilities to be withdrawn and
  procedure for issue of such order by the Chief
  Commissioner of Central Excise.

87
Notification under Rule 12AAA

• Notification No.16/2014-CE (NT) dated 21.03.2014
  - Chief Commissioner of CE may order for
  withdrawal of facilities or impose restrictions
  in the following cases 
• (a) removal of goods without the cover of an
  invoice and without payment of duty
• (b) removal of goods without declaring the
  correct value for payment of duty, where a
  portion of sale price, in excess of invoice
  price, is received by him or on his behalf but
  not accounted for in the books of account
• (c) taking of CENVAT Credit without the receipt
  of goods specified in the document based on which
  the said credit has been taken
  CONTINUED

88
Notification under Rule 12AAA

• (d) taking of CENVAT Credit on invoices or other
  documents which a person has reasons to believe
  as not genuine
• (e) issuing duty of excise invoice without
  delivery of goods specified in the said invoice
• (f) claiming of refund or rebate based on the
  duty of excise paid invoice or other documents
  which a person has reason to believe as not
  genuine
• (g) removal of inputs as such on which Cenvat
  credit has been taken, without paying an amount
  equal to credit availed on such inputs in terms
  of sub-rule (5) of rule 3 of the Cenvat Credit
  Rules, 2004,

89
Rule 13 Power of Central Government to notify
goods for deemed CENVAT credit

• Notwithstanding anything contained in Rule 3,
  Central Government by notification
• Declare the input or input service on which
  excise duty / CVD / service tax paid, shall be
  deemed to have been paid at such rate or 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 the input or input service
  are not used directly by the manufacturer of
  final products, or by the provider of output
  service, declared in that notification, but
  contained in the said final products or used in
  providing the output service.

90
Recovery of Cenvat Rule 14

• Where cenvat credit is taken and utilised wrongly
  or erroneously refunded
• Such cenvat credit along with interest shall be
  recovered under the above Rule and the following
  provisions will be applicable
• Section 11A 11AB of CE Act, 1944
• Section 73 75 of Finance Act, 1994

91
Confiscation Penalty

• Rule 15(1) Wrong availment of Cenvat credit on
  inputs without taking reasonable steps to ensure
  payment of duty or contravenes any provisions of
  Rules Minimum Rs.2,000
• Rule 15(2) Availment or utilisation of cenvat
  credit of input or capital goods on account of
  fraud, wilful mis-statement, collusion or
  suppression of facts or contravention of any
  provisions of Rules Section 11AC of Central
  Excise Act, 1944
• Rule 15(3) - Availment or utilisation of cenvat
  credit of input service on account of fraud,
  wilful mis-statement, collusion or suppression of
  facts or contravention of any provisions of Rules
  S. 78 of Finance Act, 1994

92
Confiscation Penalty

• Rule 15A General Penalty
• A new Rule 15 A has been inserted w.e.f.
  01.03.2008 which stipulates that if an assessee
  has contravened the provisions of the Rules and
  no penalty is prescribed in the Rules for such
  contravention, he will be liable for a maximum
  penalty of Rs. 5000/-

93
Thank you
V.RAGHURAMAN B Com, FCA, LLB, ACS, Grad. CWA
Email id vraghuraman_at_vraghuraman.in