Escolar Documentos
Profissional Documentos
Cultura Documentos
CA Naresh Sheth
1. Preamble:
Excise Duty and Service Tax are Central Government levy. Both are
destination based consumption tax, incidence of which is passed on to
ultimate consumers. These are major indirect taxes which operate on value
added scheme of taxation (VAT system).
Under VAT system, each person
in transaction chain is taxed on the value addition done by him. The concept
of taxing value addition is achieved by granting credit of input tax or duties to
manufacturer / service provider through Cenvat Credit Scheme. This scheme
integrates Central Government indirect taxes viz. Excise Duty and Service
Tax. The Cenvat credit scheme operates through Cenvat Credit Rules, 2004
(hereinafter refereed to as CCR).
This article deals with current provisions only. For the sake of brevity, scope
of article is restricted to substantive provisions of Cenvat Credit Rules, 2004.
Article does not deal with provisions pertaining to procedures, penalty and
interest. The purpose of this article is to elucidate basic concepts relating to
CCR in simple and lucid manner and hence author has refrained from
reproduction of sections, rules and clauses etc in this article.
2. Historical back ground:
2.1. Manufacturers:
Period
Relevant
Scheme / Rules
01.03.1986 to Modvat Scheme
28.02.1994
01.03.1994 to Modvat Scheme
09.09.2004
10.09.2004
onwards
Page 1 of 38
Cenvat Credit
Rules, 2004
Assessees entitlement
Credit for duties paid on inputs
only.
Credit for duties paid on inputs.
Credit for duties paid on capital
goods.
Credit for duties paid on inputs.
Credit for duties paid on capital
goods.
Credit for service tax on input
services.
Relevant
Scheme /
Rules
01.07.1994 to ---15.08.2002
16.08.2002 to Service Tax
14.05.2003
Credit Rules, 02
15.05.2003 to Service Tax
09.09.2004
Credit Rules, 02
10.09.2004
onwards
Cenvat Credit
Rules, 2004
Assessees entitlement
No credit for input service tax.
Credit for service tax paid on
input services falling in same
category.
Credit for service tax paid on all
input services used for providing
out put services.
Credit for duties paid on all input
goods.
Credit for duties paid on capital
goods.
Credit for service tax paid on all
input services.
Page 2 of 38
Total Cost
Remark
Excise rate
8.24%
Service tax
10.30%
1,00,000
8,240
1,08,240
50,000
5,150
55,150
25,000
---
25,000
Profit markup
Total
Excise duty on finished goods
Sales price
20,000
1,95,000
16,068
2,11,068
2,11,068
13,390
17,171
30,561
20,000
2,08,390
17,171
2,25,561
(13,390)
(13,390)
(1,103)
(1,103)
16,068
@ 8.24%
Pre-Cenvat
price
2,11,068
Assessee is entitled to avail tax / duty credit on inputs, capital goods and
input services used for providing taxable services or manufacture of
dutiable goods.
Page 3 of 38
Utilization means use of Cenvat credit balance for payment of out put tax
such as excise duty, service tax, education cess etc.
Output tax liability can be discharged from accumulated Cenvat. There is
no difference between physical cash payment and payment from Cenvat
account.
Utilization can be visualized as debit entry in self-maintained pass book.
Input
Capital goods
Input services
Above terms are specifically defined in CCR and it has specific meanings.
Same are dealt at length in later part of this article.
8. Persons eligible for Cenvat Credit:
Following persons are eligible for Cenvat Credit under Rule 3(1) of CCR:
Term final product is defined under Rule 2(h) of CCR to mean excisable
goods manufactured or produced from inputs or using input services. Thus
the person engaged in the manufacturing activity as defined under Section
2(f) of Excise Act, 1944 can be treated as manufacturer of final products.
Section 65(105) of Finance Act, 1994 lists out the taxable services. The
provider of any of such services [except GTA service covered under Section
65(105)(zzp)] is a provider of taxable service.
Above referred persons are entitled to Cenvat credit provided their activities
are not exempt under excise or service tax legislation.
Page 4 of 38
under
Notification
Page 5 of 38
Tour Operators
Outdoor Catering
Commercial or Industrial
Construction Service
Job workers for
manufacture of cycle,
cycle rikshaw, hand
operated
sewing
machine.
Rent-a-Cab Services
Pandal & Shamiana
Services
Construction of Complex
Services provided in
relation to Chit (Notification
No. 27/2008-ST dated
27.05.2008
Page 6 of 38
Excise duty under 1st and 2nd Schedule to Excise Tariff Act.
Service tax leviable U/s 66 of Finance Act 1994 (Refer Para 11.3).
Excise duty under 1st and 2nd Schedule to Excise Tariff Act.
11.3. Service tax leviable U/s. 66 of Finance Act should include the
following:
Page 7 of 38
12.3. Assessee (through inadvertence) may not avail Cenvat credit in time
or claim it at later point of time. Department has clarified that
assessee should claim Cenvat at earliest opportunity. This does not
mean that benefit of Cenvat could be denied to assessee in case
where such availment is delayed. Excise manual treats period of one
year as a reasonable period for claiming Cenvat credit. There is
plethora of judgments which held the period exceeding one year also
to be reasonable period for Cenvat availment. Honorable Supreme
Court in the case of Formica India Division Vs CCE (1995) 77 ELT
511 (SC) explains underlying principle in this regard. Honorable
Allahabad High Court, in case of CCE Vs Ram Swarup Electrical Ltd
2007 TIOL 640 held that there is no time limit for assessee to avail
MODVAT as the MODVAT (Cenvat) claim is indefeasible.
12.4. Provisions of law may be different at the time of availment and
utilization. It is fairly settled legal position that law applicable at point
of availment is relevant and not law applicable at point of utilization.
This view is fortified by Honorable Supreme Court in case of Grasim
Industries Ltd Vs CCE 179 ELT A38.
Page 8 of 38
Bill of entry
13.2. Invoice, bill or challan should contain all the particulars prescribed
under Central Excise Rules, 2002 or Service Tax Rules, 1994 as the
case may be (Rule 9 (2) of CCR).
In absence of prescribed
particulars, Cenvat Credit can be denied. Deputy Commissioner of
Central Excise or Assistant Commissioner of Central Excise may
allow Cenvat credit on the basis of deficient document provided he is
satisfied that the goods or services covered by the document is
received and accounted for in books of account of the assessee
(Proviso to Rule 9 (2) of CCR).
13.3. It is fairly settled law that assessee should not be deprived of benefits
of Cenvat Scheme for procedural lapse or defects. Cenvat credit can
not be denied to assessee complying with substantive provisions /
rules of CCR. In absence of malafide intention on the part of
assessee, procedural infractions / lapses may be condoned. The
assessee may rely on following judicial precedence in support of his
contention:
Page 10 of 38
14.2. Cenvat credit availed in respect of Excise duty, Service tax, CVD etc
become integral part of Cenvat credit pool / common kitty available
for utilization. Once credit for any tax / duty is properly availed, its
individual character / identity is lost except for education cess and
higher education cess. Thus Cenvat credit built up out of Excise
duty, CVD, Additional duty etc on input / capital goods can be utilized
for payment of service tax and vice-a-versa.
14.3. Cenvat credit built up out of education cess can be utilized only for
payment of education cess on excise duty and service tax . It can not
be utilized for the payment of excise duty, service tax and secondary
higher education cess.
- Proviso to Rule 3(7)(b) of CCR.
14.4. Cenvat credit built up out of secondary higher education cess can be
utilized only for payment of secondary Education cess on excise duty
and service tax . It can not be utilized for the payment of excise duty,
service tax and education cess.
- Proviso to Rule 3(7)(b) of CCR.
14.5. It is not necessary to have one to one co-relation or nexus between
activities on which input tax credit availed and activities on which
output tax paid. In case of service provider providing taxable
services falling under different categories is entitled to utilize Cenvat
balance built up out of input services pertaining to one category for
discharging output tax liability of other service category. For example
a person rendering architect services and interior decorator services
Page 11 of 38
15.5. Rule 5 of CCR read with Notification No. 5/2006-CE (NT) dated
14.03.2006 permits manufacturer exporter of the goods and / or
services exporter to claim refund of accumulated Cenvat balance in
case where such assessee is not in a position to utilize the Cenvat
balance for payment of excise duty on domestic clearance of goods
or for payment of service tax on provision of local services. The
grant of refund is subject to compliance of conditions and procedures
prescribed in above referred notification and Rule.
15.6. Cenvat scheme is ongoing adjustment scheme. Cenvat Credit Rules
do not contain any specific provisions allowing refund of accumulated
Cenvat balance in cash. Generally assessee is not entitled to refund
of balance in cash except in case of exporters as stated in preceding
Para. However judiciary in some cases has taken a radical view that
in absence of specific provisions denying refund of accumulated
Cenvat balance in cash, such refund is permissible in special
circumstances. Following judicial pronouncements are worth noting
in this regard:
Page 12 of 38
CCE Vs Nag Polypouches (P.) Ltd (2007) 8 STR 223 (Tri. Del)
Particulars
Availed Utilized
Remarks
3750
2,000
7,250 As above.
1,000
8,250 As above.
5,000
1,350
2,000
Page 13 of 38
Balance
10,000
4,600
17. Inputs
17.1. Manufacture / service provider is entitled to Cenvat credit of following
duties / taxes paid on inputs :
Excise duty.
Countervailing custom duty on imports in lieu of Excise duty.
Additional duty of customs in lieu of VAT (only for manufacturer).
Education cess on excise duty.
Secondary and higher education cess on excise duty.
Greases
Cutting oils
Coolants
Accessories cleared
along with the final
products
Goods used for
generation
of
electricity
Paint
Packing
material
Fuel
Goods used
for generation
of Steam
Page 14 of 38
o Cement, angles, channels, CTD bar, TMT bar and other items
used for construction of factory shed, building or laying
foundation or making of structure for support of capital goods.
For the purpose of CCR, the motor vehicle is not capital goods.
Unlike service provider, the definition of input does not
specifically exclude motor vehicle for manufacturer. A view can,
therefore, be taken that motor vehicle is an input for the
manufacturer. If manufacturer uses vehicle within factory
premises, he may be eligible for Cenvat in this regard.
Page 15 of 38
It would mean all goods used for providing any output service.
Page 16 of 38
17.6. If inputs on which Cenvat credit has been taken are removed as such
from the factory / premises, the manufacturer / service provider shall
pay an amount equal to Cenvat credit availed in respect of such
inputs [Rule 3(5) of CCR].
17.7. If the value of inputs, before being put to use, is written off fully or
provision is made in the books of account to write off fully, the
assessee is required to pay an amount equal to Cenvat credit taken
in respect of such inputs. However if said inputs are subsequently
used, assessee can reclaim the Cenvat credit [Rule 3(5B) of CCR].
18. Capital Goods
18.1. Manufacture / service provider is entitled to Cenvat credit of following
duties / taxes paid on capital goods :
Excise duty.
Countervailing custom duty on imports in lieu of Excise duty.
All goods falling under Chapter 82, Chapter 84, Chapter 85,
Chapter 90, 2[heading 6805, grinding wheels and the like, and
parts thereof falling under heading 6804] of the First Schedule to
the Excise Tariff Act;
Page 17 of 38
18.5. Dumpers and tippers falling under Chapter 87 are eligible capital
goods for service providers providing Site Formation Services and /
or Mining Services. Such service providers are eligible for Cenvat
credit in respect of dumper / tipper provided it is registered in their
name. Other service providers or manufacturers are not eligible for
such Cenvat credit [Rule 2(a)(C) of CCR].
18.6. Motor vehicle is capital goods for following specified service
providers:
Courier agencies Tour
Operator
Goods Transport Outdoor
Agency
Caterer
Rent-a-Cab
Operator
Pandal /
Shamiana
Cargo
Handling
Agency
Page 18 of 38
Page 19 of 38
18.13. Old, used or second hand capital goods are eligible for Cenvat
provided same is cleared on payment of duty.
18.14. Cenvat credit can be availed on capital goods acquired on lease, hire
purchase or under loan agreement from finance company.
Ownership is not mandatory for availing Cenvat credit [Rule 4(3)
CCR]. This proposition was upheld by judiciary in following cases:
Page 20 of 38
Depreciatio Depreciation
@ 5%
n
@ 15%
10,00,00
10,00,000
1,03,000
0
11,03,00
0
1,65,45
0
NIL
11,03,000
55,150
47,850
1,03,000
(Actual Excise Duty)
However it is
18.18. If capital goods on which Cenvat credit has been taken are removed
as such from the factory / premises, the manufacturer / service
provider is obliged to pay an amount equal to Cenvat credit availed in
respect of such capital goods [Rule 3(5) of CCR].
18.19. If capital goods (other than computer and computer peripherals) on
which Cenvat credit is claimed are removed after use, the
manufacturer / service provider is liable to pay an amount equal to
Cenvat credit taken as reduced by 2.5% for each quarter of a year
from the date of taking Cenvat credit [Proviso to Rule 3(5) of CCR].
18.20. If computer and computer peripherals on which Cenvat credit is
claimed are removed after use, the manufacturer / service provider is
liable to pay an amount equal to Cenvat credit taken as reduced by
following percentage for each quarter of a year from the date of
taking Cenvat credit:
Page 22 of 38
Market research
Procurement of inputs
Accounting
Auditing
Financing
Recruitment and quality control
Coaching and training
Computer networking
Credit rating
Share registry
Security
Inward transportation of inputs or capital goods
Outward transportation up to the place of removal
Page 23 of 38
Input tax credit can be claimed for all services having direct or
indirect nexus with business of manufacturer / service provider.
Page 24 of 38
Page 25 of 38
Allowability Upheld
Indian Rayon Industries [2006TIOL-1152-CESTAT-MUM]
Circular No.97/8/2007 dt.
23.08.07.
CCE Vs Beekay Engg. &
Casting Ltd. 2009-TIOL-1376CESTAT-Del
ITC Ltd. Vs CCE, Salem 2009TIOL -439-CESTAT-MAD.
CCE Vs Adani Pharma Chem
Pvt. Ltd. 2008-12-STR-593
(Ahm. Tri.)
GTC Industries 2008-TIOL1634-CESTAT-MUM (LB)
Force Motors Ltd Vs CCE
(2009) 13 STR 692 (Mum-Tri.)
Finolex Cables Ltd Vs CCE
2009-14-STR-303 (Mum-Tri.)
C.J. Galetine Products Vs CCE
7 STR 558 (Del-Tri.)
Victor Gaskets Ltd. 2008-10STR-369 (Mum.-Tri.)
ITC Ltd. Vs CCE (2009) 22 STT
282 (CESTAT Bangalore)
CCE Vs GTC Industries Ltd.
2008 (12) -STR-468 (Mum. Tri.
LB) / CCE, Nagpur Vs Ultratech
Cement Ltd [2010-TIOL-745HC-MUM-ST]
Millipore India Ltd. Vs CCE
(2009) 13 STR 616 (Bangalore Tri.)
CCE Vs Cable Corpn. Of India
Ltd. 2008 (12) STR 468 (Bom.Tri.-LB)
Stanzen Toyotetsu India (P) Ltd
Vs CCE (2009) 21 STT 321
(CESTAT Bangalore)
CCE Vs Rolex Rings (P.) Ltd. (2008) 16 STT 193 (CESTAT Ahmedabad).
Page 26 of 38
20.
Gist
Options:
- Avail full Cenvat credit and pay amount at
specified rate on value of exempt stream;
Or
Page 27 of 38
Page 28 of 38
Architect
Interior Decorator
Security Agency
Banking and
financial
services
Erection,
Commissioning and
Installation Services
Foreign Exchange
Broker Services
Intellectual Property
Rights Services
Technical Inspection or
Certification Services
Commercial or
Industrial Construction
Services
Option I
Manufacturer
of dutiable
and exempt
products
Service
provider
providing
taxable and
exempt
services
Option II
To avail full Cenvat credit
and pay / reverse an amount
equal to Cenvat credit
attributable to inputs / input
services used for
manufacture of exempt
goods as per formula given
in Rule 6(3A).
To avail full Cenvat credit
and pay / reverse an amount
equal to Cenvat credit
attributable to inputs / input
services used for providing
exempted services as per
formula given in Rule 6(3A).
Page 29 of 38
Output
Service tax Input
Inputs
services payable
services service tax
availed
60,00
6,18
90,00
9,270
040,00
0
Nil
0
Tot
1,00,00
6,18
al
0
Option I Payment of 6% on exempt services0
0
90,00
0
9,270
6,180
2,472
8,652
9,270
(618)
6,180
9,27
03,70
8
5,562
618
1,236
Output
Service tax Input
Inputs
services payable
services service tax
availed
60,00
6,18
5,00
515
040,00
0
Nil
0
Tot
1,00,00
6,18
0
al
Option I Payment of 6% on exempt services0
05,00
0
515
6,180
2,472
9,270
515
8,755
Page 30 of 38
6,180
51
520
6
309
5,871
2,884
Page 31 of 38
Rule 6(3A) applies only to inputs and input services, It does not
apply to capital goods. Reversal of Cenvat on capital goods is not
required.
21.2
21.3
21.4
Page 32 of 38
21.5
Cash
Debit to Cenvat Account
Pay interest @ 24% per annum for payment made after 30th
June
-
21.6
22 Practical illustration:
Facts Matrix (Question):
Particulars
Revenue stream
Manufacture of dutiable goods (DG)
Manufacture of exempted goods (EG)
Taxable services (Billed) (TSB)
Exempt services (Billed) (ES)
Taxable services (Realized) (TSR)
Trading (TR)
Interest on loan (L)
Cenvat opening balance
Excise duty / Service tax on
Inputs Exempted goods (IEA)
Input For dutiable goods and taxable service (IDG)
Input services Exclusively for taxable services (IST)
InputsCommon (IC)Incl of Rs.1,10,000/- for exempt
product
Inputs services Specified Service 6(5) (ISS)
Input services Common services (ISC)
Capital goods Eligible (CG)
Page 33 of 38
Amount
Tax /
Duty
20,00,000 1,64,800
10,00,000
Nil
14,00,000 1,44,200
4,00,000
Nil
12,00,000 1,23,600
2,00,000
Nil
50,000
Nil
20,000
56,000
1,00,000
50,000
3,50,000
25,000
1,00,000
50,000
Suggested Answer:
Readers are requested to read this table with reference to Para 21, facts
matrix given above and working notes given in succeeding para.
Particulars
Op. Balance
Duty on exempt goods (IEA)
Notes
1,00,000
50,000
1,20,000
1,70,000
3,50,000
25,000
1,00,000
50,000
5,20,000
5,45,000
6,45,000
6,95,000
1,10,000 5,85,000
24,935 5,60,065
28,866 5,31,199
2
3
4
1,64,800 3,66,399
1,23,600 2,42,799
Working Notes:
1. Inputs exclusively used for exempted goods can not be availed U/R 6(1)
and hence credit of excise duty of Rs.56,000/- on inputs used specifically
for exempted goods is not claimed.
2. Inputs attributable to exempt goods
Page 34 of 38
raw
Lubricating oil
Paint
Fuel
Packing material
B
Formula = ----- X D
C
ii)
B=
iii)
C=
iv)
D=
v)
vi)
Value means gross value as defined U/s 67. This could differ from
revenue figures reflected in profit & loss account on account of
following:
Working:
ES
= ---------------------------- X (IC 1,10,000)
DG + TSB + ES + L
4,00,000
= ------------------------------------------------------------ X (3,50,000 1,10,000)
20,00,000 + 14,00,000 + 4,00,000 + 50,000
Page 35 of 38
4,00,000
= ------------------------- X 2,40,000
38,50,000
= 24,935
Page 36 of 38
Working:
ES + EG
= ------------------------------------ X ISC
TSB + ES + EG + DG + L
4,00,000 + 10,00,000
= -------------------------------------------------------------------------- X 1,00,000
14,00,000 + 4,00,000 + 10,00,000 + 20,00,000 + 50,000
14,00,000
= ------------------------- X 1,00,000
48,50,000
= 28,866
23
Inputs services exclusively used for taxable activities (IST) are not
considered for reversal as the same falls under Rule 6(2) and not
Rule 6(3).
Services specified under Rule 6(5) (ISS) are not considered for
reversal as per Circular No. 868/6/2008-CX dated 09-05-2008.
Page 37 of 38
Trading activity can not be called a service and, therefore, it can not be
considered as an exempted service also.
Rule 6(3) applies to a person providing taxable and exempt services.
Trading not being an exempt service, it is not correct to apply this rule.
Trading is an activity which is neither manufacturing nor service and
hence trader is not eligible for Cenvat credit.
Appellant should segregate the quantum of input services attributable to
trading and exclude it from Cenvat availment.
24
Conclusion:
An efficient tax credit mechanism is a key to the success of any value added
tax system. Approach of tax payers is to claim each and every input tax
credit whether eligible or not. Department take an extra cautious approach
while allowing any tax credit. This conflict of approach has made Cenvat
credit a highly litigative issue. Cenvat Credit Rules, 2004 is a complicated
piece of legislation. The law is still developing and maturing on this subject.
The discussion and deliberation on this subject is never ending. The author
concludes here with sincere hope that this article will help readers to get
some clarity on this complicated subject.
Page 38 of 38