Cenvat Credit Rules CCR Good Notes

8/10/2019 Cenvat Credit Rules CCR Good Notes

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CENVAT CREDIT RULES. 2004

CA VISHAL BHATTAD PH.NO. 9890953771 WWW.IDTFORUM.COM P A G E | 98

AMENDMENTSFOR MAY-12 EXAMINATION

CENVAT CREDIT

RULES, 2004

BY C.A. VISHAL BHATTAD


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CENVAT CREDIT RULES,2004

DEFINITIONS

Rule 2(a) Capital goodscapital goods means :-

A) the following goods, namely :-(i) all goods falling under

Chapter 82, Chapter 84, Chapter 85, Chapter90,

heading 6805, grinding wheels and the like, and parts

thereof falling under heading 6804of the First Schedule to the Excise Tariff Act.

(ii) pollution control equipment;

(iii) components, spares and accessories of thegoods specified at (i) and (ii);

(iv) moulds and dies, jigs and fixtures;

(v) refractories and refractory materials;

(vi) tubes and pipes and fittings thereof; and

(vii) storage tank,

used

(B) motor vehicle

registered in thename of providerof output servicefor providingtaxable service asspecified as below

Courier agency

Tour operator

Rent-a-cabscheme operator

Cargo handlingagency

Goods transportagency

Outdoor caterer

Pandal orshamiana

(C) dumpers ortippers, falling

under Chapter87 of the FirstSchedule to theCentral ExciseTariff Act, 1985,registered in thename of

provider ofoutput servicefor providingtaxable servicesas specified asbelow

Site formationand clearance,excavation &earthmoving& demolition

& etc. Mining of

mineral, oil orgas.

(D)components,spares andaccessories ofmotorvehicles,dumpers ortippers, as thecase may be,

used toprovidetaxableservices asspecified insub-clauses(B) and (C)

Manufacturer OSP

(1) in thefactory of themanufacturerof the finalproducts, butdoes notinclude anyequipment orapplianceused in anoffice; or

(Inserted in F.A.2011)

(1A) outside thefactory of themanufacturer of

the finalproducts forgeneration of

electricity for

captive usewithin the

factory

(2) forprovidingoutput service;

Clause (B),(C)& (D) are only for OSP

providing aforesaid specified services. Thus

the benefit of Motor vehicle, Dumpers or

Tippers and related accessories is notavailable to manufacturer.


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MADRAS CEMENTS LTD. 2010 (S.C.)

Brief Facts: Assessee manufacture cement and availof Cenvat credit of the duty paid on machinery,equipments and parts and accessories thereof used inthe mines of limestone. Show cause notice was issuedto them for disallowing the Cenvat credit of the duty

paid on machinery, equipments and parts andaccessories thereof used in the mines of limestone.

Issue : whether the Cenvat credit of duty paid on machinery, equipments and parts andaccessories thereof used in the mines of limestone is available to them under Cenvat creditrules,2004Decision: As regards the Cenvat credit on capital, goods, if the mines are captive mines so that theyconstitute one integrated unit together with the concerned cement factory, Cenvat credit on capitalgoods will be available to the assessee.

On the other hand, if the mines are not captive mines but they supply to various other cement

companies of different assessee, and it is found that the said goods were being used in the limestone mines outside the factory of the assessee, Cenvat credit on capital goods used in such mineswill not be available to the concerned assessee under the appropriate Cenvat Rules.

In order to get a clear finding on the issue, all the matters are remanded to the respective originalauthorities for decision only on the above issue.

CAPITAL GOODS

MANUFACTURER OSP

Used in thefactory formanufactureof F.P.

Used in theofficeattached tofactory.

Used in thefactory but not inmanufacturingprocess.

Used in thestores offactory

Used in theoffice outsidethe factory.

Used in thepremise forproviding output

service.

Used outsidethe premisefor providing

output service.

MANUFACTURER OSP

As Capital

goodsAs Inputs Providing specified services

e.g. Courier agency, Tour

operator or etc.

In case of other

services

MOTOR VEHICLE

Cenvat Credit

available

Cenvat Credit

available

Cenvat Credit

available

Cenvat Credit

not available

Cenvat Credit

not available

Cenvat Credit

available

Cenvat Credit

available

Cenvat Creditnot available

Cenvat Creditnot available

Cenvat Credit is available

as C.G.

Cenvat Credit is not

available as

Inputs & C.G.

If the mines are captive mines so that

they constitute one integrated unit

together with the concerned cement

factory, Cenvat credit on capital goodsused in mines will be available to the

assessee.


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Rule 2(k) Input Input means :-

(i) all goods used in

the factory by the

manufacturer of thefinal product; or

(ii) any goods includingaccessories, cleared along withthe final product, the value of

which is included in the valueof the final product & goods used forproviding free warranty forfinal products; or

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.

(iii) all goods usedfor generation ofelectricity or steam

for captive use; or

Comment: All goodsused inside &OUTSIDE the factoryfor generation ofelectricity or steamare eligible forCenvat credit.Provided that entireproduction of

electricity or steamused in factory forany purpose

(iv) all goodsused forproviding any

output service;

but excludes

(A) light

diesel oil,high speeddiesel oil ormotor spirit,commonlyknown aspetrol.

(i.e. LDO,HSD &petrol)

B) any goods used for-

(a) construction of abuilding or a civilstructure or a partthereof; or

(b) laying of foundationor making of structuresfor support of capitalgoods,

except for the provision

of any taxable servicespecified below

Port services in a port

Port services in otherport

Airport or a civilenclave

Commercial orindustrial construction

Construction ofcomplex

Works contract.

(C) capital goods

except whenused as parts orcomponents inthe manufactureof a finalproduct.

(D)

motorvehicles.

(E) any goods,

such as fooditems, goodsused in aguesthouse,residentialcolony, club ora recreationfacility andclinicalestablishment,when such

goods are usedprimarily forpersonal use orconsumption ofany employeeand

(F) any

goods whichhave no

relationship

whatsoever

with themanufacture

of a final

product.

Refer NOTE -1

Refer NOTE -2

Applicable

to OSP

Refer NOTE -3

Refer

NOTE -1

Comment: Capital goods excluded from the definition of Inputsbecause it is already covered in Rule 2(a) for which credit is availableupto 50% in 1styear and balance in subsequent year.But if any goods falling under the definition of Capital Goods - Rule2(a) (e.g. component or parts) used by the manufacturer in themanufacture of a final product then credit is available as Inputs (i.e.100 % credit)


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Input

means

i) all goods used in the factory by the manufacturer of the final product.

but excludes

(F) any goods which have no relationship whatsoever with the manufacture of a final product.

TRU letter

The definition of inputcontained in rule 2(k) has been revised. The requirement (old definition)that goods should be used in or in relation to the manufacture of final products whether

directly or indirectly and whether contained in the final product or nothasbeen removed.

Comment: Scope of Inputs is substantially widened. Henceforth, all goods used in the factory by themanufacturer of the final product, except those specified in the negative list and goods having norelationship whatsoever with the manufacture of final product, would qualify for treatment as inputs.

Board clarificationHow is the no relationship whatsoever with the manufacture of a final product to be

determined?

Credit of all goods used in the factory is allowed except in so far as it is specifically denied.

The expression no relationship whatsoever with the manufacture of a final product must beinterpreted and applied strictly and not loosely.

Only credit of goods used in the factory but having absolutely no relationshipwith the manufacture of final product is not allowed.

Goods such as furniture and stationary used in an office within the factory are goods used in the factoryand are used in relation to the manufacturing business and hence the credit of same is allowed.

Authors opinion: Example given by board (furniture and stationary used in office) is unimaginable. If werefer this example then it seems that everything which is used in factory (production premise & connectedoffice) is eligible for credit.Personally author is not agree on this example because furniture and stationary used in office are any way nothaving relationship with manufacturing of Final product.It need Right clarification. Till next clarification students have to fallow this Circular.

NOTE -1: Eligibility of credit if all goods used in a factory


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Input

Means

(ii) any goods including accessories, cleared along with the final product, the value of which isincluded in the value of the final product &

goods used for providing free warranty for final products.

Explanation. For the purpose of this clause, free warranty means a warranty provided by themanufacturer, the value of which is included in the price of the final product and is not charged separatelyfrom the customer.

EXAMPLE-1 Any goods or Accessories, cleared along with the final product

FACTORY

MANUFACTURE

DROPPER

EYE MEDICINE EYE MEDICINE

WITH DROPPERPACKING

Price of Rs 110

medicine

(includes price of

Dropper )

VALUE OF EYE

MEDICINERs 110

CUSTOMER

EXAMPLE-2 Any goods or Accessories, cleared along with the final product

FACTORY

ASSESMBLY

Price of Rs 17500

MOBILE (includes price

of battery, charger,

hands free)

VALUE OF MOBILERs

17500CUSTOMER

MOBILEPACK

MOBILE

CHARGER

MOBILE

ACCESSORIES

BATTERY

NOTE -2: Eligibility of credit if any goods supplied with F.P. Or under free warranty

Cenvat credit

is available as

Inputs

Cenvat creditis available as

Inputs

Cenvat credit

is available asIn uts


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EXAMPLE 3: Goods used for providing free warranty for final products

Correspondingly amendment also made under Rule 3(5)

As per proviso to Rule 3(5) If any inputs areremoved as suchoutside the factory for providing

free warrantyfor final products, Cenvat credit availed on such Inputsneed not to be

pay or reversed.

Input excludes

B) any goods used for-(a) construction 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 any taxable service specified below(i.e. creditavailable if any goods used for following services)

Port services in a port or other port (i.e. Construction in port or other port)

Airport or a civil enclave(i.e. Construction in Airport)

Commercial or industrial construction

Construction of complex

Works contract.

Comment: Let us discuss with the help of following examples

500 motor

purchased @ RS3000 + E.D. RS

300

400 motors used in

manufacture of

washing machine

Sold to the customer

Price RS 15000

Warranty RS 2000

Charges

Total value RS 17000

E.D.@10% RS 1700

(1 year warranty for

replacement of

components)

During a month 100 motors supplied free under

warranty replacement to various customers.

Such 100 motors are eligible for cenvat credit as

Inputs

NOTE -3: Non eligibility of credit if any goods used for construction


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For Manufacturer

EXAMPLE-1: Any goods used for construction of a building of manufacturer

EXAMPLE-2: Any goods used for laying of foundation or making of structures

for support of capital goods

FATORY BUILDINGAny goods

used forconstruction ofa building or acivil structure ora part thereof

Not eligible

for Cenvat

credit asinputs

Any goodsused for laying

of foundationor making ofstructures forsupport ofcapital goods

Not eligible

for Cenvat

credit as

inputs

CAPITALGOODS

Structures for

support ofcapital goods

FATORY BUILDING


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FOR OSP

EXAMPLE-3:Any goods used for construction of a building of OSP

EXAMPLE 4 If goods are used for providing Construction service or etc.

Any goodsused forconstruction ofa building ofOSP

Not eligible

for Cenvat

credit asinputs

CONSTRUCTION OF

BUILDING OF OSP

If goods are used for providing Following services Cenvat credit is available to Contractor Port services in a port or other port

(i.e. Construction in port or other port)


Commercial or industrial construction Construction of complex

Works contract.

Port services in a port or otherport (i.e. Construction in portor other port)

Airport or a civil enclave(i.e.Construction in Airport)

Commercial or industrialconstruction

Construction of complex Works contract

OSTRUCTION

ONTRACTOR

Subject restriction on credit under

N/N 1/2006 of S.T.(Abatement) N/n 12/2003 of S.T.(Material sold)

Works contract composition

scheme


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Rule 2(l) Input service

Means & include services used in relation to

setting up modernisation, renovation or

repairsof a factory,premises ofprovider of outputservice oran office relatingto such factory orpremises

advertisement orsales promotion,

market research,

storage upto theplace of removal,

procurement ofinputs,

activities relating tobusiness, such as accounting,

auditing, financing, recruitment and

quality control, coaching and

training, computer

networking, credit rating, share registry,

and security,

businessexhibition,

legal services,

inwardtransportation ofinputs or capitalgoods and

outwardtransportationupto the place ofremoval

but excludes services

(A) following specified services

architect


Port services in other port

Airport or a civil enclave



Works contract.

in so far as they are used for-

(a) construction of a building or acivil structure or a part thereof; or

(b) laying of foundation ormaking of structures for supportof capital goods,except for the provision of

one or more of the specified

services.

(B) following specifiedservices

general insurance

rent-a-cab scheme operator authorised service station

supply of tangible goodsin so far as they relate to amotor vehicle except when used forthe provision of taxableservices for which the crediton motor vehicle is availableas capital goods

(C) such as those provided inrelation to

outdoor catering,

beauty treatment, health services,

cosmetic and plastic surgery,

membership of a club,

health and fitness centre,

life insurance,

health insurance and travelbenefits extended to employeeson vacation such as Leave orHome Travel Concession,

when such services are usedprimarily for personal use orconsumption of any employee

For OSP

Used byprovider oftaxableservice forprovidingan outputservice

For

manufacturer

Used bymanufacturerwhether directlyor indirectlyIn or in relationtoO Manufacture

of final

product orO Clearance of

FP upto placeof removal

Any service

Deleted by F.A. 2011Refer NOTE -2

Refer NOTE -1

Refer NOTE -3

Refer NOTE -4

Refer NOTE -5

Deleted by F.A.

2011 Refer

-

New services

Inserted in the

list of input

service


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Input service

excludes

(A) following specified services architect


Port services in other port

Airport or a civil enclave



Works contract.

in so far as they are used for-

(a) construction 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.

Comment: let us discuss with the help of following examples

EXAMPLE-1: Specified services used for construction of a building ofmanufacturer

NOTE -3

CONSTRUCTION OF

FATORY BUILDING

Commercialorindustrialconstruction

Constructionof complex

Port services in aport or other portAirport or a civilenclave(i.e.Construction atport or Airport)

Architect

Works

contract.

architect

Port services in aport

Port services inother port


Commercial orindustrialconstruction


Works contract.

Not eligible

for Cenvatcredit as

inputs


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EXAMPLE-2 Specified services used for laying of foundation or making of

structures for support of capital goods

EXAMPLE-3 Specified services used for construction of a building of OSP

CAPITAL

GOODS

Structures forsupport of

capital goods

FATORY BUILDING

Commercialor

industrialconstruction



Architect

Workscontract.

architect




Commercial orindustrialconstruction


Works contract.

Not eligible

for Cenvat

credit as

inputs

CONSTRUCTION OF

BUILDING OF OSP

Commercialorindustrialconstruction


Port services in a

port or other portAirport or a civilenclave(i.e.Construction atport or Airport)

Architect

Workscontract.

architect



Airport or a civil

enclave Commercial or

industrialconstruction


Works contract.

Not eligible

for Cenvat

credit as

inputs


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EXAMPLE 4: If specified services are used for providing Construction

service or etc.

Rule 2(l)(A), the exclusion clause of the definition reads except for the provision of one or

more of the specified services". What are the specified services mean?

The services mentioned in the said clause are 'specified services'. If these services are used for construction

of a building or a civil structure or part thereof, or laying of foundation or making of structures for supportof capital goods, then credit w.r.to service tax paid on these services is not available.

But the credit on these services is available, if these services are used for any of these 'Specified services'.For example, Architect service will be eligible as input service if used for port service or constructionservice or works contract service.

And also if these services used for purposes other than construction of a building or a civil structure orpart thereof or laying of foundation or making structures for support of capital goods (i.e. other purposeslike, finishing services, repair, alteration or restoration), then credit on these input services is available.

Credit of input services used for repair or renovation of factory or office is allowed. Services used in relation

to renovation or repairs of a factory, premises of provider of output service or an office relating to suchfactory or premises, are specifically provided for in the inclusive part of the definition of input services. -CBEC Circular No. 943/04/2011.

If specified services of subcontractor are used for providing Following services Cenvat credit isavailable Contractor Port services in a port or other port

(i.e. Construction in port or other port)




Works contract.

PROVIDING FOLLOWINGSERICES

Port services in a port or otherport (i.e. Construction in portor other port)

Airport or a civil enclave(i.e.Construction in Airport)



Works contract

OSTRUCTION

ONTRACTOR

Subject restriction on credit nder

N/N 1/2006 of S.T.(Abatement)

N/n 12/2003 of S.T.(Material sold)

Works contract composition

Commercialorindustrial

construction



Architect

Workscontract.

SUB-CONTRACTOR

SUB-

CONTRACTOR

SUB-CONTRACTOR SUB-

CONTRACTOR


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Rule 2(l)(A), the exclusion clause of the definition reads" - . except when used for the

provision of taxable services for which the credit on motor vehicle is available as capital

goods". When the credit on motor vehicle is available as capital goods?

Motor vehicles shall be treated as capital goods, only if registered in the name of service providersproviding the following services:

a. Courier services

b. Tour operator services

c. Rent - a - cab scheme operator services

d. Cargo handling agency services

e. Goods Transport Agency services

f. Outdoor caterer services

g. Pandal or shamiana contractor

The analysis of this exclusion clause is as follows:

If the services mentioned in the clause are used for motor vehicle not registered in the name of aboveservice providers, the said services used do not qualify as input services and credit not available.

If the services mentioned in the clause are used for motor vehicle registered in the name of aboveservice providers, the said services used qualify as input services and credit shall be available.

If the services mentioned in the clause are not used for motor vehicle but used for other purpose, thesaid services used qualify as input services and credit shall be available.

Services mentioned in this clause are:

General Insurance services Rent a cab scheme operator's services

Authorized service station's services

Supply of tangible goods services

From the combined analysis of the definition of Inputs as per Rule 2(k) and Input

services as per Rule 2(l), it is clear that inputs/input services used for employees are

not available as credit. Is this position true?

From the analysis of Rule 2(k), it is clear that all goods (Not only food items) used in a guest house,residential colony, club or a recreation facility and clinical establishment are excluded from the purview ofInputs only if "such goods" are used Primarily for personal use or consumption of any employee.

From the analysis of Rule 2(l), it is clear that all services (Not only the mentioned services because the wordsused are 'such as') when used primarily for personal use or consumption of any employee are excludedfrom the purview of Input services.

The following Circular No. 943/04/2011 clarifies the position:

It is not that the credit of only specified goods and services listed in the definition of inputs and inputservices shall not be allowed. The list is only illustrative. The principle is that CENVAT credit is not allowed

when any goods and services are used primarily for personal use or consumption of employees.Some examples to support the above clarification:

Outdoor catering for sales promotion would be eligible, even if some employees attend thelunch/dinner, since it is not primarily for personal use or consumption of employees.

Mobile phones to employees mainly for business purposes should be eligible even if incidentally usedfor personal purposes.

Club membership fee of a director will be eligible as he is not an employee.

NOTE -4

NOTE -5


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CLARIFICATIONS ON CENVAT CREDIT RULES, AS AMENDED

BY NOTIFICATIONS PURSUANT TO FINANCE ACT 2011Sl Issue Board Clarifications1 Is the credit of only specified

goods and services listed inthe definition of inputs andinput services not allowed

such as goods used in a club,outdoor catering etc, or is thelist only illustrative?

The list is only illustrative. The principle is that cenvat credit is notallowed when any goods and services are used primarily forpersonal use or consumption of employees.

2 Is the credit of BusinessAuxiliary Service (BAS) onaccount of sales commissionnow disallowed after thedeletion of expressionactivities related tobusiness?

The definition of input services allows all credit on services used forclearance of final products upto the place of removal. Moreoveractivity of sale promotion is specifically allowed and on manyoccasions the remuneration for same is linked to actual sale.Reading the provisions harmoniously it is clarified that credit isadmissible on the services of sale of dutiable goods on commissionbasis.

3 Is the credit available onservices received before 1.4.11

on which credit is not allowednow? e.g. rent-a-cab service

The credit on such service shall be available if its provision hadbeen completed before 1.4.2011.

Rule2 (naa) manufacturer or producer. (Newly inserted in 2011)

(i) in relation to articles of jewellery or other articles of precious metals falling under heading 7113or 7114 as the case may be of the First Schedule to the Excise Tariff Act, includes a person who is liableto pay duty of excise leviable on such goods under sub-rule (1) of rule 12AA of the Central ExciseRules, 2002

(ii) in relation to goods falling under Chapters 61, 62 or 63 of the First Schedule to the ExciseTariff Act, includes a person who is liable to pay duty of excise leviable on such goods under sub-rule (1A) of rule 4 of the Central Excise Rules, 2002.

Comment: Under Rule4 (1A) liability for payment of duty in relation to goods falling under Chapters 61, 62or 63 of the First Schedule to the Excise Tariff Act is shifted on raw material supplier. Hence, the correspondingamendment is made Cenvat credit Rule and Rule 2(nna) is inserted to cover raw material supplier asmanufacturer for taking cenvat credit of Inputs supplied to the job worker.

Rule 3(1) Eligible duties & taxes for Cenvat CreditRule 3 relating to the utilisation of the CENVAT credit amended

to provide that a manufacturer or producer of final products/aprovider of taxable service shall be allowed to take credit of the

service tax leviable under section 66A of the Finance Act, 1994.

Under Rule 3(1) following proviso are insertedProvided that CENVAT credit of such duty of excise shall not be allowed to be taken when paid on anygoods in respect of which the benefit of an exemption under notification No.1/2011- CE, dated the 1st March,2011 is availed;


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Provided that CENVAT credit shall not be allowed in excess of eighty-five per cent of the additional duty

of customs paid under sub-section 3(1)of the Customs Tariff Act(ACD3(1)), on ships, boats and otherfloating structures for breaking up falling under tariff item 8908 00 00 of the First Schedule to the CustomsTariff Act

Reason for amendment

The process of obtaining the goods and material mainly melting scrap and re-rollable scrap of steel, by brakingup of ship is deemed to be process of manufacture in terms of section note of CETA. In braking of the ship,anumber of used serviceable articles such as pumps, Air conditioners, furniture, wooden panel are alsogenerated. These are generally sold as second hand goods by ship braking units but no excise duty is payableon such goods as do not emerge from a manufacturing process.At the same time, ship breaking units are allowed to availed full credit of additional duty of customs paid onthe ship when it is imported for breaking it. This resulting in misuse of the Cenvat credit scheme. Rule 3 hasbeen amended to prescribe that Cenvat credit shall not be allowed in excess of 85% of additional duty ofcustoms paid on ship imported for braking.


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RULE 4: CONDITIONS FOR AVAILMENT OF

CENVAT CREDIT

RULE 4(1) RULE 4(2)

INPUTS CAPITAL

GOODS

RULE 4(7)

INPUT SERVICE

Cenvat credit ofinputs may betaken immediatelyon their receipt inthe factory of themanufacturer orpremises of OSP

The cenvat credit shall be taken inrespect of capital goods received ina factory or in the premises of theprovider of output service or

outside the factory of the

manufacturer of the

final products forgeneration of electricity

for captive use within

the factory at any point of timein a given financial year

If capital goods not removedas such in the same financial

year

Cenvat credit available ina given financial year isupto 50% of excise dutypaid on such capitalgoods.

Provided that 100%.Credit is availablein same financial

year for ACD 3(5)(Spl. CVD)

Provided that ssican take 100% creditin same financialyear.

If capital goods removedas such in the same

financial year

Cenvat credit available =100% of excise duty paidon such capital goods.

Remaining cenvat credit shall be taken in any

subsequent financial year subject to condition thatsuch capital goods must be in possession ofmanufacturer or osp.

The condition of possession in subsequent year is notapplicable to

A. Component, spares & accessories.

B. Refactories & refactories material

C. Module & dies

D. Goods falling under heading 6805 & 6804

The cenvat credit in respect of inputservice shall be allowed, on or afterthe day on which the invoice, bill or,as the case may be, challan referred toin rule 9 is received

Provided that in case of an input servicewhere the service tax is paid on reversecharge by the recipient of the service, thecenvat credit in respect of such inputservice shall be allowed on or after the dayon which payment is made of the value ofinput service and the service tax thereon.

Provided further that in case thepayment of the value of input service andthe service tax thereon is not made withinthree months of the date of the invoice, bill

or, as the case may be, challan, themanufacturer or the service provider whohas taken credit on such input service, shallpay an amount equal to the cenvat creditavailed on such input service and in casethe said payment is made, themanufacturer or output service provider, asthe case may be, shall be entitled to take thecredit of the amount equivalent to thecenvat credit paid earlier subject to theother provisions of these rules.

Provided also that if any payment orpart thereof, made towards an input serviceis refunded or a credit note is received bythe manufacturer or the service providerwho has taken credit on such input service,he shall pay an amount equal to the cenvatcredit availed in respect of the amount sorefunded or credited.

Provided also that cenvat credit in respectof an invoice, bill or, as the case may be,challan referred to in rule 9, issued beforethe 1st day of april, 2011 shall be allowed,on or after the day on which payment ismade of the value of input service and theservice tax thereon

Explanation I. For abovementionedpayment manufacturer /OSP can utilizedthe credit

Explanation II. - If the manufacturer ofgoods or the provider of output servicefails to pay the amount payable under thissub-rule, it shall be recovered, in the

manner as provided in rule 14, for recoveryof cenvat credit wrongly taken.


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Definition of Exempted Goods is amended

Rule 2( d) Exempted Goodsmeans excisable goods which are exempt from the whole of the duty of excise leviable

thereon, and

includes goods which are chargeable to Nil rate of duty and goods in respect of which

the benefit of an exemption under notification No. 1/2011-CE, dated the 1st March,2011 is availed

Notification No. 1/2011 Levy of 1% Excise Duty without Cenvat Credit on

130 items. (COMPOSITION SCHEME OF EXCISE)

However, in respect of 130 items which were fully exempt earlier are brought under excise duty. There are twoexcise duty rates specified for such items.

Concessional rate of 1% is available only if the Cenvat credit is not availed under notification 1/2011

otherwise all these items attract 5% Excise duty(If assessee want avail Cenvat credit) as prescribed videnotification 2/2011-CE

1% composition scheme under excise on 130 items

Object:simplified procedure for payment of excise duty with minimum physical interference of department.

Benefit: Simplified procedure is being prescribed for them so that physical interface with them is minimized and

the levy does not pose a compliance burden on them. Visits to such units should not be required in the normal course. If at all the need arises, the officer

visiting them should do so only with the prior authorization of the Assistant Commissioner or theDeputy Commissioner Central Excise of the jurisdictional division.

A simple format for this quarterly return

Limitations

Since units that exclusively manufacture items attracting the duty of 1% are neither allowed to take Cenvatcredit nor to pass it on to their buyers. It means entire burden of 1% is on assessee

EXCISABLE GOODS

EXEMPTED GOODS NIL RATED GOODSDUTIABLE GOODS

PARTLY

EXEMPTEDGOODS

FULLY

EXEMPTEDGOODS

(Inserted F.A.2011)

EXEMPTION UNDERN/N 1/2011

(COMPOSITION

SCHEME)

For cenvat purposethese goods are treatedas Dutiable goods

For cenvat purpose these goodsare treated as Exempted goods


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Option 1

Rule 6(2) Where a manufacturer avails of CENVAT credit in respect of any inputs or input services

and manufactures such final products which are chargeable to duty as well as exempted goods , then,the manufacturer shall maintain separate accounts for -(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

(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 upto the place of removal;

and shall take CENVAT credit only on inputs or Input service used in dutiable Final product

Option 2

Rule 6(3) Notwithstanding anything contained in sub-rules (1) and (2),

the manufacturer of goods opting not to maintain separate accounts, shallfollow any one ofthe following options, as applicable to him, namely :-

(i) pay an amount equal to 5% of value of the exempted goods

or(ii) pay an amount as determined under sub-rule (3A);

or(Inserted by notification to F.A.2011)

(iii) maintain separate accounts for the receipt, consumption and inventory of inputs

as provided for in clause (a) of sub-rule (2), take CENVAT credit only on inputs

under sub-clauses (ii) of said clause (a)

and

pay an amount as determined under sub-rule (3A) in respect of input services.(The provisions of sub-clauses (i) and (ii) of clause (b) and sub-clauses (i) and (ii) of clause (c) of sub-rule (3A) shall not apply for such payment )

Provided that if any duty of excise is paid on the exempted goods, the same shall be

reduced from the amount payable as above.

Explanation I.- If the manufacturer of goods, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him and suchoption shall not be withdrawn during the remaining part of the financial year.

Explanation II.- For removal of doubt, it is hereby clarified that the credit shall not beallowed on inputs used exclusively in or in relation to the manufacture of exempted goodsand on input services used exclusively in or in relation to the manufacture of exemptedgoods and their clearance upto the place of removal.

Explanation III. - No CENVAT credit shall be taken on the duty or tax paid on anygoods and services that are not inputs or input services.

If a manufacturer uses common inputs for both exempted and

dutiable goods


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Let us discuss with help of following chart

SummaryOptions Record Take credit at the time

of receipt

Subsequently pay

Rule6(3)(i)

No Separate record Full credit of Input orInput service commonlyused

5% value ofexempted goods

Rule6(3)(ii)

No Separate record Full credit of Input orInput service commonlyused

amount asdetermined undersub-rule (3A)

Rule6(3)(iii)

Separate record sfor inputsNo separate recordsfor Input service

Inputs- Credit relatedtodutiable goodsInputs service-Full credit

In respect of Inputservice, amountcomputed as perRule 6(3A) & nopayment requiredfor inputs

If a manufacturer uses common inputs & Input service for both exempted and dutiablegoods

INPUTS INPUT SERVICEOR

OR

RULE 6(2) OPTION -1

Manufacturer shall maintain

separate accounts for thereceipt, consumption andinventory of inputs or inputservice used in

EXEMPTEDGOODS

DUTIABLEGOODS

Cenvat creditnot availableon inputs orinput serviceused inExemptedgoods

Cenvat creditavailable oninputs orinput serviceused indutiablegoods

RULE 6(3) OPTION -2

OR

Manufacturer of goods opting not to

maintain separate accounts, shall

follow any one of thefollowing options, as applicable tohim, namel :-

Avail the full credit of inputs & Inputservice commonl used & thereafter

Provided that if any duty of excise

is paid on the exempted goods (i.e.1% payment under N/N 1/2011),the same shall be reduced from the

amount payable as above.

Comment: If manufacturer ismanufacturing Dutiable goods as wellas exempted goods covered under 130items of N/N 1/2011 then amountpayable under Rule 6(3)(i) is 4% (5%-

(i) pay anamountequal to 5%of value oftheexemptedgoods

(ii) pay anamount asdeterminedunder sub-rule (3A)

(Inserted by notification to

F.A.2011)

(iii) Maintainseparate accountsfor the receipt,consumption andinventory of inputsused in Dutiablegoods & takeCENVAT credit

only on inputsDutiable goods &also full credit ofInput service

andpay an amount asdetermined undersub-rule (3A) inrespect of inputservices.

Refer page

no.125


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Definition of exempted services is amended

Rule 2(e) Exempted Servicesmeans taxable services which are exempt from the whole of the service tax leviable thereon,and

includes services on which no service tax is leviable under section 66 of the Finance Act and

taxable services whose part of value is exempted on the condition that no credit of inputsand input services, used for providing such taxable service, shall be taken.

Explanation.- For the removal of doubts, it is hereby clarified that "exempted

services" includes trading.

EXEMPTED SERVICE

NON TAXABLE SERVICENot covered u/s 65 105

TAXABLE SERVICECovered u/s 65 105

Partly

exemptedService

Fully

exemptedservice

(Inserted F.A.2011)

Taxable services whose partof value is exempted on thecondition that no credit of

inputs and input services,

used for providing such

taxable service, shall be

takenE.g. Exemption under n/n1/2006 of s.t. (abatement)

For cenvat purpose

these goods are treatedas Chargeable Service

For cenvat purpose these goods

are treated as exempted service

SERVICE

CHARGEABLE SERVICE

Trading

(Refer pageno.123 )


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SummaryOptions Record Take credit at the

time of receipt

Subsequently pay

Rule6(3)(i)

No Separate record Full credit of Input orInput servicecommonly used

5% value of exemptedgoods

Rule6(3)(ii)

No Separate record Full credit of Input orInput servicecommonly used

amount as determinedunder sub-rule (3A)

Rule

6(3)(iii)

Separate record s

for inputsNo separate recordsfor Input service

Inputs- Credit related

to dutiable goodsInputs service-Fullcredit

In respect of Input

service, amountcomputed as per Rule6(3A) & no paymentrequired for inputs

If OSP uses common inputs & Input service for both exempted and Chargeable services

INPUTS INPUT SERVICEOR

RULE 6(2) OPTION -1 RULE 6(3) OPTION -2

OR

OSP shall maintain separateaccounts for the receipt,consumption and inventory ofinputs or input service used in

EXEMPTED

SERVICES

CHAGEABLE

SERVICES

Cenvat creditnot availableon inputs orinput serviceused inExemptedservices

Cenvat creditavailable oninputs orinput serviceused inchargeableservices

OSP opting not to maintain separate

accounts, shallfollow any oneof the following options, asapplicable to him, namely :-

Avail the full credit of inputs & Inputservice commonl used & thereafter

Important comment:Exempted serviceincludes trading.Value of trading= Sale price less cost ofgoods sold (excluding the expensesincurred towards their purchase)OR

10% of the cost of goods sold,

Whichever is more.(Refer page no.25 & 26)

(i) pay anamountequal to

5% (underold provision

6%) of valueof theexempted

services

OR

(ii) Pay anamount asdeterminedunder sub-rule (3A)

(Inserted by notification to

F.A.2011)

(iii) Maintainseparate accountsfor the receipt,consumption andinventory of inputsused in Dutiablegoods & takeCENVAT creditonly on inputschargeable services& also full credit ofInput service

andpay an amount asdetermined undersub-rule (3A) inrespect of inputservices.

Refer page no.

125


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TRADING OF GOODS

Various service provider carrying trading of goods along with provision of service e.g. A.S.Foundation providing commercial training & coaching service & also sales books.

Service providers were using Inputs or Input services exclusively in trading or commonly in outputservice & trading and availing entire credit on such Inputs or Input services against payment of

service on output service.

Hence to plug this loophole Govt amended the definition of exempted service & trading is included init.

EXAMPLE

Input & Input service

exclusively used inTrading

Inputs & inputs service

commonly used in

Trading & output

service

Training &coachin

Trading of

book or

registers

Exempted servicePay 5% of value of

trading

Chargeable serviceS.T.=10.3%(GAC)

Value of trading =

1) Sale price (excluding taxes) cost of goods soldi.e. purchase price (except expenses incurred for purchase)

OR

2) 10% of the cost of goods sold,

whichever is more.

Example: Sale price of books & Register Rs 500000Purchase price of books & Register Rs Rs 400000(Purchase price includes expenses of freight & handling Rs 30000)Calculate value of trading & amount payable under Rule 6(3)(i)

Ans: value of trading =1) Rs 500000 Rs 370000(Rs 400000 Rs 30000)or2) 10% (370000)= Rs 37000

Whichever is more

Thus value of trading = Rs 130000

Amount payable under rule 6(3)(i)= 5%(130000)= Rs 6500

A.S.FOUNDATION


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Board Clarification:

1. Can the credit of Inputs or Input services used exclusively in trading be availed?

Clarification: Trading is an exempted service. Hence the credit of any inputs or input services usedexclusively in trading cannot be availed.

How the credit is available if Inputs or Input services commonly used in trading & output

service?

Trading is an exempted service. If Inputs or Input services commonly used in trading & output servicethen provision of Rule 6(2) or Rule 6(3) as explained above is applicable.

How to determine the value of trading (exempted service) under Rule 6(3) (i) for payment 5% of

value of exempted service?

In case of trading, value 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 expensesincurred towards their purchase i.e. freight, handling charges or etc)

or

10% of the cost of goods sold,

whichever is more.

While calculating the value of trading what principle to follow- FIFO, LIFO or one to one

correlation?

The method normally followed by the concern for its accounting purpose as per generally acceptedaccounting principles should be used.

Are the taxes and year end discounts to be included in the sale price and cost of goods sold while

calculating the value of trading?

Generally accepted accounting principles need to be followed in this regard. All taxes for which set offor credit is available or are refundable/ refunded may not be included. Discounts are to be included.


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Method of determination of amount payable under Rule 6(3)(iii) of Cenvat Credit Rules

2004 (Authors Note for sake of reading)

Provisional calculations

Month Wise Calculation Provisional (for financial year)

Provisionally determine the CC attributable to input services used in exempted goods andexempted services

E = Total Value of Exempted Services + Exempted Goods (during preceding FY)

F = Total value of exempted and taxable and exempted services and total value ofdutiable and exempted goods manufactured and removed (during preceding FY)

G = CC taken on input services during the month

Final Calculation

Month Wise Calculation Final (for financial year)

Final determination of the CC attributable to input services used in exempted goods and exemptedservices

M = Total Value of Exempted Services+Exempted Goods (during current FY)

N = Total value of exempted and taxable and exempted services and total value of dutiable and exempted goodsmanufactured and removed (during current FY)

P = CC taken on input services during the current FY

Consequence of Final Determination:

1 Where the amount of CC after final determination is more than the amount paid monthly - Thedifference is to be paid on or before 30thJune, next year. For delayed payment, interest @24%shall be paid.

2 Where the amount of CC after final determination is less than the amount paid monthly - Thedifference is to be self adjusted.

3 Intimation shall be submitted with the Superintendent in the prescribed form within 15 daysfrom the date of payment or adjustment.

Provisional CC

attributable to inputs

services used in

exempted services or

exempted goods

= (E / F) * G

CC attributable to

inputs services used

in exempted services

or exempted goods

= (M / N) * P


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Rule 6(3-B) Payment 50% of credit if inputs & Input services

commonly used in Banking services [Newly inserted](Provision of Rule 6(3)(i) i.e. 5% of value of exempted service is not applicable)

A banking company and a financial institution including a non-banking financial

company, providing taxable service shall pay for every month(after taking full credit on

inputs & Input services) an amount equal to 50% of the CENVAT credit availed on inputs

and input services in that month.

Notes:-

1. Various banking services are exempt e.g. bill discounting, interest on cash credit,bank O/D or etc.

Thus, credit admissible shall not be full.

2. As per the new rule, these service provider shall initially avail full credit of input and input services

and then pay an amount equal to 50% of credit so availed on monthly basis. Credit of capital goods

shall remain admissible in full (without requirement of any payment).

example:

ICICI Bank has provides taxable as well as exempted services. For the Month of April the value of

taxable services is Rs.200 lakhs and exempted services is Rs 80 lakhs. It has availed full credit of Rs.8lakhs on the inputs and inputs services used in providing taxable and exempted services and also acenvat credit of Rs.5 lakhs on the capital goods used in providing taxable service as well as exemptedservice. Compute the amount of ST payable by bank for the month.

Amount (Rs.)

ST on taxable services [200 Lakhs x 10.30%] 20,60,000

Less: Cenvat Credit

[A] Credit of common input and input service

Total credit availed 8,00,000

Less: 50% payment (4,00,000)

[B] Credit of common Capital goods (50% in first F.Y.) 2,50,000

6,50,000

Net ST payable 13,50,000

Rule 6(3-C) Payment 20% of credit if inputs & Input services

commonly used in Life insurance or ULIP[Newly inserted](Provision of Rule 6(3)(i) i.e. 5% of value of exempted service is not applicable)

A provider of output service providing Life Insurance Service or ULIP service shall pay forevery month (after taking full credit on inputs & Input services) an amount equal to 20% of the

cenvat credit availed on inputs and input services in that month.

Note:-

1. Life Insurance service provider many times gives composite policy (Risk + saving policy) .Only the

Risk component is taxable & Saving component is not taxable. That being so, they could have

availed credit only of the extent of providing the taxable service.

Segregation of credit was posing practical difficulties and was giving rise to disputes. To end those

disputes, Rule 6(3-C) has been specially inserted to provide for special method of allowance of credit

to Life Insurance Service provider. As per the new rule, life insurance service provider shall initially

avail full credit of input and input services (common) and then pay an amount equal to 20% of creditso availed on monthly basis. Credit of capital goods shall remain admissible in full (without

requirement of any payment).

Rule 6(6A) [Newly inserted]

Any 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 then service provider can take full credit of capital goods, inputs & input

services exclusively or commonly used in such service


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When inputs or capital goods, on which CENVAT credit has been taken, are removed as such

from(include sale, transfer to another factory or premise or etc.) the factory, or premises of the provider of output service,

E the manufacturer of the final products or provider of output service, as the case may be,

E shall pay an amount equal to the credit availedin respect of such inputs or capital goods and

E such removal shall be made under the cover of an invoice referred to in rule 9.

Provided that such payment shall not be required to be made where any inputs or capital goods are

removed outside the premises of the provider of output service for providing the output service.

(Newly inserted) Provided further that such payment shall not be required

to be made where any inputs are removed outside the factory for providingfree warranty for final products.

Provided further that if the capital goods, on which CENVAT Credit has been taken, are removed

after being used, the manufacturer or provider of output services shall pay an amount equal to the

CENVAT Credit taken on the said capital goods reduced by the percentage points calculated by

straight line method as specified below for each quarter of a year or part thereof from the date of

taking the CENVAT Credit, namely:-

(a) for computers and computer peripherals:for each quarter in the first year @ 10%

for each quarter in the second year @ 8%

for each quarter in the third year @5%

for each quarter in the fourth and fifth year @1%

(b) for capital goods, other than computers and computer peripherals @ 2.5% for each quarter.

If the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the

duty leviable on transaction value.

If the value of any,(i) input, or

(ii) capital goods before being put to use,on which CENVAT credit has been taken is written off fully or partially or where any provision towrite off fully or partiallyhas been made in the books of account then the manufacturer or OSP shallpay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods . Provided that if the said input or capital goods is subsequently used in the manufacture of finalproducts or providing output service, the manufacturer or OSP shall be entitled to take the credit ofthe amount equivalent to the CENVAT Credit paid earlier subject to the other provisions of theserules.

Rule 3(5): Input Or Capital Goods Removed As Such

Rule 3 5A : Ca ital Goods Removed As waste & scra

Rule 3(5B): Eligibility of Cenvat Credit If Value of

Inputs or Capital Goods Written Off fully.

Newly

inserted


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OTHER IMPORTANT AMENDMENTS OF CENVAT

100% CREDIT ON CAPITAL GOODS IN FIRST FINANCIAL YEAR FOR

SSIRule Prior to amendment Amendment made by the notification no. 6/2010-

dated 27.02.2010

Rule 4(2)(a) Cenvat credit in respect of capitalgoods could be taken only for anamount not exceeding 50% of theduty paid on such capital goods inthe year of receipt of such capitalgoods in the factory (in case ofboth SSI and non-SSI)

Third proviso to rule 4(2)(a) has been insertedwhich provides as follows:-

An assessee eligible to avail SSI exemptionregardless of whether he actually claims it or optsto pay duty is allowed to take the cenvat credit inrespect of capital goods for the whole amountofthe duty paid on such capital goods in the same

financialyear.

Removal of jigs, moulds, dies, fixtures and dies to another manufacturer

permitted without reversal of cenvat creditRule Prior to amendment Amendment made by the notification no.

6/2010-ce (nt) dated 27.02.2010

Rule 4(5)(b)Removal forjob work

The cenvat credit, in respect of jigs,fixtures, moulds and dies sent by amanufacturer of final products to a

job worker for the production ofgoods on his behalf according tohis specifications is allowed.

Comment: payment is not

required if such capital goods notreceived within 180 days.

Rule 4(5)(b) has been substituted with the newclause which provides as follows:-Cenvat credit is allowed, in respect of jigs,fixtures, moulds and dies sent bymanufacturer of final products to:-(a) another manufacturer for the production ofgoods, or(b) a job worker for the production of goods on

his behalf according to his specifications

Comment: facility of nonpayment of amountextended to vendor manufacturer.Thus if anymould & dies removed to vendor forproduction of goods then no need to pay anyamount under Rule 4(5) even though notreceived within 180 days.


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Amendments in rule 9-Documents and accounts

[Notification No. 13/2011-C.E. (N.T.) dated 31.03.2011]

(a) Sub-rule (1)

Sub-rule (1) enumerates the documents on the basis of which the CENVAT credit shall be taken by the

manufacturer or the provider of output service or input service distributor, as the case may be. Clause(bb) inserted prescribes the following additional document to be furnished:-

A supplementary invoice, bill or challan issued by a provider of output service, in terms of theprovisions of Service Tax Rules, 1994 except where the additional amount of tax became recoverablefrom the provider of service on account of non-levy or non-payment or short-levy or short-paymentby reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of anyof the provisions of the Finance Act or of the rules made thereunder with the intent to evade paymentof service tax.

The aforesaid amendment is effective from 01.04.2011.

(b) Proviso to sub-rule (7)-SSI required to file the return within 10 days of the close of the quarter

With effect from 01.03.2011, the proviso to rule 9(7) has been amended so as to provide that SSI shallfile a quarterly return in the form specified, by notification, by the Board within ten days after theclose of the quarter to which the return relates.

(c) Proviso to sub-rule (8)

With effect from 01.06.2011, the quarterly return of CENVATABLE invoices submitted by thefirst/second stage dealer under rule 9(8) of the CENVAT Credit Rules, 2004 shall be filed

electronically unconditionally.

[Notification No. 21/2010 CE (NT) dated 18.05.2010]


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BOARD CIRCULARS

CIRCULAR NO. 122/03/2010 ST DATED 30.04.2010 (V. IMP)

ISSUE1: whether cenvat credit of the service tax paid can be claimed under rule 4(7) of thecenvat credit rules, 2004 when payments are made through debit/credit notes, debit/credit entries

in books of account or by any other mode as mentioned in explanation (c) to section 67 of thefinance act, 1994 for transactions between associate enterprises?

CLARIFICATION: It is clarified that cenvat credit is admissible in the said case. Rule 4(7) doesnot indicate the form of payment and does not place any restriction on payment through debit in thebooks of accounts. If the service charges as well as the service tax have been paid in any prescribedmanner which is entitled to be called gross amount charged, credit will be allowed under said rule.

ISSUE2: whether cenvat credit of the service tax paid can be claimed where a service receiverdoes not pay the full invoice value and the service tax indicated thereon due to some reasons?

CLARIFICATION: It is clarified that cenvat credit of service tax can be availed where a servicereceiver does not pay the full invoice value and the service tax indicated thereon due to reasons likediscount, unsatisfactory service etc. Provided he has paid the amount of service tax (whetherproportionately reduced or the original amount) to the service provider. The credit taken would beequivalent to the amount that is paid as service tax. However, in case of subsequent refund or extrapayment of service tax, the credit would have to be altered accordingly.


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IMPORTANT CASE LAWS OF CENVAT

Ind-Swift Laboratories Ltd. [2011] (SC) (Most expected)Facts: Assessee is a manufacturer of bulk drug. He hasavailed cenvat credit wrongly(on fake invoices) & alsoutilized for payment of excise duty.

Department issued SCN against the assessee for recoveryof cenvat credit along with interest. Department demandedthe interest from the date of availment of Cenvat Creditupto the date of payment .Assessee has paid the amount ofcredit, but argued that interest shall be calculated from the

date of utilization of credit as the credit was encashed onlyon that date.

Legal provision:RULE 14 of Cenvat Credit rule, 2004.

Recovery of CENVAT credit wrongly taken or erroneously refunded.Where the CENVAT credit has been taken or utilized wrongly or has been erroneouslyrefunded, the same along with interest shall be recovered from the manufacturer or the providerof the output service and the provisions of sections 11A and 11AB of the Excise Act or sections 73and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.

Decision:

Rule 14 of the CENVAT Credit Rules, 2004 provides that if any CENVAT credit has been takenOR utilized wrongly, the same along with interest shall be recovered from the manufacturer /service provider and the provisions of Excise section 11A / 11AB or Service Tax sections 73/75 shallapply therefor.

The use of word OR makes it clear that even if the credit is taken wrongly, then also, it becomesrecoverable along with interest.

The provisions of interest u/s 11AB will apply from the date of wrong availment of CENVAT

Credit. It is wrong to say the interest u/s 11AB will apply only from the date of wrong utilization ofcredit.

Interest from the date of wrong availment of credit is justified because once the credit

is taken, the manufacturer / service provider is at liberty to utilize the same,

immediately thereafter, subject to the rules.

[CBEC Circular of the same view: The CBEC has taken the same view in its Circular No.942/3/2011-CX., dated 14-3-2011. Hence, even if the wrongly availed credit is reversed

before utilization, interest under Rule 14 read with section 11AB shall be payable from the

date of such wrong availment to the date of such reversal.]

YEAR 2011

In case of wrong availment

of cenvat Credit the interest

is chargeable under sec

11AB from the date ofwrong availment of credit &

not from date when it is

utilised.


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TATA ADVANCED MATERIALS LTD. 2011 (271) E.L.T. 62 (KAR.)

Facts: The assessee purchased some capital goods andpaid the excise duty on it. Since, said capital goodswere used in the manufacture of excisable goods, heclaimed the CENVAT credit of the excise duty paid on

it. However, after three years the said capital goods(which were insured) were destroyed by fire. TheInsurance Company reimbursed the amount to theassessee, which included the excise duty, which theassessee had paid on the capital goods. ExciseDepartment demanded the reversal of the CENVATcredit by the assessee on the ground that the assesseehad availed a double benefit.

Issue: The assessee claimed the CENVAT credit on the duty paid on capital goods which werelater destroyed by fire. The Insurance Company reimbursed the amount inclusive of excise

duty. Is the CENVAT credit availed by the assessee required to be reversed?Decision: CENVAT credit was validly taken is indefeasible and can be reversed only inaccordance with the provisions of act or rules.

In the instant case, the Insurance Company, in terms of the policy, had compensated the assessee.The High Court observed that merely because the Insurance Company had paid the assessee thevalue of goods including the excise duty paid, it would not render the availment of the CENVATcredit wrong or irregular. It was not a case of double benefit as contended by the Department.

Accordingly, in absence of any provision in the act or the rules requiring reversal of credit, departmentsdemand is seeking reversal of credit was invalid in law.

Ecof Industries Pvt. Ltd. 2011 (271) E.L.T. 58 (Kar.)

facts: the assessee was engaged in manufacturer ofexcisable goods in kolar & cuttack. Its head office,located in chennai, was registered as Input ServiceDistributor. The head office had paid service tax forservices received by the head office and its units fromvarious service providers. Thereafter, it had distributed

the credit of service tax to its various units includingthe unit at kolar. The assessee availed and utilized thesaid credit for payment of central excise duty on theirfinal products.Revenue contended that since the service tax was paidin respect of services obtained by cuttack unit, thecredit of the said service tax paid could not be utilizedby kolar unit.

Decision: as per Rule2 (m) of Cenvat credit rules, 2004 provides that ISD means an office, whichreceives invoices toward purchases of inputs services and issues invoices for distributing of

credits thereof to various locations of same assessee.As per rule 7 Cenvat credit rules2004 provides two conditions for distributing of credits

(i) credit distributed should not exceeds service tax paid

(ii) credit in respect of services used exclusively in manufacture or provision of exempted goods orservices shall not be distributed

High Court elucidated none of aforesaid provisions provides that credit distributed should relateto or should be in proportion to services used for various units

However, the head office is expected to register itself as an input service distributor and

thereafter, is entitled to distribute the credit of such input services in the manner prescribedunder law. The High Court therefore held that Kolar unit had rightly availed the CENVATcredit of the service tax paid by its head office.

The assessee claimed theCENVAT credit on the dutypaid on capital goods which

were later destroyed by fire.The Insurance Companyreimbursed the amountinclusive of excise duty.Cenvat credit shall not bedenied.

ISD can distribute the credit ofservice tax from one unit toanother unit.None ofprovisions of Cenvat CreditRules provides that credit

distributed should relate to orshould be in proportion toservices used for various units


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PRIME HEALTH CARE PRODUCTS 2011 (272) E.L.T.

54 (GUJ.)

Facts: the assessee was engaged in the manufacture oftooth paste. It was sold as a combo pack of tooth paste

and a bought out tooth brush. The assessee availedcenvat credit of central excise duty paid on the toothbrush. Revenue contended that the tooth brush was notan input for the manufacture of the tooth pasteand thecost of tooth brush was not added in the M.R.P. of thecombo pack and hence, the assessee had availed cenvatcredit of duty paid on tooth brush in contravention ofthe provisions of the cenvat credit rules, 2004.

Issue: whethercombo-pack of bought out tooth brush sold alongwith tooth paste manufacturedby assessee eligible as input under the cenvat credit rules, 2004?

Decision: the high court noted that the process of packing and re-packing the input, that was,toothbrush and tooth paste in a unit container would fall within the ambit of manufacture [asper section 2(f)(iii) of the central excise act, 1944.Further, the word input was defined in rule 2(k) of the cenvat credit rules, 2004 which alsoincluded accessories of the final products cleared along with final product. There was no disputeabout the fact that on toothbrush, excise duty had been paid. The toothbrush was put in thepacket along with the tooth paste and no extra amount was recovered from the consumer on the

toothbrush*.Considering the definition given in the rules of input and the provisions contained in rule 3, thehigh court upheld the tribunals decision that the credit was admissible in the case of the assessee.Note: the definition of inputs under rule 2(k) has been substituted vide notification no. 3/2011-c.e. (n.t.)dated 1-3-2011.As per the new definition, any goods includes accessories of the final products cleared along with the finalproduct. However, it has also added the condition that the value of such accessory should be included in thevalue of the final product.In the aforesaid judgment, since no extra amount was recovered from the customer on the toothbrush, itimplies that the value of the toothbrush was included in the value of the final product i.e. Toothpaste.

Hence, the judgment holds good as per the provisions of the new definition.

Combo-pack of bought outtooth brush sold alongwithtooth paste manufactured byassessee eligible as inputunder the cenvat credit rules,2004


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Biopac India Corporation Ltd. [2010] (H.C.)Issue: If capital goods are destroyed by firein a factory then is it required to reverse

Cenvat credit?

Decision: NO

If capital goods are destroyed by fire, the Department cannot seek reversal of CENVAT creditavailed in respect thereof. CENVAT Credit Rules seek reversal of credit only when capital goodsare removed : as such, or, as such after being used, or, as waste or scrap. Since destruction by firedoesn't fall in any of the said cases, therefore, there can't be any liability of payment of anyduty/CENVAT credit. When the capital goods are destroyed after being used for some years; itcould not be said that the CENVAT credit was not admissible on them.

Bansal alloys & metals ltd.-2010 (tri)(imp)Brief facts: assessee is engaged in themanufacture of iron and steel ingots and availedcenvat credit of service tax on inwardtransportation of inputs procured. Subsequently,assessee removed the inputs as such afterreversal of cenvat credit on input availed bythem under rule 3(5) of cenvat credit rules, 2004.

Department contended that assesseetransportation service is related to inputremoved as such, hence credit of service taxpertaining such inward transportation servicerequired to reversed.

Decision: Rule 3(1) provides that the manufacturer shall be allowed to take credit of theduty paid on any input or capital goods and any input service.Rule 3(5) of the rules provides that the manufacturer of final product, or provider of outputservice, as the case may be, at the time of removal of input or capital goods as such from the

factory, shall pay an amount equal to the credit availed in respect of such input or capitalgoods.From the plain reading of rule 3(5) it is clear that the manufacturer shall be required to pay anamount equal to the credit in respect of such input or capital goods.

Rule 3(5) does not indicate for payment of equal amount in respect of credit of input service.

So, reversal of credit on input service in respect of goods transportation agency service is notjustified.

YEAR 2010

If capital goods are destroyed by

fire in a factory then is it notrequired to reverse cenvat credit

As per rule 3(5) it is clear that themanufacturer shall be required to

pay an amount equal to the credit in

respect of such input or capital

goods removed as such.

rule 3(5) does not indicate for

payment of equal amount in respectof credit of input service.