THE CHAMBER OF TAX CONSULTANTS

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Study Course on Service Tax for Beginners - 2013

CENVAT CREDIT RULES, 2004

By CA RAJIV LUTHIA
Organized By THE CHAMBER OF TAX CONSULTANTS

On Friday, the 30th August,2013

At
Ground Floor, Hotel City Point, Dadar TT
Circle, Dadar (East).

R.J. Luthia & Associates, Chartered Accountants

CENVAT CREDIT RULES, 2004

Introduced vide Notification No.23/2004-CE (NT) dated 10th September,

2004.

In supersession of CENVAT Credit Rules, 2002 & Service Tax Credit Rules,
2002.

Rule 2-Credit of service tax not available/utilizable in the state of Jammu &
Kashmir.

Capital Goods means

(A) the following goods, namely:(a) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90,
heading 6805, grinding wheels and the like, and parts thereof falling
under heading 6804 of the First Schedule to the Excise Tariff Act;
Chapter 82 includes tools, implements, cutlery, spoons, forks etc. of base
metal and parts thereof.
Chapter 84 includes items such as nuclear reactors, boilers, machinery and
mechanical appliances and parts thereof.
Chapter 85 includes electrical machinery and equipments and parts
thereof, sound recorders and reproducers, television image and sound
recorders and reproducers and parts and accessories of such articles.
Chapter 90 includes optical, photographic, cinematographic, measuring,
checking, precision, medical or surgical instruments and apparatus and
parts and accessories thereof.
Heading 6805 includes natural and artificial abrasive powder or grain, on
a base of textile material, of paper, of paperboards or of other materials,
whether or not, cut to shape or sewn or otherwise made up.
Heading 6804 includes millstones, grindstones, grinding wheels and the
like, without framework, for grinding, sharpening, polishing, trueing or
cutting, hand sharpening or polishing stones, and parts thereof, of natural
stone, of agglomerated natural or artificial abrasives, or of ceramics, with or
without parts of other material.
(b)
(c)
(d)
(e)

Pollution control equipment;

Components, spares and accessories of the goods specified at (i) and (ii)
Moulds and dies, jigs and fixtures;
Refractories and refractory materials;

R.J.Luthia & Associates, Chartered Accountants

(f) Tubes and pipes and fittings thereof;

(g) Storage tank; and
(h) 1Motor vehicle other than those falling under tariff heading 8702, 8703,
8704, 8711 & their chassis 2(but including dumpers & tippers).
Used(1) in the factory of the manufacturer of the final products, but does not
include any equipment or appliance used in an office; or
(1A) outside the factory of the manufacturer of the final products for
generation of electricity for captive use within the factory; or
(2) for providing output service;
(B) 2(motor vehicle designed for transportation of goods including their
chassis registered in the name of the service provider, when used for(a) providing an output service of renting of such motor vehicle; or
(b) transportation of inputs & capital goods used for providing an output
service; or
(c) providing an output service of courier agency;)
(C) 2(motor vehicle designed to carry passengers including their chassis,
registered in the name of provider of service, when used for providing
output service of
(a) transportation of passengers; or
(b) renting of such motor vehicle; or
(c) imparting motor driving skills;)
(D) 1(Components, spares and accessories of motor vehicles which are
capital goods for the assessee)

CENVAT Credit Rules provides following conditions for availment of

credit on capital goods:
Sr.No. Rule
1.
4(2)(a)

Condition
Credit in respect of capital goods shall be allowed
only up to 50% of the duty paid on such capital
goods in the same financial year & the credit for
balance duty is allowed in the subsequent year if the
possession of the asset remains with service
provider or the manufacturer.
Provided entire CENVAT shall be allowed for capital
goods which is removed as such in the same
financial year
CENVAT of additional duty U/s.3(5) of Customs

1
2

Inserted Vide Notification No. 18/2012- CE(NT) w.e.f 1st April, 2012
Inserted Vide Notification No. 28/2012-CE(NT) w.e.f 1st July, 2012

R.J.Luthia & Associates, Chartered Accountants

Tariff Act shall be allowed immediately on receipt of

capital goods in the factory of manufacturer.
W.e.f 1st April, 2010 SSI units are eligible to take
CENVAT Credit of whole amount of duty paid on
capital goods in the same financial year subject to
certain
conditions
specified
in
the
notification.(Notification No.06/2010 CE(NT) dt.
27th February, 2010)(3rd Proviso)

2.

4(3)

3.

4(4)

4.

4(5)(a)

5.

4(5)(b)

6.

6(4)

7.

3(5)
3(5A)

W.e.f. 1st April,2012.CENVAT for capital goods is

allowed to the service provider when such CG are
delivered to service provider subject to maintenance
of documentary evidence of delivery and location of
CG.
CENVAT Credit on capital goods is also allowable even
if the capital goods are acquired on lease/hire
purchase/loan agreement from financing company
No CENVAT Credit on that part of value of capital
goods which represents the amount of duty on which
manufacturer/service
provider
has
claimed
depreciation U/s.32 of The Income Tax Act, 1961
CENVAT Credit also allowed on Inputs & CG partially
processed sent to job worker for further process or
manufacture etc. on maintenance or relevant records
thereto & Input/CG received back in factory within 180
days.
CENVAT Credit also allowed in respect of jigs, fixtures,
moulds and dies sent by manufacturer to a job worker
for manufacturing goods on his behalf.
The capital goods shall not be exclusively used for
purpose of manufacture of the exempted goods (other
than vide notification where exemption is granted
based upon value or quantity) or for providing
exempted services.
When inputs or CG on which CENVAT are taken are
removed as such from the factory of manufacturer or
premises of SP, the manufacturer is required to pay
an amount equal to credit availed except where :a. Such input or CG are removed outside the
premises of SP for providing output service.
b. such input are removed outside the factory as free
warranty
of
final
products(w.e.f.
1st
April,2011)
When Capital goods are removed after being used
as CG or scarp or waste, the manufacturer or

R.J.Luthia & Associates, Chartered Accountants

provider of output service to pay : an amount equal to the CENVAT Credit taken on
the said capital goods reduced by 2.5 per cent for
each quarter of a year or part thereof from the
date of taking the Cenvat Credit of the capital
goods which are removed; or

The amount of duty payable on transactional

value.
Whichever is higher.

In case CG are Computer & Computer

Peripherals, the manufacturer or provider of
output service to pay the percentage mention
here below or duty on transactional value
whichever is higher.
For
For
For
For

8.

3(5B)

each
each
each
each

quarter
quarter
quarter
quarter

in
in
in
in

the
the
the
the

first year @10%

second year @8%
third year @5%
fourth & fifth year @1%

(Notification No.18/2012-CE (NT) dated 17th

March,2012).
In case value of inputs/capital goods (before being put
to use) on which CENVAT taken is written off fully or
partially or provision to write off fully or partially
made in books, then manufacturer or service provider
to pay amount equivalent to CENVAT taken.
If such input/capital goods is subsequently used by
Mfg/SP, they shall be entitled to take the amount of
CENVAT paid earlier.

9.

Explanation. If Mfg/ SP fail to pay amount as

referred rule 3(5) / 3(5A) / 3(5B) in time, same shall
be recovered as per Rule 14 i.e. recovery of Cenvat
wrongly taken w.e.f. 1st March,2013. (Not. No.
3/2013- CE(N.T) dated 1st March,2013).

Rule 2(k)-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 the final product,
the value of which is included in the value of the final product and
goods used for providing free warranty for final products; or

R.J.Luthia & Associates, Chartered Accountants

(iii)all goods used for generation of electricity or steam for captive use; or
(iv) all goods used for providing any output service;
but excludes(A) light diesel oil, high speed diesel oil or motor spirit, commonly
known as petrol;
(B) 3any 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 the provision of service portion in the execution of
works contract or construction service as listed under clause
(b) of section 66E of the Act;
(C) capital goods except when used as parts or components in the
manufacture of a final product;
(D) motor vehicles;
(E) any goods, such as food items, goods used in a guesthouse,
residential colony, club or a recreation facility and clinical
establishment, when such goods are used primarily for personal
use or consumption of any employee; and
(F) any goods which have no relationship whatsoever with the
manufacture of a final product.
Explanation For the purpose of this clause, free warrant means a
warranty provided by the manufacturer, the value of which is
included in the price of the final product and is not charged
separately from the customer.

CENVAT Credit Rules provides following conditions for availment of

credit on inputs:

Sr.No. Rule Condition

1.
4(1) Credit on input may be taken immediately on receipt of
the input in the factory of manufacturer or premise of
output service provider or 4(delivered to provider of output
service subject to maintenance of documentary evidence of
delivery & location of inputs)
2.
6(1) Inputs should not be used for wholly exempted services or
goods.

3
4

Substituted vide Notification No. 28/2012-CE (NT) w.e.f 1st July, 2012
Inserted Vide Notification No. 18/2012-CE (NT) w.e.f 1st April, 2012

R.J.Luthia & Associates, Chartered Accountants

 Rule 2(l)-Input Service means any service, (i) Used by a provider of 5output service for providing an output service; or
(ii) Used by a manufacturer, whether directly or indirectly, in or in relation
to the 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 a factory, premises of provider of output service or an office
relating to such factory or premises, advertisement or sales promotion,
market research, storage upto the place of removal, procurement of
inputs, accounting, auditing, financing, recruitment and quality control,
coaching & 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 the execution of a works contract & construction
services including service listed under clause (b) of section 66E of The
Finance Act (hereinafter referred as specified services) in so far as they
are used for (a)

Construction or execution of works contract of a building or a civil

structure or a part thereof; or
(b) Laying of foundation or making of structures for support of capital
goods,
except for the provision of one or more of the specified services; or
(B)
(BA)

6(Services

provided by way of renting of motor vehicle, in so far as they

relate to a motor vehicle which is not a capital goods; or)
5(Service

of general insurance business, servicing, repair and

maintenance, in so far as they relate to a motor vehicle which is not a
capital goods, except when used by (a) A manufacturer of a motor vehicle in respect of a motor vehicle
manufactured by such person; or
(b) An insurance company in respect of a motor vehicle insured or
reinsured by such person; or)

(C) such as those provided in relation to outdoor catering, beauty

treatment, health services, cosmetic & plastic surgery, membership of a
club, health & 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.

5
6

Substituted for taxable service vide Notification No. 28/2012-CE (NT) w.e.f 1st July, 2012
Substituted vide Notification No. 28/2012-CE (NT) w.e.f 1st July, 2012

R.J.Luthia & Associates, Chartered Accountants

CENVAT Credit Rules provides following conditions for availment of

credit on input Services:

Sr.No. Rule Condition

1.
4(7) CENVAT Credit in respect of input service shall be allowed
on or after the day when invoice, bill or challan as the case
may be is received.
-Provided in case the liability of service tax is discharged
under reverse charge mechanism, CENVAT Credit in
respect of such input service is allowed on or after the day
on which payment for value of input service & service tax
thereon is made. (1st Proviso)
-Provided further that in case the payment for value of
input service & service tax thereon is not made within 3
months from the date of invoice/bill/challan, the
manufacturer/service provider to pay an amount equal to
CENVAT Credit availed on such input service.
Manufacturer/service provider is entitled to take such
CENVAT Credit on payment of value of input service &
service tax thereon. (2nd Proviso)
-Provided also that in case where any payment towards an
input service is refunded or credit note is received,
manufacturer/service provider to pay an amount equal to
the CENVAT Credit availed in respect of the amount
refunded/credited. Such amount to be paid on or before
due date for payment of excise duty/service tax. (3rd
Proviso)
-Provided also that CENVAT Credit in respect of input
services, for which invoice/bill/challan is issued before
01/04/2011, is allowed on or after the day on which
payment for value of input service & service tax thereon is
made. (4th Proviso)

2.

6(1)

Such amount is to be paid by manufacturer/service

provider on or before due date for payment of excise
duty/service tax. In case manufacturer/service provider
fails to pay such amount, the same is liable to be
recovered along with interest & penalty as provided in Rule
14. (Explanation 1)
Inputs Service should not be used for wholly exempted
services or goods.

Point at which CENVAT Credit is available-

R.J.Luthia & Associates, Chartered Accountants

For
input Payment of value of service and service tax thereon for the
service
invoice/bill issued before 1st April,2011
For the invoice issued after 1st April,2011, the date on
which the invoice/bills is received subject to conditions.
In case of liability to discharge service tax is under
reverse charge mechanism, the CENVAT credit shall be
allowed after the date of payment of value of service &
service tax thereon.
For
input Receipt of goods in the premises 7(deliver to provider of
goods
output service subject to maintenance of documentary
evidence of delivery & location of inputs)
Credit on input may be taken immediately on receipt of the
input in the factory of manufacturer or premise of output
service provider or 8(delivered to provider of output service
subject to maintenance of documentary evidence of delivery
& location of inputs)
For capital Receipt of goods in the premises 9(deliver to provider of
goods
output service subject to maintenance of documentary
evidence of delivery & location of Capital Goods)

Rule 2(d)-Exempted goods means a excisable goods which are exempt

from whole of the duty of excise leviable thereon, & includes goods which
are chargeable to NIL rate of duty goods in respect of which the benefit
of exemption under notification no.1/2011-CE dated 1st March, 2011 or
under entries at serial nos. 67 & 128 of notification no. 12/2012-CE
dated 17th March, 2012 is availed.

10(Rule

8(Rule

2(e)-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)
2(p)-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 the service tax is liable to be paid by the recipient
of service.)

Inserted Vide Notification No. 18/2012-CE (NT) w.e.f 1st April, 2012
Inserted Vide Notification No. 18/2012-CE (NT) w.e.f 1st April, 2012
9
Inserted Vide Notification No. 18/2012-CE (NT) w.e.f 1st April, 2012
10
Substituted Vide Notification No. 28/2012-CE (NT) w.e.f 1st July, 2012
8

R.J.Luthia & Associates, Chartered Accountants

INPUT SERVICE DISTRIBUTOR:

Rule 2(m)-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.

The input service distributor may distribute the CENVAT Credit in

respect of service tax paid on the input service to its manufacturing unit
or unit providing output service subject to following conditions namely
(Rule 7):
a. The credit distributed against a document referred to in Rule 9 does
not exceed the amount of service tax paid thereon.
b. Credit of service tax attributable to service used in a unit exclusively
engaged in manufacture of exempted goods or providing of exempted
services shall not be distributed.
c.

11(Credit

of service tax attributable to service used wholly in a unit

shall be distributed to that unit only); and

d.

12(Credit

of service tax attributable to service used in more than one

unit shall be distributed pro-rata on the basis of the turnover during
the relevant period of the concerned unit to the sum total turnover of
all the units to which the service relates during the same period.)

e. The relevant period shall be the month/quarter previous to the

month/quarter during the CENVAT credit is distributed
f. Total turnover shall be as determined in the manner prescribed in
Rule 5 of The CCR, 2004.
g. In case of assessee do not have any total turnover in the said period,
the ISD shall distribute credit only after the end of such period
wherein the total turnover of its unit is available.

Rule-3-Manufacturer/producer of final product or provider of

service shall be allowed to take credit of:

13(output)

a. Basic excise duty except duty paid on any good in respect of which
benefit of exemption under notification 1/2011-CE dated 1st March,
11

Inserted vide Notification No. 18/2012-CE (NT) w.e.f 1st April, 2012
Substituted vide Notification No. 28/2012-CE( NT) w.e.f 1st July, 2012
13
Substituted for taxable vide Notification No. 28/2012-ST w.e.f 1st July, 2012
12

R.J.Luthia & Associates, Chartered Accountants

10

2011 availed & duty paid on goods specified under serial nos. 67 &
128 of notification no. 12/2012-CE dated 17th March, 2012 availed.
b. Special excise duty
c. Additional duty on textile and textile articles
d. Additional duty on goods of special importance
e. National calamity contingent duty
f. Education cess on excisable goods
g. Secondary & Higher Education cess on excisable goods
h. Additional duty U/s. 3 of the Customs Tariff Act, 1975 (CVD)
i. Additional duty leviable U/s.3(5) of Customs Tariff Act,197514
j. Additional duty of excise of tea
k. Service tax paid U/s 66 & 66A of the Finance Act, 1994
l. 15Service tax paid U/s 66B of The Finance Act, 1994
m. Education cess on service tax
n. Secondary & Higher Education cess on service tax
o. Additional duty of excise on pan masala & tobacco products
Paid on;
i) any input or capital goods received in the factory of manufacturer of
final product or premises of the provider of the output service on or
after 10th September,2004.
ii) any input service received by the manufacturer of final product or by
the provider of output services on or after 10th September,2004
including the said duties or tax or cess paid on any input or input service
as the case may be used in the manufacture of intermediate products by
a job worker availing the benefit of exemption specified in the notification
of the Government of India in Ministry of Finance No.214/86/CE dated
25th March,1986 published in the Gazette of India.

CENVAT Credit can be utilized for payment of (Rule 3(4));

a. Any excise duty on final product;
b. CENVAT Credit taken on input if such inputs are removed as such;
c. CENVAT Credit taken on capital goods if such capital goods are
removed as such;
d. Amount under Rule 16(2) of the Central Excise Rules, 2002. (payment
of CENVAT on account of sales return)
e. Service Tax on any output service.
Provided that while paying duty/tax, the CENVAT Credit shall be utilized
only to the extent of such credit available on the last day of month or
quarter as the case may be for payment of duty/tax relating to the month
or quarter.

14
15

Provider of output service shall not be eligible to take credit of such additional duty.
Inserted Vide Notification No. 28/2012-CE(NT) w.e.f 1st July, 2012

R.J.Luthia & Associates, Chartered Accountants

11

Provided CENVAT credit shall not be utilized for payment of duty on

goods for which exemption under notification no.1/2011-CE is availed.
(Goods on which 1% duty is levied)
Explanation-CENVAT credit cannot be used for payment of service tax in
respect of services where the person liable to pay tax is the service
recipient.
Proviso to Rule 3(7)(b)
Nature of
Can be utilized against liability of
CENVAT
Excise Service EC on Excise SHE Cess Int/Penalty
Credit
Duty
Tax
Duty/Service on Excise
Tax
Duty/
Service
Tax
Excise

Duty
Service

Tax
EC
on
Excise

Duty/Serv
ice Tax
SHEC on
Excise

Duty/Serv
ice Tax

Refund of CENVAT (Rule 5):

The manufacturer who clears final/intermediate product for export
without payment of a duty under bond or undertaking which is cleared for
export or provider of output service which is exported without payment of
Service Tax shall be allowed refund of CENVAT Credit as determined by
the formula.
Refund amount =
(Export Turnover of goods + Export Turnover of Service) * NET CENVAT
Total turnover
The procedure & conditions for filing refund claim are prescribed U/n.
27/2012-CX (NT) dated 20th June, 2012
Refund claim is required to be filed within a period of 1 year.
No refund shall be allowed if claim for drawback under customs & CE
Duty Drawback Rules, 1995 is allowed.

R.J.Luthia & Associates, Chartered Accountants

12

 The term, NET CENVAT Credit, Export Turnover of Goods, Export

Turnover of Services, Total Turnover, Relevant Period & such
other relevant terms are defined in the rules.

Refund of CENVAT to service provider providing services taxed on

reverse charge basis (Rule 5B):
A provider of service providing services notified U/s. 68(2) & being unable
to utilize the CENVAT credit availed on Inputs & Input Services for
payment of service tax on such output services, shall be allowed refund
of such unutilized CENVAT credit subject to procedure, safeguard,
conditions & limitation as may be specified.

Transfer of CENVAT Credit (Rule 10):

In case of shift of factory or transfer on account of change of ownership
or merger or amalgamation etc., the manufacturer/service provider shall
be allowed to transfer unutilized CENVAT Credit lying in his account to
such new account after transfer. The transfer of CENVAT is allowed only
if stock of inputs/WIP is also transferred along with factory or ownership
& input/capital goods on which credit is availed are duly accounted for
to the satisfaction of AC/DC

Obligations, Records & Accounts (Rule 6):

a. Rule 6(1)- provides that the CENVAT credit shall not be allowed on
such quantity of input or input services which is used in manufacture
of exempted goods or for provision of exempted service except in the
circumstances mentioned in Rule 6(2).
b. Rule 6(2)a manufacturer/provider of output service availing
CENVAT Credit manufactures/provide dutiable & exempted goods or
services, then such person shall maintain separate account of receipt,
consumption and inventory of input/input service meant for use in
manufacturing dutiable goods and providing output service. In such
case, CENVAT credit of duty/tax shall be allowed only on that
input/input service which is used for manufacturing dutiable
goods/providing taxable output service.
c. Rule 6(3)- manufacturer of dutiable as well as exempted goods or
provider of output service as well as exempted service opts not to
maintain separate account as per rule 6(2), shall follow any one of the
following options:
(i) Pay an amount equal to
exempted service; or

16

166%

of value of exempted goods and

Substituted Vide notification No. 18/2012-CE(NT) w.e.f 1st April, 2012 for the words 5%

R.J.Luthia & Associates, Chartered Accountants

13

(if any excise duty is paid on exempted goods, the same shall be
reduced from amount payable)
(If any abatement in respect of taxable services is granted with a
condition for non availment of CENVAT Credit, the amount to be paid
shall be 6% of the value so exempted.)
(In case of transport of goods/passenger by rail, the amount to be
paid shall be 2% of the value so exempted.)
(ii) Pay an amount as determined under Rule 6(3A); or
(iii)Maintain separate accounts for receipt, consumption & inventory
of inputs as provided in Rule 6(2)(a), take CENVAT only on inputs
used in or in relation to manufacture of dutiable goods or for
provision of output services and pay an amount as determined
under Rule 6(3A) in respect of input services. Consequently, the
provisions of Rule 6(3A)(b)(i) & (ii) & Rule 6(3A)(c)(i) & (ii) in respect
of inputs shall not apply to such payment.
Any option U/r 6(3) exercised by manufacturer/service provider, shall
not withdraw the same during the remaining part of the financial
year.
d. Rule 6(3A)(a) of the CENVAT Credit Rules, 2004 provides that while
exercising the option of proportionate reversal, the provider of output
service/mfg of dutiable goods shall intimate in writing to the
superintendent of CE giving the following particulars namely:
(i) name, address and registration No. of the manufacturer of goods or
provider of output service;
(ii) date from which the option under this clause is exercised or
proposed to be exercised;
(iii)description of dutiable goods or taxable services;
(iv) description of exempted goods or exempted services;
(v) CENVAT credit of inputs and input services lying in balance as on
the date of exercising the option under this condition;
e. Rule 6(3A)(b) & (c) of the CENVAT Credit Rules, 2004 provides the
mechanism for determining the amount equivalent to CENVAT Credit
attributable to inputs/input service used in relation to provision of
exempted services.
f. Rule 6(3A)(d), (e) & (f) of the CENVAT Credit Rules, 2004 provides
that:

The short paid amount arising due to the reversal mechanism

provided under Rule 6(3A) (b) & (c) to be paid on or before 30th
June of the succeeding financial year. (Rule 6(3A)(d)

R.J.Luthia & Associates, Chartered Accountants

14

The interest rate for payment of short paid amount after 30th June
is 24% per annum. (Rule 6(3A)(e)
The excess amount arising due to the reversal mechanism
provided under Rule 6(3A) (b) & (c) to be adjusted suo motu by his
own, by taking credit of such amount. (Rule 6(3A)(f)

g. Service provider shall intimate to the jurisdictional superintendent of

Central Excise, within a period of 15 days from the date of payment as
per under (Rule 6(3A)(d) or adjustment of the excess payment in the
CENVAT credit (Rule 6(3A)(f), the following particulars namely:
Month wise detail of CENVAT Credit attributable to exempted
goods & exempted services for the financial year calculated
provisionally on the basis of turnover of the preceding financial
year. (Provisional reversal)
Month wise detail of CENVAT Credit attributable to exempted
goods & exempted services for the financial year calculated on the
basis on the turnover of the current financial year. (Final reversal)
Amount short paid determined along with the date of payment of
such amount or excess amount to be taken back as credit.
Amount of interest payable, if Any
Credit taken on account of excess payment (Rule 6(3A)(g)
h. Where the amount of CENVAT attributable to exempted
goods/services cannot be determined due to no dutiable goods
manufactured/no taxable services provided in preceding year, the
manufacturer/service provider is not required to do the reversal
exercise every month but should do at the end of the financial year &
pay the amount before 30th June of succeeding year. (Rule 6(3A)(h)
i. Rule 6(3B) provides that a banking company & a financial institution
including NBFC engaged in providing services by way of extending
deposits, loans or advances to pay an amount equal to 50% of
CENVAT credit availed on inputs & input services every month.
j. Rule 6(3D) provides that in cases where any abatement in respect of
taxable services is granted with a condition for non availment of
CENVAT Credit on input and input services, payment of amount
under Rule 6(3) shall be deemed to be CENVAT Credit not taken for
the purpose of exemption notification.
k. Explanation I to rule 6 provides that in case of taxable services
where option to pay tax is availed under composition scheme under :

Rule 6(7) (i.e. Air Travel Agents);

Rule 6(7A) (i.e Insurer carrying LIC business)
6(7B) (i.e. forex brokers & money changers);
6(7C) (i.e. distributors of lotteries); or

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15

the value for the purposes of Rule 6(3) & Rule 6(3A) shall be the value
on which the rate of service tax when applied for calculation results in
the same amount of tax as calculated under the option availed.
l. As per explanation I to Rule 6, the value for the purposes of Rule 6(3)
& Rule 6(3A) shall be the difference between the sale price & the cost
of goods sold (determined as per the generally accepted accounting
principles without including expenses incurred towards their
purchases) or 10% of cost of goods sold, whichever is more.
m. 17In case of trading of securities, value shall be difference sale price &
purchase price of the securities traded or 1% of the purchase price,
whichever it more.
n. Value shall not include value of service by way of extending deposits,
loans or advances if the consideration is represented by way of
interest or discount.
o. Rule 6(4) of the CENVAT Credit Rules, 2004 provides that the capital
goods shall not be exclusively used for purpose of manufacture of
the exempted goods (other than vide notification where exemption is
granted based upon value or quantity)
p. The Provision of Rule 6(1) to (4) shall not be applicable in case the
excisable goods removed without payment of duty are either:
(i)

cleared to a unit in a special economic zone or to a developer of a

special economic zone for their authorized operations; or

(ii)

cleared to a hundred per cent. export-oriented undertaking; or

(iii) cleared to a unit in an Electronic Hardware Technology Park or

Software Technology Park; or
(iv) supplied to the United Nations or an international organization
for their official use or supplied to projects funded by them, on
which exemption of duty is available under notification of the
Government of India in the Ministry of Finance (Department of
Revenue) No. 108/95-Central Excise, dated the 28th August,
1995, number G.S.R. 602 (E), dated the 28th August, 1995; or
(iva)supplied for the use of foreign diplomatic missions or consular
missions or career consular offices or diplomatic agents in terms
of the provisions of notification No. 12/2012-Central Excise dated
the 17th March, 2012; or
(v)

17

cleared for export under bond in terms of the provisions of the

Central Excise Rules, 2002; or

Inserted Vide Notification No.28/2012-CE (NT) dated 1st July, 2012

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(vi) gold or silver falling within Chapter 71 of the said First Schedule,
arising in the course of manufacture of copper or zinc by smelting;
or
(vii) all goods which are exempt from the duties of customs leviable
under the First Schedule to the Customs Tariff Act, 1975 (51 of
1975) and the additional duty leviable under sub-section (1) of
section 3 of the said Customs Tariff Act when imported into India
and are supplied,
(a)

against International Competitive Bidding; or

(b) to a power project from which power supply has been tied up
through tariff based competitive bidding; or
(c) to a power project awarded to a developer through tariff
based competitive bidding,
in terms of notification No. 12/2012-Central Excise, dated the
17th March, 2012; or
(viii) Supplies made for setting up of solar power generation projects or
facilities. (Rule 6(6))
q. Rule 6(7) - whereby provision of Rule 6(1) to Rule 6(4) are not
applicable in case the taxable services are provided without payment
of service tax to a developer/unit of SEZ for their authorised
operations or when a service is exported.
r. Rule 6(8) for the purpose of Rule 6, a service shall not be treated as
exempted service when : The service satisfies the conditions specified under Rule 6A of the
Service Tax Rules, 1994 & the payment for the service is to be
received in convertible foreign currency; and

Such payments has not been received for a period of six months or
such extended period as may be allowed by RBI, from the date of
provision.

Documents & Accounts: (Rule 9)

a. CENVAT shall be allowed to manufacturer/Service Provider/ISD on
the basis of following :i.
Invoice
issued
by
manufacturer/importer/first
stage
dealer/second stage dealer.
ii.
Supplementary invoice issued by manufacturer/importer of
input or capital goods in terms of provision of central excise
rules, 2002 in case of additional amount of excise, except when
such amount become recoverable from such manufacturer or
importer on account of short levy/non levy on account of fraud,
collusion, suppression, willful misstatement or any other
contravention of any provisions with intent to evade tax.

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17

iii.

iv.
v.
vi.
vii.
viii.

Supplementary invoice issued by provider of output service

except when such amount become recoverable from such service
provider on account of short levy/non levy on account of fraud,
collusion, suppression, willful misstatement or any other
contravention of any provisions with intent to evade tax.
Bill of Entry
Certificate issued by appraisal of customs in respect of imported
goods through foreign post office.
A challan evidencing payment of service tax by a service
recipient.
An invoice/bill/challan issued by service provider.
An invoice/bill/challan issued by ISD.

b. The invoices/Bill/challan should contain all the details prescribed

under CER, 2002 & STR, 1994. In absence of all such details, AC/DC
as the case may be, may allow the CENVAT credit after being
satisfied.

Returns:
a. Manufacturer to file monthly return within 10 days from the end of
the month. However, if manufacturer is availing exemption under
notification based on value/quantity of clearance in a financial year,
he shall file quarterly return. (Rule 9(7))
b. Service provider to file half yearly return in Form ST-3 within one
month of the end of half year (Rule 9(9)).
c. Input service distributor to file half yearly return18 Form ST-3 within
one month of the end of half year (Rule 9(10)).
d. Revised return to be filed within 60 days from the date of submission
of original return (Rule 9(11)).

Recovery of CENVAT
refunded(Rule 14):

Credit

wrongly

taken

or

erroneously

19Rule

14 amended w.e.f 17th March, 2012, whereby the

manufacturer/service provider to pay interest only when the CENVAT
credit has been taken and utilized wrongly or has been erroneously
refunded.
CBEC vide Circular No. 897/17/2009-CX dated 3rd September,2009
has clarified that interest is recoverable when credit has been wrongly
taken, even if it has not be utilized, in terms of Rule 14 of the CENVAT
Credit Rules, 2004 which is clear and unambiguous. It further clarified
18
19

Notification No.28/2005-CE (NT) dated 7th June,2005 w.e.f. 16th June, 2005
Inserted Vide Notification No. 18/2012-CE(NT) w.e.f 17th March, 2012

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18

that the decision of Honble P & H High Court in the case of CCE,
Delhi II Vs. Maruti Udyog Ltd. (2007) 214 ELT 173 (wherein it was
held that assessee is not liable to pay interest in the cases where credit
was only taken and not utilized) was delivered in the context of erstwhile
Rule 57I of the Central Excise Rules, 1994. The Honble SC has
dismissed the SLP filed by the revenue against the above decision. The
order of SC under reference was only a decision & not a judgment.

Honble P & H High Court in the case of Ind-Swift Laboratories Ltd.

Vs. UOI (2009) 240 ELT 328 held that CENVAT credit is benefit of
duties levied or paid. Interest liability arises when duty not levied or paid
or delays in payment of duties. Question of payment of interest does not
arise on amount of CENVAT credit availed but not utilized. Interest can
not be claimed simply for taking credit wrongly as availment by itself
does not create any duty liability in view of Section 11AB of CE Act, 1944
read with Rule 14 of the CCR, 2004... However said decision is

reversed by Apex Court

Honble Supreme Court in the case of UOI Vs Ind-Swift

Laboratories Ltd (2011) TIOL 21 SC-CX has held that the interest
is payable from date of taking Credit & not from the date when the
CENVAT credit is utilized. Rule 14 of CCR, 2004 provides that
where CENVAT credit has been taken OR utilized wrongly OR has
been erroneously refunded, the same along with interest would be
recovered from the manufacturer or the provider of the output service.
On the happening of any of the three aforesaid circumstances such
credit becomes recoverable along with interest from the date of availment
of CENVAT Credit.
Honble Karnataka High Court in the case of CST Vs. Bill Forge Pvt
Ltd 2011 (TIOL) 799 held that credit of excise duty in the register
maintained for the said purpose is only book entry. Before utilization of
such credit, the entry has been reversed, it amounts to not taking of
credit. Interest is compensatory in character, and is imposed on an
assessee, who has withheld payment of any tax, as and when it is due
and payable. Interest U/s 14 not payable if credit reversed before
utilization of CENVAT credit.

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19

Penalties (Rule 15 of the CENVAT Credit Rules,2005 substituted vide

Notification No.06/2010- CE(NT) dt. 27th February, 2010):
Particulars of
contravention
Availment or Utilization of
CENVAT Credit wrongly or
in contravention of any
provisions
Wrong
availment/
utilization
of CENVAT
Credit
due
to
fraud,
collusion,
willful
misstatement, suppression
or contravention of any
provision of CE, Act with
intent to evade payment
of duty
Wrong
availment/
utilization
of
CENVAT
Credit
due
to
fraud,
collusion,
willful
misstatement, suppression
or contravention of any
provision of Finance Act,
with
intent
to
evade
payment of tax
General
PenaltiesFor
contravention
of
any
provisions of CCR,2004 for
which
no
penalty
is
provided

In respect of

Penalty

Input goods/ Goods

liable
for
capital goods/ confiscation & Penalty not
Input Services exceeding the amount of
duty/tax or Rs.2,000/whichever is higher.
Input goods/ Over and above the
capital goods/ penalty stated in item
Input Services no.1,
the
penalty
U/s.11AC of The Central
Excise Act, 1944 shall be
levied i.e. 100% of the
duty sought to be evaded
by the manufacturer.
Input goods/
capital
goods/Input
Services

R.J.Luthia & Associates, Chartered Accountants

Over and above the

penalty stated in item
no.1, the penalty U/s.78
of The Finance Act, 1994
shall be levied i.e. 100%
of the service tax sought
to be evaded by the
service provider.
Upto Rs 5,000/-

20

Issues

Furnishing of new office.whether amounting to renovation.

Repairing of AC, Computer, furnitureetc of office are works

contract..

Goods used for works contract are eligible as input.when only service
portion is taxable.and valuation rules saysCenvat credit on input
services & capital goods will be available.

Exempted services..on condition of no Cenvat on inputs and input

services..eg. ofrestaurants

Input service.payment in advance?????

Cenvat can not be utlised for payment u/r 3(5A)????

R.J.Luthia & Associates, Chartered Accountants

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