RAJESH KUMAR T. R.

BCOM, LLB, ACA, DISA(ICA)

Cenvat Credit

Rajesh Kumar T.R.

Coverage Today
Understanding of CENVAT credit and the provisions

relating thereto Benefits of CENVAT credit Issues under CENVAT credit

Rajesh Kumar T.R.

Dimensions
Facilitating provision and not levy provisions Key in decision making

Impact on Cost/Profit Impact on Market Impact on Finance

Compliance

Rajesh Kumar T.R.

Background of CENVAT Credit

It is based on VAT concept to avoid cascading effect of

tax. Power

Sec. 37(2) (xvia) & (xviaa) of Central Excise Act, 1944 Sec. 94(1)(ee) & Sec 94(1)(eee) of Finance Act, 1994

Central Excise Credit came in 1986 MODVAT Changed into CENVAT credit in 2000 Service Tax Credit in 2002 Merged into one in 2004

Rajesh Kumar T.R.

Credit for which duties and taxes?

Central Excise duty BED, SED Additional duty of customs on imports(CVD)

Equal to Excise duty 4% for Sales tax(Mfr)

Additional duty of excise T & T and GSI. Education cess on Excise Duties. Service tax. Education cess on Service Tax. NCCD duty, Cess on Tea, AED (P&TP)

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Paid on what
Inputs Recd. in Factory or TSP premises Capital Goods - Recd. in Factory or TSP premises Input Services Recd. By Mfr. or TSP

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Inputs Definition - Before

input means

all goods, except LDO, HSD, MS, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not

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Inputs Definition - Before

and includes

lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production;

All goods, except LDO, HSD, MS and motor

vehicles, used for providing any output service;

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Inputs Definition - New

input means

all goods used in the factory by the manufacturer of the final product; or 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 all goods used for generation of electricity or steam for captive use; or all goods used for providing any output service;

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Inputs Definition New - Exclusions

LDO, HSD or MS; Any goods used for

construction of

a building or a civil structure or a part thereof; or laying of foundation or making of structures for support of capital goods,

Exception if the same is used for providing

Port

Services or Airport Services Commercial of Industrial Construction Services, Residential Complex Services, Works Contract Services.

Capital goods except when used as parts or components in the manufacture of a final product Motor vehicles;

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Inputs Definition New - Exclusions

Any
food items, goods used in

goods, such as

a guesthouse, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for
personal

Any

goods which have no relationship whatsoever with the manufacture of a final product.

use or consumption of any employee; and

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Input Service - Before

input service means any service,

and includes

used by a provider of taxable service for providing an output service, or used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, services used in relation to

setting up, modernization, renovation or repairs of

advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs,

a factory, premises of provider of output service or an office relating to such factory or premises,

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Input Service - Before

activities relating to business, such as (removed)

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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Input Service - New

"input service" means any service, used

by a provider of taxable service for providing an output service; or used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,

Rajesh Kumar T.R.

Input Service - New

and includes

services

used in relation to
renovation or repairs of (setting up is

modernization,

removed)

a factory, premises of provider of output service or an office relating to such factory or premises,

advertisement

or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing,
Rajesh Kumar T.R.

Input Service - New

financing, recruitment

and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, - New legal services, - New inward transportation of inputs or capital goods and outward transportation upto the place of removal;

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Input Service New - Exclusion

But Excludes

Port Services or Airport Services; Commercial of Industrial Construction Services; Residential Complex Services; Works Contract Services in so far as they are used for- Construction of a building or a civil structure or a part thereof; or

Rajesh Kumar T.R.

Input Service New - Exclusion

But Excludes Laying of foundation or making of structures for support of capital goods,

Exception it is used for providing one or more of the above said specified services; Insurance, Rent-a-cab, authorised service station & supply of tangible goods services relating to motor vehicle Exception courier, tour operator, rent-a-cab, cargo handling, GTA, outdoor catering & Pandal and shamiana services

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Input Service New - Exclusion

Services in relation to following

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;

Rajesh Kumar T.R.

What is Capital Goods

Goods falling under Chp.82(Tools), 84(mach.) ,

85(Mach. & Equip), 90(Instruments & apparatus), 68.02(abrasive), 68 01.10(grinding wheel) Pollution Control Equipments components, spares and accessories of above; moulds and dies, jigs and fixtures refractories and refractory materials tubes and pipes and fittings thereof; and storage tank.

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What is Capital Goods(Cont)

Used in Factory of Mfr.

but does not include any equipment or appliance used in an office

Used for providing taxable service. For specified service category of service providers

Motor Vehicle will be considered as capital goods.

Courier, Tour operator, Rent-a-cab, Cargo handling, GTA, Outdoor Caterer, Pandal & Shamiana

Any goods which are used in the manufacture of

capital goods used in the factory of the manufacturer is considered as inputs

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Capital Goods Definition after change

capital goods means : The following goods, namely :

all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, [heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804] of the First Schedule to the Excise Tariff Act; pollution control equipment; components, spares and accessories of the goods specified at (i) and (ii); moulds and dies, jigs and fixtures; refractories and refractory materials; tubes and pipes and fittings thereof; and storage tank,

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Capital Goods Definition after change

used in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory; for providing output service; motor vehicle registered in the name of courier, tour operator,

rent-a-cab, cargo handling, GTA, outdoor catering & Pandal and shamiana services provider for providing such services dumpers or tippers, falling under Chapter 87 (motor vehicle), registered in the name of Site formation services or Mining services provider for providing such services components, spares and accessories of motor vehicles, dumpers or tippers, as the case may be, used to provide above services

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How Much to take

For inputs entire duty paid immediately on receipt of

the goods For Input Service Service tax attributable to payment of value of the taxable service. For capital goods not more than 50% of the duties entitled for. But full Addl. CVD can be taken in the year of receipt. Balance credit in subsequent years on holding possession of such goods(except for components, spares etc.,) .

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Based on What Doc.

Invoice of Mfr., his agent, Importer, his agent, First

Stage dealer, Second Stage dealer, Bill of Entry Supplementary Invoice Certificate by appraiser of Customs Challan evidencing payment of duty by specified Service Provider Invoice, Bill or Challan issued by TSP or ISD

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Conditions for Credit of Inputs

Eligible input as per the definition Receipt into the Factory or premises Should not be used Exclusively in the manufacture of

exempted goods or Exempted service

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Conditions for Credit of Input Services

Changes in the time of availment of

CENVAT Credit The Cenvat Credit on input services availed on receipt of invoice. The payment made within three months If not the credit availed has to be reversed/paid Credit on the invoices issued prior to 01.04.2011 by the service provider would continue to be eligible only on payment basis T.R. Rajesh Kumar

Conditions for Capital Goods Credit

Eligible Capital goods as per the definition Receipt into the Factory or premises. Not used exclusively in exempted goods/ service No depreciation on credit to be claimed has to be

claimed under Income Tax.

Rajesh Kumar T.R.

Other Changes - Point of taking credit for capital goods

The CENVAT credit in respect of capital goods

received in a factory or in the premises of the provider of output service or outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory, at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent. of the duty paid on such capital goods in the same financial year.

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Other Changes reversal of credit

if any payment or part thereof, for an input

service is returned, the manufacturer or the service provider who has taken credit on such input service, pay an amount proportionate to the CENVAT credit availed in respect of the amount so returned. This amount paid by debiting the CENVAT credit or otherwise on or before the 5thof next month/quarter or 31st in case of march. If failure happens, it would be recovered in terms of Rule 14.
Rajesh Kumar T.R.

What to do with Credit

Any duty of Excise on final product Removal of inputs and capital goods as such Payment of duty on removal of returned goods Service Tax on output service Restrictions

Additional CVD is not available for paying service tax AED(TTA), NCCD, Education Cess, CVD equal to these Credit, Cess on Tea and AED (P&TP) can be utilised only for paying the the respective duty.

Rajesh Kumar T.R.

Job Work Related

Credit availed materials can be sent for JW under

challan Same has to come back within 180 days. There is no time limit for jigs, fixtures, moulds and dies With the permission from AC/DC, the goods can be directly removed from JW Premises on following certain proc.

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Other Changes removal as such

Credit availed to be reversed on removal of

input/capital goods as such Exceptions if removed

for providing Taxable output service for providing free warranty for final products

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Other Changes written off

If the value of any, input, or capital goods before being put to use, on which CENVAT credit has been taken is written off fully or partially or where any provision to write

off fully or partially has been made in the books of account then the manufacturer or service provider, as the case may be, pay an amount equal to the CENVAT credit taken on said input or capital goods : If the said input or capital goods is subsequently used in the manufacture of final products or the provision of taxable services, the manufacturer or output service provider, shall be entitled to take the credit of the amount equal to the CENVAT credit paid earlier.

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Refund of Credit
Not available except for exporters Credit on inputs and input services used in export of

goods and services is available for other domestic payments. Not possible refund can be claimed Export of service is in terms of Export of Service Rules, 2005.

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Exempted Goods/Services-Before
Output service = Taxable Service Exemp Serv= Serv not specified + exempted under

Section 93 Export of Taxable service will not be considered as exempted services. Exempted goods = Exempted by Notification and Nil rate of goods.

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Credit in case of exempted service-Before

Inputs/Input service used exclusively for exempted

services No credit Inputs/Input service exclusively used for providing taxable services Full Credit Inputs partially used for taxable and exempted

Option 1. Separate records - take credit only used for taxable portion. Option 2. No separate records take entire credit but
Utilise

Credit of specified 16 services fully. Utilise Other credits only to the extent of 20% of total ST -1.4.2008-after-10% upto 7.7.2009- then 8%
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Consulting Engineer Management Consultant Scientific or Technical Con.

Architect Real Estate Agent Banking and Financial Ser.

Interior Decorator Security Agency Life Insurance Auxiliary, Agent etc.,

Erection and Maintenance and Tec. Testing & Commissioning Repair Analysis Tec. Inspection &Forex Broker Certification Intellectual Prop. Serv.
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Industrial Construction.

Credit in case of exempted Goods-before

Inputs/Input service used exclusively for exempted

goods No credit Inputs/Input service exclusively used for dutiable goods Full Credit Inputs partially used for both

Option 1. Separate records - take credit only used for taxable portion. Option 2. No separate records take entire credit but have to pay 10% of exempted value of goods-Now 5% after 1.4.2011

Rajesh Kumar T.R.

Rule 6 major change Sub Rule 1-Cenvat credit benefit would not

CENVAT CREDIT RULE 6-CHANGES

be allowed on inputs or input services used in or in relation to manufacture of exempted goods or for provision of exempted service sub rule 2 provides for maintenance of separate records in more detailed manner in respect of receipt, consumption an inventory of inputs and the receipt and use of input services used for exempted & dutiable/taxable goods and services
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CENVAT CREDIT RULES RULE 6CHANGES

sub rule 3 the provider of output service providing

exempted service to pay 5% on the value of exempted service Sub rule 3 in addition to option of paying 5% amount on exempted goods/exempted services or claiming the Cenvat credit proportionately as provided in Rule 6 (3A), a new option to maintain separate accounts for the receipt, consumption and inventory of inputs and pay an amount as determined under sub-rule (3A) in respect of only input services
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CENVAT CREDIT RULES RULE 6CHANGES

a banking company or a financial institution,

including NBFC, providing banking and financial services to pay an amount equal to 50% of the credit availed. services relating to life insurance or management of ULIPs amount equal to 20% of credit availed rule 6 (6A) -the provisions of Rule 6 shall NA in case of taxable services provided, without payment of service tax to SEZ unit or developers for authorized operations.
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Exception for Mfr.

Goods Removed for SEZ, EOU, EHTP, STP, UNO and

other international organizations Export under Bond Gold or silver in Mfr. of copper or Zinc. Goods supplied for specified ICB.

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Input Service Distributor

The Head Office, Sales Office, Corporate Office may

spend centrally on services These may need to be distributed for the credit to be availed at each of the premises of multiple registration entities. By way of an invoice the same can be spread out. Presently no norms on the % ages.

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Input Service Distributor(Cont.)

Separate Registration Receives the Invoices of SPs. Keep Account of Services Paid for and amount

distributed by way of invoice/ bill Amount not to exceed the service tax credit received Half Yearly return of Credits received and distributed during such period by the end next month.

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Records
For inputs and capital goods

Receipt, disposal, consumption and inventory of the input and capital goods Further the value, duty paid, CENVAT credit taken and utilized and supplier name and address. The value, tax paid, CENVAT credit taken and utilized, the person from whom the input service has been procured has to be maintained.

For Input Service

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Benefits of Credit
If no credit the cost will be increased to the extent of

duty/tax paid on inputs and input service Thereby Profit will decrease The product will become costlier than the person taken credit loose competitiveness.

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Value adds
Manufacturers can take Service Tax credits SP can take inputs and capital goods credit Procurement from dealers regd under Central Excise is

important if reqd. Choice of payment of tax/duty to ensure credit Better purchase policies. Exporters - Registration even if not liable Avail credit on ALL with intimation when in doubt. If objected reverse under protest.

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Issues in Cenvat Credits

Whether it is to be construed strictly ? How it is to be interpreted? Whether objective of the scheme has to be kept in

mind while interpreting.

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Issues
Whether the credit of tax paid on services provided

from outside India and received in India can be taken as credit. Whether Section 66A is leaning back to Section 66.

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Issues
The inputs/capital goods should be received in the

premises of service provider. What is the premises of service provider. Is it only the registered premises. Whether the premises of client can also be considered as premises of service provider

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Issues
For input services there is no condition attached as to

premises. It is only the services received by the service provider.

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Issues
There is no difference as to usage of capital goods or

inputs. The capital goods can also be construed as inputs (except motor vehicle) as input covers all goods. The objection can be since capital goods are specifically mentioned, the same cannot be considered as inputs.

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Issues
Non-taxable services is not considered as output

services. Whether the term used FOR and not IN RELATION TO will restrict the scope of credit. The term used by taxable service provider for is not applicable for Inclusive definition

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Issues
Whether there is a time limit for availing credit as

the statute uses the word immediately on receipt of goods. Whether proportionate amount of credit can be taken though the entire amount of value of services is not yet paid. Whether balance 50% credit can be taken in the subsequent year if depreciation is claimed on capital goods. Whether credit of service tax paid prior to registration can be taken.
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Issues
Whether tax payment of challan can be basis of taking

credit even if the document is not specifically mentioned in the rules. Whether the credit of service tax can be taken in case the invoice is addressed to different premises of the service provider. Whether the credit of inputs/capital goods can be taken if it is addressed to other premises.

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Issues
Whether Basic Tax/duty can be used for payment of

Ed. Cess or SHE Cess. Whether the tax/duty credit available later can be used for payment of arrears of service tax.

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Issues
Refund of credit on capital goods cannot be claimed. Other routes like rebate of service tax paid on inputs

(alternative to credit) and rebate of

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Issues
Whether credit of only 20% to be taken in case of

common input services. Whether unutilised credit can be carried forward. Whether there is any time limit for utilisation. What happens in case of trading and servicing.

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Issues
Credit on Stock of inputs when services become

chargeable. If capital goods are cleared as waste and scrap Mfr. to pay on T.V. If capital goods is removed in the same year Balance 50% can be taken as credit.

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Other Aspects and Issues

Goods received by Job-worker (Not. 214/86) and used

by him credit available Credit on Stock of inputs when goods or services become chargeable. Removal of inputs or capital goods as such Amt. Equal to credit availed to be paid. Service provider need not pay

if inputs is for providing service. If Capital goods is for providing service and comes back within 180 days + 180 days of permission.

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Other Aspects and Issues

If capital goods are cleared as waste and scrap Mfr.

to pay on T.V. Duty paid on removal of inputs, capital goods and capital goods waste is eligible for credit. If capital goods is removed in the same year Balance 50% can be taken as credit. If capital goods are acquired on lease, hire purchase or loan agreement, from a financing company credit is available.

Rajesh Kumar T.R.

Thank You Rajesh Kumar T. R. RAJESHKUMARTR@HOTMAIL.COM

RAJESH@HIREGANGE.COM

Rajesh Kumar T.R.