CENVAT CREDIT RULES,2004
Introduction
→
In India, prior to introduction of CENVAT, the concept of MODVAT (Modified
Value added Tax) was there where the Concept of “Value Added Tax “was
restricted up to
Manufacturing Staff of goods (Credit of only Excise duty paid on impact was
available
→
But CENVAT Scheme was introduced with effect from 10 th September, 2004
with the following benefits(i)
Credit of Service tax paid on Input Service available
(ii)
Credit of Excise duty paid on impacts is allowed to be used for paying
service tax on output Services
(iii)
Introduction of input Services distribution
(iv)
Inter Sectorial Credit is allowed
(v)
many other procedural Benefit
Problem before VAT System i.e. CASCADING EFFECT
→
The main problems with Excise duty before introducing CENVAT was (1)
Multiple taxation- It means a product is taxable multiple times which
Excise duty is levieable on Each manufacturing stage
(2)
Cascading Effects- It means tax on tax
→
Above problems can be understand with the help of the following example-
[A] Before CENVAT
Details
Produced/manufactured
Impact tax Credit
Purchase
Value addition
Selling Price before Excise duty
Add Excise duty10
Selling Price After Excise duty
Net tax payable to Government
X
Cotton
Not applicable
100
100
10
110
10
Y
Fabric
Not applicable
110
90
200
20
220
20
Z
Garments
Not applicable
220
80
300
.30
330
30
In above Example’s a product is taxable multiple times in each manufacturing stage.
As y is paying tax on Rs.100 on which X has already paid tax and also paying tax on
Rs.10 which is tax paid by X
Similarly, Z is paying tax on Rs.100 on which X and Y have already paid tax and on
Rs.90 on which has already paid tax and also paying tax on Rs.10 Rs.20 the taxes
paid by X Y respectively
Here, Rs.100 is taxable multiple times on Each Stage of manufacturing Like in hand
of X, Y  Z, which is called multiple taxation
And Rs.10 is tax paid by x, is also taxable many times Like in hand of Y and Z
(B)After CENVAT
Details
Produced/manufactured
Input tax Credit
Purchase
Value addition
Selling price before Excise duty
Add Excise duty-10
Selling price after Excise duty
Net tax payable to Government
X
Cotton
100
100
10
110
10
Y
Fabric
10
100
90
190
19
209
19-109
Z
garments
19
190
80
270
27
297
27-198
In Such above example, a product is taxable on value addition made in Each
manufacturing stage
As X is paying tax of Rs.10 on only value addition of Rs.100 made by him in
manufacturing
Similarly y is paying tax of Rs.9 on only value addition of Rs.90 made by him in
manufacturing
Similarly z is paying tax of Rs.8 on only value addition Rs.80 made by him in
manufacturing
So, this CENVAT system eliminate the effects of Multiple taxation and CASCADING
Here, the final price of Government i.e. Rs.330 before CENVAT System
CENVAT CREDIT
(A)Manufacturing of Goods
If the manufacturer manufactures a dutiable goods then he has to pay Excise duty
bribable on such finished goods after deducing the following(i)
Excise duty paid on inputs [Raw material, Consumable stores, packing
materials etc.
(ii)
Excise duty paid on Capital Goods used for manufacturing of dutiable goods
(iii)
Service tax paid on Input Services used for manufacturing of dutiable goods
(B) Providing of ServicesIf Service provider is providing dutiable services then he has to pay Services tax
livable on Such Services after dedicating the following(i)Excise duty paid on inputs used providing the dutiable services
(ii)Excise duty paid on Capital goods used for providing dutiable services
(iii)Services tax paid on Input services used for providing dutiable services
Author’s Notes1.
If Excise duty paid on Capital goods are used or adjusted against Excise duty
payable on finished goods them no depreciation is allowed on Excise duty
portion in the value of Capital goods under Section 32 of Income Tax act,
1961
2.
If the final/ finished product or Services provided are not dutiable then CENVA
Credit of Excise duty paid on Inputs and Capital Goods and Services tax paid
on Input Services are not allowed because there are no. multiple taxation and
Cascading effects involved in it.
But Export of goods or Services as a Special Case enables the manufacturer to take
and avail CENVAT Credit though no. Excise duty/Service tax is paid on goods /
Service exported
IMPORTANT DEFINITIONS.
1. CAPITAL GOODS
Capital Goods means(A)the following goods, namely(i) All goods, namely-chapter 82 [Tools, hand, tools, knives]
-chapter84 [Machinery]
-chapter 85 [Electric Machinery]
-chapter 90 [Measuring, checkingTesting Machinery]
-heading no.6805 [Polishing Abrasive Powder or garnish]
-heading no.6804 [grinding wheels and parts thereof]
(ii)
Pollution Control equipment;
(iii)
Components, spares and accessories of the goods specified (i)  (ii)
(iv)
Molds and dies, jigs and fixtures
(v)
Refractories and refractory materials
(vi)
Tubes and pipes and fittings thereof;
(vii) Storage tank and
(viii) Motor vehicles other than those falling under tariff headings 8702, 8703, 8704,
8711 and their chassis but including dumpers and tippers under(1)
in the factory of the manufacturer of the final Products, but does not
include any equipment or appliance used in an office; or
(1A) Outside the factory of the manufacturer of the final products for
generation of Electricity for Capture use within the factory or
(2)
for providing output service
(B)
Motor Vehicles falling under tariff headings 8702,8703,8704,8711 Motor vehicle designed for transportation of goods including their
chassis registered in the name of 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 services of courier Agency
 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 passenger; or
(ii) Renting of such motor vehicle; or
(iii)Imparting Motor driving skills
(C) Components, spares and accessories of Motor vehicles which are capital goods
for the Assurers
2. Input
Input means(i)
All goods used in the factory by manufacturer of the final products or
(ii)
Any goods including accessories, cleared along with the final product, the
value of which is included in the value of final product and goods used for
providing free warranty for the 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
(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 contact 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 services portion in the execution of a works
Contact or Construction service as listed under clause (b) of section66e of the
Act
(C)
Capital goods except when used as parts or components in the manufacturer
of a final product;
(D)
Motor vehicles;
(E)
Any goods, such as food items, goods used in a guest house, 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 what so ever with the manufacture of
the final product
Explanation-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;
Analysis1
Light diesel oil, high speed diesel and petrol are not at all treated as inputs
2.
Goods used in construction, works contract or any civil work or laying of
foundation are not inputs
3.
Motor vehicles is no case are treated as ’Input
4.
Any goods having no relationship with the manufacture of a final product are
not inputs
3. Input Service
‘“Input Services” means any services
(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 the final product and clearance of final products up to place of
removal, and includes services used in relation to
𝑎 𝑓𝑎𝑐𝑡𝑜𝑟𝑦 𝑜𝑟
→ 𝑀𝑜𝑑𝑒𝑟𝑛𝑖𝑠𝑎𝑡𝑖𝑜𝑛,
𝑟𝑒𝑛𝑜𝑣𝑎𝑡𝑖𝑜𝑛, 𝑜𝑟 ] 𝑜𝑟 {𝑃𝑟𝑒𝑚𝑖𝑠𝑒𝑠 𝑜𝑓 𝑝𝑟𝑜𝑣𝑖𝑑𝑒𝑟 𝑜𝑓 𝑜𝑢𝑡𝑝𝑢𝑡 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠, 𝑜𝑟
𝑟𝑒𝑝𝑎𝑖𝑟𝑠
𝑂𝑓𝑓𝑖𝑐𝑒 𝑟𝑒𝑙𝑎𝑡𝑖𝑛𝑔 𝑡𝑜 𝑠𝑢𝑐ℎ 𝑓𝑎𝑐𝑡𝑜𝑟 𝑜𝑟 𝑝𝑟𝑒𝑚𝑖𝑠𝑒𝑠

















Advertisement or sales promotion or marketing research
Storage up to the place of removal,
Procurement of inputs,
Accounting,
Auditing,
Financing,
Recruitment
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 up to the place of removal.
But Excludes
(A) Service portion in the Execution of a works contact and construction services
including services listed under clause (b) of Section 66E of the finance Act (here in
after 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 there of:
(b)
Laying of foundation or making of structures for support of Capital
goods.
Note:Services listed under clause (b) of Section 66E are: Architect Services
 Port Services
 Other Port Services
 Airport services
 Commercial or Industrial construction
 Construction of Residential complex
 Works contract services
(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 or 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 manufacture of a motor vehicle in respect of a motor vehicle
manufactured by a such person ; or
(b)
(c)
an insurance company in respect of a motor vehicle insured or
reinsured by such person ; or
Such as those provided in relation to
Outdoor catering
beauty treatment
Health services
Cosmetic and Plastic services
Membership of Club, health and fitness center,
Health insurance and travel benefits extended to Employees on
vacation such as Leave or home travel concession.
When such above services are used primarily for personal use or
consumption of any employee.
4. Final Products:“Final Products” means excisable goods manufactured or produced from
input, or using input services.
5.Output Services
“Output service” means any services provided by a provider of service located
in the taxable territory.
6. Exempted Goods
“Exempted Goods” means excisable good which are except from the whole of the
duty of excise leviable thereon and includes goods which are chargeable to
Net”
rate of duty goods.
7. Exempted Services:
“Exempted Service” means
(1)
Taxable services which is exempt from the whole of the service tax
leviable thereon: or.
(2)
Service, on which on service tax is leviable under Section 66B of the
Finance Act,. 1994.
8.First Stage Dealer
“First Stage Dealer” means a dealer, who purchases the goods directly from
(i)
The manufacturer, his depot, premises of his consignment agent or any
other place where the goods are sold on behalf of
manufacturer
under cover of invoice.
(ii)
An importer, his depot, premises of his consignment agent under
cover of Invoice.
9. Second Stage Dealer:“Second stage Dealer” means a dealer who purchases the goods from a first stage
dealer.
CENVAT CREDIT, UTILIZATION, LIMITATIONS AND CONDITONS (RULE-3)
RULE 3(1):- Duties on which Credit can be Taken
Rule 3(1) Provides the following types of duties in respect of which credit can be
taken:(i)
Basic excise duty (BEW) is Levied at the rates specified in the first Schedule
to CETA, 1985.
(ii)
Special Excise Duty(SEW) is Levied at the rates specified in the second
schedule to the CETA, 1985.
(iii)
Additional Excise duty (AEW) on textiles articles levied under Additional
Duties of Excise [Textile and Textile Articles), Act, 1978.
(iv)
Additional Excise Duty on goods of special importance Levied under
Additional Duties of Excise [Goods of Special importance) Act, 1957.
(v)
National Calamity Contingent duty [NCCD] Leviable under section 136 of the
finance Act, 2001 on Cigrattes and Pan Masala etc.
(vi)
Additional duty of Excise Leviable under Section 157 of the Finance Act, 2003
for development of tea.
(vii) Additional duty of excise Leviable under Section 85 of the Finance Act, 2005
as Health cess.
(viii) Countervailing duty [CVD] Leviable under Section 3 of the customs Tariff Act.
This duty is leviable on imported articles and is equal to the duties of excise if
the same article is produced or manufactured in India.
However, the CENVAT credit Shall not be allowed in excess of Eighty-five
percent of the additional duty of customs paid under Section3(1) of the
customs Tariff Act, on ships, boats and other floating structure for breaking up
falling under tariff item 8908 00 00 of the first Schedule to the Customs Tariff
Act.
(ix)
Special CVD also known as SAD[Special Additional duty] is payable under
Section 3(5) of customs Tariff Act at 4%. This is in Lieu of Sales Tax.
Note:- Only a manufacturer is eligible to take this credit on imported goods.
Service provider is not eligible as he has no connection with sales tax.
(x)
Education Cess [EC] and secondary and higher education Cess [SHEC] on
Excisable Goods Leviable under Section 11 read with Section 93 of Finance
Act, 2004 and under Section 136 read with Sectoion 138 of the Finance Act,
2007 respectively.
(xi)
Service tax Leviable under Section 66B of Financial Act, 1994.
(xii) Education Cess [EC] and Secondary and higher education cess [SHEC] on
Taxable Services Leviable under Section 91 read with Section 95 of Finance
Act, 2004 and Leviable under Section 136 read with Section 140 of the
Finance Act, 2007 respectively.
AND which are paid on
(I)
any input or capital goods received in the factory of manufacturer of
final product or by the provider of output services on or after the 10th
day of September, 2004, AND
(II)
Any input services received by the manufacture of final product or by
the provider of output service on or after the 10th day of September,
2004.
RULE 3(7)(B)
RESTRICTION ON UTILIZATION OF CREDIT FOR PAYMENT OF DUTY.
Table showing the utilization of CENVAT CREDIT
CREDIT OF
UTILISATION FOR
Basic excise duty
All except health cess
Special excise duty
Goods of special importance
Service tax
Additional duty on textile Articles
Additional duty on textile Articles
National Calamity contingent duty
National Calamity contingent duty
Education cess & SHEC ON Excisable Education cess &SHEC
goods
-On excisable goods
-On taxable Services
Additional duty of excisable Leviable All except Health cess and Service tax
under Section 3(5) of Custom tariff Act.
Additional duty of excisable Leviable Additional duty of excise Leviable under
under Section 157 of the finance Act, Section 157 of the finance, Act, 2003 for
2003 for development of tea.
development of tea.
Education cess & SHEC on taxable Education cess & SHEC
services
- On Excisable Good
- On taxable Services
Health cess
Health cess
CENVAT CREDIT on inputs lying in stock used in the Final Products which
cease to be exempted Rule 3(2).
 The manufacturer of producer of final products shall be allowed to take CENVAT
Credit of the duty paid on inputs lying in Stock or in process or inputs contained in
the final products lying in stock on the date on which any goods manufactured by
the said manufacturer or producer cease to be exempted goods or any goods
become excisable.
CENVAT Credit on inputs lying in Stock used in the output services which
cease to be exempted Rule 3(3).
 The provider of the output service shall be allowed to take CENVAT credit of the
duty paid on the inputs lying in the stock on the date on which any services
ceases to be an exempted service and used for providing such services.
UTILIZATION OF CENVAT CREDIT RULE 3(4).
The CENVAT Credit may be utilized for payment of:(a)
any duty of excise on any final product; or
(b)
Service tax on any output services
(c)
An amount equal to Cenvat credit taken on input if such inputs are removed
as such or after being partially processed; or
(d)
an amount required to be paid where goods processed does not amounts to
manufacture under sub-rule (2) of rule 16 of Central Excise Rules, 2002; or
(e)
an amount equal to the CENVAT credit taken on capital goods if such Capital
goods are removed as such.
Note:1.
While paying duty of excise or service tax, as the case may be, the CENVAT
credit shall be utilized only to the extract such credit is available on the last
day of the month or quarter, as the case may be, for payment of duty or tax
relating to that month or the quarter.
2.
CENVAT credit cannot be used for payment of service tax in respect of
services where the person liable to pay tax is the service recipient.
Capital Goods or inputs removed as such Rule 3(5)
 When inputs or capital goods, on which CENVAT credit has been taken, are
removed as such from the factor, or premises of the provider of output service,
the manufacturer of the final products or provider of out put service, as the case
may be shall pay an amount equal to the credit availed in respect of such inputs
or capital goods and such removal shall be made under the cover of an invoice
referred to in Rule 9.
 However, 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 services.
 It is further provided that payment should not be required to be made where any
inputs are removed outside the factory for providing for warranty for final
products.
Capital goods cleared as waste and Scrap Rule3(5A)
 If the Capital goods on which CENVAT credit has been taken, are removed
after being used, whether as capital goods or as scrap or waste the
manufacturer or provider of output services shall pay on 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)
(b)
for computers and Computer peripherals.
for each quarter in the first year
For each quarter in the Second year
For each quarter in the third year
For each quarter in the fourth and fifth year
@ 10%
@ 8%
@ 5%
@ 1%
For capital goods, other than computers and computer peripheral@2.5 for
each quarter
Note- However, if the amount so calculated is less than the amount equal to the
duty leviable on tans action value, the amount to be equal to the duty leviable
on transaction value.
Example-Mr. Manufacturer Purchased Machinery for 100000Rs.@10Excise duty
but After 5 years, he sold for RS.70,000. So As per Calculation he has to give
10000-(2.5of 10000x4x5yrs)
2.5
x10000x4x5yrs]
100
10000-5000
5000Rs
But duty calculated on transaction value of Rs.70000@10is 7000
So, duty calculated is less than duty on transaction value then he has to give duty
on transaction value i.e. 7000 Rs.
[10000-
Taken CENVAT Credit on input or Capital Goods Written Off Rule 3[5B]
→
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 to write off fully or partially has been made in the
books of accounts then the manufacturer shall pay an amount equivalent to the
CENVAT Credit taken in respect of the said input or capital goods.
→
→
However, if the said input or capital goods is subsequently used in the
manufacture of final products or the provision of output services, the
manufacturer or output service provider, as the case may be, shall be entitled
to take the credit of the amount equivalent to the CENVAT credit paid earlier
subject to the other provisions of these rules.
If the manufacturer of goods or the provider of output service fails to pay the
amount payable under sub-rules (5), (5A) and (5B), it shall be recovered, in
the manner as provided in rule 14, for recovery of CENVAT credit wrongly
taken.
Remission of duty Rule 3(5C)
→
Where on any goods manufactured or produced by an assessee, the payment
of duty is ordered to be remitted under Rule 21 of central Excise Rules, 2002,
the CENVAT Credit taken on the inputs used in the manufacturer or
production of said goods shall be reversed.
REVERSAL OF DUTY IS CONSIDERED AS PAYMENT OF DUTY RULE 3(6)
→
The amount of duty written off or reversed under sub-rule(5) or sub rule(5A),
shall be eligible as CENVAT credit as if it was a duty paid.
CENVAT credit in case of Marble tiles:→
On imported marble slabs and marble tiles, CENVAT credit can be take at a
fixed Rate of Rs. 30 per square meter.
→
The CENVAT credit constitutes CVD & Special CVD if any.
Credit in respect of goods purchased from 100% EOU [Rule 3(7) (a)]
→
CEVAT credit in respect of inputs or capital goods produced or manufactured,
by a 1000% export-oriented undertaking [EOU] or by a unit in an electronic
Hardware Technology Park [EHTP] or in a software Technology Park (STP)
and used.
(i) in the manufacturer of the final products or
(ii)
in providing an output service, shall be admissible equivalent to the
amount calculated in the following manner:-
CENVAT
 BCD  CVD
 sale price x 1 
x
200  100

Example:Purchased 1000 units from EOU at Rs. 400 (before taxes) BCD 10% and CVD 16%.
Find out the CENVAT Credit eligible to the buyer.
[study material ICSI]
ANSWER:CENVAT Credit=
10  16

 210  16
400 1 
x
 400 
x
 Rs. 67.20

 200  100
 200  100
Credit
For 100 units  67.2x1000  67, 200 Rs.
Alternatively , the CVD amount can be calculated as follows:
Assessable value
Rs.400
Add
1
1
50% of BCD[i.e. [2 𝑥 100 𝑥400]
20
After BEW
420.00
16
CVD on 420 @ 16% = 420x
Rs.67.20
100
For 1000 units
 Rs. 67.20x1000
 Rs. 67,200
CONDITIONS FOR ALLOWING CREDIT (RULE 4)
___________________________________________________________________
Credit on input [Rule 4(1)
→
The CENVAT credit user is allowed to take 1005 credit on inputs immediately
on bringing them into the factory.
Credit on capital goods [Rule 4(2)
→
As per Rule 4(2)(a), in case of capital goods brought into the factory or in the
premises of the provider of output services or outside the factory of the
manufacturer of the final for generation of electricity for captive use within the
factory only 50% is allowed in the financial year of purchase and the rest in
the subsequent financial year
.
→
However, 100% credit is allowed on capital goods in the following 3 cases:1.
If the capital goods are cleared as such in the same financial year, full
credit can be taken on removal.
2.
Special CVD paid by a manufacturer on imported capital goods
3.
SSI units.
2.
3.
Special CVD paid by a manufacturer on imported capital goods
SSI units.
Notes:1,
The CENVAT credit of the additional duty leviable u/s 3(5) of customs Tariff
Act. 1985, in respect of capital goods shall be allowed immediately on receipt
of the capital goods in the factory of a manufacturer.
2.
But such capital goods must be in possession in the subsequent financial
years. This has an exception.
“Spares, components, accessories, refractories, moulds, dies and specified
goods falling under chapter 68 need not be in possession in the subsequent
financial year, CENVAT credit can be taken even if they are consumed in the
first year itself [Rule 4(2)(b)].
3.
CENVAT credit can be taken on capital goods even if they are acquired on
lease, hire purchase or loan arrangement. It is therefore not necessary that
the goods must be purchased [Rule 4(3)]
4.
Depreciation under section 32 of Income Tax Act, 1961 shall not be claimed
on excise duty portion in the event of availing CENVAT credit or capital
goods. [Rule 4(4)]
5.
The CENVAT credit user can taken credit on inputs sent to Job worker for
further processing/repair reconditioning. But he has to reverse/pay the credit
amount if the goods are not received back from the job worker within 180
days of sending.
It means, he can enjoy the credit upto 180 days only. Beyond that he has to
forgo the benefit till he actually receives them back from the Job Worker.
Credit is also allowed in respect of Jigs, fixtures moulds and dissent to Job
worker[Rule 4(5)].
6.
Goods may also be allowed to be removed from the premises of the job
worker by taking permission from the Assistant Commissioner. Such an order
7.
permitting the removal by the Assistant Commissioner is valid for a financial
year. Such an order may specify the conditions for the removal. [Rule 4(6)].
The CENVAT credit in respect of capital goods may be taken by the provider
of output service when the capital goods are delivered to such provider,
subject to maintenance of documentary evidence of delivery and location of
the capital goods.
Conditions for availing credit on input services [Rule 4(7)]
→
CENVAT credit in respect of input service is allowed on or after receiving the
invoice, bill or challan.
Proviso 1:- Where service receiver is liable to pay service tax directly
reverse charge, he is eligible to take credit only after payment of service
charge and service tax.
Proviso 2:- If the beneficiary of CENVAT credit [manufacturer or service
provider] does not pay the service charge and the service tax with 3 months of
the date of invoice etc to the provider of Input services, he has to pay/reverse
the credit taken on the basis of the documents received. He becomes eligible
to take credit only after the payment of the said amounts.
Proviso 3:- The beneficiary of CENVAT credit is also required to
pay/reverse the credit to the extent of refund or credit not received form the
provider of input service.
Proviso 4:- For the documents received before 1st April, 2011, the
beneficiary is entitled to credit only after the required payment is made.
CENVAT CREDIT TO SERVICE PROVIDING SERVICES TAXED ON
REVERSECHARGE BASIS-RULE 5B
→
A provide of service
 Providing services notified under Sections 68(2) of Finance Act 1994
[i.e. Reverse Charge Basis]
 And being unable to utilise the CENVAT Credit availed on inputs and
input services
 For payment of service tax on such output services
 Shall be allowed refund of such unutilized CENVAT credit
 Subject to procedure, safeguards, conditions and Limitations, as may
be specified by the Board by notification in the official Gazette.
OBLIGATION A MANUFACTURER OR SERVICE PROVIDER
RULE 6
Rule 6 deals with the fundamental principle of taking CENVAT credit.
Rule 6(1)
→
the CENVAT credit can not be taken on those inputs whose final product is
exempt.
→
similarly in case of services, the CENVAT credit also can not be taken on
those inputs whose output services is exempt.
→
Because, the facility of CENVAT credit is available mainly to remove
(i)
The effect of cascading i.e. tax on tax, and
(ii)
The effect of multiple taxation
Hence, if final product or output service is exempt, then input credit is denied.
Rule 6(2)
→
Where inputs or Input services are used for both taxable and non-taxable
goods or services, then CENVAT credit can be taken only on that quantum of
inputs used for dutiable goods or taxable services provided that separate
accounts have to be maintained.
→
Example:_
Leather is used for exempted as well as dutiable footwear, say chappals and
shoes. Chappals are exempted and shoes are dutiable. The manufactures
paid the duty of Rs. 30000 on Leather 60% of Leather was used for shoes.
CENVAT credit can be taken for Rs. 18,000 [60% of Rs. 30000] by
maintaining separate accounts.
Rule 6 (3)
→
Rule 6(3) is an extension of Rule 6(2) which provides for following options to
the assessee who prefers not to maintain accounts separately:Option I:As per Rule 6(3)(i), take full credit but pay 6% on the value of exempted
goods/exempted services, or
Option II:As per Rule 6(3)(ii), take full credit and pay back the amount of credit attributable to
exempted goods or exempted services by following the procedure specified in Rule
6(3A); or
Option III:As per Rule 6(3)(iii) maintain separate accounts for inputs and pay the amount on
input services as per Rule6(3A). [This is a hybrid system newly introduces budget
2011].
NOTE:Provided that in case of transportation of goods or passenger by rail, the amount
required to be paid under clause (i) shall be an amount equal to 2 percentage of the
value of the exempted services.
Rule6(3A):- Procedure and Conditions:The manufacturer of goods or the provider of output service shall follow the following
procedure & conditions are prescribed for determination and payment of amount
payable under Rule 6(3)(ii):(a)
Intimate to the Superintendent of Central Excise in writing the details of:Name and address and registration number
Date of commencement of the option
Description of dutiable goods/exempted goods or output
services/exempted services.
CENVAT credit lying in balance on the date of exercising the option.
(b)
Determine and pay, provisionally every month the amount of credit attribute to
the exempted goods or exempted services.
Determine finally the amount of CENVAT credit attributable to exempted
goods or exempted services for the whole financial year.
Pay the amount of difference in the provisionally and finally determined
CENVAT credit by 30th June of succeeding financial year.
If the difference amount is paid beyond 30th June, pay with interest @ 24%
per annum for the period after June 30.
If the amount paid is in excess of what is payable self-adjustment can be
made.
Intimate to the Jurisdictional superintendent of Central Excise within 15 days
of payment or adjustment with the details.
(c)
(d)
(e)
(f)
(g)
Important Notes:No credit is allowed on those inputs and input services which are used exclusively
for exempted goods or exempted services.
Rule 6(3B):- Availment of CENVAT credit in case of Banking Company and NBFC
→
A banking Company and a financial institution including a non-banking
financial company, engaged in providing services by way of extending
deposits, loans or advances shall pay for every month an amount equal to fifty
percent of CENVAT credit availed on inputs and input services in that month.
Rule6(4):→
If capital goods are exclusively used for exempted goods or exempted
services, then CENVAT credits on duty paid on such capital goods cannot be
taken. Here SSI units are an exception.
→
If capital goods are partly used for exempted goods or exempted services, full
credit on them can still be taken.
Rule6(5):-
Omitted
Rule6(6):→
All clearance made to
an EOU
SEZ units, or
SEZ developer, or
EHTP, or
STP, or
-
-`
→
UN agencies, or
Supplied for the use of foreign diplomatic missions. Diplomatic agents or an
international organisation for their official use or supplied to projects funded by
them, or
for export under bond or
removal of gold or silver arising in manufacture of copper or zinc by smelting
and supplies made for setting up of solar power generation projects or
facilities.
No excise duty is leviable on such clearance but CENVAT credit can taken on
such removals.
Rule6(7):→
The provisions of sub-rules (1), (2), (3) & (4) shall not be applicable in case
the taxable services are provides without the payment of service tax, to a unit
in Special economic zone or to a developer of a special economic zone for
their authorised operations or when a service is exported.
Rule6(8)
→
For the purpose of this rules a service provided or agreed to be provided
shall not be an exempted service when:(a)
The service satisfies the conditions specified under rule 6A of the
Service tax Rules, 1994 and the payment for the service is to be
received in convertible foreign currency; and
(b)
Such payment has not been received for a period of six months or such
extended period as may be allowed from time to time by the Reserve
Bank of India, from date of Provision.
MANNER OF DISTRIBUTION OF CREDIT BY INPUT SERVICE DISTRIBUTOR
[RULE 7]
 A manufacturer or service provider may have head office and regional office
[Branch Office] at different places.
 The services may be received by such head office or regional office under a
invoice but these services are used by head office or regional offices
 So, the head office or Regional office who receive such invoice [called Input
Service distributor] and paid service tax on services received, shall distribute
the credit of such input service tax paid to its Head Office or Regional Office
subject to following condition:(a)
The credit distributed shall not exceed the amount of service tax paid.
(b)
No credit amount can be transferred to that unit which is exclusively
manufacturing exempted goods or provider of exempted services.
(c)
Credit of service tax attributable to services used wholly in a unit shall
be distributed pro rate on the basis of the turn over during the relevant
period of the concerned unit to the sum total of the turnover of all the
units to which the services relates during the same period.
Notes:1.
The relevant period shall be the month previous to the month during which the
Cenvat credit is distributed.
Clarification:1.
Every head office or regional office or factory of manufacturer or service
provider has different registration number [i.e. excisable control code STP
CODE].
PROCEDURE FOR REFUND OF CENVAT CREDIT
The Government has prescribed the procedure for claiming refund of the unutilized
CENVAT credit:(i)
The manufacturer has to file a declaration with his AC/DC describing the
finished goods, duty rate, manufacturing formula with reference to quantity
and quality of the raw materials.
(ii)
A monthly statement by the 7th of the month has to be filed giving details of
opening balance, receipts, value, duty, amount of credit taken & quantity of
inputs used during the month, final products manufactured, inputs lying in
stock , credit utilised and the amount of credit lying in the balance.
(iii)
The AC/DC after verification will refund the un utilized credit within three
months from the date of receipt.
(iv)
If there is likely to be any delay in grating the refund, the AC can grant 80% of
the amount claimed on a provisional basis.
DISTRIBUTION OF CREDIT ON INPUTS BY THE OFFICE OR ANY OTHER
PREMISES OF OUTPUT SERVICE PROVIDER RULE 7A
 A output service distribute may have head office and regional office [Branch
Office at different places.
 The inputs or capital goods may be received by such head office or regional
office under a Invoice or challan or bill but these inputs or Capital Goods are
used by head office or regional offices.
 So, the head office or Regional office who receive such invoice [called Input
distributor] and paid excise duty on inputs or capital goods received. Shall
distribute the credit of such input excise duty paid to its Head office or regional
office subject to following conditions:(a)
The credit distributed shall not exceed the amount of excise duty paid.
(b)
No credit amount can be transforced to that unit which is exclusively
providing exempted services.
(c)
Credit of excise duty attributable to inputs or capital goods used wholly
in a unit shall be distributed only that unit.
(d)
Credit of excise duty attributable to inputs or capital goods used in
more than one unit shall be distributed pro-rata on the basis of the
turnover during the relevant period of the concerned unit to the sum
total of the turnover of all the units to which the inputs or capital goods
relates during the same period.
Note:1.
The relevant period shall be the month previous to the month during
which the CENVAT credit is distributed.
Clarification:1.
Every head office or regional office of service provider has different
registration number [i.e. service tax payer code [STP CODE]].
Difference:The main difference between input service distributor under Rule 7 & Input
distributor under Rule 7 A are:_
1.
The input service distributor may be a manufacturer or service provider
whereas input distributor is service provider.
2.
The input service distributor distributes credit on service tax paid but
the input distributor distributes excise duty paid on inputs and capital
goods.
STORAGE OF INPUT OUTSIDE THE FACTORY OF THE MANUFACTURER
[RULE 8]
→
Storage of goods outside the factory may be allowed by Additional
Commissioner/Deputy Commissioner in exceptional cases subject to certain
conditions and Limitations.
DOCUMENTS AND ACCOUNTS
→
RULE 9
The manufacturer or service provider can claim the CENVAT credit on the
strength of the following documents:-
(a)
(b)
Invoice obtained from various sources of Local purchase. The local
suppliers may include manufacturers, importers, dealers or their
depots, branches, agents etc.
supplementary invoice issued by the manufacturer or importer of inputs
or capital goods or by provider of output service in addition to the
invoice on various counts. The amount paid under this is also eligible
for taking CENVAT credit but subject to the condition that such issue of
supplementary invoice was NOT
necessitated by fraud, willful
misstatement, suppress of facts etc on the part of the supplier.
Note:Supplementary invoice by service provider is also eligible for taking CENVAT credit.
(c)
Bill of entry in case of direct imports
(d)
Certificate issued by appraiser of customs in case of imports by post
(e)
A challan evidencing the payment of Service tax by the person liable to
pay service tax.
(f)
An invoice, bill or challan issued by provider of Input service
(g)
An invoice, bill or challan issued by provider of input service distributor.
Particulars to be mentioned on the invoice for the purpose of CENVAT credit
Rule 9(2)
→
According to Rule 9(2) of CENVAT credit Rules, all the Particulars mentioned
in the central excise Rules 2002. Should be mentioned on the invoice.
→
However, if an invoice contains the details of :Payment of duty or service tax.
description of the goods or taxable service
assessable value,
name & address of the factory or warehouse or provider of taxable
services.
And the jurisdictional Deputy commissioner/ Assistant Commissioner of
Central Excise is satisfied that the goods or services covered by the said
documents have been received or accounted for in the books of accouts of
the receiver, he may allow the CENVAT Credit.
Requirement relating to maintenance of Records
The following records are required to be maintained in context of CENVAT Credit: Records to be kept by dealer of input goods/Capital goods
 The CENVAT credit in respect of first stage dealer or second stage dealer is
allowed only if such of first stage dealer or second stage dealer, as the case
may be, has maintained records indicating the fact that the input or capital
goods were supplied from the stock on which duty was paid by the producer
of such input or capital goods [Rule 9(4)].
 Records regarding inputs/capital goods to be kept by the output service
provider.
 The provider of output service is required to maintain proper records for the
receipt, disposal, consumption and inventory of the input and capital goods in
which the relevant information regarding;The value
duty paid
CENVAT credit taken & utilized,
-
the person from whom the input or capital goods have been procured is
recorded [Rule 9(5)].
 Records regarding input services to be kept by the output service Provider
 The provider of output services is required to maintain proper records for the
receipt and consumption of the input services in which the relevant
information regarding.
The value
tax paid
CENVAT credit taken & utilized,
the person from whom the input or capital goods have been procured is
recorded [Rule 9(6)].
Note:The maintenance of proper records become absolutely necessary
because the burden of proof regarding the admissibility of the CENVAT credit shall
lie upon the provider of output service taking such credit.
Returns:Periodical returns on the utilization/transfer of CENVAT credit have to be submitted
by various parties as indicated below:(i)
The manufacturer to file return within 10 days in the following months.
Note:The SSI units shall file Return within 10 days of the close of the quarter.
(ii)
The FSD/SSD [dealer] to file within 15 days of the close of the quarter. The
return shall be filed electronically.
(iii)
The service provider to file half yearly return by the close of the month.
(iv)
The input service distributor shall file the half year return by the Last of the
month following the half year period.
Note:1.
The returns are to be submitted to the Superintendent of Central excise.
2.
A revised Return can be submitted by a service provider or input distributor
within 60 days of submission of the return.
Information relating to Principal Inputs [Rule 9A]
1.
A manufacturer of final products shall furnish to the superintendent of central
excise, annually by 30th April of each financial year, a declaration in the form
specified, by a notification, by the Board, in respect of each of the excisable
goods manufactured or to be manufactured by him, the principal inputs and
the quantity of such principal inputs required for use in the manufacture of unit
quality of such final products.
2.
If a manufacturer of final products intends to make any alteration in the
information so furnished under Rule 9A(1), he shall furnish information to the
superintendent of the Central Excise together with the reasons for such
alteration before the proposed change or within 15 days of such change in the
form specified by the Board under Rule 9A(1).
3.
A manufacturer of final products shall submit, within ten days from the close of
each month, to the superintendent of central excise, a monthly return in the
form specified, by a notification, by the Board, in respect of information
regarding the receipt and consumption of each principal inputs with reference
to quantity of final products manufactured by him.
4.
The Central Government may, by notification and subject to such conditions
or limitations, as may be specified in such notification, specify manufacturers
or class of manufacturers who may not be required to furnish declaration
mentioned in sub-rule(1) or monthly Return mentioned in subrule (3).
5.
Every Assesse shall file electronically, the declaration or the return as the
case may be specified in this rule.
Explanation:1.
“Principal Inputs” means any input which is used in the manufacturer of the
final product where the cost of such input constitutes not less than 10% of the
total cost of raw-materials for the manufacturer of unit quantity of a given final
products.
TRANSFER OF CENVAT CREDIT RULE 10
→
The manufacturer or service provider can transfer the credit taken by him in
case of transfer of business by way of sale, lease, merger etc.
→
Such a transfer must be supported by physical transfer of goods/Assets
→
And this must be done by taking into confidence Additional
Commissioner/Deputy Commissioner and on their satisfaction that everything
was done properly.
TRANSFER OF CENVAT CREDIT OF SPECIAL CVD- RULE 10A
→
The manufacturer having more than one registered premises can transfer the
credit taken on special CVD paid on imported goods to other units quarterly
by making entries in the records and issuing a transfer challan with details.
→
The transfer unit is entitled to take and utilize the credit based on the transfer
challan.
→
This above facility is not available to the units enjoying area based exemption
under various notifications like a unit in special economic zone.
→
Both transfer and transferee units have to submit monthly returns separately
regarding transfer and receipt of such credit.
TRANSITIONAL PROVISIONS- RULE 11
→
Credit taken under the old rules can be utilized under the new Rules 2004,
But such utilization is subject to the current rules in operation.
→
If an SSI following Scheme II i.e. paying duty after availing CENVAT credit but
he switch over to Scheme –I i.e. no excise duty pay & also no CENVAT credit
availed. But on date of switch over from scheme II to scheme –I it has to
reverse the credit taken on the inventory lying which follows two situation:(1)
If it does not have enough CENVAT credit balance, then It has to pay
to that extent which been deficient.
(2)
If any CENVAT credit amount still lies in the credit after the reversal,
then it shall automatically Lapse forever. [Rule 11(2)]
→
Similarly, when there is dutiable goods but it got exempted. So the
manufacturer is required to reverse the credit attributable to inputs etc lying in
stock on the date of exemption which follows two situation:-
1.
→
If it does not have enough CENVAT credit balance, then it has to pay
to that extent which been deficient.
2.
If any CENVAT credit amount still lies, in the credit after the reversal,
then it shall automatically Lapse forever. [Rule 11(3)]
Similarly, a service provider is also required to reverse the credits on inputs
when his services become fully exempt. [Rule 11(4)].
SPECIAL DISPENSATION TO NORTH EASTERN STATES ETC RULE 12
→
Certain units in the specified states in North Eastern under get preferential
treatment through notification issued Government of India.
→
These above units get exemption benefits of duty paid on value addition in
following special manner: Such above units pays duty on their final product by availing the input credit.
 But such units will get the refund of the net amount paid by them on the
removal of their final products through Rule 5A of CENVAT credit Rules,
2004.
→
The following are the benefits of such above special procedure:1.
The final product of such above units are not at all treated as exempted
goods. By which such above units can avail CENVAT credit.
2.
The buyer manufacturer who purchases inputs or capital goods from
such above units, will get CENVAT credit normally as if nothing was
exempted.
DEEMED CREDIT- RULE 13
→
This Rule 13 is an exception to Rule 3, where Government notifies deemed
credit, the amount of credit eligible to be taken is as per the rates notified by
the Government, not on actual Basis.
→
At present deemed credit is not in vogue or popular.
PENAL PROVISION - RULE 14& RULE15
(I)Rule 14- Recovery of CENVAT credit wrongly taken or erroneously refunded
→
Where CENVAT credit has been taken and utilized wrongly or has been
erroneously refunded, the same shall be recovered from the manufacturer
and Service Provider with interest as per the provisions of the recovery of the
amount and interest
Note- The interest is payable with the amount of CENVAT credit only when such
CENVAT credit was taken wrongly and also utilized that wrong CENVAT
credit. Therefor interest is not payable if the credit taken wrongly not utilized.
II.Rule 15:- Confiscation and Penalty.
(A) Take or utilize wrong CENVAT credit other than reason of fraud, collusion or any
willful misstatement etc.
→
If any person, takes or utilize CENVAT credit in respect of input or capital
goods or input services, wrongly or in contravention of any of the provisions of
these rules, then, all such goods shall be liable to confiscation and such
person, shall be liable to a penalty:- an amount not exceeding the duty or service tax on such goods or services
or
- two thousand
Which ever is greater.
(B)
Take or utilize wrong CENVAT credit by the reason of fraud, collusion or any
willful misstatement etc.
(i)
In case of manufacturer.
→
In a case, where the CENVAT credit in respect of input or capital goods
or input services has been taken or utilised wrongly by reason of fraud,
collusion or any willful mis-statement or suppression of facts, or
contravention of any of the provisions of the excise acts or of the rules
made there under with intent to evade payment of duty, then
manufacturer shall also be liable to pay penalty in terms of the
provisions of section 11AC of the Excise Act.
(ii)
In case of service provider
→
In a case, where the CENVAT credit in respect of input or capital goods
or input services has been taken or utilised wrongly by reason of fraud,
collusion or any willful mis-statement or suppression of facts, or
contravention of any of the provisions of these rules or of the Finance
Act or of the rules made thereunder with intent to evade payment of
service tax, then the provider of output service shall also be liable to
pay penalty in terms of the provisions of section 78 of the Act.
III.
Rule 15A:- General Penalty:→
Rule 15A provides a general penalty upto Rs. 5000 in case of
contravention of any of the provisions of the CENVAT credit rules for
which no specific penal provisions exists.
(IV)
Other Relevant Points Under Case Law
→
CENVAT credit is provided even if there is no co-relation of inputs and
final products, according to Dai Ichi Karkaria Ltd, 1999(SC).
→
CENVAT credit is available even on inputs lost or destroyed during the
process. But if there is loss or shortage during transit, no CENVAT
credit is available on such lost goods as they were not used in the
manufacture.
→
No CENVAT credit is allowed on inputs and capital goods lost during
storage as they can not be said to be used in relation to manufacture
as per Maruti Udyog Ltd, 2000.
CASE STUDIES
1.
FLEX ENGINEERGIN LTD. 2012-CENVAT CREDIT
The assesse is a manufacturer of packaging machines tailor made to meet
the requirements of the customer. These machines are called F & S
machines.
Flexible plastic films are used for testing the F & S Machines before delivering
the machines to the customers. The marketability of the said machines is
dependent on passing the test.
Hold that the testing is essential for marketing the machines and materials
used for the testing qualifies for CENVAT credit. Hence the material is input
under CENVAT credit Rules, 2004.
2.
GNFC Ltd, 2012 (HC)- CENVAT credit on cylinders Issue:Whether the empty cylinders used for transportation of chlorine and also for
storage within the factory are eligible for CENVAT credit.
The department contended that these cylinders were used only for transport
and not for use in the factory. Hence not eligible.
The Assessee argued that the cylinder is used not only for carrying chlorine
but also for connecting to the machine which is fed from the cylinder. It is
also used for storage within the factory. Therefore It is an accessory to the
machine for production since chlorine is fed from the cylinder directly.
The Ahmedabad High Court held that Cylinder is elgible for credit as it has
dual purpose of transport and storage tank.
3.
Refund under Rule 5 of CENVAT credit Rules, 2004
The Madras High Court held in GTN Engineering Ltd. that the relevant date
for claiming refund under Rule 5 of CENVAT Credit Rules is date of Export of
goods made.
4.
A.P. Paper Mills Ltd, 2011 (HC)- CENVAT credit available on unutilized
chlorine gas.
Facts:The manufacturer is using chlorine gas in cylinder for the manufacture of
paper. Some chlorine is left over in the cylinders and he returns them to the
supplier. The department demanded reversal of CENVAT credit on the
amount attributable to the chlorine returned unused.
Held:No need to reverse the credit.
Reason:The chlorine in the cylinder is not possible to be used in toto. Hence it is to be
treated as deemed use or deemed process loss.
5.
TATA Advanced Material Ltd, 2011 (H.C.)- No Reversal of CENVAT credit
on insurance claim:Facts:The assessee purchased capital goods and used in the manufacture of
excisable goods. He claimed CENVAT credit also. After 3 years, the capital
goods were destroyed by fire. He got insurance claim including the excise
duty paid. The department demanded reversal of CENVAT credit on the
ground that the assessee got the double benefit of excise duty paid.
Hold:No need to reverse
Reasons:- Reversal arises when the credit is wrongly or irregularly availed.
There is no question of double benefit as the claim was because of insurance
premium incurred separately by the assesse.
6.
PRIME HEALTH CASE PRODUCTS-2011(HC)- CENVAT credit available
on bought out tooth brush attached and sold in combo pack.
Facts:The assessee is manufacturing tooth paste. He added bought out tooth brush
and sold the combo pack having tooth paste and tooth brush. Obviously, he
availed CENVAT credit on bought out tooth brush.
Issue:Whether he can avail CENVAT credit on bought out brush when he has not
added the cost of brush in the price of the combo pack.
Hold:Yes, the bought out tooth brush is an accessory supplied along with the tooth
paste and hence it is input as per “defection of inputs” and price is the policy
of the manufacturer and it has no nexus with the eligibility.
7.
Rajasthan Spinning & Weaving Mills Ltd [SC] 2010.
The assessee engaged in the manufacturer of yarn availed CENVAT credit on
“Capital Goods” in respect of steel plates and M.S. Channels used by them for
erection of chimney for the diesel generating set.
The tribunal concluded that since the chimney is used as an accessory to the
diesel generating set, and steel plates and M.S. Channels were used in the
fabrication of chimney, therefore CENVAT credit on these items could not be
denied.
The Supreme Court upheld the decision of the tribunal.
8.
Alok Enterprises 2010 (HC)
The issue in this case was whether the process of purification & filitration
done to make the products (hydro chloric acid & Sulphuric acid) marketable is
a manufacturing process.
Facts:The assessee was availing CENVAT credit on inputs used for purifying &
filtering hydrochloric acid & Sulphuric Acid to make them marketable.
The department rejected CENVAT on the ground that the said process is not
a manufacturing process as the end product after filtration and purification is
same with same entry [Classification Number].
The tribunal hold that the process is a manufacturing process. The tribunal
observed that it is well settled law that even if the goods belong to same entry,
manufacture takes place if new identifiable/marketable goods known in the
market emerge due to operation conducted and the nature of technology used
is not relevant.
The High Court confirmed the order of Tribunal and held that the assessee is
entitled to take CENVAT credit on inputs used in the process.
IMPORTANT QUESTIONS
Question:Write a short notes on “CENVAT on capital goods”?
[June -1999] [5 marks]
Question:Is CENVAT credit admissible on inputs that are used up in waste, scrap or refuse?
Explain?
[June -1999] [5 marks]
Question:What is the procedure to be followed by an assessee to avail of the benefits under
CENVAt for inputs?
[Dec -1999] [4 marks]
Question:Is the CENVAT credit admissible on inputs if final products are exempt?
[Dec -1999] [4 marks]
Question:Enumerate the documents on the basis of which CENVAT credit can be claimed?
[June -2001] [8 marks]
Question:Explain the penalty provisions as applicable to CENVAT?
[June -2001] [8 marks]
Question:Elcidate the concept of CENVAT Scheme, How does it reduce the CASCADING
Effects?
[Dec-2001] [8 marks]
Question:In respect of which duties CENVAT credit is allowed?
[June -2002] [4 marks]
Question:What are the documents on which CENVAT credit can be taken?
[June -2002] [4 marks]
Question:When can the CENVAT credit in respect of Input service be availed under the
CENVAT credit Rules, 2004?
[June -2005] [3 marks]
Question:Define the following terms under CENVAT credit Rules 2004.
(i)
Input Service distributor
(ii)
Output service
[Dec-2005] [3 marks each]
Question:What are the conditions for taking the CENVAT credit under CENVAT credit rules
2004?
[Dec-2005] [5 marks]
Question:Discuss whether the CENVAT credit is required to be reversed in following cases:(i)
where on any goods manufactured or produced by an assessee the payment
of duty is ordered to be remitted under Rule 21 of Central excise Rules 2002.
(II)
If inputs or capital goods before being put to use are written off fully or
provision is made in books of accounts to write off fully.
[Dec-2008] [2 marks each]
Question:What are the provisions of CENVAT credit on capital goods? [June-2010] [3 marks]
Question:Discuss whether a manufacturer excisable goods is digible to take the CENVAT
credit of excise duty paid on Motor Vehicles?
[Dec-2012] [5 marks each]
Question:Can an assessee use CENVAT credit for payment of interest, penalty and fine in lieu
of confiscation?
[June-2007][2marks]
Answer:Under rule 3(4) of CENVAT credit Rules, 2004, the CENVAT credit may be utilized
for payment of excise duty levied on manufacture of final product in respective
manner.
But such CENVAT credit can not be utilized for payment of interest, penalty & fine in
lieu of confiscation.
Question:State, with reasons, whether the CENVAT credit is available or not on the following
items:(i)
storage tank
(ii)
Inputs used in manufacture of capital goods which are further used in the
factory.
(iii)
Components, spares and accessories of the pollution control equipment, or
(iv)
building material used for factory building
[June -2003] [2marks each]
Answer:(i)
Yes, storage tank used in the factory of the manufacturer of the final product
is capital goods eligible for CENVAT credit
(II)
Inputs used in manufacture of capital goods which are further used in the
factory, are capital goods eligible for CENVAT credit
(iii)
Components, spares & accessories of pollution control equipment are capital
goods because these are covered under definition of capital goods, hence
eligible for CENVAT credit
Question:State whether the following goods are ‘inputs’ as per Rule 2(k) of the CENVAT credit
Rules, 2004:(i)
All goods used for generation of Electricity for captive use:
(ii)
Light diesel Oil
(iii)
Motor Vehicles
(iv)
Goods used for making of structures for support of capital goods;
(v)
Goods used for providing for warranty for final products.
[June -2012] [1marks each]
Answer:-
(i)
(ii)
(iii)
(iv)
(v)
Yes, all goods used for generation of electricity for captive use are ‘Inputs’ as
it is covered in definition of “Inputs” and also use for or consumed in
manufacturing of finished product.
No, Light diesel oil is not covered in definition of “Inputs” and also
Government of India not want to give credit on such Light diesel oil, that’s why
excluded from the definition of “Inputs”.
No, Motor Vehicles are not covered in definition of “Inputs” as it is a capital
goods.
No, Goods used for making of structures for support of capital goods are not
covered in definition of “Input” as it is a capital goods.
Yes, Goods used for providing “free warranty” for final products are “Inputs”
as covered in definition of “Inputs”.
Question:Hi-tech company manufactures electric Motors which are exempted from payment of
central excise duty. During the process of manufacture of Electric motors, they
manufacture parts of Electric Motors on which excise duty is discharged by them
after availing of CENVAT credit of duty paid on the inputs. While working out the
manufacturing cost for the purpose of determining the assessable values the
department has taken the entire cost of inputs whereas the company is of the view
that the cost of the inputs should be taken after deducting the amount of CENVAT
credit taken by them. Is the contention of the assessee justified? Give reasons for
your answer?
[June -2003] [5marks ]
Answer:Yes/No:Yes the contention of the assessee is justified as the cost of the inputs should be
taken after deducting the amount of CENVAT credit taken by them.
Explain:Rule 8 of Central Excise Valuation Rules, 2000 and Dai Ichi Karakaria case.
Facts of Question:Relevant facts from question itself
Conclusion:In given case, Hi-tech company are captively consuming parts of electric motors
where parts are dutiable but electric motors are exempted. Hence, here, Excise
Duty shall be levied on assessable value of parts of Electric Motors which shall be
assessed by following Rule 8 of Central Excise Valuation 2000 i,.e.
Assessable value = 110% of cost of Goods
But here as per Dai Ichi Karakaria case, cost of goods shall be taken after deducting
the amount of CENVAT credit taken by them so, the contention of the assessee is
justified.
Question:Link Engineering Ltd, Purchase a machinery for manufacturing of certain mechanical
parts which are exempt from payment of central excise duty. It also parts
occasionally uses the machines for manufacture of small. Quantities of components
which are cleared on payment of duty. Is Link Engineering Ltd. Entitled to take
CENVAT the excise duty paid on the machine? Decide by referring to specific Legal
Provision?
[Dec-2005] [5 marks]
Answer:Yes/No:Yes, Link engineering Ltd. entitled to take CENVAT credit the excise duty paid on
the machine.
Explain:Rule 6(4) of CENVAT credit Rules, 2004.
Facts:Facts from Question itself.
Conclusion:As per Rule 6(4) of CENVAT credit Rules, 2004, the credit on capital goods shall
not be allowed if they are exclusively used in the manufacture of exempted goods.
But if capital goods are used for the manufacturing of exempted as well as dutiable
goods then full credit on capital goods i.e. Machinery can be taken.
So, Link Engineering Ltd. entitle to take CENVAT credit of the excise duty paid on
the Machine.
Question:Krishna, a manufacturer of dutiable as well as exempted goods supplies the
following information for the month of January, 2010:i.
Price of exempted goods cleared from the factory:- Rs. 200 lakh
ii.
Assessable value of dutiable goods cleared [Rate of duty 16%]:- Rs. 150 lakh
iii.
CENVAT credit of inputs ‘P’ [used only in the manufacture of exempted
goods]: Rs. 24 lakhs.
iv.
CENVAT credit of input ‘Q’ [used only in the manufacture of dutiable goods]:Rs. 16 lakh.
v.
CENVAT credit of common inputs ‘R’ [used in the manufacture of exempted
as well as dutiable goods but no separate accounts are maintained in respect
of such input ‘R’] : Rs. 18 lakh.
Compute the amount of Excisable duty payable by Krishna for the month of
January
[June -2008] [5marks]
Answer:Mr. Krishna
Period: January 2010
Computation of Net excise duty payable.
Particular
Basic excise duty payable on Product ‘P’
(16% on 150 Lakhs)
Add:6% tax payable on exempted goods u/s
6(3)(i) [6% on 200 lakhs}
Gross Excise duty payable
Less:CENVAT credit allowed
Amount
24,00,000
12,00,000
36,00,000
On Input “Q”
On Input ‘R”
Net Excise duty payable
(16,00,000)
(18,00,000)
2,00,000
Question:Pawan, a manufacturer, purchased certain inputs from his supplier Binod, the
Assessable value was Rs. 2,00,000 and the Central Excise duty was calculated at
Rs. 32,960. Thus the total purchase invoice was for Rs. 2,32,960. However, Pawan
settled the total invoice by paying Rs. 2,08,000 only to Binod in full settlement. How
much CENVAT credit can be availed by Pawan.
[Dec-2010] [5marks ]
Answer:Pawan can avail CENVAT credit to the extent of Rs. 32,960. CENVAT credit cannot
be reversed just because the supplier Binod has given some discount after removal
of the goods or Pawan paid reduced amount than the invoice price in full settlement.
However, along with reduction in price if the duty paid is also reduced then the
reduced excise duty would only be available as credit.
Question:Star manufacturing Ltd. defaulted in payment of Central excise duty of Rs. 1,00,000
in the month of April, 2012. The company wants to pay this amount of duty in July
2012 out of the CENVAT credit taken in the months of June and July, 2012.
Advise star Manufacturing Ltd in this regards?
[Dec-2010] [6 Marks]
Answer:As per Rule 3(4) CENVAT credit Rules, 2004, only CENVAT credit available as on
Last day of the month can be utilized for payment of duty even if duty is payable by
5th or 6th of following month/quarter or thereafter.
Hence, CENVAT credit in respect of inputs or capital goods or input service received
after end of the Month or quarter can not be utilised for Excise duty on finished
goods payable for such month or quarter.
Hence, in the given situation, Star Manufacturing Ltd, can not pay such amount of
duty related to month April 2012 out the CENVAT credit taken in Months of June and
July 2012.
Question:Smart & Co. took CENVAT credit amounting to Rs. 2 Lakhs on inputs wrongly
included in their RG 23 A Register in the Month of February, 2012. During Audits the
internal audit party pointed out the mistake in August, 2012. Smart & Co.
immediately reversed the amount from balance of Rs. 15 Lakh in their CENVAT
Credit Account lying since February 2012.
Examine whether the company is Liable to pay interest on the amount of CENVAT
credit taken wrongly.
[DEC-2012][ 3 MARKS]
Answer:According to rule 14 of Cenvat credit rules, 2004, if the CENVAT credit has been
taken and utilised wrongly, then the same shall be payable along with interest but
NO CENVAT credit was used for payment of such duty with interest.
Hence the company is labile to pay interest on the amount of CENVAT credit taken
wrongly.