Persisting Issues under the Cenvat
Credit Rules, 2004
Bimal Jain
FCA, FCS, LLB, B.Com (Hons)
Co-Chairman of IDT of PHD Chamber of Commerce
Member of IDT of FICCI/ Assocham
Member of Service Tax Committee of ICAI/ ICSI
Member of Indirect tax faculties of ICAI/ICSI/ICWAI
Unsettling the Settled Jurisprudence
Capital Goods
Inputs
Input Services
Manufacturing of Goods
Rendering of Services
Change in the definition of Inputs/ Input Services w.e.f 1-4-2011
Why there is restriction clauses Inputs/ Input Services
Inputs/ Services related to civil construction
Services related to motor vehicle i.e. Rent a Cab services
Services which are used for consumption of any employees
Restrict seamless flow of credit Cascading effects
Now, Time limit to avail Cenvat Credit on Inputs/ Input Services
2
CA Bimal Jain
12/9/2014
Cenvat Credit Input Services
Rule 2(l) of the CCR, 2004 input service means any service, (i) 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
What is Place of Removal S. 4(3)(c) of CEA, 1944 Cenvat Credit
on Inward Transportation & Outward Transportation
Cenvat Credit allowed up to place wherefrom excisable goods are
sold & Risk lies with the Manufacturer & No Freight charged
separately
3
CA Bimal Jain
12/9/2014
Cenvat Credit Place of Removal
Rule 2(qa) Place of removal means-
i.
a factory or any other place or premises of production or
manufacture of the excisable goods;
ii. a warehouse or any other place or premises wherein the
excisable goods have been permitted to be deposited without
payment of duty;
iii. a depot, premises of a consignment agent or any other place or
premises from where the excisable goods are to be sold after
their clearance from the factory,
from where such goods are removed;.
4
CA Bimal Jain
12/9/2014
Cenvat Credit Input Services
What is Place of Removal
Circular No. 988/12/2014-CX dated October 20, 2014 the place
where sale has taken place or when the property in goods passes
from the seller to the buyer is the relevant consideration to
determine the place of removal
Contrary Judgments Ultratech Cement Ltd. Vs. Commissioner
of C. Ex., Chandigarh [2013 (30) S.T.R. 220 (Tri. - Del.)],referring of
C.C.E., Bangalore Vs. ABB Ltd. [2011 (23) S.T.R. 97 (Kar.)]
Relief comes from Lafarge India Ltd. Vs. CCE, Raipur [2014TIOL-1720-HC-CHHATTISGARH-CX] and then followed Ultra Tech
Cement Ltd. Vs. CCE, Raipur [2014-TIOL-1437-HC-CHHATTISGARHCX]
5
CA Bimal Jain
12/9/2014
Cenvat Credit Input Services
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, such as 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,6
CA Bimal Jain
12/9/2014
Cenvat Credit Input Services
Whether Cenvat Credit available of Service tax paid on
commission to foreign Commission Agent for procuring order for
Indian Manufacturer/ Exporter?
CCE, Ludhiana Vs. Forgings & Chemicals Industries [2014 (10)
TMI 281 - CESTAT NEW DELHI] Service of procuring export
order is, obviously, the service of marketing/ sales promotion and
also an activity related to the manufacturing business of the
Assessee. Thus, the Assessee is eligible for availing Cenvat credit
Commissioner Vs. Dynamic Industries Ltd. [(2014) 49
taxmann.com 240 (Gujarat] BAS received from overseas
commission agents who procured export orders has no nexus
with the manufacturing of final products and hence the same
cannot be treated as input service.
7
CA Bimal Jain
12/9/2014
Cenvat Credit Input Services
(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
CA Bimal Jain
12/9/2014
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
9
CA Bimal Jain
12/9/2014
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;
10
CA Bimal Jain
12/9/2014
Cenvat Credit Capital Goods
Rule 2(a) of CCR, 2004 Capital Goods" means:(A) the following goods, namely:(i) 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
11
CA Bimal Jain
12/9/2014
Continue
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
S.No.
Tariff Heading
Description of Motor Vehicle
8702
Motor Vehicles for the transport of ten or more persons, including
driver
8703
Motor Cars/ other motor vehicles principally designed for the
transport of persons including station wagons and racing cars
8704
Motor Vehicles for transport of goods
8711
Motor Cycles (including mopeds) and cycles fitted with an auxiliary
motor, with or without side-cars
Chassis of all the Motor Vehicle prescribed above
12
CA Bimal Jain
12/9/2014
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;
13
CA Bimal Jain
12/9/2014
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
14
CA Bimal Jain
12/9/2014
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
15
CA Bimal Jain
12/9/2014
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 excludes16
CA Bimal Jain
12/9/2014
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;
17
CA Bimal Jain
12/9/2014
Cenvat Credit Inputs
Exclusions..
(A) light diesel oil, high speed diesel oil or motor spirit, commonly
known as petrol;
(B) any goods 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 service portion in the execution of a
works contract or construction service as listed under clause (b) of
section 66E of the Act;
18
CA Bimal Jain
12/9/2014
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.
19
CA Bimal Jain
12/9/2014
Time Limit Cenvat Credit
Whether there is any time limit for availing Cenvat
credit?
Credit availed in the year 2009 for the period from
October 2004 to March 2009
No where in the Central Excise Act as well as in the Cenvat
Credit Rules prescribed any period in which credit has to
be taken. Although it is mentioned in the Cenvat Credit
Rules that assessee can take the credit immediately, but
there is no prescribed time limit
Central Bank Of India Vs. CCE & Service Tax, Coimbatore
2013 (32) S.T.R. 525 (Tri. - Chennai)
20
CA Bimal Jain
12/9/2014
Credit Service vs. Inputs/CG
Cenvat Credit - Input Services Vs. Inputs/ CG
W.e.f 1-9-2014: Time limit to avail Cenvat Credit by
Manufacturer or Service Provider within 6 months of the date of
issue of any of the documents specified in sub- rule (1) of Rule 9
Payment to SP is not made with in 3 months from date of invoice then Reverse Credit and re-avail after payment
When SP has paid on accrual basis Govt. collected the Tax/
Why denial after 3 months?? - POT Receipt Vs. Accrual w.e.f 14-2011
What Happen Cenvat Credit Taken/ Not taken on Interpretation
issue
21
CA Bimal Jain
12/9/2014
Credit Service vs. Inputs/CG
What Happen Cenvat Credit Not taken for Invoices prior to 1-92014?
Ashok Leyland Ltd vs. Commissioner of Central Excise, Nagpur
2014 TIOL 2102 CESTAT MUM Rule 57G of CER, 1944
specifically provided that no credit under sub-rule (3) shall be
taken by the manufacturer unless the inputs are received in the
factory under the cover of specified documents. Further, subrule (5) specifically provided that credit shall not be taken by the
manufacturer after six months of the date of issue of any
document specified in sub-rule (3).
22
CA Bimal Jain
12/9/2014
Reverse Charge Credit Rule 4(7)
W.E.F: 1-9-2014:
Full Reverse Charge Cenvat Credit - Where the service tax is paid
on reverse charge by the recipient of the service, the CENVAT
credit in respect of such input service shall be allowed after the
service tax is paid
Partial Reverse Charge Cenvat Credit - 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 referred to in Rule 9.
What happen in case of Partial payment of input services in
partial Reverse charge
23
CA Bimal Jain
12/9/2014
Offences - Imprisonment
S.89(1)Whoever commits any of the following offences:a) Knowingly Evades the payment of Service Tax Uniworth Textiles Ltd. Vs. Commissioner of CE, Raipur
[2013-TIOL-13-SC]
b) Availment and utilisation of Credit without actual
receipt of Taxable services or excisable goods partially
or fully / Violation of Rules
c) Maintains false books of Accounts or fails to supply
information/ supply false information
d) Fails to pay Service Tax already collected within 6
months,
24
CA Bimal Jain
12/9/2014
Personal Penalty Officials of Company
New S. 78A Impose penalty which may extend to Rs. 1
lakh on
Directors, Manager, Secretary and other officials of the
Company, for specified offences: Evasion of Service Tax
Issuance of Invoice/ Bill/ Challan without provision of
Service/ Violation of Rules
Availment and utilisation of Credit without actual
receipt of Taxable services or excisable goods/
Violation of Rules
Failure to pay Service Tax already collected within 6
months
25
CA Bimal Jain
12/9/2014
Utilization of Credit One to One CoCo-relation
Whether there is need for one to one co-relation of
CENVAT credit availed on input services towards payment
of output services?
Failure to maintain separate accounts for inputs/ input
service availed for providing output service
No requirement for one to one correlation
Rule 3(4) provides that credit may be utilized for payment
only to the extent such credit is available on the last day of
the month or quarter
Jyoti Structures Ltd. Versus Commissioner of Central
Excise, Nasik [2012 (10) TMI 335- CESTAT, Mumbai]
26
CA Bimal Jain
12/9/2014
Cenvat Credit Utilization
Rule 3(4) Cenvat credit can be utilized for payment ofExcise 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 the CE 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
27
CA Bimal Jain
12/9/2014
Service Tax CCR
Other duties should not be utilised for payment of NCCD of certain
goods.
Other duties should not be utilised for payment of the Clean
Energy Cess.
Other duties should not be utilised for payment of additional duty
(Pan Masala and Tobacco Products).
28
CA Bimal Jain
12/9/2014
Cenvat Credit Input Service
Deficiency of Service/ Renegotiation of Invoice: Payment
or part thereof is returned or credit note is issued by SP,
proportionate credit shall be reversed or paid Rule 6(3)
of STR
What happen in case of Bad debts - F. No.341/34/2010TRU dated. 31-3-2011: Dispute persists
Invoice/ bill issued prior to 1.4.2011 - Credit after the
date of payment of value of service Litigation on
amended Input Service like Outdoor catering, Rent a cab,
etc. Circular No. 943/04/2011-CX dated - 29-04-2011
29
CA Bimal Jain
12/9/2014
Registration Cenvat Credit
Whether registration required as condition for availing
Cenvat Credit?
Registration and eligibility of Cenvat Credit are
Independent issue Well Known Polyesters Limited [2011
(267) E.L.T. 221 (Tribunal)
Distribution of Cenvat credit as ISD even if invoices prior to
registration PRECISION WIRES INDIA LTD. Vs. CCE, VAPI
2013 (31) S.T.R. 62 (Tri. - Ahmd.)
30
CA Bimal Jain
12/9/2014
Cenvat Credit on Capital Goods
Cenvat Credit on CG U/R 4(2) - Distributed over two years
Whether Cenvat credit on capital goods for which 50%
credit was availed in 1st year, can be denied in
subsequent year when the final product is exempted from
duty Kothari Fermentation and Biochem Ltd. Vs. CCE,
Noida [2012 (8) TMI 106 - CESTAT, New Delhi]
Whether Capital goods initially used for exempted goods
but later for excisable goods CCE Vs. Kailash Auto
Builders (2011) 33 STT 323 (Karn HC DB)
31
CA Bimal Jain
12/9/2014
Changes in Rule 3(5) - CCR
If Manufacturer or Service provider fails to pay the amount
payable:
- Under sub-rules (5) i.e. inputs or capital goods removed
as such,
- under sub-rules (5A) i.e. the capital goods are removed
after being used or as scrap/ waste, N No. 12/2013-CE
(NT) Sep 27, 2013, and
- under sub rules (5B) i.e. inputs or capital goods before
being put to use is written off fully or partially,
Then, it shall be recovered, in the manner as provided in
Rule 14, for recovery of CENVAT credit wrongly taken.
32
CA Bimal Jain
12/9/2014
Capital Goods Rule 3(5)
Whether reversal of credit availed on input services
required U/R 3(5) For reversal of Cenvat credit on
inputs or capital goods removed as such?
Proportionate Cenvat credit of service tax paid on the GTA
service in bringing the inputs was directed to be reversed
Not applicable to the credit availed on the "input services No
Reversal required
Seven Star Steels Ltd. Versus Commissioner of Central Excise,
Customs & Service Tax, BBSR-II [(2013] 32 taxmann.com 186
(Kolkata)]
33
CA Bimal Jain
12/9/2014
Capital Goods Rule 3(5B)
Whether Valuing defective inputs at lower rate cannot be
made equivalent to writing off the value in the books for
demanding reversal of Cenvat credit?
Autoline Vs. CCE, Kolhapur [2014-TIOL 2003CESTATMUMBAI] Rule 3(5B) of the Credit Rules is
applicable in the circumstances where inputs on which
Cenvat credit has been taken is written off fully or where
any provision to write off fully has been made in the books
of account. In the instant case, there is no such finding. It
was further held that valuing at lower rate is not
equivalent to writing off the value of inputs in the books of
account
34
CA Bimal Jain
12/9/2014
Cenvat Credit under ST VCES, 2013
Rule 6(2) of VCES Rules restricts utilization of Cenvat Credit
for payment of Tax dues declared under the VCES?
Whether the tax dues paid under VCES would be eligible as
CENVAT credit to the recipient of service under a
supplementary invoice?
Circular No. 176/2/2014-ST dated January 20, 2014
Cenvat credit available only after payment of entire service
tax dues and obtaining discharge certificate in form VCES 3
35
CA Bimal Jain
12/9/2014
Abatement vs. Cenvat credit
What if Assessee used to claim the benefit of both
Abatement and CENVAT, Entire benefit of Abatement
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
KHYATI TOURS & TRAVELS Vs. 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.
36
CA Bimal Jain
12/9/2014
Other Cases Cenvat Credit
Whether
(i) Cenvat credit can be denied on inputs used in a process
not considered as manufacture; and
(ii) Excise duty paid on such goods can again be demanded
under Section 11D of the Central Excise Act, 1944?
CENVAT credit taken on inputs used in the manufacture of
finished goods is not liable to be disallowed on the ground
that the process in which the inputs were used did not
amount to manufacture.
CCE Vs. Amar Roto Prints [2013-TIOL-926-CESTAT-BANG]
37
CA Bimal Jain
12/9/2014
Other Cases Cenvat Credit
Whether there is any need to reverse Cenvat credit
availed of duty paid on HR coils/sheets for discharging
duty on HR slitted and pickled coils on dispute whether
slitting and pickling is a manufacturing activity under
Section 2(f) of the Central Excise Act, 1944?
Asian Colour Coated Ispat Ltd. Vs. Commissioner of Central
Excise, Delhi-III [2014-TIOL-2111-CESTAT-DEL] Since the
amount paid on the clearance of pickled HR sheets is more
than the Cenvat credit availed, the Cenvat credit availed
stands more than reversed and there is no need to recover
the same again.
38
CA Bimal Jain
12/9/2014
Other Cases Cenvat Credit
Whether classification/ duty liability can be altered or
challenged at the end of Users?
Classification of inputs/ capital goods is under jurisdiction
supplier of inputs
Cannot be altered at the end of user of inputs who is
availing Cenvat credit
Flextronics Technologies vs. CCE (2010) 29 STT 233
(CESTAT)
39
CA Bimal Jain
12/9/2014
Other Cases Cenvat Credit
Whether Credit of duty paid by supplier can be disputed
at Users end?
No fault in availment of credit by assessee - Person availing
credit of duty paid by input supplier not expected to
examine legal dispute as regard supplier being
manufacturer or not.
Excise officer at Users end has no jurisdiction to decide
whether duty was short paid or excess paid.
CCE vs. Advance Diesels Engines (2012) 278 ELT 491
(CESTAT)
40
CA Bimal Jain
12/9/2014
Interest & Penalty Wrong availment
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
Why Not at Par and with Retrospective Benefits
extended
41
CA Bimal Jain
12/9/2014
Export of Services (Rule 6A of ST Rules, 1994)
Any service provided or agreed to be provided shall be treated
as export of service when 1. The provider of service is located in the taxable territory
2. The recipient of service is located outside India
3. The service is not a service specified in the negative list
under section 66D of the Act
4. The POP of the service is outside India
5. The payment for such service has been received by the
provider of service in convertible foreign exchange, and
6. The provider of service and recipient of service are not
merely establishments of a distinct person in accordance
with item (b) of Explanation 3 of clause (44) of Section 65B
of the Act
42
CA Bimal Jain
12/9/2014
Export - Exempted Service R 2(e)
Taxable service which is exempt from the whole of the service
tax leviable thereon; or
i.
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
43
CA Bimal Jain
12/9/2014
Export - Exempted Service
CONSIDERED AS NON EXEMPT SERVICE UNDER CENVAT
CREDIT RULES
W.e.f 11-7-2014: Rule 6(8) of Cenvat Credit Rules, 2014
Provided that if such payment is received after the specified or
extended period allowed by the Reserve Bank of India but within
one year from such period, the service provider shall be entitled to
take the credit of the amount equivalent to the CENVAT credit paid
earlier in terms of sub rule (3) to the extent it relates to such
payment, on the basis of documentary evidence of the payment so
received..
44
CA Bimal Jain
12/9/2014
Service Tax CCR - Refund
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
What about Capital Goods?
45
CA Bimal Jain
12/9/2014
Refund - Rule 5B
Rule 5B allows such service provider to claim refund of
such input tax credits Partial/ Reverse Charge
Notification No. 28/2012-CE (NT) Dated 20/06/2012 No
procedure, safeguards, conditions and limitations, is
prescribed for refund
46
CA Bimal Jain
12/9/2014
Service Tax CCR -ISD
Rule 7 ISD may distribute the CENVAT credit in respect of
service tax paid on the input service to its manufacturing units
or units providing output service
- Credit distributed not to exceed amount of ST paid thereon;
- No Credit distributed of service tax attributable to unit exclusively
engaged in manufacture of exempted goods or providing of
exempted service
- To extent Service Utilized by respective Unit or
- Pro rata on the basis of the turnover during the relevant period of
the concerned unit to the sum total of the turnover of all the
units to which the service relates during the same period.
Relevant period shall be the month previous to the month during
which the CENVAT credit is distributed.
47
CA Bimal Jain
12/9/2014
Service Tax CCR -ISD
Open Issues:
- Whether unaudited Monthly figures acceptable to Dept. Not
subject to Litigation
- Whether it is compulsory to distribute monthly
- What happen if particular month does not have turnover from
exempted Unit
- Keeping track of Input Service utilized by respective Unit
- What happen for Capital Intensive project where Turnover starts
only after a reasonable period
48
CA Bimal Jain
12/9/2014
Policy Issue: Input Service Credit Job Work
Brand Owners (Principal manufacturers) who employ jobworkers exclusively for manufacture of goods, the job
worker is eligible to claim credit on inputs and capital
goods (Purchased by the Principal manufacturer) by
receiving the same in its factory
Principal manufacturer cannot avail the credit on input
services since he is not the manufacturer and the
manufacturer, i.e., the job-worker, cannot avail the credit
since he has not paid for the taxable input service
No provision to allow the Principal Manufacturer to
distribute such credit to the job-worker
49
CA Bimal Jain
12/9/2014
Policy Issue: Accumulation of Cenvat Credit
Accumulation of Cenvat credit with the manufacturers:
- Inverted duty structure/ Lower value addition,
- SAD Credit not fully utilized Refund to Trader etc.
Import vs. Manufacturing
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
W.E.F 11-7-2014: LTU cant transfer Credit from One Unit
to Another
50
CA Bimal Jain
12/9/2014
Policy Issue:
Issue: Employers Service to Employees
Number of facilities provided by an employer to the
employee have come within the service tax net and
proposed by Draft Circular F. No. 354/127/2012-TRU
dated 27th July 2012
Like canteen in factory/ office premises, transport
facilities, etc., for which a fixed amount recovered from
the employees
Whether the employer is allowed to take the credit of
service tax paid on outdoor catering, transport services,
etc., availed by it for providing such services to its
employees
51
CA Bimal Jain
12/9/2014
Cenvat Credit Matching Concept
Whether assessee is expected to verify with Department
whether supplier had paid duty on inputs supplied, in
order to avail Cenvat credit?
No specific condition under Credit Rules
Sub rule (5) and (6) of Rule 9 of Credit Rules, only specify
that burden of proof lies on Manufacturer or Service
Provider regarding admissibility of the CENVAT credit on
Inputs, Capital Goods and Input Services
CCE, Jalandhar Vs. Kay Kay Industries [AIT-2013-147-SC]
52
CA Bimal Jain
12/9/2014
Rule 6(1) - Obligation
No credit will be allowed on
Such quantity of inputs used
in or in relation to the manufacture of exempted
goods or
for provision of exempted services,
input service used
in or in relation to the manufacture of exempted
goods and their clearance up to the place of
removal or
for provision of exempted services
except as mentioned in sub-rule (2).
53
CA Bimal Jain
12/9/2014
Rule 6(2)
In case of Common Cenvat credit availed in respect of any
inputs or input services and
then, the manufacturer or provider of output service shall
maintain separate accounts for
54
(a) the receipt, consumption and inventory of inputs used (i) in or in relation to the manufacture of exempted goods;
(ii) in or in relation to the manufacture of dutiable final
products excluding exempted goods;
(iii) for the provision of exempted services;
(iv) for the provision of output services excluding
exempted services; and
CA Bimal Jain
12/9/2014
Rule 6(2)
(b) the receipt and use of input services (i) in or in relation to the manufacture of exempted goods
and their clearance upto the place of removal;
(ii) in or in relation to the manufacture of dutiable final
products, excluding exempted goods, and their clearance
up to the place of removal;
(iii) for the provision of exempted services; and
(iv) for the provision of output services excluding exempted
services,
and shall take CENVAT credit only on inputs under sub-clauses
(ii) and (iv) of clause (a) and input services under sub-clauses (ii)
and (iv) of clause (b).
55
CA Bimal Jain
12/9/2014
Rule 6(3)
Notwithstanding anything contained in sub-rules (1) and (2)
Opting not to maintain separate accounts, shall follow any
one of the following options, as applicable to him, namely:
Pay an amount equal to six per cent. of value of the
exempted goods and exempted services; or
Pay an amount as determined under sub-rule (3A); or
Maintain separate accounts for the receipt, consumption
and inventory of inputs as per 6(2), and for input service pay
the ineligible amount computed as per sub-rule (3A)
56
CA Bimal Jain
12/9/2014
Rule 6(3)
Abatement for payment of service tax with a condition that
no credit on inputs and input services, value for 6% will be
only the exempted value.
In case of transportation of goods or passengers by rail
instead of 6% of exempted value, it should be 2% of exempted
value.
Any option taken it should be for all exempted goods/services
and such option cannot be withdrawn during the remaining
part of the financial year.
Rule 6(3A) Determination,
Conditions and Procedure
While
exercising
this
option
(Formula
Based),
Manufacturer/service provider has to intimate in writing to
the SCE giving the following particulars: name, address and registration No. of the manufacturer of
goods or provider of output service;
date from which the option under this clause is exercised
or proposed to be exercised;
description of dutiable goods or output services;
description of exempted goods or exempted services;
CENVAT credit of inputs and input services lying in balance
as on the date of exercising the option under this
condition
Rule 6(3A) Determination,
Conditions and Procedure
After choosing option by Manufacturer or the provider of output
service:
Details of CENVAT credit attributable to exempted goods and
exempted services, month wise, for the whole financial year,
determined provisionally,
CENVAT credit attributable to exempted goods and exempted
services for the whole financial year, determined
Amount short paid determined along with the date of payment
Pay the amount so calculated on or before 30th June of the
succeeding financial year
Interest payable and paid, if any, on the amount short-paid,
determined, and
Credit taken on account of excess payment, if any, determined;
Rule 6(3A) Determination,
Conditions and Procedure
Where the amount determined under condition (h) is
not paid within the said due date, i.e., the 30th June,
the manufacturer of goods or the provider of output
service shall, in addition to the said amount, be liable
to pay interest at the rate of twenty four per cent. per
annum from the due date till the date of payment.
Rule 6(3B) (3D)
6(3B) - A banking company and a financial institution including
a non-banking financial company, engaged in providing
services by way of extending deposits, loans or advances, shall
pay for every month an amount equal to fifty per cent. of the
CENVAT credit availed on inputs and input services in that
month.
6(3D) - Payment of an amount under sub-rule (3) shall be
deemed to be CENVAT credit not taken for the purpose of an
exemption notification wherein any exemption is granted on
the condition that no CENVAT credit of inputs and input
services shall be taken
Explanation Value Sub Rule (3) & (3A)
(a) shall have the same meaning as assigned to it under section 67 of the Finance Act,
read with rules made thereunder or, as the case may be, the value determined under
section 3, 4 or 4A of the Excise Act, read with rules made thereunder;
(b) in the case of a taxable service, when the option available under sub-rules
(7),(7A),(7B) or (7C) of rule 6 of the Service Tax Rules, 1994, has been availed, shall be the
value on which the rate of service tax under section 66B of the Finance Act, read with an
exemption notification, if any, relating to such rate, when applied for calculation of
service tax results in the same amount of tax as calculated under the option availed; or
(c) in case of 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.
(d) in case of trading of securities, shall be the difference between the sale price and the
purchase price of the securities traded or one per cent. of the purchase price of the
securities traded, whichever is more.
e) shall not include the value of services by way of extending deposits, loans or advances
in so far as the consideration is represented by way of interest or discount;
Other Explanation
Explanation II. - The amount mentioned in sub-rules (3), (3A)
and (3B), unless specified otherwise, shall be paid by the
manufacturer of goods or the provider of output service by
debiting the CENVAT credit or otherwise on or before the 5th
day of the following month except for the month of March,
when such payment shall be made on or before the 31st day of
the month of March.
Explanation III. - If the manufacturer of goods or the provider of
output service fails to pay the amount payable under sub-rule
(3), (3A) and (3B), it shall be recovered, in the manner as
provided in Rule 14, for recovery of CENVAT credit wrongly
taken.
6(4)
No CENVAT credit shall be allowed on capital goods
which are used exclusively in the manufacture of
exempted goods or in providing exempted services, other
than the final products which are exempt from the whole
of the duty of excise leviable thereon under any
notification where exemption is granted based upon the
value or quantity of clearances made in a financial year.
Rule 6(6)
The provisions of sub-rules (1), (2), (3) and (4) shall not be
applicable in case the excisable goods removed without payment
of duty are either(i) cleared to a unit in a special economic zone or to a
developer of a special economic zone for their authorized
operations; or
(ii) cleared to a hundred per cent. export-oriented
undertaking; or
(iii) cleared to a unit in an Electronic Hardware Technology
Park or Software Technology Park; or
(iv) supplied to the United Nations or an international
organization for their official use or supplied to projects
funded by them, on which exemption of duty is available
Rule 6(6)
(iva) supplied for the use of foreign diplomatic missions or
consular missions or career consular offices or diplomatic
agents in terms of the provisions of notification No.
12/2012-Central Excise, dated the 17th March, 2012,
number G.S.R. 163(E), dated the 17th March, 2012; or
(v) cleared for export under bond in terms of the provisions
of the Central Excise Rules, 2002; or
(vi) gold or silver falling within Chapter 71 of the said First
Schedule, arising in the course of manufacture of copper
or zinc by smelting, or
Rule 6(6)
(vii) all goods which are exempt from the duties of customs
leviable under the First Schedule to the Customs Tariff Act,
1975 (51 of 1975) and the additional duty leviable under subsection (1) of section 3 of the said Customs Tariff Act when
imported into India and are supplied,(a) against International Competitive Bidding; or
(b) to a power project from which power supply has been tied
up through tariff based competitive bidding; or
(c) to a power project awarded to a developer through tariff
based competitive bidding, in terms of notification No.
12/2012-Central Excise, dated the 17th March, 2012]44
(viii) supplies made for setting up of solar power generation
projects or facilities.
6(7) & (8)
(7) The provisions of sub-rules (1), (2), (3) and (4) shall not be
applicable in case the taxable services are provided, without
payment of service tax, to a unit in a Special Economic Zone or to
a developer of a Special Economic Zone for their authorised
operations or when a service is exported,
(8) For the purpose of this rule, a service provided or agreed to
be provided shall not be an exempted service when:(a) the service satisfies the conditions specified under rule 6A of
the Service Tax Rules, 1994 and the payment for the service is to
be received in convertible foreign currency; and
(b) such payment has not been received for a period of six
months or such extended period as maybe allowed from timeto-time by the Reserve Bank of India, from the date of provision.
CA Bimal Jain
Flat No. 34B, Ground Floor,
Pocket I, Mayur Vihar, PhaseI,
Delhi 110091 India
Desktel:+91-11-22757595/ 42427056
Mobile:+91 9810604563
[email protected]
www.a2ztaxcorp.com
