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Cenvat Credit Rules, 2004 have been introduced with effect from 10-9-2004
in order to remove the cascading effect of excise duty and service tax.
The Excise Duty paid on the inputs, capital goods and input services,
which are used in or in relation to the manufacture of final product or
for providing output services in the factory is now permissible to be
set off against the excise duty liability on the final products or paying
service tax under the CENVAT Credit Rules, 2004, the ultimate intention
being to integrate the tax on goods and services. The rules have been
notified thereof to regulate the availment and utilization of the CENVAT
Credit. Some of the provisions are as follows:
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‘Input’
– Definition and Conditions
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"Input"
means –
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all
goods, except light diesel oil, high speed diesel oil and
motor spirit, commonly known as petrol, used in or in relation
to the manufacture of final products whether directly or indirectly
and whether contained in the final product or not and includes
lubricating, oils, greases, cutting oils, coolants, accessories
of the final products cleared along with the final product,
goods used as paint, or as packing material, or as fuel, or
for generation of electricity or steam used in or in relation
to manufacture of final products or for any other purpose,
within the factory of production.
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All
goods, except light diesel oil, high speed diesel oil, motor
spirit, commonly known as petrol and motor vehicles, used
for providing any output service.
Explanation
1. – The light diesel oil, high speed diesel oil or motor
spirit, commonly known as petrol, shall not be treated as an input
for any purpose whatsoever.
Explanation
2. – Input include goods used in the manufacture of capital
goods which are further used in the factory of the manufacturer;
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The
input for Cenvat Credit purposes must be as follows:-
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In
case of manufacturer
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Input
used in or in relation to manufacture of final goods and
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Items
specified in the definition.
- For Output
Service Provider
Inputs used for providing output service. For examile, detergents
and chemicals used by a dry cleaner, paper used by CA, Photographic
chemicals and paper used by photographic agency for providing
services is treated as INPUTS.
- Meaning
of ‘in relation to’
The words ‘ in relation to’ have been held to be equivalent
to or synonymous with 'concerning with’ or ‘pertaining to’ and
as words of comprehensiveness which might both have a direct
significance as well as indirect significance depending on the
context as observed by the Supreme Court in the case of Doypack
Systems Pvt Ltd. vs. UOI 1988 (36) ELT 201. Also the Hon’ble
Tribunal in the case of Union Carbide India Ltd vs. CCE,
Cal-I 1996 (86) ELT 613 (T) has held that the ‘ wide impact
of the expression "used in relation to the manufacture" must
be allowed its natural play. The purpose of using the words
‘in relation to is to certainly widen further the scope, ambit
and content of "inputs". The purpose is to widen the ambit so
as to attract also goods which do not enter directly or indirectly
into the finished product, but are used in any activity concerned
with or pertaining to the manufacture of finished goods."
Larger
Bench of Tribunal in the case of Shri Ramakrishna Steel Industries
Ltd vs. Collector of Central Excise 1996 (82) ELT 575 (T)
observed as follows:-
"The
words "in relation to the manufacture" are intended to set at
rest all doubts. Where raw material is actually used in the main
steam of manufacture of final product, that is, actually used
in the physical or chemical process of manufacture, it is certainly
an input used in the manufacture of final product. The doubt may
arise only in regard to us of some articles not in the main stream
of manufacturing process but in another stream of manufacturing
something which is to be used for rendering final product marketable
or used otherwise in assisting the process of manufacture. Such
doubt is set at rest by use of the words "used in relation to
manufacture"
- "CAPITAL GOODS"
– Definition and Conditions
- Capital goods
mean
- the following
goods, namely:-
- all
goods falling under Chapter 82, Chapter 84, Chapter 85,
Chapter 90, heading No. 68.02 and sub-heading No. 6801.10
of the First Schedule to the Excise Tariff Act;
- Pollution
control equipment;
- Components,
spares and accessories of the goods specified ad (i) and
(ii)
- Moulds
and dies, jigs and fixtures;
- Refractories
and refractory materials;
- Tubes
and pipes and fittings thereof; and
- Storage
tank.
Used
–
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in
the factory of the manufacturer of the final products,
but does not include any equipment of appliance used in
an office; or
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for
providing output service;
Explanation
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The
capital goods should be classifiable under specified chapter
heading / sub-heading to be eligible for CENVAT Credit
of duty paid on such capital goods.
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The
items specified on (ii) to (vii) in the definition will
fall under the definition of capital goods irrespective
of the classification.
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The
use of the said capital goods must be, compulsorily be,
in the case of manufacture, in his factory. If the same
are used in office no CENVAT Credit is available to manufacture.
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In
case of output service provider, capital goods should
be used for providing the output service.
- motor vehicle
registered in the name of provider of output service for providing
taxable service as specified in sub-clauses (f), (n), (o), (zr),
(zzp), (zzt) and (zzw) of clause (105) of section 65 of the
Finance Act;
Explanation
In
respect of Cenvat credit of excise duty paid on motor vehicle,
it is available only to the following output service providers
as capital goods:
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Courier
Services.
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Tour
Operator Services.
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Rent-a-Cab
Services.
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Cargo
Handling Services.
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Transport
of Goods by Road Services.
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Outdoor
Catering Service.
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Pandal
or Shamiana Contractors Services.
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Conditions
for availment of credit on capital goods
CENVAT Credit Rules also provides certain conditions for availment
of credit on capital goods. These are:
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CENVAT
Credit will be available to the extent of 50 % in the first
year and the balance credit can be availed in the subsequent
years.
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The
CENVAT Credit in respect of capital goods shall not be allowed
on that part of the value of capital goods, which represents
the amount of duty on such capital goods which the manufacturer
claims as depreciation under section 32 of the Income-tax
Act.
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CENVAT
Credit of capital goods, which are used exclusively for the
purpose of manufacture of the exempted product is not allowable.
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(iv)
The credit of capital goods shall be allowed to the manufacturer
irrespective of the fact that the capital goods are acquired
by him on lease hire purchase or loan agreement from financing
company.
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Input
services – Definitions and Conditions
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Definition
of Input Service
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"input
service" means any service;-
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used
by a provider of taxable service for providing an output
service; or
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used
by the manufacturer, whether directly or indirectly, in
or in relation to the manufacture of final products and
clearance of final products from the place of removal,
and
includes services used in relation to setting up, modernization,
renovation or repairs of a factory, premises of provider of
output service or an office relating to such factory or premises,
advertisement or sales promotion, market research storage up
to the place of removal, procurement of inputs, activities relating
to business, such as accounting, auditing, financing recruitment
and quality control, coaching and training, computer networking,
credit rating, share registry, and security, inward transportation,
of inputs or capital goods and outward transportation up to
the place of removal.
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The
definition of Input Services is very comprehensive. The credit
of service tax paid only on such services, which are considered,
as input services will be available.
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Conditions
for availing the Cenvat Credit on Input Service
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The
Input Service provided on or after 10-9-2004 is only eligible
for CENVAT Credit.
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The
Cenvat Credit is allowed only on or after the day on which
payment is made for the value of input service and service
tax paid/payable as per the invoice to the input service
provider.
Time
limit for availing credit
The
credit of duty on inputs and capital goods received and service tax
paid on the input services should be availed within a period of one
year. The period of one year is considered reasonable in view of the
fact that demand for recovery and refund of excess tax paid can be
applied within one year.
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Input
Service Distributor
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Meaning
of Input Service Distributor
"input service distributor" means an office of the manufacturer
or producer of final products or provider of output service, which
receives invoices issued under rule 4A of the Service Tax Rules,
1994 towards purchases of input services and issues invoice, bill
or, as the case may be, challan for the purposes of distributing
the credit of service tax paid on the said services to such manufacturer
or producer or provider, as the case may be;
Thus,
Head Offices/Corporate offices/ other offices of the manufacturers
or output service provider will thus fall under the definition
of Input Service Distributor for the purposes of distributing
the credit of Input Services of such office
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Manner
of Distribution of the Credit
The Input Service Distributor may distribute the CENVAT Credit
in respect of the service tax paid on the input service to its
manufacturing units or units providing output service,
Subject
to the following condition, namely:-
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The
credit distributed against a document on the basis of which
the credit is taken should not exceed the amount of service
tax paid on that document thereon; or
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Credit
of service tax attributable to service use in a unit exclusively
engaged in manufacture of exempted goods or providing of exempted
services shall not be distributed.
- Mandatory details
in Input Service Invoice
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Sr.
No. Invoice No. and Date of document,
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Name,
Address and Registration of the unit to which credit is distributed,
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Input
service providers service tax registration No., Name &
Address, and
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Description
of taxable service,
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Classification
of the taxable service,
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Assessable
value of input service,
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Amount
of service tax (bifurcated into service tax and Education
Cess on Service Tax separately.)
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Duly
signed by the Input Service provider or his authorised person.
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Provisions
in case of manufacture of dutiable/ exempted goods and provider of
Taxable/Exempted services
In
case the manufacturer or output service provider avails of CENVAT
Credit in respect of common inputs or input service which are used
to manufactures such final products or provide such output service
which are chargeable to duty as well as exempted goods or services,
then the manufacturer or output service provider can except in cases
of some specified items follow either of the two options given below:
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As
per the provisions of Rule 6 (2) the manufacturer or provider
of output services shall maintain separate accounts for receipts,
consumption and inventory of inputs or input services meant for
use in the manufacture of dutiable final product and the quantity
of inputs or input services meant for use in the manufacture of
exempted goods or services and shall take credit only on that
quantity, which is intended for use in the manufacture of dutiable
goods or dutiable output services.
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In
case the manufacturer or provider of output services does not
separate accounts as per the provisions of Rule 6 (2) as mentioned
in (a) above then as per the provisions of Rule 6 (3), the manufacturer
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In
respect of certain specified goods in rule 6 (3)(a), pay an
equivalent to cenvat Credit availed on inputs and input services
attributable to such goods or
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shall
pay an amount equal to 10% of the total price of the exempted
goods excluding sales tax and other taxes, while clearing
the said goods.
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In
case he does not maintain separate accounts and provides exempted
services, the cenvat Credit shall be utilized only to the
extent of 20% of the amount payable on output services.
- However, as
per the provisions of Rule 6(5) and notwithstanding anything contained
in (a) and (b) above, in respect of 16 specified services, credit
shall be allowed even if they are used partly for dutiable/exempted
goods or taxable/exempted services. These are :
- Consulting
Engineer’s service
- Architect’s
service
- Interior
Decorator’s service
- Management
Consultant’s service
- Real Estate
Agent’s service
- Erection,
commissioning or installation service
- Technical
testing and analysis service
- Technical
inspection and certification agency’s service
- Construction
service
- Intellectual
property service
- Security
Agency’s service
- Scientific
or technical consultancy service
- Banking
and other financial services
- Insurance
auxiliary service
- Maintenance
or repair service
- Foreign
Exchange Brokers service
However
if these 16 services are used exclusively for exempted goods / services
then credit of such services will not be allowed.
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