Cenvat Credit Rules
By
S.H.Sane & Co.
Chartered Accountants
CA Shekhar Sane
(B.Com, ACMA, FCA, DISA(ICAI)
Date :
3 rd October, 2015
Flat No.6, Radha Krishna Heights,
Khajina Vihir Chowk, Off Tilak Road,
Near Grahak Peth, Pune 411030
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1
INDEX
Sr. No.
TOPIC
SLIDE NUMBERS
1
Introduction
4-7
2
Cenvat Credit Rules 2004
8-9
3
Definitions
10-26
4
Case Studies
27-30
5
Restrictions
31
6
Input goods/Services
32-35
7
Cenvat Credit Amendments Budget 28-02-2015
36-39
8
Common Mistakes in Availing Cenvat
40-41
9
Input Service Distributor
42-46
10
Cenvat Credit Availment & Utilization
47-58
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INDEX
Sr. No.
TOPIC
SLIDE NUMBERS
11
Case Study
59-67
12
Duty Paying Documents & other Cenvat Issues
68-75
13
Practical Aspects of Cenvat
76-80
14
Exempted output, goods, services
81-85
15
Related Case Studies
86-91
16
Proportionate Reversal of Cenvat
92-95
17
Removal of inputs/Capital Goods as such
96-100
18
Related Case Studies
19
Cenvat availment procedure, Returns & Other
Restrictions
102-111
20
Case Studies
112-120
21
Summarized Highlights of Cenvat Credit
Scheme
121-125
101
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Introduction
• Excise Duty and Service Tax are Central Government LeviesUnion List I
• Both are destination based consumption tax, in which
incidence is passed on to ultimate consumer. (All India
Federation of Tax Practitioners Vs UOI (2007) 10 STT 166 SC)
• They operate under Value Added Scheme (VAT) of taxation
wherein each person in transaction chain is taxed on the value
addition done by him and this concept is achieved by granting
credit of input tax or duties to manufacturer or service
provider through Cenvat Credit Scheme.
• Cenvat Credit Scheme operates through Cenvat Credit Rules
2004. This scheme integrates indirect taxes viz. Excise Duty
and Service Tax.
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Basic objectives of Cenvat Credit Mechanism
• To avoid the cascading effects of indirect taxes.
•To minimize tax incidence on ultimate consumer of goods /
services.
•To ensure levy of tax on value addition by respective
assessee.
•To eliminate or minimize the possibility of tax on tax.
The basic philosophy underlying cenvat scheme is that of a
mutual trust. The revenue authorities normally rely on the
records of the assessee, hence it is necessary for the assessee
to be very cautious and conservative while availing cenvat
benefit.
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Legislative Background – How law has travelled……
Manufacturer
Period
Scheme / Rules Assessee Entitlement
1st March 1986
28th Feb 1994
MODVAT
Scheme
Credit for duties paid on
input
1st March 1994
9th Sept. 2004
MOVDAT
Scheme
Credit for duties paid on
input
And Capital Goods
Cenvat Credit
10th Sept. 2004 Rules, 2004
onwards
Credit for duties paid on
input and Capital Goods
Credit for Service Tax on
input Services
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Legislative Background – Earlier Schemes
Service Provider
Period
Scheme / Rules
Assessee Entitlement
1st July 1994 to
15th August 2002
No Scheme
No Credit for input service tax
16th August 2002
to
14th May 2003
Service Tax Credit
Rules 2002
Credit for service tax paid on input
service falling under same category
Service Tax Credit
Rules 2002
Credit for service tax paid on input
services used for providing output
services
Cenvat Credit
Rules 2004
Credit for duties paid on input and
Capital Goods
Credit for Service Tax on input
Services
15th May 2003 to
9th Sept.2004
10th Sept. 2004
onwards
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Cenvat Credit Rules, 2004
• CENVAT Credit Rules 2004 (CCR) was introduced wef 10th
Sept.2004 vide notification No.23 /2004 – Central Excise (N.T)
dt. 10th Sept. 2004.
•Common for Excise & Service Tax -> Input Credit Mechanism
under both legislation is governed by these rules.
•CCR is applicable to whole of India with exception of Jammu
& Kashmir. Service Tax is not applicable to J&K, as under
• Manufacturer LOCATED in J&K is entitled for CENVAT
credit on inputs & capital goods, however not entitled to
claim CENVAT credit on service tax paid on input service.
•Service provider LOCATED in J&K is not entitled to
CENVAT credit of duty or tax on inputs, capital goods & input
services.
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Nature of Input Tax Credit
Cenvat Credit Rules uses following terms for various cost
elements suffering input tax incidence.
A manufacturer or service provider is eligible for availing
cenvat credit of service tax paid on his input services,
excise duty paid on his inputs and capital goods.
Input Services - These are the services used for
manufacturing or service provision.
Capital Goods - These are the assets used for
manufacture or service provision.
Input - This covers Raw Material , Consumables and
other goods used in manufacture or service provision.
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Definition & Analysis – Input Services
Definition of input services ( wef 1-4-2011), Input Services means any service –
• Used by a provider of output service for providing an output service
• Used by a manufacturer, whether directly or indirectly, in or in relation to
manufacture of final products and clearance of final products upto the place of
removal.
and includes services used in relation to modernization, renovation or repairs of
factory, premises of provider of output service or an office relating to such factory or
premises, advertisement or sales promotion, market research, storage upto the place
of removal, procurement of inputs, accounting, auditing ,financing , recruitment, and
quality control, coaching and training, computer networking , credit rating, share
registry, security, business exhibition, legal services, inward transportation of inputs or
capital goods and outward transportation upto the place of removal ; but excludes
A] Service portion in execution of works contract and construction services
including service listed under clause (b) of section 66E of the Finance Act, in so far as
they are used for
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Definition & Analysis – Input Services
(a) Construction or execution of works contract of a building or a civil
structure or a part thereof (b) laying of foundation or making of
structures for support of capital goods except for provision of one or
more specified services
B] Services provided by way of renting of motor vehicle , in so far as
they relate to motor vehicle which is not a capital goods
BA] Service of general insurance business, servicing, repairs and
maintenance in so far as they relate to a motor vehicle which is not a
capital goods, except when used by (a) a manufacturer of motor
vehicle manufactured by such person (b) an insurance company in
respect of a motor vehicle insured or reinsured by such person
C] Such as those provided in relation to outdoor catering, beauty
treatment, health services, cosmetic and plastic surgery, membership of
a club, health and fitness centre, life insurance, health insurance and
travel benefits extended to employees on vacation such as leave or
home travel concession, when such services are used primarily for
personal use or consumption of any employee.
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Definition & Analysis – Input Services
The definition of input service is classified in 3 categories
Input Service
Main Part
Exclusions
Inclusions
Meaning of expression In Relation to
BROADER TERM / COMPREHENSIVE TERM
DIRECT AND INDIRECT SIGNIFCANCE
SYNONYMOUS – CONCERNING WITH / PERTAINING TO
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Services Covered under inclusive part of definition of input
services.
Thus, if the input service is in relation to any of the above
referred activities or use by service provider for providing
output service or used directly or indirectly in manufacture of
final products or clearance upto place of removal, will be
eligible for Cenvat credit, unless it is specifically excluded in
exclusions.
If we analyse further, we can see five M (Men, Machine,
Money, Material and Minutes[ activities ] ) are listed in the
inclusive part of the definition, unless those which are
specifically excluded.
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Services excluded from definition of input services.
Interpretations : Expenditure having no impact on
“manufcture” / “taxable output services” / Expenditure on
“Original Works” on following is not eligible for cenvat credit
• Factory and office building
•Motor vehicle, considered as luxury even if used for employees
or for business purposes.
• All employee benefits such as canteen, transport , health care,
insurance & other welfare activities.
Thus barring above specific exclusions and wasteful
expenditure, other input services will be eligible for CENVAT
credit. However such input services should have some direct
or indirect nexus with taxable output services. If such nexus
CAN NOT be established, then it can not qualify as input
service.
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Definition of Capital Goods
Manufacturers and service providers are entitled to avail cenvat credit on
capital goods used by them. Capital Goods Means
A] The following goods, namely
•All goods falling under chapter 82,84,85,90, heading no.6805, grinding wheels
and the like, and parts thereof falling under heading 6804 of the first schedule
of Excise Tariff Act.
•Pollution control Equipments
•Components, spares, accessories of the goods specified in above two
•Moulds and dies, jigs and fixtures *Refractories and refractory material
•Tubes, pipes and fittings thereof / *Storage tank and
•Motor Vehicles other than those falling under tariff headings
8702,8703,8704,8711 and their chassis but including dumpers and trippers
Used in
i) The factory of the manufacturer of final products, but does not include any
equipment or appliance used in an office; or
ii) Outside the factory of manufacturer of the final products for generation of
electricity for captive use within the factory;or
iii) For providing output service
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Vehicles falling under heading
8702 (Motor vehicles for transport),
8703 (Motor
passengers),
Cars
and
vehicles
for
8704 (Motor vehicles of transport of goods),
8711 (Motor cycles) are not eligible for
CENVAT credit for manufacturers and for
service providers.
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Definition of Capital Goods
B] Motor vehicle designed for transportation of goods,
including their chassis registered in the name of service
provider, when used for (i) providing 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 output service of courier agency.
C] Motor vehicle designed to carry passengers including
their chassis, registered in the name of provider of service,
when used for providing output service of (i) transportation of
passengers or (ii) renting of such motor vehicles or (iii)
imparting motor driving skills
D] Components, spares and accessories of motor vehicles
which are capital goods for the assessee.
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Analysis of Definition of Capital Goods
• Following capital goods are covered in clause A(i)
•Tools, Hand tools, knives falling under Chapter 82
•Machineries covered under chapter 84
•Electrical Machinery under chapter 85
•Measuring, testing & checking machines under chapter 90
•Grinding wheels and the like, and parts thereof falling under
subheading no.6804
•Abrasive powder or grain on a base of textile material of paper board
or other materials falling under chapter heading 6805
• The capital goods must be used in a factory of manufacturer but does
not include appliances used in office.
•Capital goods procured under hire purchase, lease or loan agreement
from a financing company are eligible for Cenvat credit. In such cases,
it is advisable that the invoice issued by a manufacturer of capital goods
demonstrates the name of manufacturer as consignee even though the
invoice will be in the name of financing company.
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Facts
Discussion
Accessories and goods used for
providing free warranty
Refer Rule 2(k) of CCR 2004,
value included in final product
vs. value charged separately
X Ltd. Who is manufacturer has paid
following amounts, whether CENVAT
credit is eligible :i) Customs Duty
ii) CVD u/s 3(1) of the customs Tariff
Act – popularly called as “Additional
Duty”
iii) Safeguard Duty
iv) EC & SHEC paid with reference to
Customs Duty whether allowed
Whether X Ltd. Could have availed
CENVAT credit of “ additional duty” if
he would have been service provider
Not Eligible
Eligible
Not Eligible
Not Eligible
Yes
Eligibility of service providers as
well
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A) “Exempted goods” means excisable goods which are exempt from the
whole of the duty of excise leviable thereon, and includes goods which are
chargeable to ‘Nil” rate of duty [and goods in respect of which the benefit of
an exemption under Notification No. 1/2011-CE, dated 1st March, 2011 or
under entries at serial numbers 67 and 128 of Notification No.12/2012-CE.,
dated 17th March, 2012 is availed]
B) “Exempted service” means a –
1) taxable service which is exempt from the whole of the service tax
leviable thereon or
2) service, on which no service tax is leviable under section 66B of
the Finance Act; or
3) 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
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C) “First Stage Dealer” means a dealer, who purchases the goods
directly from,i) the manufacturer under the cover of an invoice issued in terms
of the provisions of Central Excise Rules, 2002 or from the depot
of the said manufacturer, or from premises of the consignment
agent of the said manufacturer or from any other premises from
where the goods are sold by or on behalf of the said
manufacturer, under cover of an invoice; or
ii) an importer or from the depot of an importer or from the
premises of the consignment agent of the importer, under cover
of an invoice;
D) “Manufacturer” or “producer”,i) in relation to articles of [jewellery or other articles of precious
metals falling under heading 7113 or 7114 as the case may be] of
the First Schedule to the Excise Tariff Act, includes a person who is
liable to pay duty of excise leviable on such goods under sub-rule
(1) of rule 12AA of the Central Excise Rules, 2002;
ii) in relation to goods falling under Chapter 61,62 or 63 of the First
Schedule of the Excise Tariff Act, includes a person who is liable to
pay duty of excise leviable on such goods under sub-rule (1A) of
rule 4 of the Central Excise Rules, 2002
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E) “Output service” means any service provided by a provider of service
located in the taxable territory but shall not include a service,1) specified in section 66D of the Finance Act; or
2) where the whole of service tax is liable to be paid by the recipient of
service
F) “Place of removal” meansi) a factory or any other place or premises of production or
manufacture of excisable goods;
ii) a warehouse or any other place or premises wherein the excisable
goods have been permitted to be deposited without payment of duty;
iii) 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, from where such goods are removed
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Analysis of Definition of Capital Goods
• Capital Goods used exclusively for manufacture of
exempted goods or providing exempt service are NOT
ELIGIBLE for cenvat credit, however partial use of capital
goods to manufacture exempted goods or provision of exempt
output service is permissible.
• Capital goods used in office are not eligible for cenvat,
however this restriction is applicable only to manufacturer and
not for service provider. If the assessee is both manufacturer
and service provider, he can avail CENVAT on capital goods
used in office, if they are used for providing output
services.
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Depreciation can not be availed on Cenvat portion of capital
goods
According to Rule 4(4), a manufacturer can not claim
depreciation on cenvat credit availed on the capital goods.
Example
Basic Cost of machinery
Rs.10 Lacs
Excise
Rs. 1 Lacs
Total value of Machine
Rs.11 Lacs
Less : Cenvat availed
Rs. 1 Lacs
Total Capitalised value
Rs. 10 Lacs
Thus Depreciation can be claimed on capitalised value of Rs.
10 Lacs and not on Rs. 11 Lacs.
AS-10 : NON REFUNDABLE DUTIES: Accounting
PRINCIPLES AND GUIDELINES prescribed by ICAI.
AVOID AVAILMNET OF CENVAT CREDIT AS WELL AS
DEPRECIATION
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CENVAT credit on capital goods to be availed in two stages
Cenvat credit on capital goods is required to be availed in more than one financial
year, i.e 50% can be availed in the financial year in which capital goods are
received and balance 50% in any subsequent financial year.
The condition for taking balance credit in subsequent years is that capital goods
should be in possession of assessee. The exception is that in case of
consumables like spare parts, components, moulds& dies,refractories, refractory
material, abrasive powder or grain and grinding wheels, the balance credit can be
availed in subsequent year even if they are not in possession.
Another exception is in case of Additional Customs Duty paid u/s 3(5) of Customs
Tariff Act (Special CVD), 100% credit is available in the first year itself even if these
goods are Capital Goods. Service Providers are however not eligible for this.
Third exception is for units claiming exemption as SSI. In this case CENVAT
credit can be availed 100% in the first year itself. This provision is applicable in
respect of capital goods acquired on or after 01-04-2010.
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Input Service Distributor
Manufacturer or service provider may have Head office or Regional
office at different locations. The services may be received at Head
office or regional office but indirectly it will be used for manufacture or
for providing output service. In such cases Head office or Regional
Office can be registered with Excise department as Input Service
Distributor and it can raise invoice on manufacturer or service
provider.
According to Rule 2(m) of Cenvat Credit Rules, input service
distributor means
• An office managing the business of manufacturer or producer of final
products or provider of output service.
•Which receives the invoices issued under rule 4A of the Service Tax
Rules 1994 towards purchase of input service and
•Issues invoice,bill or, as the case may be, challan for the purpose of
distributing the credit of service tax paid on the said services to such
manufacturer or producer or provider, as the case may be.
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Case Studies for CENVAT Eligibility for following types of assessees
Type of business/
profession
CA Service
CS Service
CMA Service
Architect
Individual
Architect
Company
Remarks
Capital Goods eg. Air Conditioner, office
equipments, computers not allowed as
they are “goods”
CENVAT embedded in maintenance or AMC
Bills
Construction related credit not allowed. (
Original Works not allowed )
Maintenance Credit allowed.
ST paid under RCM(Individual /firm)
Original Works – Not eligible
Repairs / renovation
Eligible
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Air Travel Agent
(IATA Recognized)
Composition
Domestic
International
Composition .60 %
/ 1.20 %
(As amended after
elevation of 14 % of
ST rate )
No restriction on availment of CENVAT
credit as per Rule 6 (7)
Even if option of Composition is adopted
0.60 %
1.20 %
FOREX Dealers
Difference between sale and purchase
Composition scheme value. CENVAT Credit is eligible
Rule 2 B Valuation methodology
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Lottery Dealers
Composition
scheme
Refer Rule 6(7) of Service Tax Rules
No restriction on availment of CENVAT
credit
Cosmetic Surgery
Clinic
( Separate
establishment )
Accident, Trauma, Injury, congenital
defects, developmental abnormalities,
degenerative diseases
Turnover should be separated from taxable
turnover and
Promoter,
developer,
No input credit is allowed in inputs but on
Builder
“input services” and “capital goods”.
Flat Sale
Composition Rate
VAT-1 % - price
ST 25 % Value @
14 % i.e. 3.50 %
Including land
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Acquiring,
development and
selling freehold
plots
No CENVAT credit is allowed since there is no
service tax recovered
There are no chances for refund since there are
no export services
ST paid on RCM to advisors, agents, dealers
allowed as input credit is allowed.
Mutual Fund
Companies
Insurance
Companies
A company engaged Input services for Commission – credit allowed.
in marketing of
Construction related – input services and capital
plots and earning
goods credit allowed.
commission. It is
also engaged in
construction of
bungalows for
customers referred
to it by the company
for whom they are
marketing.
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Restrictions that can be placed and facilities that can be
withdrawn
 If a merchant exporter is found to knowingly involved in offences
specified in para 1(f) of notification, the facility of self sealing of
container will be withdrawn. In such cases, the export
consignments will be examined and sealed by jurisdictional Excise
Officer.
Registration of a dealer can be suspended for specified period
during which he can continue business but issue the
invoices without showing duty of excise in it.
Withdrawal of any other facility given to manufacturer or
registered dealer.
If the offence is for first time then facilities can not be withdrawn
for more than 6 months, however in case of repetitive offence
restrictions can go up to one year.
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Input Goods
According to Rule 2(k) of CENVAT credit rules ( wef 1-4-2014)
input means
i. All goods used in the factory by the manufacturer of the final
product or
ii. Any goods including accessories, cleared along with final
product, the value of which is included in the value of final
product and goods used for providing free warranty for
final products or
iii. All goods used in generation of electricity or steam for
captive use or
iv. All goods used for providing any output service
But excludes
•
Light diesel oil, high speed diesel oil or motor spirit, commonly
known as petrol
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Input Goods
• any goods used for (a) construction or execution of works
contract of a building or a civil structure or a part thereof or
(b) laying of foundation or making of structures for support of
capital goods, except for provision of service portion in the
execution of a works contract or construction service as listed
under clause (b) of sec.66E of the Act
•Capital goods except when used as parts or components in
manufacture of a final product
•Motor Vehicles
•Any goods such as food items, goods used in a guest house,
residential colony, club or recreation facility and clinical
establishments, when such goods are used primarily for
personal use or consumption of any employee and
•Any goods which have no relationship whatsoever with
manufacturer of final products.
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Input Goods for service providers
Duty paid on input goods used by service providers is also eligible
for CENVAT credit but in a restricted way.
Here the words used are used for providing output services,
meaning only those goods (except LDO, HSD, Petrol) used
directly for providing output service will be eligible for CENVAT
credit.
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Partial or full write off of inputs
As per rule 3(5B) of CENVAT Credit Rules (inserted wef 11-52007 and amended on 1-3-2015), if inputs or capital goods before
being put to use, are written off fully or partially or any
provision is made in books of account to write off fully or partially,
the manufacturer or service provider is required is required to an
“ amount ” equal to CENVAT credit taken in respect of such
inputs or capital goods.
If these are subsequently used in manufacture of final products or
provision of output service, manufacturer / service provider can
take CENVAT credit of amount which was paid earlier.
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CENVAT CREDIT
CENVAT Credit changes
1.CENVAT availment on “inputs” and “input services”
Position prior
To 01.10.2014
For availing CENVAT
Credit
No time limit was as
such prescribed for
“inputs”, “input
services”, “capital
goods”
Position Between
01.10.2014-01.03.2015
Vide notification
21/201411.07.2014 time limit of
“6 months” from the
date of document for
“inputs” and “input
services”
Position
On 01.03.2015
Vide notification 6/201501.03.2015 time limit of “1
year” from the date of
document for “inputs” and
“input services”
No time limit restriction for availment of CENVAT credit on “capital goods”
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
36
CENVAT CREDIT
Finance Minister has given final chance to avail CENVAT Credit on “inputs”
and “input services” for the differential period between 02.03.2014 till
01.03.2015 as an effect of above amendment, considering the hardship
faced by the tax payers owing to procedural difficulties
Disclosure in books of account
Disclosure in the service tax returns should go hand in hand
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
37
CENVAT CREDIT
2.Partial Reverse Charge
Position prior
To 01.04.2015
For availing CENVAT Credit it
was necessary to payment of
value of the taxable service
provided in the invoice and
the service tax liable to be
paid directly as a recipient of
the service.
Rule 4(7)
Position after
01.04.2015
CENVAT Credit of the service tax paid under
Partial Reverse Charge by the service receiver
shall be allowed without linking the payment to
the service provider
Accordingly, CENVAT credit of service tax liable to
be paid directly to the Government exchequer by
the service recipient, in case of full as well as
partial reverse charge, shall be allowed as soon
as the said tax is paid wef 01.04.2015
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
38
CENVAT CREDIT
Position prior
To 01.04.2015
For availing CENVAT Credit it was
necessary to payment of value of the
taxable service provided in the invoice
and the service tax liable to be paid
directly as a recipient of the service.
Further, value of service portion and
service tax was required to be paid
within 90 days of the invoice / bill /
challan to the service provider.
A failure of such payment was requiring
person availing CENVAT credit to PAY
and amount equal to CENVAT CREDIT
Rule 4(7)
Position after
01.04.2015
CENVAT Credit of the service tax paid
under Full Reverse Charge by the
service receiver shall be allowed
without linking the payment to the
service provider
Accordingly, CENVAT credit of service
tax liable to be paid directly to the
Government exchequer by the service
recipient.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
39
Common Mistakes in availing
CENVAT CREDIT
 Availing value of goods as Cenvat credit?
 Availing Cenvat Credit of Customs Duty in the case of imported goods.
 Double credit on the same document.
 Availment of Cenvat credit without receipt of material.
 Rejection / Return of inputs without reversal of Cenvat credit
 Full credit on capital goods (instead of 50%) in the year of receipt of capital





goods.
Availing Cenvat Credit as well as Depreciation on the same capital goods.
Cenvat Credit on inputs used in manufacture of exempt goods.
Cenvat Credit on inputs used in exempt output services.
Cenvat Credit on goods used for trading.
Cenvat Credit on ineligible capital goods such as storage racks, furniture, air
conditioners etc..
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
40
Common Mistakes in availing
CENVAT CREDIT
 Non reversal of Cenvat credit on raw material / inputs written off.
 Cenvat Credit on ineligible goods such as HSD, LDO, goods used in







construction of factory building etc.
Cenvat Credit on ineligible services such as outdoor catering services, rent a
cab services, services used for construction of factory / office building.
Cenvat Credit on the basis of ineligible documents such as photocopy of
invoices, photocopy of Bill of Entry, Debit notes etc.
Utilization of credit of cess for payment of excise duty.
Non receipt of goods sent for job work within specified time of 180 days.
Non maintenance of separate account for dutiable and exempted products.
Premature availing and utilization of credit.
Non reversal of Cenvat credit pertaining to exempted services
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
41
Input Service Distributor
It is not necessary that each and every office of assessee
must be registered as Input service distributor. Assessee can
register only if it wants to distribute.
As per Rule 9(1)(g) Invoice / Challan / bill issued by an input
service distributor under Rule 4A of Service Tax Credit
Rules, are considered as eligible documents for taking cenvat
credit. The invoice / bill / challan issued by input service
distributor should be :•Signed by authorized signatory
•Document should be for each recipient of the credit
distributed.
•Document should be serially numbered.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
42
Input Service Distributor
Invoice should contain following details :
i.
Name ,address and registration number of the person
providing input services, serial number and date of invoice
/ bill / challan.
ii. Name and address of input service distributor
iii. Name and address of recipient of the credit distributed.
iv. Amount of credit distributed.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
43
Input Service Distributor : Distribution of Cenvat Credit
(wef 1-4-2014)
As per Revised Rule 7 of Cenvat Credit Rules, the distribution
should be as follows
a) Credit distributed should not be more than credit of input
service tax available.
b) Credit of service tax attributable to services used by one or
more units exclusively engaged in manufacture of
exempted goods or providing exempted services shall
not be distributed.
c) Credit of service tax attributable to service used wholly by
a unit shall be distributed only to that unit.
d) Credit of service tax attributable to service used by more
than one unit shall be distributed pro rata on the basis
of turnover of such units during the relevant period to
the total turnover of all units which are operational in the
current year during the relevant period.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
44
Input Service Distributor : Distribution of Cenvat Credit
(wef 1-4-2014)
Relevant Period means
a. If the assessee has turnover in the financial year preceding
to the year during which credit is to be distributed for the
month or quarter, as the case may be the said financial year
OR
b. If the assessee does not have for some or all the units in the
preceding financial year, the last quarter for which details of
turnover of all the units are available, previous to the month
or quarter for which credit is to be distributed.
In case of an assessee, who does not have any turnover in the
said period as in case of new company, ISD shall distribute
any credit only after the end of such relevant period wherein
total turnover of its units are available. In case of new unit,
wherein any credit is exclusively used, credit can be
distributed in total to such unit.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
45
Input Service Distributor : Responsibility
Input Service Distributor has following responsibilities
•Take reasonable steps to satisfy himself about identity and
address of provider of input service
•Submit half yearly return in Form ST-3, within one month from
close of half year.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
46
CENVAT Credit
Availment and Utilization
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
47
Differentiation between Availment & Utilisation of Cenvat Credit
There is a general misconception that availment & utilization of Cenvat credit is
one & same, however it is NOT so. The differentiating factors are given below.
Availment
This is assessee’s entitlement to
claim input tax credit
Availment is a credit entry in self
maintained pass book.
Assessee is entitled to avail tax /
duty credit on input or capital
goods or input services used for
providing taxable services or
manufacture of dutiable
goods.
Utilisation
This is use of CENVAT credit
balance for payment of output
tax such as Excise Duty ,
Service Tax, Education Cess
etc.
Utilization is a debit entry in self
maintained passbook.
Output tax liability can be
discharged from accumulated
cenvat.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
48
Cenvat Credit
The term CENVAT credit as used in various rules means
aggregate of
• Basic Excise Duty and corresponding CVD on imports.
•Service Tax on input services paid u/s 66B of the Finance Act
(wef 1-7-2012)
•Additional Customs Duty paid u/s 3(5) of Customs Tariff Act
(SAD or Special CVD, this credit is not available for service
providers)
•National Calamity Contingent Duty (NCCD) leviable under
sec.136 of Finance Act, 2001 and corresponding CVD paid on
imported goods. This Credit can however be used for payments
of NCCD on outputs only and not for any other duty
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
49
Cenvat Credit
• Additional Excise Duty paid u/s 85 of Finance Act 2005 on pan
masala and certain tobacco products. This credit can be utilised
for payment of this duty only, any other credit can not be utilised
and balance needs to be paid in cash only.
•Central Excise Duty paid on capital goods at the time of
debonding of EOU.
•Buyer / User can avail cenvat credit of the amount paid under
rule 3(5) or 3(5A) on inputs and capital goods removed as such
or after use.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
50
Cenvat Credit : Transitory provisions for Education
Cess and SAHE Cess
According to Rule 3 (7) of Cenvat Credit Rules, Cenvat Credit
for Education and SAHE Cess can be utilised only for payment
of Education and SAHE Cess.
Education and SAHE Cess on Excise Duty has been exempted
wef 1-3-2015 and on service tax wef 1-6-2015. Transitory
provisions in respect of this are as follows.
• There is no clarification for utilisation of balances as on
01.03.2015 in EC & SHEC account lying as regards “excise
duty”
•Similarly there is no clarification for utilisation of balances as on
01.06.2015 lying in EC & SHEC as they relate to Service Tax.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
51
Cenvat Credit : Transitory provisions for Education
Cess and SAHE Cess
• A manufacturer may receive input services between 1-3-2015
till 1-6-2015, from the service provider on which education cess
and SAHE cess would have charged. In such case,
manufacturer can utilise cenvat credit of Education Cess and
SAHE Cess paid on input services for payment of excise Duty.
• In case of Capital Goods, manufacturer must have taken 50%
credit of excise duty paid along with Education Cess & SAHE
Cess in 2014-15.Credit for balance 50% can be taken after 1-415 and be utilised for payment of excise duty.
•No provision has been made about utilisation of opening
balances of Education Cess and SAHE Cess for
manufacturers as on 1-3-2015 and service providers on 1-62015.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
52
Cenvat Credit : Inter changeability
Credit of Basic Excise duty / CVD on imported Duty, Service Tax
on input services /Additional Customs Duty u/s 3(5) of Customs
Tariff Act can be utilized for payment of basic excise duty ,
NCCD (except on mobile phones), Education Cess and SAHE
Cess. Thus credit can be utilized for payment of NCCD (except
on mobile phones) education and SAHE Cess but not vice
versa.
Credit of EC & SHEC paid on goods and paid on services
are interchangeable.
According to rule 3(4)(a) of Cenvat Credit Rules,Cenvat credit
may be utilised for payment of any duty of excise on any final
product or service tax on output service. There is no
requirement of establishing one to one correlation between
input / input services and final product / output services.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
53
Cenvat Credit availability in case of merger or
amalgamation
When two entities decide to amalgamate, the amalgamation
becomes effective from the effective date, as mentioned in the
amalgamation scheme and approved by the High Court.
After the amalgamation, all assets and liabilities are transferred
to amalgametee company, hence CENVAT credit of
amalgamating company can be availed by amalgamatee
company.
CCE Vs Motherson Sumi Electric Wires(2009)239 ELT 250 (Kar HC DB)
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
54
Taking and utilisation of Cenvat Credit
Duty paid through Cenvat is also excise duty, assessee should therefore use
credit first and then pay cash, if required.
Cenvat credit can be utilised for payment of following
 Any duty on any financial product manufactured by manufacturer.
Payment of amount if inputs are removed as such or after partial
processing.
 Payment of amount on capital goods if they are removed as such
Payment of amount if goods are cleared after repairs under rule 16(2) of
Central Excise Rules.
Service tax on output service
Payment under CENVAT Credit Rule 6 of amount on exempted goods or
reversal of credit on inputs when common inputs or common input services
are used for exempted as well as dutiable final products.
Reversal of cenvat credit, if assessee opts out of cenvat.
Payment of amount if goods sent out for job work are not returned within
180 days.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
55
Taking and utilisation of CENVAT Credit
If bye product, scrap or waste is dutiable as excisable goods,
duty will be payable on it as if it is a final product.
Cenvat Credit however can not be utilised for payment of
interest.
CCE vs Maharashtra Seamless (2009) 238 ELT 645 (CESTAT
SMB)
Cenvat credit can not be utilised when a person is liable to
pay service tax under reverse charge mechanism.
The duty paying documents are valid for a period of one year
from the date of duty paying document. (wef 1-3-2015, earlier
limit was for six months). This limit is for taking the credit or
availing the credit. There is no limit for utilization of Cenvat
Credit.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
56
Taking and utilisation of CENVAT Credit
Cenvat credit can be taken on receipt of invoice by service
provider. However, as per provisio to rule 4(7) of Cenvat Credit
Rules, assessee is required to pay amount equal to Cenvat
Credit taken if payment is not made within three months. This is
called as reversal of cenvat credit.
Assessee can take back Cenvat credit after making
payment to service provider.
This provision exists only in Service Tax and not in Central
Excise.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
57
Time limit for taking Cenvat Credit when service tax is
payable under reverse charge
Following changes have been made wef 1-3-2015 where service
tax is payable under reverse charge basis (partly or fully)
• Where entire service tax is payable by service receiver, he can
take CENVAT credit on the basis of GAR -7 challan generated
after making payment of service tax. He can take the cenvat
credit irrespective of whether payment is made to service
provider or not of the invoice value. This credit should be taken
within one year from date of payment of GAR-7.
•In respect of portion of service tax charged by service
provider in his invoice, that portion is allowable immediately on
receipt of invoice. If payment is not made to the service provider
within
Three months, then cenvat credit taken is to be reversed and to
be taken back only when payment is made to him.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
58
XYZ Ltd. is manufacturing gas pipes. From the following details, compute
CENVAT credit admissible to PQR Ltd. under CENVAT Credit Rules, 2004:
Duties (including Education Cess) paid on purchases are detailed below
Particulars
Raw Steel
Gas pipe making machine
Amount
25000
20000
Spare parts for the above machine
Grease and oil
Office Equipment
10000
2500
15000
Light Diesel Oil
15000
XYZ Ltd. is not eligible for SSI exemption.
Provide explanation for treatment of various items
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
59
Computation of CENVAT Credit available
Particulars
Amount
Raw Steel
25000
Gas Pipe Making Machine (50% of 20000)
-Note 1
Spare parts for the above machine
(50 % of 10000) -Note 1
Grease and oil
10000
CENVAT Credit admissible
42500
5000
2500
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
60
Notes:-
In respect of
1) Gas Pipe Making Machine and Spare parts , being capital goods ,
only 50% credit is available (Rule 2(a) along with Rule 4(2)(a) of
CENVAT Credit Rules 2004
2) A Manufacturer can avail credit on office equipment since the
definition of capital goods under rule 2(a) of CENVAT Credit Rules
2004 specifically excludes any equipment/appliance used in an
office
3) No credit is available on Light Diesel Oil since definition on input
under Rule 2(k) of CENVAT Credit Rules, 2004 specifically
excludes the same.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
61
Case Study : ‘ X ’ Ltd., NBFC, is engaged in providing the
banking and other financial services. Information for the
month……
particulars
Amount
CENVAT CREDIT
AVAILED ON INPUTS
1,00,000/-
ON SERVICES
2,00,000/-
SERVICE TAX
LIABILITY
10,00,000/-
CAShekhar
ShekharSane
Sane- -98230-91364
98230-91364(shekharsane@vsnl.net
(shekharsane@vsnl.netand
andshekhar@cashekharsane.com)
shekhar@cashekharsane.com)
CA
62
Note : X ltd. is not eligible for small service providers’
exemption under Notification No.33 / 2012 - ST
Dated 20.06.2012 for the preceding financial year.
What is the cenvat credit available for the month and
the service tax payable by ‘X’ Ltd. for the month.
Approach :
According to rule 6(3B) of the Cenvat Credit Rules
2004, Banking company is entitled to utilize only
50% of the CENVAT Credit in respect of inputs and
input services notwithstanding anything contained
in Rule 6(1)(2(3)
CAShekhar
ShekharSane
Sane- -98230-91364
98230-91364(shekharsane@vsnl.net
(shekharsane@vsnl.netand
andshekhar@cashekharsane.com)
shekhar@cashekharsane.com)
CA
63
CENVAT CREDIT available to X ltd. for the month…
Particulars
Amount
Cenvat Credit availed on
Inputs
1,00,000/-
Cenvat Credit availed on
Input Services
2,00,000/-
Total amount of Credit
availed
3,00,000/-
CAShekhar
ShekharSane
Sane- -98230-91364
98230-91364(shekharsane@vsnl.net
(shekharsane@vsnl.netand
andshekhar@cashekharsane.com)
shekhar@cashekharsane.com)
CA
64
Less : Payment of 50% of Cenvat
Credit availed on Inputs and
Input Services
1,50,000/-
Net cenvat credit available for
the month
1,50,000/-
Net service tax payable
Particulars
Amount
Service Tax Liability for …. month
10,00,000/-
Less Eligible CENVAT credit
1,50,000/-
Net Service tax Payable
8,50,000/-
CAShekhar
ShekharSane
Sane- -98230-91364
98230-91364(shekharsane@vsnl.net
(shekharsane@vsnl.netand
andshekhar@cashekharsane.com)
shekhar@cashekharsane.com)
CA
65
Case Study : -Provisions relating to payment of Excise
Duty on used capital goods cleared as second hand
goods on which
cenvat credit is availed.
S No
Computer and
peripherals
Type of Capital
Good
% Point
(Straight Line
Method)
For each quarter Percentage
in
Year 1
10%
CAShekhar
ShekharSane
Sane- -98230-91364
98230-91364(shekharsane@vsnl.net
(shekharsane@vsnl.netand
andshekhar@cashekharsane.com)
shekhar@cashekharsane.com)
CA
66
Other Capital
Goods
Year 2
8%
Year 3
5%
Year 4 and 5
1%
2.5% Quarter
for each year
If amount so Calculated < the duty leviable on
transaction value,
the amount to be paid = duty leviable on
Transaction value ( USUALLY SELLING PRICE ).
CAShekhar
ShekharSane
Sane- -98230-91364
98230-91364(shekharsane@vsnl.net
(shekharsane@vsnl.netand
andshekhar@cashekharsane.com)
shekhar@cashekharsane.com)
CA
67
Duty Paying Documents for Cenvat
Rule 9(1) prescribes following documents on the basis of which
Cenvat credit can be taken
• Invoice of manufacturer from factory
•Invoice of manufacturer from his depot or premises of consignment
agent
•Invoice issued by registered importer
•Invoice issued by importer. He can either sell directly or from his
premises or consignment agent.
•Invoice issued by registered first stage or second stage dealer.
•Supplementary invoice by supplier-manufacturer or service provider,
except where such payment was on account of fraud, suppression of
facts etc.
•Bill of Entry
•Certificate issued by an appraiser of Customs in respect of goods
imported through foreign Post office.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
68
Duty Paying Documents for Cenvat
• GAR-7 Challan evidencing payment of service tax by the
service recipient as the person liable to pay service tax.
•Invoice / Bill/ Challan issued by input service distributor under
rule 4A of Service Tax Rules.
Certificate from Railways regarding service tax with copy of RR.
General provisions of eligible documents
1. Duty paying document is valid for one year from it’s date.
2. Entire duty paid by supplier is available as credit. Cenvat
credit can be taken even if duty is paid under protest.
3. Earlier, cenvat credit was allowed only on copy marked as
Duplicate for Transport. However, now there is no such
requirement.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
69
Defects in Duty Paying Documents for Cenvat
Cenvat credit is available on the basis of proof of duty paying
documents, however sometimes there can be minor technical
defects in the same. However the fact of duty payment is not in
doubt.
Rule 9(2) prescribes that if all prescribed details are not
available on duty paying document, then at least following
details should be available
1. Details of duty or service tax payable
2. Description of goods or taxable service
3. Assessable value
4. Central excise or service tax registration number
5. Name and address of factory or warehouse or premises
of first or second stage dealer or provider of taxable
service.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
70
Defects in Duty Paying Documents for Cenvat
In case of defective documents, if above referred minimum
details are available and the jurisdictional Assistant / Deputy
Commissioner is satisfied that such goods or services covered
in defective documents have been received and accounted in
the books of account of the receiver, then he may allow the
credit.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
71
Supplementary invoices for differential excise duty /
service tax
It is quite possible that manufacturer who had supplied input /
capital goods may have to pay further duty due to any
demand or audit objection or cost escalation granted by
buyer etc. On the similar lines, service provider may have to
pay additional service tax at later date.
In such case, the supplier manufacturer or service provider
should issue supplementary invoice to the buyer.
After receipt of such supplementary invoice, the
manufacturer using the input / capital goods will get further
credit of the additional duty paid by the supplier or
additional service tax paid by service provider.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
72
Certificate from Railways with copy of RR
When goods are transported through Railways, the Railway
Receipt (RR) is required to be submitted to the railways at the
time of taking delivery. Further, railways do not issue any
invoice. In such cases,Cenvat credit can be taken on the basis
of Service Tax Certificate for transportation of goods by Rail
(STTG) issued by Indin Railways along with photocopies of
railway receipts mentioned in STTG certificate. Notification
no.26/2014 –CE (NT) dt. 27-8-2014.
STTG is to be issued within 30 days from date of request by
customer. It is to be issued by Commercial department of
concerned zonal railways on receipt of verification by Traffic
Accounts office.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
73
Cenvat on goods purchased from Traders
When goods are purchased from depot or consignment agent of
manufacturer or through wholesaler or retailer, then in such
cases provision has been made to allow dealers / depots /
consignment agents to issue invoice so that the buyer of
inputs can avail cenvat credit. This invoice will be
documentary evidence enabling the manufacturer to avail
cenvat credit.
All the dealers / depots / consignment agents issuing invoice for
cenvat purposes, are required to register with central excise
authorities under Rule 9 of Central excise rules.
Only first and second stage dealers are allowed to issue
cenvatable invoices.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
74
Cenvat on goods purchased in the course of transit sale
If the goods are despatched from the manufacturer to the final
buyer but sale is effected through a dealer, then such
transaction is called as Transit sale.
In such cases, cenvat will be permissible if the name of the
final buyer is shown as consignee in the invoice, though
invoice will be in the dealer’s name.
The consignee can avail cenvat on the basis of the duplicate
copy of manufacturer issued under rule 11. In this case, goods
need not be brought to the premises of registered person and
invoice of registered person (dealer) is not required for availing
cenvat by the consignee……CBE&C circular No. 96/7/95 dt.132-1995.
CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)
75
Facts
Discussion
Whether Service provider is
eligible for “Special CVD” as
CENVAT credit
No
It is called as “Additional
Customs Duty” leviable u/s
3(5) of the Customs Tariff
Act,1975
Manufacturer has paid ST on
Inward transportation of
Freight under RCM for
capital goods / inputs
bringing in Raw Material
Refer Rule 2(I) – Yes allowed
X Ltd., a manufacturer decides No
to claim depreciation on
Depreciation benefit vs
without duty price of
CENVAT credit benefit
machinery. Whether he can
Refer Rule 4(4)
take CENVAT credit?
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Facts
Discussion
Whether a manufacturer can avail duties
paid for following items as CENVAT credit:i) Petrol which is use among other inputs
ii) Motor Vehicle used by Director of
Company
iii) Air-conditioner used in an office
Not Eligible
Not Eligible
Not Eligible
Is it compulsory that the inputs / capital
goods are to be purchased only from the
manufacturers for the purpose of availment
of credit?
No.
Refer Rule 9 of CENVAT
Credit Rules, 2004.)1st and 2nd Stage Dealer.
Both should be registered
Whether manufacturer can avail CENVAT
credit in the month of September 2015,
though inputs are issued for production
process in October 2015
Yes eligibility is on
Receipt basis
Refer Rule 4(1)
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Facts
Discussion
X Ltd. A manufacturer wants to
take CENVAT credit of duties on
input service. Whether he can
avail such credit even payment
is not made against invoice of
such input service?
Yes.
Whether X Ltd. is allowed to
transfer unutilized input credit
in case of transfer of ownership
by factory by way of sale along
with inputs and capital goods?
Yes.
Transfer of inputs and Capital goods to new
ownership
Refer Rule 10(1)
Refer Rule 4(7) -Credit on accrual basis
Payment to be made within 90 days
Otherwise reverse and then take credit when
payment is made to supplier.
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Facts
Discussion
T Ltd. wrongly avails CENVAT
credit on certain inputs. What
will be the consequences?
Penal provision
Refer Rule 15 – Credit taken or Rs. 2000
whichever is higher
Z Ltd. wants to take credit of
excise duty on input, which is
used in intermediate product,
which is exempt from duty, but
final product is dutiable
Yes
Refer Chapter 5 Para 3.7 of CBEC’s Excise
Manual of Supplementary Instructions
2005- relation of inputs to dutiable final
product, directly or indirectly CENVAT
credit is eligible. Can not be denied since
intermediary is exempt as final product is
“dutiable”
Y Ltd. wants to take refund of
Yes.
service tax paid on input
Refer Rule 5 - taxes not exported
services which are used in
providing output services which
are exported. Whether it is
allowable?
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Facts
In above case, if Y Ltd. is using only
50% of input services for exported
output services and remaining for
taxable output service
Discussion
Rule 5 – proportionate
refund (i.e. Export T/O
Total T/O) X Net Cenvat
Credit
W Ltd. wants to take credit of duty
paid on inputs, which are damaged
and were found to be not usable. Can
it be availed?
No
If damage is noticed
prior to “usage”
Refer Rule 2(k) – goods
used in factory
Yes
Case law – CCEx & Cus.
Vadodara II vs. Steelco.
Gujrat Ltd. 2010 (255)
ELT 518 (Guj.)
X Ltd. wants to take credit on duty
paid on inputs, based on Xerox copy
of invoice, which are attested by
Range Superintendent of supplier.
Whether Credit can be availed?
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Exempted Goods, Exempted Services
and
Cenvat Credit
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Exempted Goods : Meaning
According to Rule 2(d) of Cenvat Credit Rules exempted goods means,
goods which are exempt from whole of duty of excise leviable thereon
and includes goods which are chargeable to NIL rate of duty and the
goods in respect of which the benefit of an exemption under
notification no.1/2011-CE dt.1st March 2011 or under entries at serial
no.67n and 128 of notification no.12/2012-CE dt.17th March 2012 is
availed.
Thus exempted goods are the ones
•Which are chargeable to NIL duty
•Exempt by notification issued under 5A
•2% excise duty has been paid under notification no.1/2011-CE dt.1st
March 2011 or 1% under notification no.12/2012-CE dt.17th March
2012.
Non excisable goods are considered as exempted goods or final
products for the purpose of Rule 6(1) i.e proportionate reversal or 6%
payment of amount.
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Exempted Services : Meaning
Exempted Services means
• Output service which is exempt from the whole of the whole of the
service tax leviable thereon or
•Service on which no service tax is leviable u/s 66B of the Finance Act
or
•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.
Services on which no service tax is leviable are also exempted
services. However, export of service is not considered as exempt
service for rule 6 of Cenvat Credit Rules- Para 6 of CBE&C circular no.
868/6/2008-CX dt.9-5-2008.
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Exempted Services : Meaning
The definition of exempted services is expanded wef 1-4-2011, by
providing that taxable service whose part of value is exempt on
the condition that no credit of inputs and input services used in
providing such taxable service has been taken, shall be
exempted service. In some cases, cenvat credit of input services
is available but not of input goods. Such services are not
considered as exempt services.
In case of some services, abatement is subject to condition that
the service provider does not take the credit of excise duty paid
on inputs or capital goods in providing services or service tax
paid on input services used in providing output services.
In case of Traded Goods, value of the exempt service shall be
the difference between the sale price and the cost of goods sold
(without purchase cost) or 10% of cost of goods sold whichever is
more…notification no.13/2011- CE(NT) dt.31-3-2011
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Exempted Services : Meaning
Services provided to unit or developer in SEZ is not an exempt
service for the purpose of Rule 6.
Similarly, export of service is also not considered as exempt
service.
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Facts
Discussion
Can CENVAT credit be utilized for
payment of ED on goods in respect
of which benefit of Notification
1/2011-CE-01.03.2011 is availed
No
Rule 3(4)
On such goods concessional ED
of 2% is payable subject to nonavailment of CENVAT credit on
inputs and input services
Can CENVAT credit be utilized for
payment of Clean Energy Cess
leviable u/s 83 of Finance Act, 2010
No
Rule 3(4) read with Rule 3(1) CCR
2004
Can credit of duty paid @ 2% on
No
inputs wide Notification 1/2011-CE- Proviso to clause (i) Rule 3(1)
01.03.2011 is available to
manufacturer and service provider?
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Facts
Discussion
Is CENVAT credit required to be
reversed in respect of “inputs”
lying in stock / process contained
in final product, when the final
product is subsequently
exempted from payment of duty
As per Rule 11(3) CCR 2004 when a final
product is exempted u/s5A of the Central
Excise Act the manufacturer is required to
pay an “amount” equal to CENVAT credit
on inputs lying in stock or process
Balance remaining is also not allowed as
“input credit” for payment of ED on final
product or payment of service tax on
“taxable output service”
Is CENVAT credit required to be
reversed if goods sent for
processing are not received within
180 days
Whether CENVAT Credit on
services used in repairs /
renovation of factory or office is
available ?
Yes Rule 4(5)(a)
Credit already reversed if any can be
restored once goods are received back
Yes eligible
Rule 2(l)
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Facts
Discussion
Whether CENVAT Credit on services
Yes eligible
used in repairs / renovation of factory or Rule 2(l)
office is available?
CENVAT credit in respect of duty paid on Not available if Capital
capital goods used exclusively in the
Goods are exclusively used
manufacture of dutiable goods cleared
Otherwise, available in
entirely if Capital Goods are
used partly in manufacture
of exempted final product
CENVAT credit “capital goods” used
outside the factory of manufacture for
generation of electricity for captive use
within the factory
Yes
Eligible Rule 2(a)
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Facts
Discussion
Capital Goods are cleared as waste or
scrap
ED is payable on the
“transaction value”
Whether CENVAT Credit is allowed
without bringing “inputs” to premises
of output service subject to
documentation regarding delivery and
location
Yes eligible
Rule 4 Provided that,
they are used for
providing “taxable
output service”
Correct documentation
be maintained
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Facts
Discussion
A manufacturer is having storage godowns,
cycle sheds, canteen, housing complex of
employees ( staff and workers ) in the
premises.
Assessee had a CPP supplying electricity to
factory as well as housing complex.
CENVAT credit on furnace oil used
in generation of power
proportionately as applicable to
“manufacturing activities can only
be availed” as per Rule 2(k) of CCR,
2004.
It can not be availed on housing
complex etc.
Assessee is engaged in manufacture of
machines as per “customer’s”
Specifications. After customer’s satisfaction
about desired results sale use
To be made to “customers”.
While testing certain inputs were consumed
during the course of testing of such
machines.
CENVAT credit prior to sale and during the
course of testing is available or not ?
Yes
Flex Engineering v. Commissioner
of Central Excise (276) ELT 153 (SC)
“process of testing is connected
with the sale without which sale
could not have been completed”
It was an essential ingredient of
“process of manufacturer” itself
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Facts
Discussion
A manufacturer has been
transferring raw material,
consumables from a material
handling system / ropeway
located few kilometers away
from factory.
CENVAT credit on capital goods is available,
including spare parts / components
Birla Corporation v. CCE 2005 (186 ELT 266
(SC)
Rule 2(a) provides that, “capital goods”
means “used in the factory of the
manufacturer of final products”
Whether interest can be
recovered from an assessee
who wrongly takes CENVAT
credit but reverses before its
utilization.
No
Applicable only if utilized
As per Rule 14 of CCR 2004
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Proportionate Reversal Of Cenvat
When assessee intends to pay amount on proportionate basis as given
in rule 6(3)(ii), amount is to be calculated as provided in rule 6(3A) of
Cenvat Credit Rules. This amount is to be paid provisionally on
monthly basis and at the end of the year, assessee is required to
calculate exact amount and adjust the difference.
Information to Superintendent regarding option of proportionate
reversal
• Name, Address, registration No. of manufacturer or output service
provider.
• Date from which option under this clause is exercised or proposed
to be exercised.
• Description of dutiable goods or output service.
• Description of exempted goods or exempted service.
• Cenvat Credit of input or input services lying in balance on the date
of exercising the option.
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Proportionate Reversal Of Cenvat Credit
Calculation of amount to be reversed at the end of each month
Rule
1] 6(3A)(b)(i)
Inputs used for exempted final products
2] 6(3A)(b)(ii)
Inputs used for exempted services (proportionate basis, based on
ratio of previous year)
3] 6(3A)(b)(iii)
Input services used for exempted final products and exempted
services (proportionate basis, based on ratio of previous year)
Total
1+2+3 = Amount to be reversed every month on provisional basis
At the end of the year, assessee should calculate the ratios on
actual basis, make fresh calculations and pay difference, if
any, before 30th June. In case of excess payment, he can
adjust the difference himself by taking credit.
In the first year of production or provision of service, calculation
should be made after year is over, and amount attributable to
cenvat credit on exempted products or services be paid.
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Calculation of Amount on provisional basis every month
Amount of Cenvat credit attributable to inputs used for provision
of exempted service should be calculated as follows
A
The amount equivalent to Cenvat credit attributable to inputs
used in or in relation to manufacture of exempted goods during
the month
B
Total value of exempted services provided during the preceding
financial year
C
Total value of dutiable goods manufactured and removed plus
total value of output services provided plus total value of
exempted services provided, during the preceding financial year
D
Total CENVAT Credit taken on inputs during the month minus A
(credit taken on inputs for manufactured final products)
(B/C * D)
Amount to be reversed every month on provisional basis as per
Rule 6 (3A)(b)(ii)
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Calculation of Amount on provisional basis every month
Amount attributable to input services used in or in relation to
manufacture of exempt goods or exempted services is
calculated as follows
E
Total Value of exempted services provided plus total
value of exempted goods manufactured and removed
during the preceding financial year.
F
Total value of taxable and exempted services provided
and total value of dutiable and exempted goods
manufactured and removed during preceding financial
year
G
Cenvat credit taken on input services during the month
(E/F) * G
Amount to be reversed every month on provisional
basis
As per Rule 6(3A)(b)(iii)
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Other Issues relating to CENVAT
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Removal of inputs / Capital Goods ‘as such’
A Manufacturer / service provider who obtains the inputs / capital
goods gets immediate credit of the duty paid by supplier on the
inputs used by him. Manufacturer or service provider uses these
inputs / Capital Goods for manufacturing final products.
However, sometimes he may be required to remove the
inputs from the factory or premises of output service provider
for following purposes
• Sale or disposal
• Job work or processing outside and return
• Rejected inputs for rework and return.
It is necessary to control these removals since credit on this has
already been taken.
The inputs or capital goods can be removed as such from
factory or premises on payment of an amount equal to CENVAT
credit availed. It amounts to reversal of CENVAT.
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Removal of Capital Goods after use
Capital Goods can be removed either as scrap or second hand
capital goods. According to Rule 3(5A)(a) effective 27-9-2013, if
capital goods are removed after use, the manufacturer or output
service provider shall pay an “amount” (a) equal to original
cenvat credit taken reduced as per prescribed rates based on
number of years used or (b) equal to excise duty payable on
transaction value, whichever is higher.
If capital goods are cleared as waste or scrap, manufacturer
shall pay amount equal to duty leviable on transaction value
[ Rule 3(5A)(b)].
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Reduction allowed in original CENVAT credit taken on
Capital Goods
CENVAT credit originally taken on the capital goods is to be
reduced as follows
In case of computers & computer peripherals
 In the first year 10% each quarter ( total 40 %)
8% for each quarter in second year (total 32%)
5% each quarter in third year ( total 20%)
1% for each quarter in fourth & fifth year (total 8% )
On other capital goods by 2.5% for each quarter of a year or part
thereof from the date of taking CENVAT credit.
The provision for payment of “amount” applies even if capital
goods are sold after 10 years.
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Removal of capital Goods as waste and scrap
AS per Rule 3(5A)(b), wef 27-9-2013, if capital goods are
removed as scrap, the manufacturer shall pay an amount equal
to duty payable on transaction value.
It means an amount equal to duty on scrap value should be
paid.
Rule 3(6) makes it clear that buyer can avail CENVAT credit of
the amount.
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Facts
Discussion
Z, manufacturer, has paid excise duty Refer Rule 4(5)(a) (i)– inputs to be
on inputs and sent them to job worker received back within 180 days
for processing on day of receipt itself.
Job worker sent 50% of processed
inputs within 4 months and balance
50% after 8 months.
In above case, instead of inputs,
Rule 4(5)(a)(ii)- Capital goods to be
capital goods has been sent to job
received back within 2 years
worker
Assessee is engaged in manufacturing Fixed assets were given to another
. It has following fixed assets
manufacturer for producing goods
a) Jigs
similar to specifications of the
b) Fixtures
manufacturer
c) Moulds
Assessee is entitled to claim
CENVAT paid on above Rs. 50000
CENVAT- Rule 4(5)(b) of CCR 2004
50% in the first year and remaining
in the subsequent year
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CENVAT Availment Procedure
Main procedure for CENVAT availment is as follows :
• Maintaining proper records of input and capital goods.
•Maintaining records of credit received and utilized.
•Submit proper returns in forms ER-1 to ER 8.
•Returns by Dealers / Service Provider / Input Service Providers.
Records of Input Services / Capital Goods : Records should
contain information regarding Value, duty paid, CENVAT credit
taken & utilized, person from whom input or capital goods are
procured. Here, burden of proof regarding admissibility of
CENVAT Credit is on manufacturer or provider of output service
taking credit. [ Rule 9(5) of CENVAT Credit Rules]
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CENVAT Availment Procedure
Records of Input Services : Records should contain
information regarding Value of input services, Tax Paid, CENVAT
Credit taken and utilised, person from whom input services are
procured. The burden of proof regarding admissibility of
CENVAT credit lies with the person taking credit [ Rule 9(6) of
CENVAT Credit Rules]
CENVAT Credit Record : This is just an account of Cenvat
credit received, credit utilised and credit balance. This gives
details of credit availed against each input / capital goods, Credit
utilised against each clearances of final products or removal of
input as such or after processing or removal of capital goods as
such and the Balance Credit available.
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Returns Under CENVAT
Manufacturer is required to submit following returns to Range
Superintendent of Central Excise.
1. Quarterly Return by first stage / second stage dealer within 15
days from close of the quarter [ Rule 9(8)].
2. Half yearly return within 25 days from close of half year by
provider of output services. Rule 9(9) of Cenvat Credit Rules
prescribes one month but rule 7(2) of Service Tax Rules
allows only 25 days.
3. Half yearly return within one month from close of a half year by
input service distributor [ Rule 9(10) of Cenvat Credit Rules].
All service providers, dealers, manufacturers are required to submit
the returns electronically wef 1-10-2011.
Revised returns can be filed only by service provider within 60 days
of filing original return. This facility is NOT available for
manufacturers.
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Transfer / Merger / Shifting of Undertaking
In case manufacturer shifts his factory to other site or provider of
output services shifts his business or either of them transfers his
factory/ business due to change of ownership or due to sale, merger,
amalgamation, lease or transfer of factory to a joint venture, the
manufacturer / service provider can transfer unutilized cenvat credit
to the transferred / sold / merged/ leased or amalgamated factory /
business. This transfer of credit is subject to following conditions
a) There should be specific provision for transfer of liabilities of such
factory / business of service provider.[ rule 10(1) and 10(2)].
b) Transfer is allowed only if stock of inputs as such or in process or
the capital goods are also transferred along with the factory /
premises of service provider to the new site or ownership and the
inputs or capital goods on which credit has been availed, are duly
accounted to the satisfaction of Assistant / Deputy Commissioner.
[Rule 10(3)]
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Recovery of CENVAT credit wrongly taken or
erroneously refunded ( wef 1-3-2015)
If CENVAT credit is taken wrongly but not utilised, the same shall
be recovered from manufacturer or the provider of output service
and provisions of Sec.11A of Central Excise ACt, and Sec.73 of
Finance Act,1994 shall apply mutatis mutandis for effecting the
recovery. [ Rule 14(1)(i) of Cenvat Credit Rules]
If CENVAT Credit has been taken and utilised wrongly or has
been erroneously refunded, the same shall be recovered with
interest from the manufacturer or provider of output service and
provisions of sec.11A and 11AA of Central Excise Act and Sec.73
and 75 of Finance Act,1994 shall apply mutatis mutandis for
effecting the recovery. [ Rule 14(1)(ii) of Cenvat Credit Rules]
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CENVAT utilisation on FIFO Basis
For the purpose of Rule 14 (1), all CENVAT Credit shall be
deemed to have been taken on the last day of each month.
CENVAT Credit shall be deemed to have been utilised as follows
• Opening Balance of the month to be utilised first.
•Credit admissible in terms of these rules taken during month
have been utilised next.
•Credit admissible during the month, to be utilised thereafter.
[Rule 14(2) of Cenvat Credit Rules]
Thus CENVAT credit is to be utilised on FIFO Basis.
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Withdrawal of facilities in case of misuse.
In case of mis utilisation of CENVAT Credit, a provision has been
insterted effective 25-8-2014 for withdrawal of facilities to
manufacturer / exporter / provider of taxable services / registered
dealer and suspension of registered dealer.
Further, in order to prevent evasion of ,and default in payment of
excise duty or misuse of provisions of Cenvat Credit, various
restrictions can be place on manufacturer, registered dealers or
exporters and certain facilities can be withdrawn. Registration of
dealer can be suspended.
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When the facilities can be withdrawn
As per notification No.16/2014-CE(NT) dt. 21-3-2014 facilities to
manufacturer / exporter / dealer can be withdrawn and restrictions
be imposed if prima facie, he is found to be knowingly involved in
following
• Removal of goods without cover of invoice and without
payment of duty.
•Removal of goods without declaring correct value for payment
of duty, where a portion of sale price is received by him or on his
behalf but not accounted for in the books of account.
•Taking CENVAT credit without receipt of goods specified in the
document based on which the CENVAT credit is taken.
•Taking the CENVAT credit on invoices or other documents which
a person has reason to believe as not genuine.
•Issue of excise duty invoice without delivery of goods specified
in invoice.
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When the facilities can be withdrawn
• Claiming of refund or rebate based on excise duty paid invoice
or other documents which a person has reason to believe as not
genuine.
•Removal of inputs as such on which CENVAT was taken, without
paying amount equal to CENVAT Credit availed.
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Restrictions that can be placed and facilities that can be
withdrawn
 Payment of duty before clearance instead of monthly payment.
 Restriction on utilization of CENVAT credit. Assessee will be
asked to pay the duty through PLA instead of utilizing CENVAT
credit.
Keeping the records of principal inputs on which CENVAT not
taken which constitutes at least 10% of total cost of raw material
for manufacture of unit quantity of that product.
Intimation about receipt of principal inputs to the
Superintendent within prescribed time on which CENVAT credit is
not taken.
In case of second or subsequent offence, the invoice can be
countersigned by the Inspector or Superintendent.
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Case Study
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Y Ltd. Purchased raw material ‘A’ 10,000 Kg @ Rs.80 Per Kg
plus excise duty. The said raw material was used to
manufacture intermediate product ‘P’. Such product was
captively used for the manufacture of finished product ‘Z’,
which was exempt from excise duty.
‘Y’ Ltd. Is not eligible for SSI Exemption under Notification No. 8/2003 – C.E.
The other information
i) Processing Loss : 2% of inputs in manufacture of ‘P’
ii)Assessable value of ‘P’ : Rs.100 / kg
iii) Assessable value of ‘Z’ Rs.20 Lac(for total output)
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iv)Other material ‘M’ used in the manufacture of ‘Z’ Rs.2
Lac plus Excise Duty.
v)Duty on capital goods imported during the period
And used in the manufacture of ‘P’
-Basic Customs duty Rs. 20,000/-
-Additional duty of customs u/s 3(1) of the Customs
Tariff Act, 1975 Rs.10,000 and
-Additional duty of customs u/s 3(5) of the Customs
Tariff Act, 1975 Rs.4000
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vii) Rate of Central Excise Duty on ‘A’, ‘M’ and ‘P’
12.36% (Including Education Cess as applicable)
What is the amount of Cenvat Credit available
and central excise duty payable.
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The amount of CENVAT Credit available
PARTICULARS
On Inputs
Raw material ‘A’ (10,000 Kg x Rs.80 x
12.36%) Note 2
Rs
Rs.
98,800
Raw material ‘M’ (Note 3)
Nil
On Capital Goods :
Basic Customs Duty
Nil
Additional Duty of Customs u/s 3(1) of
Customs Tariff Act, 1975 (Note 4)
5,000
Additional duty of customs u/s 3(5) of
Customs Tariff Act, 1975 (Note 5)
4,000
Total Credit available
98,800
9,000
1,07,880
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ii) Computation of net central excise duty payable,
Particulars
Central excise duty payable on intermediate product ‘P’
(10,000 Kg x 98% (2% processing loss ) x Rs.100 x 12.36%
(Note 1)
Central Excise Duty on exempt final product ‘Z’
Rs.
1,21,128
NIL
Total central excise duty payable
1,21,128
Less : CENVAT Credit available
1,07,880
Net Central excise duty payable (In Cash)
13,248
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Notes :
1. Intermediate goods are exempt from payment of
excise duty
if the same are consumed captively for
manufacture of dutiable final products.
2. Since input ‘A’ is used in manufacture of dutiable
intermediate product ‘P’. CENVAT credit will be
available on the entire quantity of the same
regardless of the processing
loss as that quantity of inputs is also used in the
manufacture of intermediate product.
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3. Since raw material ‘M’ is used in manufacture of
final product ‘Z’ which is exempt from payment of
duty, credit will not be available on the same [Rule
6(1) of CENVAT Credit Rules, 2004]
4. Up to 50% of the Credit in respect of Additional
duty
of Customs livable u/s 3(1) of customs Tariff Act,
1975 can only be availed in the year in which
capital goods are received in the factory of the
manufacturer [Rule 4(2)(a) of CENVAT Credit
Rules, 2004]
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5.CENVAT credit in respect of additional duty of
customs leviable u/s 3(5) of Customs Tariff Act,
1975 is allowed immediately on receipt of the
capital goods in the factory of the manufacturer
[Second proviso to Rule 4(2)(a) of CENVAT Credit
Rules, 2004].
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Highlights of
CENVAT Scheme
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Highlights of Cenvat Scheme

Cenvat Credit on receipt of inputs

Credit of duty on receipt of invoice in case of input services
provided payment is made within 90 days from date of invoice.

Cenvat Credit shall not be allowed after six months of the date
of document (Invoice Date / Challan Date (w.e.f. 01.09.2014)

Where entire service tax is payable by service recipient,
Cenvat Credit can be availed after the service tax is paid.

Where service recipient is liable to pay part service tax,
Cenvat Credit can be taken on/ after payment is made of the
value of input service and the service tax paid or payable as
indicated in invoice,
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 Input goods eligible for Cenvat to service
provider
 Inputs can be sent to Job Worker
 No credit of service in J&K
 Input goods eligible for Cenvat to
manufacturer
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Highlights of Cenvat Scheme

Services Billed/ Received at Head / Regional Offices

Credit of duty paid on capital goods

Removal of used capital goods as scrap or second hand
capital goods

Credit on motor vehicles used to provide output service

Credit on basis of specified documents

Credit available instantly incase of input goods and input
services
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Highlights of Cenvat Scheme
 Cenvat credit of capital goods in two stages
 Cenvat
to manufacturer available only if there is a
‘manufacture’
 Utilization of Cenvat credit
 One-to-one correlation not required
 No input credit if final product/ output service exempt from
duty/ service tax
 Partial manufacture/ provision of exempted products/ services
 No cash refund, except in case of export or supply to SEZ
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Thank You!!
Contact : CA Shekhar Sane
(M) 098230 91364
(O) 020-2446 1345
E-Mail : shekharsane@vsnl.net
shekhar@cashekharsane.com
Website : www.cashekharsane.com
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