CENVAT - OVERVIEW AS PER
NEGATIVE LIST
By Bhupendra Agarwal
Cenvat Credit – An overview
Output
o Excisable goods
o Taxable services
Procurement
o Capital goods
o Inputs
o Input services
–
Excise duty
–
Service tax
–
Excise duty
-
Excise duty
-
Service tax
# Equivalent paid on import of goods / services
Only value addition is taxed as set off given for taxes paid on procurement
Only goods / services to be exported AND not the taxes
Business – Manufacturer of Goods
Cenvat not available if business is EXEMPT:
S. No
Particulars
Availability of Cenvat Credit
1
Fully exempt from ED
NO
2
Chargeable to NIL rate
NO
3
2% ED #
NO
4
Export outside India
YES
5
Goods supplied to SEZ Developer / Unit
YES
6
Goods supplied to EOU / EHTP / STP
YES
7
Goods supplied to Mega Power Project
YES *
# Notf 1/2011 – CE and 12/2012 – CE (entries at Sl. No. 67 and 128)
* Subject to prescribed conditions
Business – Provider of service
Cenvat not available if business is EXEMPT:
S. No
Particulars
Availability of Cenvat Credit
1
Negative List / Exempt from Service tax
NO
2
Not leviable
NO
3
Part of the value is exempt
NO*
4
Trading in Goods
NO
5
Export outside India (including by SEZ Unit)
YES
6
Services provided to SEZ Developer / Unit
YES
7
Service provider located in Non-Taxable
territory (J&K)
NO
* Conditional exemption – Exemption available only if credit on inputs and input services NOT taken
Capital Goods – Definition
Capital Goods MEANS the following:
S. No
Particulars
Recipient #
A (i)
CH 82, 84, 85, 90, 68.02 and 6801.10
Both
(ii)
Pollution Control Equipment
Manufacturer
(iii)
Components, spares and accessories (i) and (ii)
Both
(iv)
Moulds and dies, jigs and fixtures
Both
(v)
Refractories and refractory materials
Manufacturer
(vi)
Tubes and pipes and fittings
Both
(vii)
Storage Tank
Both
# To be used in the factory of the manufacturer or for providing output service
$ Outside the factory for generation of electricity for captive use of electricity within the factory also eligible
Capital Goods –
Contd..
Capital Goods MEANS the following:
S. No
Particulars
Recipient #
(viii)
Motor vehicles and their chassis including dumpers
and tippers (excluding falling under tariff headings
8702, 8703,8704,8711)
Manufacturer
B
Motor vehicles (including chassis) designed for
transportation of goods registered in the name of
service provider
Renting of motor vehicle,
transport of goods by service
provider and Courier agency
C
Motor vehicles (including chassis) designed to carry
passengers registered in the name of service
provider
Transportation of passengers,
renting of motor vehicle,
imparting motor driving skills
10
Components, spares and accessories of capital
goods which are capital goods for user
Manufacturer and Service
provider
Issues
Capital Goods
o Used outside the factory - Implications when part of the electricity is either sold to grid /
consumers or transferred to other factories
Inputs – Definition
Inputs INCLUDES the following:
S. No
Particulars
Recipient
1
Used in the factory
Manufacturer
2
Cleared with Finished product (accessories)
Manufacturer
3
Replacement under free warranty
Manufacturer
4
Generation of electricity / steam – captive use
Manufacturer
5
Providing output service
Service Provider
Inputs –
Inputs EXCLUDES the following:
Contd..
S. No
Particulars
Recipient
1
LDO / HSD / Petrol
Both
2
Construction of building / Civil structure or execution of
Works Contract *
Manufacturer / Service provider
3
Foundation / Structure for capital goods
4
Capital goods
Both
5
Motor vehicles
Both
6
Food items, used in guest house etc (personal use of
employee)
Both
7
No relationship with manufacture
Manufacturer
* Admissible only for execution of service portion in the Works contract or construction service
specified in section 66E(b)
Issues
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Inputs
Is consumption of goods necessary in order to be ‘inputs’?
Is anything which is not ‘capital goods’ to be treated as ‘inputs’?
Treatment of goods used outside the factory (for instance mines, power plant)
If motor vehicle excluded, whether cycle can be treated as input?
Inputs used in manufacture of capital goods

Sector specific
Telecommunications Towers
Cement / Steel plant (Mines)
Input Service – Definition
Input Service INCLUDES the following:
S. No
Particulars
Recipient
1
Providing output service
Service Provider
2
Manufacture of final product
Manufacturer
3
Clearance / Outward transportation of finished
products (up to the place of removal)
Manufacturer
4
Modernization, renovation or repairs of factory /
office / premises
Both
5
Others (As specified)
Both
Input Service –
Contd..
Input Service EXCLUDES the following:
S. No
Particulars
Recipient
1.
Service portion in the execution of Works Contract
Manufacturer/ Service
and construction service used for building / civil
provider *
structure and foundation for support of capital goods
2.
Renting of motor vehicles – if motor vehicle is NOT
a capital goods
Both
3.
In relation to Motor vehicles - General insurance,
servicing, repairs and maintenance – if motor
vehicle is NOT a capital goods
Both **
4.
Personal use or consumption of any employee
(outdoor catering, beauty treatment, life and health
insurance, travel benefits)
Both
* Specified service provided by service provider are eligible
** Manufacturer of motor vehicle and insurance company eligible in specified cases
Issues
Why there is a need to give restricted definition to input services when the definition
of “Service” including almost everything under the Sun…………….
Service to be used by manufacturer / service provider to be termed as input
service
o Even though the provider of service require to pay service tax even if no services are
provided (agreed to be provided, amount received and forfeited)
Non – compete fees paid to competitor liable for payment of service tax
o Whether Coke / Reebok can take credit for amount paid to Pepsi / Bata for closing their
business
» Amount paid to rule out competition but not related to manufacture
Exempted service
Why there is a need to clarify that services exported are not “Exempted service”
Trading in goods not specified as “Exempted service” but Rule 6(3) consider the
same as exempted service for reversal of Cenvat credit
Issues

Contd..
No concept of “Capital services” – How to avail credit of input services avail during setting
up of the Factory / premises etc
No turnover during setting up period hence ratio method can not be applied

Implications of deletion of the phrase “Setting up” from the definition of input service

Personal use or consumption of employee – distinction between personal and official
Conditions for Availing Cenvat Credit
Manufacturer
Inputs & capital goods
 On receipt of goods in the factory
Duty paying documents received from supplier
 Service provider
Inputs & capital goods
 On receipt of goods at any place
Duty paying documents received from supplier
Manufacturer and Service provider
Input services
Service are received
Invoice containing prescribed particulars is received
Refund of CENVAT – Specified cases
 Export of goods / services outside India
 Service recipient is liable for payment of Service tax
 Refund not admissible
Goods supplied to STPI / SEZ Unit / Developer
Goods supplied to Power Plant eligible for excise duty exemption
Imported goods where higher duties are paid (ACD plus SAD)
Draw drawback / Rebate of duties are claimed
Cenvat – service recipient pays ST
 Specified services – Service tax liability on Service recipient
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Output service definition excludes services where service recipient is liable to pay
service tax
As per Rule 3, Cenvat credit admissible to provider of Output service
If the services are not “Output service” how service provider is eligible to claim
Cenvat credit
New Rule 5 B of CCR grants refund of unutilized Cenvat credit when service
recipient is liable to pay service tax
Without availing credit how to claim refund
Input Service Distributor – Concept
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Manner of Distribution :
i.) No credit distribution exceeding ST paid.
Ii.) No Credit distribution to Unit – Engaged in Exclusive Manufacture of Exemtped
Goods/ Providing of Exempted Services
Iii.) Distribution of Full credit to single unit – wholly attributable
Iv) Otherwise prorata basis – turnover basis of relevant period
No distribution when no turnover for a Unit.
Relevent period means :Expl 3(a) : The month prior to the month in which CENVAT Credit distributed.
Expl 3(b) : The quarter prior to the quarter in which CENVAT Credit distributed –
Special cases – ST paid per Rule 6 of ST Rules 1994 or Rule 8 of CE Rules 2002.
Some more ……………
Service tax under reverse charge to be paid in Cash and not by Cenvat
No payment required to be made where inputs are removed ‘as such’
outside the factory for providing free warranty of final product
Partial provision or write-off of CG or inputs also to attract reversal of
Cenvat credit
Cenvat credit can not be used for payment of service tax as a
recipient of service tax
Service tax to be paid if services are received from provider located
in Jammu & Kashmir (Non-Taxable territory)
What if contract is executed in J&K and part of the work sub-contracted
to service provider located in J&K who raises invoice on company
located in Hyderabad
Availing Credit – Optionssssssssss
Rule
Scheme
Rule 6 (1)
Credit not allowed on inputs / input services used for exempt business
Rule 6 (2)
Credit allowed only on input / input services used for taxable business provided
separate accounts are maintained for input and input services
Rule 6 (3)
Where separate accounts are not maintained:-
Rule 6 (3) (i)
Outright payment on exempt output
Pay 6% of exempt business
 Output service whose part of the value is exempted (condition no credit
allowed on inputs and input services), Cenvat credit allowed on payment of 6%
of the exempted value
6% payment to be considered as credit not availed for the purposes of such
exemption notifications
Rule 6 (3) (ii)
- Rule 6 (3A)
Proportionate credit for taxable business
Pay proportionate credit for exempt business (Take full credit and reverse for exempt)
Rule 6 (3) (iii)
Cocktail - 6(2) for inputs & 6 (3A) for input services
Scheme for availing Credit
Rule
Cocktail
Rule 6 (3) (iii)
Scheme
 Loss of proportionate credit on input services exclusively used for
taxable business
Gain of proportionate credit on common input services and input
services exclusively used for exempt business
Trading
‘Value’ in the case of ‘Trading’: Difference between purchase and sale value
Explanation to
to be considered for the purposes of reversal of Cenvat credit
Rule 6 (3) and 6
(3A)
BFS / NBFC
Provider of BFS eligible to avail only 50% of Cenvat credit (Net)
Cenvat Credit – Other issues

1. Trading of Securities :

Exempted part of Service for the purpose of Cenvat credit –
i.) Diff between Selling Price and Purchase Price; or
ii.) 1% of Purchase price
whichever is more
Issue : What if purchase and sale of securities occurs in different years
2. Loans, Deposits and Advances

CENVAT Credit not to be reversed with respect to Loans, Advances and Deposits
represented by way of Interest or Discount.
3. Banking and Financial Institutions including NBFC

50% of CENVAT Credit(on inputs/input services) availed to be paid every month.
THANK YOU