Discussion on Cenvat Credit Rules, 2004
by
CA Sri Harsha
harsha@sbsandco.com
Overview of the Rules
2
Important Definitions – Rule 2 – (a)
Capital Goods
Manufacturer
3
Service Provider
Manufacturer/Service Provider – Capital Goods
 goods falling under Chapter 82, 84, 85, 90, heading 6805 and 6804 – 1st schedule to CETA;
 pollution control Equipment;
 components, Spares and Accessories of the above;
 moulds and dies, jigs and fixtures;
 refractories and refractory materials;
 tubes and pipes and fittings thereof;
 storage tank;
 motor vehicles other than those falling under TH 8702, 03, 04, 11 and their chassis but including
dumpers and tippers –
 Used in the factory of manufacturer of final products – but does not include any equipment/appliance
used in office; or
 Outside the factory of manufacturer of final products for generation of electricity for captive use within
the factory;
 For providing Output Service
4
Service Provider
Service Provider
Transportation of
Goods
5
Transportation of
Passengers
Service Provider
Transportation of
Goods
Renting of such
motor vehicle
Transportation of Inputs and
Capital Goods used for
providing output service
Transportation of
Passengers
Courier Agency Services
Transportation of
Passengers
Renting of such
motor vehicle
Imparting Motor
Driving Skills
components, spares and accessories of motor vehicles which are the capital goods for
the assessee
6
Important Definition – Rule 2 (d)
Exempted Goods
Excisable Goods which are exempt
from the whole of the duty of
excise leviable thereon
7
Goods which are chargeable to ‘Nil’
rate of Duty
Goods in respect of which the
benefit an exemption under
Notification No 1/2011-CE
Entries 67 and 128 of Notification
No 12/2012-CE
Important Definition – Rule 2 (e)
Exempted Service
Taxable service which is exempt
from the whole of service tax
leviable thereon
8
Service, on which no service tax is
leviable under Section 66B of the
Finance Act, 1994
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
Important Definitions – Rule 2 – (k)
Inputs
Manufacturer
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Service Provider
Manufacturer/Service Provider – Inputs
 all goods used in the factory by the manufacturer of the final product;
 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;
 all goods used for generation of electricity or steam for captive use;
 all goods used for providing any output service;
 But excludes:
 Light Diesel Oil, High Speed Diesel Oil or Motor Spirit, commonly known as Petrol;
 Any goods used for –
 construction or execution of works contract of a building or civil structure or a part thereof;
 laying of foundation or making structures of capital goods
 Except for provision of works contract or constructions services – 66E
 Capital Goods except when used as parts or components in the manufacture of final product;
 motor vehicles;
 any goods, such as food items, goods used in a guesthouse, residential colony, club or recreation facility
and clinical establishment – such goods primarily used for employee consumption;
 Any goods which have no relationship whatsoever with the manufacture of final product
10
Important Definitions – Rule 2 – (l)
Input Service
Manufacturer
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Service Provider
Input Service
Input Service
Limb - I
Nexus with provision of
output service and/or
manufacture
12
Limb - II
Specific Inclusions
irrespective of Nexus
Theory
Limb - III
Specific Exclusions
irrespective of Nexus
Theory
Manufacturer/Service Provider – Input Service
 Limb – I:
 Used by a provider of output service for providing an output service;
 Used by a manufacturer – directly or indirectly – in or in relation to – manufacture and clearance up to
Place Of Removal
 Limb – II: and includes
 services used in relation to modernisation, 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
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Manufacturer/Service Provider – Input Service
 Limb – III: but excludes
 service portion in the execution of works contract and construction services including mentioned under
Section 66E(b) in so far as they are used for –

construction or execution of works contract of a building or a civil structure or a part thereof; or
 laying of foundation or making of structures for support of capital goods,
 except for the provision of one or more of the specified services
 services provided by way of renting of a motor vehicles, in so far as they relate to a motor vehicle which is not
a capital goods;
 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 manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person ; or
 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 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
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Important Definition – Rule 2 (p)
Output Service
any service provided by a provider of a service in a taxable
territory
but shall not include
services specified in
Section 66D
Where whole of service tax
is labile to be paid by
service recipient
15
Important Definition – Rule 2 (qa)
Place of Removal
Factory/Any other place/Premises of
Production/Manufacture of Excisable
Goods
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Warehouse/Any other place wherein the Excisable
Goods have been permitted to be deposited
without payment of duty
A depot/premises of a consignment agent or any
other place or premises from where the Excisable
Goods are to be sold after their clearance from the
factory
Rule 3 (1) – Cenvat Credit- Availment
Service Provider
cannot avail the
credit of ACD 3(5)
Manufacturer/Producer of Final Products/Provider of Output Service –
 ED – I and II Schedule of CETA;
 Additional Duty leviable under Section 3(1) of Customs Tariff Act;
 Additional Duty leviable under Section 3(5) of Customs Tariff Act;
 Ed Cess and SHE Cess on above;
 Service tax – 66A and 66B;
 Ed Cess and SHE Cess on above;
 Other Additional Duties leviable under various allied laws
On Inputs, Capital Goods and Input Services
17
Rule 3 (4) – Cenvat Credit- Utilization
Cenvat Credit may be utilised for payment of:
 Any duty of Excise on any Final Product;
 Amount = Cenvat taken on Inputs – If such Inputs are removed as such;
 Amount = Cenvat taken on CG – If such CG are removed as such;
 Amount = Rule 16(2) of Central Excise Rules, 2002
 Service Tax on any output service
Provided –
 CC shall be used only to the extent such credit is available on the last day of the
month/quarter – for payment of duty
 No credit of ACD 3(5) shall not be used for payment of ST Liability;
 CC cannot be used for payment of service tax in respect of services where the person liable to
pay tax is the service recipient.
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Rule 3 (5) (5A) (5B) (5C) – Special Circumstances
If amount
calculated is less
than amount
equal to ED on TV,
then reversal shall
be ED on TV
(5)
Inputs/Capital Goods –
Removed as Such = Reversal
of CC equivalent to CC
availed
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Rule 3
(5A)
(a) CG removed after use
= reduced by %age points
calculated
for
each
quarter or year from the
date of availment of CC
(b) CG removed as scrap
= manufacturer shall pay
amount equal to ED on
TV
(5B)
If inputs/CG before being
put to use = written off
fully or partially = pay an
amount equal to CC
availed
(5C)
Goods manufactured &
payment of duty are
order to remitted =
reverse CC availed on
Inputs
Rule 4 – Conditions for availing Cenvat Credit
Rule 4
(1)
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(2)
CC on inputs can be availed
immediately after receiving
them in the factory/premises
of OSP
CC - CG can be availed immediately
after receiving them in the
factory/premises of OSP – subject
to a maximum of 50% in the first
year
Manufacturer/OSP shall not
take credit after 6 months
from the date of issue of
document referred in Rule 9(1)
The balance can be availed in
subsequent years subject to
availability of such CG –
exemption to certain CG’s.
(7)
CC on Input Services can be
availed immediately after the
doc referred in Rule 9 is received
Manufacturer/OSP shall not take
credit after 6 months from the date
of issue of document referred in
Rule 9(1)
Rule 4 (7) – Timing of availment for CC on Input Service
Rule 4 (7)
Normal Services
Provided if the payment of
input service + service tax is
not paid within 3 months from
the date of invoice, the CC
availed shall be reversed
After the payment of value of
input service + service tax, recredit can be taken
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Reverse Charge Services
Credit shall be allowed only after
payment of service tax to the
central government
Partial Reverse Charge
Services
Credit shall be allowed only after
payment of value of input
service + service tax as indicated
in the vendor’s bill.
Rule 5, 5A, 5B – Refund of Cenvat Credit
Refund of Cenvat Credit
5 - Export
22
5A – Units in Specified
Areas
5B – SP falling under
Reverse Charge Obligations
Manufacturer/OSP can avail
refund of CC on inputs & input
services
–
Export
of
Services/Goods
without
payment of duty/ service tax
Manufacturer cleared goods in
terms of Notification No 20/2007CE dated 25.04.2007
27/2012-CX
18.06.2012
Notified
Not in a position to use the CC,
he can claim the refund of such
CC
(NT)
dated
–
Conditions
SP falling under the reverse
charge obligation – not in a
position to utilize the CC, he can
claim refund of such CC
12/2014-CE (NT) dated 03.03.14 –
Conditions Notified
Rule 6 – Obligation for Manufacturer/OSP
Obligations for
Manufacturer/OSP
(1)
CC on Input/Input Service shall
not be allowed which are
exclusively used for manufacture
of exempted goods and/or
provision of exempted services
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(4)
CC on CG shall not be allowed if
such CG are used exclusively for
provision of exempted services or
manufacture of exempted goods
However, there is no restriction for
availment of CC on CG if such CG is
used for both taxable and nontaxable activities.
(6)
Clearances to SEZ, 100% EOU,
EHTP, STP and other notified are
immune from restriction of CC in
specified cases
Rule 6 – Obligation for Manufacturer/OSP
Obligations for
Manufacturer/OSP
(2)
If manufacturer/OSP avails CC in
respect of common inputs/input
services which are used for both
taxable
and
non-taxable
activities, then
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He has an option to maintain
separate book of accounts for
consumption of inputs and input
services and CC can availed in
respect of taxable activities
(3)
If the manufacturer/OSP does
not wish to maintain separate
set of accounts for recording
consumption of common inputs
and input services, then
Rule 6 – Obligation for Manufacturer/OSP
6 (3)
(i)
Pay an amount = 6% of
value of the exempted
goods and exempted
services
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(ii)
Pay
an
determined
6(3A)
(iii)
amount
as
under Rule
For Inputs = Maintain
Separate books and
For Input Services = Pay an
amount as determined in 6
(3A)
Rule 7 – Manner of distribution of CC by ISD
 Concept:
 ISD – Rule 2(m) – means an office of provider of output service, which
receives invoices issued under Rule 4A of STR, 1994 for purchase of input
services and issues invoices for the purposes of distributing credit of service
tax paid.
 ISD may distribute Cenvat Credit of Service Tax paid on Input Services to
various units providing Output Services subject to certain conditions.
 This method is convenient when the HO receives various services which are
common to all the other units of the service provider.
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Rule 7 – Manner of distribution of CC by ISD
Conditions:
 The ISD can distribute the credit subject to following conditions:
 the credit distributed does not exceed amount of service tax paid;
 the credit of service tax attributable to a service used by one or more units exclusively engaged in provision of exempted
services cannot be distributed;
 the credit of service tax attributable to a service used wholly by a unit shall be distributed to such unit;
 credit of service tax attributable to service used by more than one unit shall be distributed pro rata on basis of turnover of
such units during the relevant period to the total turnover of all the operational units in the current year during the said
relevant period.
 Expn -1 – Unit includes premises of service provider whether registered or otherwise;
 Expn- 2 – Total Turnover has to be determined as per Rule 5 of CCR, 2004
 Expn- 3 – Relevant Period –
 If assesse has turnover in the FY preceding to the distribution of credit – such FY
 If assesse does not have turnover for some or all the units - the last quarter having turnover
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Other Rules – 8, 9, 9A
 Rule 8 – Storage of Inputs outside the factory of the manufacturer:
 AC/DC may in exceptional circumstances may allow storage of goods outside the factory –
without reversal of CC on inputs – subject to certain conditions.
 Rule 9 – Documents and Accounts:
 Provides documents and accounts to be maintained by manufacturer/OSP for availing and
distribution of the CC
 Rule 9A – Information relating to Principal Inputs:
 Provides filing of an annual declaration to the Superintendent in relation to the principal
inputs in respect of goods manufactured or to be manufactured by him and quantity of such
principal inputs required to manufacture final products.
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Other Rules – 10
 Rule 10 – Transfer of Cenvat Credit:
 Manufacturer- shifts his factory to another site or factory is transferred on account of change
in ownership or an account of sale, merger, amalgamation, lease or transfer of factory to a JV
with the specific provisions for transfer of liabilities, then the manufacturer shall be allowed
to transfer of CC lying unutilized to the new company/site.
 Output service provider shifts or transfers his business on account of change in ownership or
an account of sale, merger, amalgamation, lease or transfer of factory to a JV with the specific
provisions for transfer of liabilities, then the OSP shall be allowed to transfer of CC lying
unutilized to the new company/site.
 The transfer of CC shall be allowed only if the stock of inputs as such or in process, or the
CG is also transferred along with the factory or business premises to the new site or
ownership and the inputs, or CG, on which credit has been availed of are duly accounted
for to the satisfaction of the DC/AC.
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Rules – 14 & 15 – Interest & Penalty for Irregular CC Availment
 Rule 14 – Recovery of CC wrongly taken or erroneously refunded:
 Where the CC is irregularly availed and utilised, or erroneously refunded, the same shall be
recovered along with interest – from manufacturer or OSP – 11A & 11AA - CEA + 73 & 75 - FA.
 Rule 15 – Confiscation and Penalty:
 Manufacturer/OSP – takes or utilised CC wrongly or in contravention to the provisions – the goods
shall be confiscated and liable to penalty not exceeding ED on such goods and ST on such services
or Rs 2,000/- which ever is greater.
 Manufacturer – Liable to Penalty under Section 11 AC of Central Excise Act, 1944 – Intention to
evade payment of duty
 OSP – Liable to Penalty under Section 78 of Finance Act, 1994 – Intention to evade payment of duty
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Frequently Asked Questions – Cenvat Credit
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1.
Whether the capital goods has to be owned for availing cenvat credit on such goods?
2.
Can depreciation be claimed on the ED component after availing the cenvat credit of such ED?
3.
Is registration mandatory to claim cenvat credit?
4.
Can all services used in or in relation to business can be claimed as cenvat credit?
5.
Can ST paid under RCM/PCM can be availed as credit?
6.
Can cenvat credit be used for payment of interest and penalty under ST or CE Laws?
7.
Can cenvat credit can be used for payment of ST liability under RCM/PCM?
8.
Can cenvat credit can be availed on the basis of the supplementary invoice issued by SP?
9.
Can a trader is entitled to avail credit on ST paid towards GTA services?
10.
Can ST paid on catering services procured for employees can be availed as credit?
11.
I am exporter, can I claim credit of ST paid on input services?
Frequently Asked Questions – Cenvat Credit
32
1.
I have irregularly availed cenvat credit but has not utilised the same, whether I am liable to pay interest?
Please explain the position prior to 17.03.2012 also?
2.
I am a mall owner. I have availed various input services for construction of such mall, can I avail the
credit of such services and knock off the output ST liability on Rental Incomes? Please explain the
position prior to 01.04.2012?
3.
I am a chartered accountant intending to renovate my office. I have engaged a contractor for carrying
such renovation. Can I avail ST paid on the contractor’s service bills?
4.
I am a business entity engaged in development of software. I engage cabs for pick and drop of my
employees. Can I avail service tax paid on such cab services?
5.
I am a business entity engaged in provision of restaurant services. Can I avail the complete credit of
service tax paid on my input services or is there any restriction on the availment?
6.
Is the restriction of availment of cenvat credit – 6 months is prospective or retrospective?
7.
I have paid service tax on reverse charge obligation pertaining to Dec 2012 in Dec 2014. Can I avail the
said credit of service tax since 6 months has been lapsed from Dec 2012?
Thank You for your patient hearing !
Please reach me for any queries – harsha@sbsandco.com
– +91 95 81 00 03 27
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