Overview of Cenvat Credit Excise and Service Tax

Overview of Cenvat CreditExcise and Service Tax

Bimal JainFCA, ACS, LLB, B.Com (Hons)

Member of Indirect Tax Committee of PHD/ FICCI/ AssochamMember of GST committee of ICAI/ ICSI

Member of Indirect tax faculties of ICAI/ICSI/ICWAI

MessageMessage

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Nothing is certain except Death & Taxes

Supply Chain – GSTSupply Chain – GST

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Manufacturing

Trading – Intra State/ Inter State/ Exports

Goods

Rendering of Services

Receiver – Intra state/ Inter State/ Exports

Services

InputsCG

Services

Present Power of levy Present Power of levy

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Goods

Central Govt

• Import – BCD,CVD, SAD • Manufacturing – CE/ AED• Surcharges and Cesses

State Govt• VAT• Entry Tax/Octroi• CST

Services

Central Govt

• Service tax

State Govt

• No Power except luxuries tax, entertainment Tax, etc.

Cenvat Credit Rules, 2004 Cenvat Credit Rules, 2004

Availment of Credit Vs. Utilization of Credit Change in the definition of Inputs/ Input Services/ Exempted

Services/ Exempted Goods Change in Rule 6 – Taxable/ Exempted Supplies Unsettling the settled jurisprudence

- “Coca Cola India (2009) 22 STT 130 & ABB Ltd (2009) 21 STT 77 (CESTAT)”

These changes really needed before GST?

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Capital GoodsInputs

Input Services

Manufacturing of GoodsRendering of Services

Cenvat Credit – Capital GoodsCenvat 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

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Cenvat Credit – Capital Goods Cenvat Credit – Capital Goods

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(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

1 8702 Motor Vehicles for the transport of ten or more persons, includingdriver

2 8703 Motor Cars/ other motor vehicles principally designed for thetransport of persons including station wagons and racing cars

3 8704 Motor Vehicles for transport of goods

4 8711 Motor Cycles (including mopeds) and cycles fitted with an auxiliarymotor, with or without side-cars

5 Chassis of all the Motor Vehicle prescribed above


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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;


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(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


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(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

Cenvat Credit – Inputs Cenvat Credit – Inputs

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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 excludes-


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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;


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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;


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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.

Cenvat Credit – Input Services Cenvat Credit – Input Services

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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


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Continued…

and includes services used in relation to 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, 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,-


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Continued…(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


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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


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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;

Cenvat Credit – Availment Cenvat Credit – Availment

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Important to check Whether CG/ Inputs/ Input Services

Whether Registration is must for taking credit?

Whether Refund can be denied prior to Registration?

Varizon Data Services (I) (P) Ltd. Vs. CST, Chennai [2012-TIOL-1512-CESTAT-MAD]

Cenvat Credit – Utilization Cenvat Credit – Utilization

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Rule 3(4) Cenvat credit can be utilized for payment of-- Excise 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 C E 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

Cenvat Credit – Utilization Cenvat Credit – Utilization

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Rule 3(4) Cenvat credit can be utilized for payment of-

Whether there is need for one to one co-relation of CENVAT credit availed on input services towards

payment of output services?

Jyoti Structures Ltd. Versus Commissioner of Central Excise, Nasik [2012 (10) TMI 335- CESTAT, Mumbai]

Condition for availing Cenvat Credit Condition for availing Cenvat Credit

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Rule 4 Conditions for availing Cenvat Credit- Inputs - Immediately on receipt within the factory of Manufacturer

or in the premises of the provider of output service- Capital goods – 50% in the year of receipt and balance 50% in the

subsequent year – Rule 4(2)- Cenvat credit on capital goods shall be allowed even if the capital

goods are acquired by him on lease, hire purchase or loan agreement, from a financing company – Rule 4(3)

- Cenvat credit not available in case the depreciation U/S 32 of the Income-tax Act, 1961 is claimed

- Job work - Goods can be removed for job work provided they are received back within 180 days – Rule 4(5)

- Goods sent to job worker can be removed directly from Job Worker’s premises with Commissioner’s permission – Rule 4(6)

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POT & Cenvat Credit POT & Cenvat Credit

• Obligation & Liability - Service Provider – 68(1)- Service Recipient -68(2)

• Point of Taxation (POT) ‘Point in time when a service shall be ‘deemed to have been provided’[Rule 2(e)]. This point will determine Due date of payment of service Tax Monthly/ Quarterly

• Notification No. 04/2012-ST dt. March 17, 2012 Point of Taxation (Amendment) Rules, 2012 (W.e.f 1/4/2012)

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POT - General Rule 3 POT - General Rule 3

POT, the earliest of the following:-- Date of Receipt of Money (Advance)- When Invoice is issued within 30 days from date

of receipt of money Date of receipt of Money- When Invoice is issued within 30 days from date

of completion of Service Date of Invoice - When Invoice is not issued within 30 days from

date of completion of Service Date of Completion of Service

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POT – Collection basis POT – Collection basis

• Rule 6 of STR (1/4/2012) Service tax on Collection basis - Individuals and Partnership firms (including LLP) - aggregate value of taxable services < Rs. 50 lakhs in the previous FY, the service provider shall have the option to pay tax on collection basis on taxable services up to Rs. 50 lakhs in the current FY

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POT – Reverse Charge POT – Reverse Charge

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Rule 7 – Overriding clause - Determination of POT-U/S 68(2) - Recipients of Service - Date on which payment is made Provided that, where the payment is not made within a period of 6 months of the date of invoice, the POT shall be determined as if this rule does not exist Non Payment within 6 months Normal POT Date of Invoice -1/10/2012 & Date of Payment -15/04/2013 – Interest/ Change of Rate ??

Cenvat Credit – Input Service Cenvat Credit – Input Service

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Input service credit can be taken on or after date of receipt of invoice

- Payment to SP is not made with in 3 months from date of invoice - Then Reverse Credit and re-avail after payment

- Payment under Reverse charge - 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

- Payment or part thereof is returned or credit note is issued by SP, proportionate credit shall be reversed or paid

- Invoice / bill issued prior to 1.4.2011 - Credit after the date of payment of value of service

EXPORT OF SERVICES – Rule 6A –N. 36EXPORT OF SERVICES – Rule 6A –N. 36

Services to qualify as export if:

Service provider located in Taxable Territory

Service recipient located in Non Taxable Territory

Service provided is a service other than in Negative list

Payment is received in convertible foreign exchange in RBI defined

time period

‘Place of Provision of Service’ determined as per the POP Rules is

outside India

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Cenvat Credit – Exempted Service –R 2(e)Cenvat Credit – Exempted Service –R 2(e)

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i. Taxable service which is exempt from the whole of the service tax leviable thereon; or

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

Service Tax – CCR Service Tax – CCR

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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

Cenvat Credit – Abatement Cenvat Credit – Abatement

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Abatement For provision of Taxable Output Services Notification no. 13/2012–ST dt. 17-3-2012 – superseded by Notification no. 26/2012-ST dt. 20-6-2012 (Effective 1/7/2012)

ALL abatement Merged into One Notification – 12 Services

Change in abatement Rates for Specified Services Prior/ Post 1/7/2012

• TTL Consideration = 100• Less: Abatement @ 50% = 50• Net Consideration = 50• Service Tax 12.36% = 6.18

Cenvat Credit – Abatement Cenvat Credit – Abatement

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Abatement Notification no. 26/2012-ST dt. 20-6-2012 Conditional Abatement with benefit of Cenvat Credit available

Notification No. 12/2003-ST Dated 20/6/2003 & Notification No. 1/2006-ST Dated 1/3/2006 (Rescinded)

- Capital Goods – Rule 2 (a) of CCR, 2004- Inputs – Rule 2(k) of CCR, 2004- Input Services – Rule 2 (l) of CCR, 2004

Notification No 1/2006-ST provides various abatements in specified services with a condition that CENVAT Credit will not be claimed by the Assessee

What if Assessee used to claim the benefit of both Abatement and CENVAT, Entire benefit of “Abatement” will be 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.

Now, recently, CESTAT in the case of KHYATI TOURS & TRAVELS Versus 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.

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Exemption vs. Cenvat creditExemption vs. Cenvat credit

Cenvat Credit – Works ContractCenvat Credit – Works Contract

Overruled in LB – CESTAT Delhi – CCE vs. BSBK Pvt. Ltd. (2010) 26 STT 263 – “Turnkey project can be vivisected & service element involved in works contract”.

Other Services Works/ Composite Contract –e.g.

- Erection, Installation, Commissioning Services – 1/7/2003 – 67%- Commercial or Industrial Construction Services – 10/9/2004- 67%/ 75%- Construction of Residential Complex Services – 16/6/2005- 67%/75% - Management, Maintenance or Repair Services – 1/7/2003– No abatement

Difference between Works Contract & Other Services When State Sales Tax/VAT payable on transfer of property in execution of Works Contract

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Cenvat Credit – Valuation RulesCenvat Credit – Valuation Rules

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Valuation under Service Tax for Works Contract Services –Rule 2A Notification no. 11/2012-ST dt. 17-3-2012 superseded by Notification no. 24/2012-ST dt. 6-6-2012 ( W.e.f 1/7/2012):-

Pay service tax on Actual Service portion:- Gross Consideration LESS Value of Property LESS VAT/ Sales tax, if any ADD Value of other services;

Composition Pay Service tax at composite rate Pay ST on 40% value of original works Pay ST on 60% value of all other works contract Pay ST on 70% value of maintenance or repair or reconditioning

or restoration or servicing of any goods

Cenvat Credit – Valuation RulesCenvat Credit – Valuation Rules

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Works Contract Composition Rules, 2007 rescinded - 4.8% Notification no. 35/2012-ST dt. 20-6-2012


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Rule 3(5) and 3(5A) - Duty payable on CG/ Scrap at higher of TV or Depreciated Value [effective from 17.03.12]

Rule 4(1) & 4(2) Time when CENVAT could be taken - Allow credit without bringing them into premises subject to due documentation regarding their delivery and location

Rule 6(3) Rate for Cenvat reversal for Exempt Services/ Goods has been revised from 5% to 6%

Rule 9(1)(e) Availment of credit on the tax payment Challan in case of payment of service tax by all service receivers on reverse charge


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Rule 7 Distribution of Credit by Input Service Distributor (ISD)

- To extent Service Utilized by respective Unit or- Pro rata basis of the turnover of the concerned unit to the sum

total of the turnover of all the units to which the service relates

Open Issues:-

- Whether unaudited monthly/ Quarterly figures acceptable to Dept.

- What happen for Capital Intensive project where Turnover starts only after a reasonable period

Service Tax – CCR –Rule 6 Service Tax – CCR –Rule 6

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Maintenance of Separate

records

Option I for inputsOption III for input services

Payment of 6% of value of exempted

goods / services

Follow Rule 6(3A) and reverse

proportionate Credit attributable

to exempted goods/ services

Common Inputs or input services


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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

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

Bimal Jain

A2Z Taxcorp LLP I Tax and Law Practitioners

F-30/31/32, Pankaj Grand Plaza 1st Floor, Mayur Vihar, Phase–I,

Delhi – 110091 India Desktel:+91-11-22757595

Mobile:+91 [email protected]

www.a2ztaxcorp.com

Documents

Overview of Cenvat Credit Excise and Service Tax