Cenvat accounting & return
This query is : Resolved
06 December 2015
how is cenvat accounting & to fill return.
07 December 2015
All about CENVAT Credit Rules, 2004
In this Article I have discussed Rule 2 to Rule 5 of CENVAT Credit Rules, 2004.
RULE 2(A) : Capital Goods
“capital goods” means:- definition of “capital goods” is amended by notification no. 28/2012 dated 20.6.2012.
(A) the following goods, namely:-
(i) 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; ***defined
(ii) pollution control equipment;
(iii) components, spares and accessories of the goods specified at (i) and (ii);
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof;
(vii)storage tank; and
(viii) motor vehicles other than those falling under tariff headings 8702, 8703, 8704, 8711 and their chassis but including dumpers and 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) motor vehicle designed for transportation of goods including their chassis registered in the name of the service provider, when used for-
(i) providing an 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 an output service of courier agency”
(C) motor vehicle designed to carry passengers including their chassis, registered in the name of the provider of service, when used for providing output service of-
(i) transportation of passengers; or
(ii) renting of such motor vehicle; or
(iii) imparting motor driving skills
(D) components, spares and accessories of motor vehicles which are capital goods for the assessee
Up to 31.03.2012, definition of capital goods includes motor vehicle when it is registered in the name of seven specific service provider. [ courier service, tour operator service, rent a cab scheme operator service, cargo handling service ,transport of goods by road, outdoor catering service , pandal and shamiana service ] . From 1.4.2012 , the definition of capital good has been extended to cover all motor vehicles ( other than those covered under the specified tariff heading) for all the category of service provider.
Description of tariff heading discussed in hereinbefore is given as under.
***
Tariff Heading Type of vehicle
8702 Motor vehicle for the transport of ten or more person, including the driver
8703 Motor cars and other Motor vehicle principally designed for the transport of persons
(other than those specified in heading 8702) including station wagon and racing cars.
8704 Motor vehicle for transport of goods
8711 Motorcycle (including moped)and cycle fitted with an auxiliary motor, with or without side cars.
Capital goods definition is enlarged to include motor vehicle other than used for transportation of passengers and goods like cranes, forklift, tractor and all other vehicle primarily used for business or commerce for all kind of service providers.
What does not cover under the definition of motors vehicle provided under section 2(28) of the Motor Vehicle Act,1988.
Vehicle running on fixed rails like railways, tram, trolleys etc.
Vehicle of special type which is used in factory like cranes and forklifts.
Vehicles less than four wheel fitted with an engine capacity of not exceeding 25 cubic centimetres .
Hand cart, bull cart, animal driven, vehicle, hand rickshaw etc. As they are not mechanically propelled.
RULE 2(k) : Input
“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
(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)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 the provision of service portion in the execution of a 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 warranty” 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;
RULE 2(l) : Input Services
“input service” means any service,-
(i) used by a provider of output service for providing an output service; or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products, up to 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 up to 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 up to the place of removal; but excludes,-
(A) service portion in the execution of a works contract and 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) Services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or
(BA) 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 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;
S.N. Party Extract of Input definition w.e.f 1.7.2012
1 Manufacturer of final product Input service means any service used by used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products, up to the place of removal, Specific Inclusion :a) services used in relation to modernization, renovation or repairs of a factory or an office relating to such factory or premisesb) Advertisement or sale promotionc) Market research
d) storage up to the place of removal
e) procurement of input
f) accounting , auditing, financing, recruitment, and quality control,
coaching and training, computer networking, , credit rating,, share registry, , security, business exhibition, legal services, inward transportation of input or capital goods and outward transportation up to the place of removal
2 Provider of output service Input service means any service used by provider of output service for providing an output service;a) services used in relation to modernization, renovation or repairs of a premises of provider of output service or an office relating to such premises.b) Advertisement or sale promotionc) Market research
f) accounting , auditing, financing, recruitment, and quality control,
coaching and training, computer networking, , credit rating,, share registry, security, business exhibition, legal services, inward transportation of input or capital goods.
3 Specific exclusions;(A) service portion in the execution of a works contract and 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) Services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or
(BA) 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 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;
RULE 2(p) : Output Services
As per new Rule 2 (p) read as follows :
Output service means any service provided by provider of service located in taxable territory but shall not include a service ;
Specified in Section 66D of the Finance Act; or
Where whole of the service is liable to paid by the recipient of service
RULE 2(e) : Exempted Services
(e) “exempted service” means
(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.
RULE 3 : Duties and Taxes eligible for CENVAT Credit
1) A manufacturer or producer of final products or a provider of output service shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of –
Relevant Clauses of Rule 3(1) Description of duty or tax in Rule 3(1) Additional comments
i) the duty of excise specified in the First Schedule to the Excise Tariff Act, leviable under the Excise Act;
Basic Excise duty
Goods which have suffered levy of duty at 1% ad valorem
ii) the duty of excise specified in the Second Schedule to the Excise Tariff Act, leviable under the Excise Act
Special excise duty
iii) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act,1978 ( 40 of 1978);
This is additional duty of excise leviable on textile and textile articles.
iv) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 ( 58 of 1957);
Additional duty of excise leviable on goods of special importance.
v) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001);
National calamity contingent duty
vi) the Education Cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004);
Education cess on excisable goods.
via) the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007);
Secondary and higher education cess on excisable goods.
Vii) the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v) ,(vi) and (via);
Countervailing duty equal to excise duty( applicable to imported goods.
Cenvat credit shall not be allowed in excess of 85% of additional duty of custom paid under sub section 1 of section 3 of the custom tariff act, on ships, boats and other floating structure under tariff 89080000of the first schedule to the Custom Tariff Act.
viia) the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act,
Special excise duty of custom
The provider of taxable service shall not be eligible to take credit of such additional duty
viii) the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003);
Additional excise duty leviable on tea and tea waste.
ix) the service tax leviable under section 66 of the Finance Act;
Service tax imposed on taxable services.
ixa) the service tax leviable under section 66A of the Finance Act; and
Service tax paid on import of services under the reverse charge mechanism
ixb) the service tax leviable under section 66B of the Finance Act;
Service tax paid in the new regime under the amended provision.
x) the Education Cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004),
Education cess on taxable services.
xa) the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007); and
Secondary and high Education cess on taxable services
xi) the additional duty of excise leviable under section 85 of Finance Act, 2005 (18 of 2005).
Additional excise duty on pan masala and tobacco products.
(2) Notwithstanding anything contained in sub-rule (1), the manufacturer or producer of final products shall be allowed to take CENVAT credit of the duty paid on inputs lying in stock or in process or inputs contained in the final products lying in stock on the date on which any goods manufactured by the said manufacturer or producer cease to be exempted goods or any goods become excisable.
(3) Notwithstanding anything contained in sub-rule (1), in relation to a service which ceases to be an exempted service, the provider of the output service shall be allowed to take CENVAT credit of the duty paid on the inputs received on and after the 10th day of September, 2004 and lying in stock on the date on which any service ceases to be an exempted service and used for providing such service.
(4) The CENVAT credit may be utilized for payment of –
(a) any duty of excise on any final product; or
(b) an amount equal to CENVAT credit taken on inputs if such inputs are removed as such or after being partially processed; or
(c) an amount equal to the CENVAT credit taken on capital goods if such capital goods are removed as such; or
(d) an amount under sub rule (2) of rule 16 of Central Excise Rules, 2002; or
(e) service tax on any output service:
Provided that while paying duty of excise or service tax, as the case may be, the CENVAT credit shall be utilized only to the extent such credit is available on the last day of the month or quarter, as the case may be, for payment of duty or tax relating to that month or the quarter, as the case may be:
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
(5) When inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, or premises of the provider of output service, the manufacturer of the final products or provider of output service, as the case may be, shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in rule 9:
Provided that such payment shall not be required to be made where any inputs or capital goods are removed outside the premises of the provider of output service for providing the output service:
[Omitted]
[Omitted]
“Provided further that such payment shall not be required to be made where any inputs are removed outside the factory for providing free warranty for final products:
(5A) If the capital goods, on which CENVAT credit has been taken, are removed after being used, whether as capital goods or as scrap or waste, the manufacturer or provider of output services shall pay an amount equal to the CENVAT Credit taken on the said capital goods reduced by the percentage points calculated by straight line method as specified below for each quarter of a year or part thereof from the date of taking the CEVAT Credit, namely:-
(a) for computers and computer peripherals
for each quarter in the first year @ 10%for each quarter in the second year @ 8%for each quarter in the third year @ 5%for each quarter in the fourth and fifth year @ 1%
(b) for capital goods, other than computers and computer peripherals @ 2.5% for each quarter:
Provided that if the amount so calculated is less than the amount equal to the duty leviable on transaction value, the amount to be paid shall be equal to the duty leviable on transaction value.
(5B) If the value of any
(i) input, or
(ii) capital goods before being put to use,
on which CENVAT credit has been taken is written off fully or partially where any provision to write off fully or partially has been made in the books of account, then the manufacturer or service provider, as the case may be, shall pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods:
Provided that if the said input or capital goods is subsequently used in the manufacture of final products or the provision of output services, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these rules.
(5C) Where on any goods manufactured or produced by an assessee, the payment of duty is ordered to be remitted under rule 21 of the Central Excise Rules, 2002, the CENVAT credit taken on the inputs used in the manufacture or production of said goods shall be reversed.
(6) The amount paid under sub-rule (5) and sub-rule (5A) shall be eligible as CENVAT credit as if it was a duty paid by the person who removed such goods under sub-rule (5) and sub-rule (5A).
RULE 4 : Condition for Allowing CENVAT Credit
A] in relation to input
(1) The CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service:
w.e.f. 17.3.2012, the CENVAT credit in respect of inputs may be taken by the provider of output service when the inputs are delivered to such provider, subject to maintenance of documentary evidence of delivery and location of the inputs.
B] in relation to capital goods
2[a] 50% of credit of excise duty available in the year of purchase and balance in subsequent financial year.
The CENVAT credit in respect of capital goods received in a factory or in the premises of the provider of output service or outside the factory of the manufacturer of the Final products for generation of electricity for captive use within the factory, at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent of the duty paid on such capital goods in the same financial year:
However full credit will be allowed in the same financial year if such capital goods are cleared as such in the same financial year.
If the assessee could not avail the credit in the first financial year then whole of the credit can be availed in the subsequent year.
w.e.f. 17.3.2012, the CENVAT credit in respect of capital good may be taken by the provider of output service when the capital goods are delivered to such provider, subject to maintenance of documentary evidence of delivery and location of the capital goods.
Provided further that the CENVAT credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, [Omitted] in respect of capital goods shall be allowed immediately on receipt of the capital goods in the factory of a manufacturer.
Provided also that where an assessee is eligible to avail of the exemption under a notification based on the value of clearances in a financial year, the CENVAT credit in respect of capital goods received by such assessee shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year.
Provided also that the CENVAT credit in respect of capital goods may be taken by the provider of output service when the capital goods are delivered to such provider, subject to maintenance of documentary evidence of delivery and location of the capital goods.
Explanation.- For the removal of doubts, it is hereby clarified that an assessee shall be “eligible” if his aggregate value of clearances of all excisable goods for home consumption in the preceding financial year computed in the manner specified in the said notification did not exceed rupees four hundred lakhs.
b) The balance of CENVAT credit may be taken in any financial year subsequent to the financial year in which the capital goods were received in the factory of the manufacturer, or in the premises of the provider of output service, if the capital goods, other than components, spares and accessories, refractories and refractory materials, moulds and dies and goods falling under heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act, are in the possession of the manufacturer of final products, or provider of output service in such subsequent years.
Illustration.- A manufacturer received machinery on the 16th day of April, 2002 in his factory. CENVAT of two lakh rupees is paid on this machinery. The manufacturer can take credit upto a maximum of one lakh rupees in the financial year 2002-2003, and the balance in FY 2003-04.
(3) The CENVAT credit in respect of the capital goods shall be allowed to a manufacturer, provider of output service even if the capital goods are acquired by him on lease, hire purchase or loan agreement, from a financing company.
(4) The CENVAT credit in respect of capital goods shall not be allowed in respect of that part of the value of capital goods which represents the amount of duty on such capital goods, which the manufacturer or provider of output service claims as depreciation under section 32 of the Income-tax Act, 1961( 43 of 1961).
(5) (a) The CENVAT credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning or for the manufacture of intermediate goods necessary for the manufacture of final products or any other purpose, and it is established from the records, challans or memos or any other document produced by the manufacturer or provider of output service taking the CENVAT credit that the goods are received back in the factory within one hundred and eighty days of their being sent to a job worker and if the inputs or the capital goods are not received back within one hundred eighty days, the manufacturer or provider of output service shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods by debiting the CENVAT credit or otherwise, but the manufacturer or provider of output service can take the CENVAT credit again when the inputs or capital goods are received back in his factory or in the premises of the provider of output service
(b) The CENVAT credit shall also be allowed in respect of jigs, fixtures, moulds and dies sent by a manufacturer of final products to,-
(i) another manufacturer for the production of goods; or
(ii) a job worker for the production of goods on his behalf, according to his specifications.
(6) The Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction over the factory of the manufacturer of the final products who has sent the input or partially processed inputs outside his factory to a job-worker may, by an order, which shall be valid for a financial year, in respect of removal of such input or partially processed input, and subject to such conditions as he may impose in the interest of revenue including the manner in which duty, if leviable, is to be paid, allow final products to be cleared from the premises of the job-worker.
(7)The CENVAT credit in respect of input service shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan referred to in rule 9 is received:
Provided that in case of an input service where the service tax is paid on reverse charge by the recipient of the service, the CENVAT credit in respect of such input service shall be allowed on or after the day on which payment is made of the value of input service and the service tax paid or payable as indicated in invoice, bill or, as the case may be, challan referred to in rule 9:
Provided further that in case the payment of the value of input service and the service tax paid or payable as indicated in the invoice, bill or, as the case may be, challan referred to in rule 9, is not made within three months of the date of the invoice, bill or, as the case may be, challan, the manufacturer or the service provider who has taken credit on such input service, shall pay an amount equal to the CENVAT credit availed on such input service and in case the said payment is made, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these rules:
Provided also that if any payment or part thereof, made towards an input service is refunded or a credit note is received by the manufacturer or the service provider who has taken credit on such input service, he shall pay an amount equal to the CENVAT credit availed in respect of the amount so refunded or credited:.
Explanation I.- The amount mentioned in this sub-rule, unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, when such payment shall be made on or before the 31st day of the month of March.
Explanation II. – If the manufacturer of goods or the provider of output service fails to pay the amount payable under this sub-rule, it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken.
Explanation III.- In case of a manufacturer who avails the exemption under a notification based on the value of clearances in a financial year and a service provider who is an individual or proprietary firm or partnership firm, the expressions, “following month” and “month of March” occurring in sub-rule (7) shall be read respectively as “following quarter” and “quarter ending with the month of March”.
RULE 5 : Refund of Input Credit
1) A manufacturer who clears a final product or an intermediate product for export without payment of duty under bond or letter of undertaking, or a service provider who provides an output service which is exported without payment of service tax, shall be allowed refund of CENVAT credit as determined by the following formula subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette:
Refund amount = (Export turnover of goods+ Export turnover of services) x Net CENVAT credit
Total turnover
Where,-
(A) “Refund amount” means the maximum refund that is admissible;
(B) “Net CENVAT credit” means total CENVAT credit availed on inputs and input services by the manufacturer or the output service provider reduced by the amount reversed in terms of sub-rule (5C) of rule 3, during the relevant period;
Rule 3(5C) pertain to the reversal of credit taken on the input in case of remission of duty on rule 21 of the central excise rules . Accordingly this reduction is not applicable to service provider.
(C) “Export turnover of goods” means the value of final products and intermediate products cleared during the relevant period and exported without payment of Central Excise duty under bond or letter of undertaking;
(D) “Export turnover of services” means the value of the export service calculated in the following manner, namely:-
Export turnover of services = payments received during the relevant period for export services + export services whose provision has been completed for which payment had been received in advance in any period prior to the relevant period – advances received for export services for which the provision of service has not been completed during the relevant period;
(E) “Total turnover” means sum total of the value of –
(a) all excisable goods cleared during the relevant period including exempted goods, dutiable goods and excisable goods exported;
(b) export turnover of services determined in terms of clause (D) of sub-rule (1) above and the value of all other services, during the relevant period; and
(c) all inputs removed as such under sub-rule (5) of rule 3 against an invoice, during the period for which the claim is filed.
(2) This rule shall apply to exports made on or after the 1st April, 2012:
Provided that the refund may be claimed under this rule, as existing, prior to the commencement of the CENVAT Credit (Third Amendment) Rules, 2012, within a period of one year from such commencement:
Provided further that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties and Service Tax Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, in respect of such duty; or claims rebate of service tax under the Service Tax Rules, 1994 in respect of such tax.
Explanation 1- For the purposes of this rule,-
(1) “export service” means a service which is provided as per rule 6A of the Service Tax Rules, 1994;
(2) “relevant period” means the period for which the claim is filed.
Explanation 2 – For the purposes of this rule, the value of services, shall be determined in the same manner as the value for the purposes of sub-rule (3) and (3A) of rule 6 is determined.”
5A- Refund of CENVAT credit to units in specified areas.
Notwithstanding anything contrary contained in these rules, where a manufacturer has cleared final products in terms of notification of the Government of India in the Ministry of Finance (Department of Revenue) No.20/2007-Central Excise, dated the 25th April, 2007 and is unable to utilize the CENVAT credit of duty taken on inputs required for manufacture of final products specified in the said notification, other than final products which are exempt or subject to nil rate of duty, for payment of duties of excise on said final products, then the Central Government may allow the refund of such credit subject to such procedure, conditions and limitations, as may be specified by notification.
Explanation: For the purposes of this rule, “duty” means the duties specified in sub-rule (1) of rule 3 of these rules.
5B. Refund of CENVAT credit to service providers providing services taxed on reverse charge basis.
A provider of service providing services notified under sub-section (2) of section 68 of the Finance Act and being unable to utilise the CENVAT credit availed on inputs and input services for payment of service tax on such output services, shall be allowed refund of such unutilised CENVAT credit subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette.
In this Article I have discussed Rule 2 to Rule 5 of CENVAT Credit Rules, 2004.
RULE 2(A) : Capital Goods
“capital goods” means:- definition of “capital goods” is amended by notification no. 28/2012 dated 20.6.2012.
(A) the following goods, namely:-
(i) 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; ***defined
(ii) pollution control equipment;
(iii) components, spares and accessories of the goods specified at (i) and (ii);
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof;
(vii)storage tank; and
(viii) motor vehicles other than those falling under tariff headings 8702, 8703, 8704, 8711 and their chassis but including dumpers and 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) motor vehicle designed for transportation of goods including their chassis registered in the name of the service provider, when used for-
(i) providing an 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 an output service of courier agency”
(C) motor vehicle designed to carry passengers including their chassis, registered in the name of the provider of service, when used for providing output service of-
(i) transportation of passengers; or
(ii) renting of such motor vehicle; or
(iii) imparting motor driving skills
(D) components, spares and accessories of motor vehicles which are capital goods for the assessee
Up to 31.03.2012, definition of capital goods includes motor vehicle when it is registered in the name of seven specific service provider. [ courier service, tour operator service, rent a cab scheme operator service, cargo handling service ,transport of goods by road, outdoor catering service , pandal and shamiana service ] . From 1.4.2012 , the definition of capital good has been extended to cover all motor vehicles ( other than those covered under the specified tariff heading) for all the category of service provider.
Description of tariff heading discussed in hereinbefore is given as under.
***
Tariff Heading Type of vehicle
8702 Motor vehicle for the transport of ten or more person, including the driver
8703 Motor cars and other Motor vehicle principally designed for the transport of persons
(other than those specified in heading 8702) including station wagon and racing cars.
8704 Motor vehicle for transport of goods
8711 Motorcycle (including moped)and cycle fitted with an auxiliary motor, with or without side cars.
Capital goods definition is enlarged to include motor vehicle other than used for transportation of passengers and goods like cranes, forklift, tractor and all other vehicle primarily used for business or commerce for all kind of service providers.
What does not cover under the definition of motors vehicle provided under section 2(28) of the Motor Vehicle Act,1988.
Vehicle running on fixed rails like railways, tram, trolleys etc.
Vehicle of special type which is used in factory like cranes and forklifts.
Vehicles less than four wheel fitted with an engine capacity of not exceeding 25 cubic centimetres .
Hand cart, bull cart, animal driven, vehicle, hand rickshaw etc. As they are not mechanically propelled.
RULE 2(k) : Input
“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
(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)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 the provision of service portion in the execution of a 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 warranty” 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;
RULE 2(l) : Input Services
“input service” means any service,-
(i) used by a provider of output service for providing an output service; or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products, up to 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 up to 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 up to the place of removal; but excludes,-
(A) service portion in the execution of a works contract and 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) Services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or
(BA) 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 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;
S.N. Party Extract of Input definition w.e.f 1.7.2012
1 Manufacturer of final product Input service means any service used by used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products, up to the place of removal, Specific Inclusion :a) services used in relation to modernization, renovation or repairs of a factory or an office relating to such factory or premisesb) Advertisement or sale promotionc) Market research
d) storage up to the place of removal
e) procurement of input
f) accounting , auditing, financing, recruitment, and quality control,
coaching and training, computer networking, , credit rating,, share registry, , security, business exhibition, legal services, inward transportation of input or capital goods and outward transportation up to the place of removal
2 Provider of output service Input service means any service used by provider of output service for providing an output service;a) services used in relation to modernization, renovation or repairs of a premises of provider of output service or an office relating to such premises.b) Advertisement or sale promotionc) Market research
f) accounting , auditing, financing, recruitment, and quality control,
coaching and training, computer networking, , credit rating,, share registry, security, business exhibition, legal services, inward transportation of input or capital goods.
3 Specific exclusions;(A) service portion in the execution of a works contract and 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) Services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or
(BA) 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 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;
RULE 2(p) : Output Services
As per new Rule 2 (p) read as follows :
Output service means any service provided by provider of service located in taxable territory but shall not include a service ;
Specified in Section 66D of the Finance Act; or
Where whole of the service is liable to paid by the recipient of service
RULE 2(e) : Exempted Services
(e) “exempted service” means
(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.
RULE 3 : Duties and Taxes eligible for CENVAT Credit
1) A manufacturer or producer of final products or a provider of output service shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of –
Relevant Clauses of Rule 3(1) Description of duty or tax in Rule 3(1) Additional comments
i) the duty of excise specified in the First Schedule to the Excise Tariff Act, leviable under the Excise Act;
Basic Excise duty
Goods which have suffered levy of duty at 1% ad valorem
ii) the duty of excise specified in the Second Schedule to the Excise Tariff Act, leviable under the Excise Act
Special excise duty
iii) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act,1978 ( 40 of 1978);
This is additional duty of excise leviable on textile and textile articles.
iv) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 ( 58 of 1957);
Additional duty of excise leviable on goods of special importance.
v) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001);
National calamity contingent duty
vi) the Education Cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004);
Education cess on excisable goods.
via) the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007);
Secondary and higher education cess on excisable goods.
Vii) the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v) ,(vi) and (via);
Countervailing duty equal to excise duty( applicable to imported goods.
Cenvat credit shall not be allowed in excess of 85% of additional duty of custom paid under sub section 1 of section 3 of the custom tariff act, on ships, boats and other floating structure under tariff 89080000of the first schedule to the Custom Tariff Act.
viia) the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act,
Special excise duty of custom
The provider of taxable service shall not be eligible to take credit of such additional duty
viii) the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003);
Additional excise duty leviable on tea and tea waste.
ix) the service tax leviable under section 66 of the Finance Act;
Service tax imposed on taxable services.
ixa) the service tax leviable under section 66A of the Finance Act; and
Service tax paid on import of services under the reverse charge mechanism
ixb) the service tax leviable under section 66B of the Finance Act;
Service tax paid in the new regime under the amended provision.
x) the Education Cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004),
Education cess on taxable services.
xa) the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007); and
Secondary and high Education cess on taxable services
xi) the additional duty of excise leviable under section 85 of Finance Act, 2005 (18 of 2005).
Additional excise duty on pan masala and tobacco products.
(2) Notwithstanding anything contained in sub-rule (1), the manufacturer or producer of final products shall be allowed to take CENVAT credit of the duty paid on inputs lying in stock or in process or inputs contained in the final products lying in stock on the date on which any goods manufactured by the said manufacturer or producer cease to be exempted goods or any goods become excisable.
(3) Notwithstanding anything contained in sub-rule (1), in relation to a service which ceases to be an exempted service, the provider of the output service shall be allowed to take CENVAT credit of the duty paid on the inputs received on and after the 10th day of September, 2004 and lying in stock on the date on which any service ceases to be an exempted service and used for providing such service.
(4) The CENVAT credit may be utilized for payment of –
(a) any duty of excise on any final product; or
(b) an amount equal to CENVAT credit taken on inputs if such inputs are removed as such or after being partially processed; or
(c) an amount equal to the CENVAT credit taken on capital goods if such capital goods are removed as such; or
(d) an amount under sub rule (2) of rule 16 of Central Excise Rules, 2002; or
(e) service tax on any output service:
Provided that while paying duty of excise or service tax, as the case may be, the CENVAT credit shall be utilized only to the extent such credit is available on the last day of the month or quarter, as the case may be, for payment of duty or tax relating to that month or the quarter, as the case may be:
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
(5) When inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, or premises of the provider of output service, the manufacturer of the final products or provider of output service, as the case may be, shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in rule 9:
Provided that such payment shall not be required to be made where any inputs or capital goods are removed outside the premises of the provider of output service for providing the output service:
[Omitted]
[Omitted]
“Provided further that such payment shall not be required to be made where any inputs are removed outside the factory for providing free warranty for final products:
(5A) If the capital goods, on which CENVAT credit has been taken, are removed after being used, whether as capital goods or as scrap or waste, the manufacturer or provider of output services shall pay an amount equal to the CENVAT Credit taken on the said capital goods reduced by the percentage points calculated by straight line method as specified below for each quarter of a year or part thereof from the date of taking the CEVAT Credit, namely:-
(a) for computers and computer peripherals
for each quarter in the first year @ 10%for each quarter in the second year @ 8%for each quarter in the third year @ 5%for each quarter in the fourth and fifth year @ 1%
(b) for capital goods, other than computers and computer peripherals @ 2.5% for each quarter:
Provided that if the amount so calculated is less than the amount equal to the duty leviable on transaction value, the amount to be paid shall be equal to the duty leviable on transaction value.
(5B) If the value of any
(i) input, or
(ii) capital goods before being put to use,
on which CENVAT credit has been taken is written off fully or partially where any provision to write off fully or partially has been made in the books of account, then the manufacturer or service provider, as the case may be, shall pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods:
Provided that if the said input or capital goods is subsequently used in the manufacture of final products or the provision of output services, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these rules.
(5C) Where on any goods manufactured or produced by an assessee, the payment of duty is ordered to be remitted under rule 21 of the Central Excise Rules, 2002, the CENVAT credit taken on the inputs used in the manufacture or production of said goods shall be reversed.
(6) The amount paid under sub-rule (5) and sub-rule (5A) shall be eligible as CENVAT credit as if it was a duty paid by the person who removed such goods under sub-rule (5) and sub-rule (5A).
RULE 4 : Condition for Allowing CENVAT Credit
A] in relation to input
(1) The CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service:
w.e.f. 17.3.2012, the CENVAT credit in respect of inputs may be taken by the provider of output service when the inputs are delivered to such provider, subject to maintenance of documentary evidence of delivery and location of the inputs.
B] in relation to capital goods
2[a] 50% of credit of excise duty available in the year of purchase and balance in subsequent financial year.
The CENVAT credit in respect of capital goods received in a factory or in the premises of the provider of output service or outside the factory of the manufacturer of the Final products for generation of electricity for captive use within the factory, at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent of the duty paid on such capital goods in the same financial year:
However full credit will be allowed in the same financial year if such capital goods are cleared as such in the same financial year.
If the assessee could not avail the credit in the first financial year then whole of the credit can be availed in the subsequent year.
w.e.f. 17.3.2012, the CENVAT credit in respect of capital good may be taken by the provider of output service when the capital goods are delivered to such provider, subject to maintenance of documentary evidence of delivery and location of the capital goods.
Provided further that the CENVAT credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, [Omitted] in respect of capital goods shall be allowed immediately on receipt of the capital goods in the factory of a manufacturer.
Provided also that where an assessee is eligible to avail of the exemption under a notification based on the value of clearances in a financial year, the CENVAT credit in respect of capital goods received by such assessee shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year.
Provided also that the CENVAT credit in respect of capital goods may be taken by the provider of output service when the capital goods are delivered to such provider, subject to maintenance of documentary evidence of delivery and location of the capital goods.
Explanation.- For the removal of doubts, it is hereby clarified that an assessee shall be “eligible” if his aggregate value of clearances of all excisable goods for home consumption in the preceding financial year computed in the manner specified in the said notification did not exceed rupees four hundred lakhs.
b) The balance of CENVAT credit may be taken in any financial year subsequent to the financial year in which the capital goods were received in the factory of the manufacturer, or in the premises of the provider of output service, if the capital goods, other than components, spares and accessories, refractories and refractory materials, moulds and dies and goods falling under heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act, are in the possession of the manufacturer of final products, or provider of output service in such subsequent years.
Illustration.- A manufacturer received machinery on the 16th day of April, 2002 in his factory. CENVAT of two lakh rupees is paid on this machinery. The manufacturer can take credit upto a maximum of one lakh rupees in the financial year 2002-2003, and the balance in FY 2003-04.
(3) The CENVAT credit in respect of the capital goods shall be allowed to a manufacturer, provider of output service even if the capital goods are acquired by him on lease, hire purchase or loan agreement, from a financing company.
(4) The CENVAT credit in respect of capital goods shall not be allowed in respect of that part of the value of capital goods which represents the amount of duty on such capital goods, which the manufacturer or provider of output service claims as depreciation under section 32 of the Income-tax Act, 1961( 43 of 1961).
(5) (a) The CENVAT credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning or for the manufacture of intermediate goods necessary for the manufacture of final products or any other purpose, and it is established from the records, challans or memos or any other document produced by the manufacturer or provider of output service taking the CENVAT credit that the goods are received back in the factory within one hundred and eighty days of their being sent to a job worker and if the inputs or the capital goods are not received back within one hundred eighty days, the manufacturer or provider of output service shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods by debiting the CENVAT credit or otherwise, but the manufacturer or provider of output service can take the CENVAT credit again when the inputs or capital goods are received back in his factory or in the premises of the provider of output service
(b) The CENVAT credit shall also be allowed in respect of jigs, fixtures, moulds and dies sent by a manufacturer of final products to,-
(i) another manufacturer for the production of goods; or
(ii) a job worker for the production of goods on his behalf, according to his specifications.
(6) The Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction over the factory of the manufacturer of the final products who has sent the input or partially processed inputs outside his factory to a job-worker may, by an order, which shall be valid for a financial year, in respect of removal of such input or partially processed input, and subject to such conditions as he may impose in the interest of revenue including the manner in which duty, if leviable, is to be paid, allow final products to be cleared from the premises of the job-worker.
(7)The CENVAT credit in respect of input service shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan referred to in rule 9 is received:
Provided that in case of an input service where the service tax is paid on reverse charge by the recipient of the service, the CENVAT credit in respect of such input service shall be allowed on or after the day on which payment is made of the value of input service and the service tax paid or payable as indicated in invoice, bill or, as the case may be, challan referred to in rule 9:
Provided further that in case the payment of the value of input service and the service tax paid or payable as indicated in the invoice, bill or, as the case may be, challan referred to in rule 9, is not made within three months of the date of the invoice, bill or, as the case may be, challan, the manufacturer or the service provider who has taken credit on such input service, shall pay an amount equal to the CENVAT credit availed on such input service and in case the said payment is made, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these rules:
Provided also that if any payment or part thereof, made towards an input service is refunded or a credit note is received by the manufacturer or the service provider who has taken credit on such input service, he shall pay an amount equal to the CENVAT credit availed in respect of the amount so refunded or credited:.
Explanation I.- The amount mentioned in this sub-rule, unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, when such payment shall be made on or before the 31st day of the month of March.
Explanation II. – If the manufacturer of goods or the provider of output service fails to pay the amount payable under this sub-rule, it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken.
Explanation III.- In case of a manufacturer who avails the exemption under a notification based on the value of clearances in a financial year and a service provider who is an individual or proprietary firm or partnership firm, the expressions, “following month” and “month of March” occurring in sub-rule (7) shall be read respectively as “following quarter” and “quarter ending with the month of March”.
RULE 5 : Refund of Input Credit
1) A manufacturer who clears a final product or an intermediate product for export without payment of duty under bond or letter of undertaking, or a service provider who provides an output service which is exported without payment of service tax, shall be allowed refund of CENVAT credit as determined by the following formula subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette:
Refund amount = (Export turnover of goods+ Export turnover of services) x Net CENVAT credit
Total turnover
Where,-
(A) “Refund amount” means the maximum refund that is admissible;
(B) “Net CENVAT credit” means total CENVAT credit availed on inputs and input services by the manufacturer or the output service provider reduced by the amount reversed in terms of sub-rule (5C) of rule 3, during the relevant period;
Rule 3(5C) pertain to the reversal of credit taken on the input in case of remission of duty on rule 21 of the central excise rules . Accordingly this reduction is not applicable to service provider.
(C) “Export turnover of goods” means the value of final products and intermediate products cleared during the relevant period and exported without payment of Central Excise duty under bond or letter of undertaking;
(D) “Export turnover of services” means the value of the export service calculated in the following manner, namely:-
Export turnover of services = payments received during the relevant period for export services + export services whose provision has been completed for which payment had been received in advance in any period prior to the relevant period – advances received for export services for which the provision of service has not been completed during the relevant period;
(E) “Total turnover” means sum total of the value of –
(a) all excisable goods cleared during the relevant period including exempted goods, dutiable goods and excisable goods exported;
(b) export turnover of services determined in terms of clause (D) of sub-rule (1) above and the value of all other services, during the relevant period; and
(c) all inputs removed as such under sub-rule (5) of rule 3 against an invoice, during the period for which the claim is filed.
(2) This rule shall apply to exports made on or after the 1st April, 2012:
Provided that the refund may be claimed under this rule, as existing, prior to the commencement of the CENVAT Credit (Third Amendment) Rules, 2012, within a period of one year from such commencement:
Provided further that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties and Service Tax Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, in respect of such duty; or claims rebate of service tax under the Service Tax Rules, 1994 in respect of such tax.
Explanation 1- For the purposes of this rule,-
(1) “export service” means a service which is provided as per rule 6A of the Service Tax Rules, 1994;
(2) “relevant period” means the period for which the claim is filed.
Explanation 2 – For the purposes of this rule, the value of services, shall be determined in the same manner as the value for the purposes of sub-rule (3) and (3A) of rule 6 is determined.”
5A- Refund of CENVAT credit to units in specified areas.
Notwithstanding anything contrary contained in these rules, where a manufacturer has cleared final products in terms of notification of the Government of India in the Ministry of Finance (Department of Revenue) No.20/2007-Central Excise, dated the 25th April, 2007 and is unable to utilize the CENVAT credit of duty taken on inputs required for manufacture of final products specified in the said notification, other than final products which are exempt or subject to nil rate of duty, for payment of duties of excise on said final products, then the Central Government may allow the refund of such credit subject to such procedure, conditions and limitations, as may be specified by notification.
Explanation: For the purposes of this rule, “duty” means the duties specified in sub-rule (1) of rule 3 of these rules.
5B. Refund of CENVAT credit to service providers providing services taxed on reverse charge basis.
A provider of service providing services notified under sub-section (2) of section 68 of the Finance Act and being unable to utilise the CENVAT credit availed on inputs and input services for payment of service tax on such output services, shall be allowed refund of such unutilised CENVAT credit subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette.
07 December 2015
Documents, Record and Returns mandatory for CENVAT Credit
Documents, Accounts and Returns for CENVAT
RULE -9: Documents, Records and Returns
Statutory Provisions
(1) The CENVAT credit shall be taken by the manufacturer or the provider of output service or input service distributor, as the case may be, on the basis of any of the following documents, namely :-
(a) an invoice issued by-
(i) a manufacturer for clearance of –
(I) inputs or capital goods from his factory or depot or from the 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;
(II) inputs or capital goods as such;
(ii) an importer;
(iii) an importer from his depot or from the premises of the consignment agent of the said importer if the said depot or the premises, as the case may be, is registered in terms of the provisions of Central Excise Rules, 2002;
(iv) a first stage dealer or a second stage dealer, as the case may be, in terms of the provisions of Central Excise Rules, 2002; or
(b) a supplementary invoice, issued by a manufacturer or importer of inputs or capital goods in terms of the provisions of Central Excise Rules, 2002 from his factory or depot or from the premises of the consignment agent of the said manufacturer or importer or from any other premises from where the goods are sold by, or on behalf of, the said manufacturer or importer, in case additional amount of excise duties or additional duty leviable under section 3 of the Customs Tariff Act, has been paid, except where the additional amount of duty became recoverable from the manufacturer or importer of inputs or capital goods on account of any non-levy or short-levy by reason of fraud, collusion or any wilful misstatement or suppression of facts or contravention of any provisions of the Excise Act, or of the Customs Act, 1962 (52 of 1962) or the rules made there under with intent to evade payment of duty.
Explanation.- For removal of doubts, it is clarified that supplementary invoice shall also include challan or any other similar document evidencing payment of additional amount of additional duty leviable under section 3 of the Customs Tariff Act; or
(bb) a supplementary invoice, bill or challan issued by a provider of output service, in terms of the provisions of Service Tax Rules, 1994 except where the additional amount of tax became recoverable from the provider of service on account of non-levy or non-payment or short-levy or short-payment by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Finance Act or of the rules made there under with the intent to evade payment of service tax.
(c) a bill of entry; or
(d) a certificate issued by an appraiser of customs in respect of goods imported through a Foreign Post Office; or
(e) a challan evidencing payment of service tax, by the service recipient as the person liable to pay service tax; or
(f) an invoice, a bill or challan issued by a provider of input service on or after the 10th day of, September, 2004; or
(g) an invoice, bill or challan issued by an input service distributor under rule 4A of the Service Tax Rules, 1994.
Provided that the credit of additional duty of customs levied under sub-section (5) of section 3 of the Customs Tariff Act, 1975 (51 of 1975) shall not be allowed if the invoice or the supplementary invoice, as the case may be, bears an indication to the effect that no credit of the said additional duty shall be admissible;
(2) No CENVAT credit under sub-rule(1) shall be taken unless all the particulars as prescribed under the Central Excise Rules, 2002 or the Service Tax Rules, 1994, as the case may be, are contained in the said document:
Provided that if the said document does not contain all the particulars but contains the details of duty or service tax payable, description of the goods or taxable service, assessable value, central excise or service tax registration number of the person issuing the invoice, as the case may be, name and address of the factory or warehouse or premises of first or second stage dealers or provider of output service, and the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, is satisfied that the goods or services covered by the said document have been received and accounted for in the books of the account of the receiver, he may allow the CENVAT credit.
(3) [Omitted]
(4) The CENVAT credit in respect of input or capital goods purchased from a first stage dealer or second stage dealer shall be allowed only if such first stage dealer or second stage dealer, as the case may be, has maintained records indicating the fact that the input or capital goods was supplied from the stock on which duty was paid by the producer of such input or capital goods and only an amount of such duty on pro rata basis has been indicated in the invoice issued by him.
(5) The manufacturer of final products or the provider of output service shall maintain proper records for the receipt, disposal, consumption and inventory of the input and capital goods in which the relevant information regarding the value, duty paid, CENVAT credit taken and utilized, the person from whom the input or capital goods have been procured is recorded and the burden of proof regarding the admissibility of the CENVAT credit shall lie upon the manufacturer or provider of output service taking such credit.
(6) The manufacturer of final products or the provider of output service shall maintain proper records for the receipt and consumption of the input services in which the relevant information regarding the value, tax paid, CENVAT credit taken and utilized, the person from whom the input service has been procured is recorded and the burden of proof regarding the admissibility of the CENVAT credit shall lie upon the manufacturer or provider of output service taking such credit.
(7) The manufacturer of final products shall submit within ten days from the close of each month to the Superintendent of Central Excise, a monthly return in the form specified, by notification, by the Board:
Provided that where a manufacturer is availing exemption under a notification based on the value or quantity of clearances in a financial year, he shall file a quarterly return in the form specified, by notification, by the Board within ten days after the close of the quarter to which the return relates.
(8) A first stage dealer or a second stage dealer, as the case may be, shall submit within fifteen days from the close of each quarter of a year to the Superintendent of Central Excise, a return in the form specified, by notification, by the Board.
Provided that the first stage dealer or second stage dealer, as the case may be, shall submit the said return electronically.
(9) The provider of output service availing CENVAT credit, shall submit a half yearly return in form specified, by notification, by the Board to the Superintendent of Central Excise, by the end of the month following the particular quarter or half year.
(10) The input service distributor, shall furnish a half yearly return in such form as may be specified, by notification, by the Board, giving the details of credit received and distributed during the said half year to the jurisdictional Superintendent of Central Excise, not later than the last day of the month following the half year period.
(11) The provider of output service, availing CENVAT credit referred to in sub-rule (9) or the input service distributor referred to in sub-rule (10), as the case may be, may submit a revised return to correct a mistake or omission within a period of sixty days from the date of submission of the return under sub-rule (9) or sub-rule (10), as the case may be.
9A. Information relating to principal inputs.
(1) A manufacturer of final products shall furnish to the Superintendent of Central Excise, annually by 30th April of each Financial Year, a declaration in the Form specified, by a notification, by the Board, in respect of each of the excisable goods manufactured or to be manufactured by him, the principal inputs and the quantity of such principal inputs required for use in the manufacture of unit quantity of such final products:
Provided that for the year 2004-05, such information shall be furnished latest by 31st December, 2004.
[Omitted]
(2) If a manufacturer of final products intends to make any alteration in the information so furnished under sub-rule (1), he shall furnish information to the Superintendent of Central Excise together with the reasons for such alteration before the proposed change or within 15 days of such change in the Form specified by the Board under sub-rule (1).
(3) A manufacturer of final products shall submit, within ten days from the close of each month, to the Superintendent of Central Excise, a monthly return in the Form specified, by a notification, by the Board, in respect of information regarding the receipt and consumption of each principal inputs with reference to the quantity of final products manufactured by him.
[Omitted]
(4) The Central Government may, by notification and subject to such conditions or limitations, as may be specified in such notification, specify manufacturers or class of manufacturers who may not be required to furnish declaration mentioned in sub-rule (1) or monthly return mentioned in sub-rule (3).
(5) Every assessee shall file electronically, the declaration or the return, as the case may be, specified in this rule.
Explanation: For the purposes of this rule, “principal inputs”, means any input which is used in the manufacture of final products where the cost of such input constitutes not less than 10% of the total cost of raw-materials for the manufacture of unit quantity of a given final products.
Commentary
CENVAT Credit on Input, Input Services and Capital Goods can be Obtained as follows :
Rule 9(1) of Cenvat Credit Rules prescribes that Cenvat Credit can be taken on the basis of ;
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 from his premises or consignment registered with Central Excise
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 customs in respect of goods imported through foreign post office
GAR-7 challan evidencing payment of service tax by the service recipient as the person liable to pay service tax
Invoice , bill or Challan issued by provider of input service on or after 10-09-2004
Invoice, Bill or Challan issued by input service distributor under rule 4A of Service Tax Rules.
Credit can be on the basis of any copy – Earlier, Cenvat credit was allowable only on basis of Invoice copy marked ‘Duplicate for Transport’. Now there is no such copy specified.
Credit can be taken on basis of own invoice – In Madhava Laxmi Mills Ltd. v. CCE (2006) 3 STT 147 (CESTAT), assessee cleared manufactured goods (single yarn) to job workers for purpose of doubling. After return of double yarn (which was intermediate product), assessee too Cenvat credit on the basis of his own invoices. It was held that assessee is within his right to do so.
Cenvat credit can be taken on basis of own invoice – Godavari Sugar Mills v. CCE 2006 (196) ELT 74 (CESTAT).
No Cenvat on Photostat/Xerox copy? – Cenvat credit cannot be taken on basis of Photostat/Xerox copy of Invoice – Nexus Computers v. CCE 2005 (190) ELT 55 (CESTAT) * CC v. Avis Electronics (2000) 117 ELT 571 (CESTAT Large bench) * CCE v. Vandana Energy (2008) 9 STR 31 = 223 ELT 83 (CESTAT SMB) * CCE v. Survoday Blending (2012) 278 ELT 373 (CASTAT SMB) * DSM Sugar v. CCE (2013) 287 ELT 236 (CESTAT SMB).
Credit if duty paying document is lost
There is no specific provision to avail Cenvat credit if all copies of duty paying documents are lost.
As per proviso to rule 9(2), if prescribed document contains required minimum details but does not contain all details and if Jurisdictional Assistant/Deputy Commissioner is satisfied that such goods or services covered by the document have been received and accounted for in books of account receiver, he may allow Cenvat credit.
Thus, document containing prescribed minimum details should be available. The rule makes no provision of situation where no document is available at all.
In Bombay Goods Transport Assn v. UOI 1995(77) ELT 521 (Born HC DB), it was held that MODVAT credit (based on certified copy or authenticated copy) cannot be mechanically disallowed. Assessee can prove that excisable goods used had been subjected to duty.
Can permission of AC/DC be taken post facto – One issue is whether assessee can take credit and apply for permission post facto, or when objection is raised during audit.
The proviso to rule 9(2) does not prescribe any procedure or time limit for submitting application for permission of AC/DC. In fact, the wording is such that AC/DC can allow credit even on his own i.e. suo motu, without making any specific application.
Further, proviso to rule 9(2) does not require prior approval or permission. In LIC of India v. Escorts Ltd. – AIR 1986 SC 1370 (1986) 59 Comp Cas 548 (SC) (1986) 1 SCC 264 (1986) 8 ECC 189, it has been held that as long as law does not state that prior approval should be obtained , such approval can be given later with retrospective effect. – followed in Date & Carrington Investment v. PK Prathapan (2004) 54 SCL 601 122 Comp Cas 161 AIR 2005 SC 1624 2004 AIR SCW 5143 * Texmaco Ltd. v. Dy Director, Enforcement (1997) 88 Comp Cas 228 (Cal HC DB).
In CCE v. System India (2008) 232 ELT 459 (CESTAT SMB), assessee took credit on basis of original invoice instead of duplicate invoice. It was held that AC/DC can grant post facto permission.
Thus, it can be argued that post facto approval can be given, after objection is raised by excise audit party.
Unsigned invoice or printed signature on generated on computers
Rule 11(1) of Central Excise Rules and rule 4 A(1) of Service Tax Rules state that invoice should be ‘signed’. It does not say that it should be signed in link. Thus, even mechanical signature means it is ‘signed’.
Further, even if not signed, it is at the most a technical lapse. It is well settled that a substantive benefit cannot be lost on account of procedural lapses.
Industry is not static. There are continuous progresses therein. New processes and methods are developed and new material and components or types of components supersede others. It is unreasonable to give a static interpretation to words used in a tariff schedule by ignoring the rapid march of technology – Progress cannot be stifled by over rigid interpretation – CCCE v. Lekhraj Jessumal and Sons 1996 (82) ELT 162 13 RLT 300 101 STC 480 (SC) AIR 1997 SC 145.
Wrong or different address given – In CCE v. Jammu Woodplast 2000 (121) ELT 777 (CEGAT SMB), Cenvat was permitted when the only defect was that address of assessee was different, which occurred due to clerical mistake of consigner’s staff – same view in Om Textiles v. CCE 2006 (199) ELT 47 (CESTAT) * Strides Research v. CCE (2008) 227 ELT 479 (CESTAT SMB).
Invoice in name of Head Office/administrative office – Invoice with address of Head Office is eligible for Cenvat credit –Modern Petrofils v. CCE (2010) 29 STT 111 (CESTAT SMB) * CCE v. Chamundi Textiles (2010) 270 ELT 531 50 VST 217 (CESTAT SMB) * Krisha Maruti v. CCE (2012) 34 STT 576 18 taxmann.com 225 (CESTAT SMB).
Cenvat credit cannot be denied only on the ground that invoice is on address of administrative office – Moving Picture Company v. CST (2012) 34 STT 33 (Mag) 16 taxmann.com 74 (CESTAT) * Krishna Maruti v. CCE (2012) 277 ELT 357 (CESTAT SMB).
Is name of user of goods/receiver of services using inputs/input services necessary on Invoice?
In Wiptech Peripherals v. CCE (2009) 19 STT 306 (CESTAT SMB), it was held that Cenvat credit on mobile phones will be eligible even if the cell phones are in name of employees, if the phone is used for business of assessee.
In CCE v. Proctor and Gamble (2010) 258 ELT 268 (CESTAT SMB), invoice showed name of job worker ‘On account’ of Principle Manufacturer. Job worker certified that he has not availed Cenvat credit. It was held that Principal Manufacturer can avail Cenvat credit.
This is indeed correct as Central Excise Duty is on ‘manufacture’ – ‘ownership’ is irrelevant.
Cenvat Credit Rule 3(1) also makes it clear that a manufacturer/service provider shall be allowed to take credit of duty paid on inputs received in the factory/premises of service provider – it does not mention about ‘purchase’ of capital goods at all.
In a contrary decision, in Prakash Strips P Ltd. v. CCE 1998 (100) ELT 155 (CEGAT), Cenvat credit was denied when the invoice did not contain name of assessee as consignee. In Bazpur Coop Sugar Factory v. CCE 1998 (104) ELT 372 (CEGAT), Cenvat was denied when invoice was not in the name of manufacturer – similar decision in Steel Authority of India v. CCE (2008)227 ELT 265 (CESTAT).
Transfer to another unit – In Schlafhorst Engineering v. CCE 1999 (108) ELT 299 (CEGAT), it was held that exchanges between units by multi-unit manufacturer can be made by endorsement of invoice even after 1-9-1994, i.e. even after introduction of system of dealer’s invoice.
In Ajay Poly v. CCE (2011) 273 ELT 85 (CESTAT SMB), it was held that goods received wrongly in one factory of manufacturer can be transferred to other factory by endorsement of invoice/Bill of Entry.
In a contrary decision, in CCE v. Lakshmi Mills Co. Ltd. 1999 (105) ELT 101 (CEGAT), it was held that transfer of goods to another unit of same company should be under invoice under rule 57G [Now comparable rule is 3(4)] and not by endorsement of invoice
Supplementary Invoice by supplier-manufacturer or service provider for differential excise duty/service tax
It is possible that a manufacturer who had supplied input/capital goods and who had paid duty on such inputs/capital goods may have to pay further duty on these inputs/capital goods on account of any demand or audit objection or finalization of provisional assessment or on account of cost escalation granted by buyer or for any other reason. Similarity, a service provider may be liable to pay additional service tax at a later stage.
In such cases, the other manufacturer who is using that input/capital goods will get further credit of additional duty paid by the supplier of inputs/capital goods or additional service tax paid by service provider.
If supplementary invoice can be issued by manufacturer on account of price rise given by buyer, the buyer can avail Cenvat credit – Ispat Industries v. CCE (2008) 221 ELT 540 (CESTAT).
Bill of Entry
Cenvat credit is available on additional duty (CVD) paid on imported goods [Rule 9(1)(c)].
As per Customs procedures, customs duty is payable by using a document called ‘Bill of Entry’. This is the authentic document regarding payment of CVD.
Cenvat credit is available even if Bill of Entry is only provisionally assessed and not finally assessed – Monarch Catalyst v. CCE (2012) 278 ELT 668 (CESTAT).
– If Bill of Entry is name of head of office, Cenvat credit will be available if there is declaration on Bill of Entry that goods are imported on account of a particular factory. This declaration should be on reverse of triplicate copy of Bill of Entry (duplicate copy in case of EDI system) and should be endorsed by Customs Officer. In case of clearness from bonded warehouse from where goods are diverted to a particular factory (either entire consignment or part consignment), there should be a declaration on reverse of third copy of Ex-bond Bill of Entries will be verified Range Superintendent. – CBE&C Circular No. 179/13/96CX dated 29-2-1996. Pune Commissionerate TN 40/96 dated 16.4.1996.
In Krishna Insulation v. CCE – (1996) 84 ELT 220 7 RLT 59 (CEGAT), Kay Polyplast Ltd. v. CCE (1996) 83 ELT 681 (CEGAT), Shri Krishna Strips Ltd. v. CCE – 1995 (10) RLT 650 (CEGAT), Filament India Ltd. v. CCE – 1996 (84) ELT 214 (CEGAT), Superpax India Pvt. Ltd. v. CCE 1997 (94) ELT 144 (CEGAT), Gehring India v. C 1997 (96) ELT 74 (CEGAT), Reckitt & Colman India Ltd. v. CCE – 1996 (86) ELT 299 (CEGAT),. , Cenvat credit was allowed on basis of endorsed Bill of Entry.
In Maruti Udyog v. CCE 2004(165) ELT 226 (CESTAT), it has been held that Cenvat credit can be availed on basis of endorsed Bill of Entry – same view in CCE v. Pepsi Foods (2010) 254 ELT 284 (P&H HC DB). – same view in CCE v. Sunder Castings (2007) 7 STR 24 223 ELT 59 (CESTAT), where it was held that endorsed Bill of Entry is Permissible even if part of consignment is transferred.
q Sale on high seas – In case of high sea sales, Cenvat credit can be taken on basis of endorsed Bill of Entry – Maharaja International Ltd. v. CCE – (1996) 84 ELT 466 (CEGAT). If Bill of Entry indicates name of person who has purchased goods on high seas sale and has cleared goods from harbour, further endorsement or certificate from customs authorities is not necessary. Cenvat credit can be taken on such Bill of Entry – Mayura Caps v. CCE 1997 (95) ELT 493 (CEGAT).
Other documents eligible for Cenvat credit
Other documents which are eligible got taking Cenvat credit are as follows:
Invoice/bill/ challan of service provider – An invoice, bill or challan issued by a provider of input service on or after 10-9-2004 will be an eligible document [rule 9(1)(f)]
Invoice from depot or consignment agent – Invoice issued by manufacturer from depot or premises of consignment agent or any other premises where goods are sold on behalf of manufacturer is eligible for availing Cenvat credit [rule 9(1)(a)(i)(I)]. The duty is paid by manufacturer, which is passed on by the depot/consignment agent. However, the depot/consignment agent of manufacturer is not a ‘first stage dealer’. The depot/consignment agent should be registered with Central Excise.
Invoice of Registered Imported – An importer may import goods in bulk and then sell them to local buyers from his godown. In such case, Cenvat of CVD paid can be claimed on basis of invoice of the imported. The importer must be registered with Central Excise and his Invoice should contain details similar to those required for Dealer’s Invoice. Invoice issued from depot or consignment agent of importer is also eligible for availing Cenvat Credit [rule 9(1)(a)(ii) and 9(1)(a)(iii)].
Invoice of first stage and second stage dealer – Sometimes, goods are dispatched by manufacturer to his depot and then sold from there.
Often goods are purchased in bulk by wholesaler/distributor from manufacturer’s factory or from manufacturer’s depot and then subsequently sold.
These may be bought by sub-dealer and then sold to ultimate user (who will avail the credit). In such case, the dealer who has purchased goods from manufacturer or manufacturer’s depot or sub-dealer who has purchased from wholesaler/distributor will raise an invoice.
Only first stage and second stage dealers can issue Cenvatable Invoice. The dealer issuing such Invoice must be registered with Central Excise. The Invoice should contain details as prescribed [rule 9(1)(a)(iv)].
Transit sale – In case of transit sale, dealer’s invoice is not requires. Cenvat can be availed by buyer on the basis of invoice issued by manufacturer. Invoice can be in name of dealer through whom goods are purchased, provided that name of buyer appears as consignee.
Certificate issued by Appraiser of Customs in post office – A certificate issued by an appraiser of customs in respect of goods imported through a foreign post office is an eligible document for Cenvat credit. [Of course, only CVD portion of duty will be eligible for Cenvat credit] [rule 9(1)(d)]
Payment of further CVD subsequent to clearance – It may happen that assessee may pay customs duty on provisional basis and may pay further duty subsequent to clearance from the customs. In such case, he can take Cenvat credit of further CVD paid by you subsequent to clearance. He can take credit on basis of challan or any other document by which he paid the further duty. Such challan or other document will be treated as ‘supplementary invoice’ – Explanation to Rule 9(1)(b).
in CCE v. Ennore Foundries (2009) 244 ELT 288 (CESTAT), it was held that differential credit of CVD can be taken on basis of certificate issued by Appraising Officer, Customs.
In Lakshmi Automatic Loom Works v. CCE (2010) 259 ELT 545 (CESTAT SMB), duty was paid later as initially goods were cleared without payment of duty under advance authorization. It was held that Cenvat credit can be taken on basis of Certificate from Customs authorities.
Debit Note issued by service provider
In Chemplast Sanmar Ltd. v. CCE (2009) 21 STT 283 = 16 STR 94 = 2009 TIOL 443 (CESTAT), assessee availed Cenvat credit on basis of debit note. The document contained all the required details as required in invoice or challan. It was prima facie held that Cenvat credit cannot be denied solely on the basis that document was titled as ‘debit note’ – same view in Pharmalab Process v. CCE (2009) 242 ELT 467 (CESTAT SMB) * Pallipalayan Spinners v. CCE (2010) 28 STT 424 (CESTAT SMB) * CCE v. Jalaram Plastic Pack (2012) 35 STT 94 = 19 taxamann.com 184 (CESTAT SMB).
There is contrary view in Godrej Consumer Products Ltd. v. CCE (2011) 30 STT 48 (CESTAT SMB).
In Shriram Pistons v. CCE (2012) 281 ELT 90 (CESTAT), it was held that Cenvat credit is allowable on the basis of letter issued by Head Office (as Input Service Distributor) even if not mentioned as invoice or challan, if it contains all required details.
In CCE v. Graphite (I) (2007) 212 ELT 54 (CESTAT SMB), Cenvat credit on basis of ‘cash memo’ was held as admissible. It was observed that hyper technicalities should not be made to disallow Cenvat credit.
In CCE v. Gwalior Chemicals (2011) 274 ELT 97 (CESTAT SMB), it was held that Cenvat credit can be taken on basis of document titles ‘Debit Note cum Bill’.
Section 67 of Finance Act, states that ‘gross amount charged’ includes debit notes. Thus, charging service tax by debit note is recognized by Statute itself. A rule cannot be override provisions of Statute.
The words used in rule 4A(1) of Service Tax Rules are ‘invoice, challan or Bill’. Rule 11 of Central Excise Rules specified the document as ‘Invoice’. This indicates that in case of service tax, specific nomenclature is not essential.
In fact, first and second proviso to rule 4A(1) uses the term ‘any document, by whatever name called’. Thus, rules do envisage flexibility in nomenclature depending on trade and business practices. Different practices are followed in different trades. Nomenclature can vary from trade to trade or business to business.
As per rule 5(1) of Service Tax Rules, the records maintained by assessee including computerized data maintained by assessee in accordance with various other laws are acceptable. Thus, private documents maintained in normal course of business are acceptable. No special records or registers or change in business practices envisaged. This is also indicates that law does not envisage that trade should change its normal practices.
As per Explanation (c) to section 67 Finance Act, 1994, “Gross amount charged” includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment. Thus, charging of any amount by debit note and credit note has been accepted.
Responsibility of person taking Cenvat credit
If there is even minor defect in duty paying document, assessee is required to seek permission of AC/DC for availing Cenvat credit.
Burden of proof on manufacturer or service provider – Rule 9(5) of Cenvat Credit Rules states that burden of proof regarding admissibility of Cenvat credit shall be on manufacturer of final product or provider of output services. Really, the manufacturer can only provide proof over which he has control.
Is the person availing credit responsible to check dealer’s records? – Rule 9(4) of Cenvat Credit Rules states that Cenvat credit of inputs or capital goods purchased from a first stage or second stage dealer shall be allowed only if such dealer has maintained proper records and amount of duty on pro rata basis has been indicated in the invoice issued by him. Now, the buyer has absolutely no control over these aspects and he has to rely on the invoice issued by the dealer. How can he ensure compliance with these requirements?
Buyer not responsible for fraud of supplier – In R S Industries v. CCE 2003 (153) ELT 114 (CEGAT), the manufacturer supplied goods to buyer on duty paying document. The manufacturer had availed Cenvat credit on inputs fraudulently. It was held that the buyer is not responsible for fraud of supplier and he is entitled to Cenvat credit on basis of a valid duty paying document.
Buyer/service receiver cannot produce evidence that the supplier/service provider has actually paid duty/service tax – Buyer or service receiver cannot prove that the supplier of goods/provider of service has actually paid the excise duty/service tax. In Aarvee Denims v. CCE (2009) 22 STT 356 (CESTAT SMB), it was held that assessee cannot be expected to produce evidence to show that service provider has actually deposited dues with Government. Documentary evidence showing collection of service tax from assessee would meet requirement of law (same principle would apply to excise duty also).
Procedure for Cenvat
The main procedures for availment of Cenvat are –
Maintaining records of inputs and capital goods
Maintaining records of credit received and utilised
Submit returns of details of Cenvat credit availed, Principal Inputs and utilization of Principal Inputs in Forms ER – 1 to ER – 8.
Returns by dealer/service provider/input service distributor
Returns of inputs and capital goods – The manufacturer of final products or provider of output service or input service distributor shall maintain proper records for the receipt, disposal, consumption and inventory of the inputs and capital goods. The record should contain relevant information regarding (a) value (b) duty paid (c) Cenvat credit taken and utilised (d) the person from whom inputs/capital goods have been procured. Burden of proof regarding admissibility of Cenvat credit is on the manufacturer or provider of output service taking the credit – Rule 9(5) of Cenvat Credit Rules.
Record of input services – The manufacturer of final products or the provider of output service shall maintain proper records for receipt and consumption of the input services. The record should contain relevant information regarding – (a) Value of service (b) Tax paid (c) Cenvat Credit taken and utilised (d) Person from whom input service has been procured. The burden of proof regarding the admissibility of Cenvat credit shall lie upon the person taking such credit. [rule 9(6)].
Cenvat Credit Record – Cenvat Credit record should be maintained, which is similar to PLA. It is a current account of Cenvat credit received, credit utilised and credit balance. This should give details of (a) credit availed against each input/capital goods (b) credit utilised against clearance of final products or removal of inputs as such or after processing or removal of capital goods as such (c) balance credit available.
No Interest if wrong credit reversed on own – In Emmllen Biotech v. CCE 2004 (163) ELT 172 (CEGAT), it was held that if Cenvat credit wrongly taken is reversed before issue of show cause notice, interest is not payable quoted and followed in Hari Krishna Steel Corporation v. CCE 2006 (194) ELT 63 (CESTAT) [see also case law under ‘penalty’ in another chapter].
Returns under Cenvat
A manufacturer has to submit returns to Range Superintendent of Central Excise in the prescribed forms ER – 1 to ER – 8 in respect of Cenvat Availed, Principal Inputs, utilization of Principal inputs etc. Others have to submit returns as follows-
Quarterly return by first stage/second stage dealer within 15 days from close quarter [rule 9(8)]
Half yearly within 25 days from close of half year, by provider of output services [rule 9(9) of Cenvat Credit Rules prescribes time of one month but rule 7(2) of Service Tax Rules allows only 25 days] Return should be in form ST-3 electronically.
Half yearly return within one month from close of half year, by Input Service Distributor [rule 9(10) of Cenvat Credit Rules] Return should be in form ST – 3
Compulsory e-filing of returns – All dealers, manufacturers and service providers have to file return electronically only w.e.f. 1-10-2011.
Revised return – A revised return can be filed by a service provider within 60 days of filing of original return [rule 9(11) inserted w.e.f.1-3-2007]. This facility is only to service providers and not to manufacturers.
Though the Rule 7B of Service Tax Rules,1994 provides that Revised ST-3 to correct a mistake or omission , can be filed within period of [ Ninety days ] [inserted w.e.f. 1.3.2008] , from the date of submission of the return under rule 7.
If assessee has not taken Cenvat credit of certain inputs, input services or capital goods, and mistake comes to notice after 60 days, he can avail it in subsequent period, since there is no time limit for availing Cenvat credit. This will be reflected in his return for that subsequent period, as in normal course.
Records to be maintained for Cenvat
Cenvat Rules do not prescribe any statutory records. However, quantitative record of inputs and capital goods is required as per rule 9(5) of Cenvat Credit Rules. Record of service tax credit is required as per rule 9(6).
Record of Cenvat credit taken and utilized is required to be maintained so that monthly/quarterly return can be submitted in prescribed form.
Records can be maintained on computers.
Documents, Accounts and Returns for CENVAT
RULE -9: Documents, Records and Returns
Statutory Provisions
(1) The CENVAT credit shall be taken by the manufacturer or the provider of output service or input service distributor, as the case may be, on the basis of any of the following documents, namely :-
(a) an invoice issued by-
(i) a manufacturer for clearance of –
(I) inputs or capital goods from his factory or depot or from the 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;
(II) inputs or capital goods as such;
(ii) an importer;
(iii) an importer from his depot or from the premises of the consignment agent of the said importer if the said depot or the premises, as the case may be, is registered in terms of the provisions of Central Excise Rules, 2002;
(iv) a first stage dealer or a second stage dealer, as the case may be, in terms of the provisions of Central Excise Rules, 2002; or
(b) a supplementary invoice, issued by a manufacturer or importer of inputs or capital goods in terms of the provisions of Central Excise Rules, 2002 from his factory or depot or from the premises of the consignment agent of the said manufacturer or importer or from any other premises from where the goods are sold by, or on behalf of, the said manufacturer or importer, in case additional amount of excise duties or additional duty leviable under section 3 of the Customs Tariff Act, has been paid, except where the additional amount of duty became recoverable from the manufacturer or importer of inputs or capital goods on account of any non-levy or short-levy by reason of fraud, collusion or any wilful misstatement or suppression of facts or contravention of any provisions of the Excise Act, or of the Customs Act, 1962 (52 of 1962) or the rules made there under with intent to evade payment of duty.
Explanation.- For removal of doubts, it is clarified that supplementary invoice shall also include challan or any other similar document evidencing payment of additional amount of additional duty leviable under section 3 of the Customs Tariff Act; or
(bb) a supplementary invoice, bill or challan issued by a provider of output service, in terms of the provisions of Service Tax Rules, 1994 except where the additional amount of tax became recoverable from the provider of service on account of non-levy or non-payment or short-levy or short-payment by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Finance Act or of the rules made there under with the intent to evade payment of service tax.
(c) a bill of entry; or
(d) a certificate issued by an appraiser of customs in respect of goods imported through a Foreign Post Office; or
(e) a challan evidencing payment of service tax, by the service recipient as the person liable to pay service tax; or
(f) an invoice, a bill or challan issued by a provider of input service on or after the 10th day of, September, 2004; or
(g) an invoice, bill or challan issued by an input service distributor under rule 4A of the Service Tax Rules, 1994.
Provided that the credit of additional duty of customs levied under sub-section (5) of section 3 of the Customs Tariff Act, 1975 (51 of 1975) shall not be allowed if the invoice or the supplementary invoice, as the case may be, bears an indication to the effect that no credit of the said additional duty shall be admissible;
(2) No CENVAT credit under sub-rule(1) shall be taken unless all the particulars as prescribed under the Central Excise Rules, 2002 or the Service Tax Rules, 1994, as the case may be, are contained in the said document:
Provided that if the said document does not contain all the particulars but contains the details of duty or service tax payable, description of the goods or taxable service, assessable value, central excise or service tax registration number of the person issuing the invoice, as the case may be, name and address of the factory or warehouse or premises of first or second stage dealers or provider of output service, and the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, is satisfied that the goods or services covered by the said document have been received and accounted for in the books of the account of the receiver, he may allow the CENVAT credit.
(3) [Omitted]
(4) The CENVAT credit in respect of input or capital goods purchased from a first stage dealer or second stage dealer shall be allowed only if such first stage dealer or second stage dealer, as the case may be, has maintained records indicating the fact that the input or capital goods was supplied from the stock on which duty was paid by the producer of such input or capital goods and only an amount of such duty on pro rata basis has been indicated in the invoice issued by him.
(5) The manufacturer of final products or the provider of output service shall maintain proper records for the receipt, disposal, consumption and inventory of the input and capital goods in which the relevant information regarding the value, duty paid, CENVAT credit taken and utilized, the person from whom the input or capital goods have been procured is recorded and the burden of proof regarding the admissibility of the CENVAT credit shall lie upon the manufacturer or provider of output service taking such credit.
(6) The manufacturer of final products or the provider of output service shall maintain proper records for the receipt and consumption of the input services in which the relevant information regarding the value, tax paid, CENVAT credit taken and utilized, the person from whom the input service has been procured is recorded and the burden of proof regarding the admissibility of the CENVAT credit shall lie upon the manufacturer or provider of output service taking such credit.
(7) The manufacturer of final products shall submit within ten days from the close of each month to the Superintendent of Central Excise, a monthly return in the form specified, by notification, by the Board:
Provided that where a manufacturer is availing exemption under a notification based on the value or quantity of clearances in a financial year, he shall file a quarterly return in the form specified, by notification, by the Board within ten days after the close of the quarter to which the return relates.
(8) A first stage dealer or a second stage dealer, as the case may be, shall submit within fifteen days from the close of each quarter of a year to the Superintendent of Central Excise, a return in the form specified, by notification, by the Board.
Provided that the first stage dealer or second stage dealer, as the case may be, shall submit the said return electronically.
(9) The provider of output service availing CENVAT credit, shall submit a half yearly return in form specified, by notification, by the Board to the Superintendent of Central Excise, by the end of the month following the particular quarter or half year.
(10) The input service distributor, shall furnish a half yearly return in such form as may be specified, by notification, by the Board, giving the details of credit received and distributed during the said half year to the jurisdictional Superintendent of Central Excise, not later than the last day of the month following the half year period.
(11) The provider of output service, availing CENVAT credit referred to in sub-rule (9) or the input service distributor referred to in sub-rule (10), as the case may be, may submit a revised return to correct a mistake or omission within a period of sixty days from the date of submission of the return under sub-rule (9) or sub-rule (10), as the case may be.
9A. Information relating to principal inputs.
(1) A manufacturer of final products shall furnish to the Superintendent of Central Excise, annually by 30th April of each Financial Year, a declaration in the Form specified, by a notification, by the Board, in respect of each of the excisable goods manufactured or to be manufactured by him, the principal inputs and the quantity of such principal inputs required for use in the manufacture of unit quantity of such final products:
Provided that for the year 2004-05, such information shall be furnished latest by 31st December, 2004.
[Omitted]
(2) If a manufacturer of final products intends to make any alteration in the information so furnished under sub-rule (1), he shall furnish information to the Superintendent of Central Excise together with the reasons for such alteration before the proposed change or within 15 days of such change in the Form specified by the Board under sub-rule (1).
(3) A manufacturer of final products shall submit, within ten days from the close of each month, to the Superintendent of Central Excise, a monthly return in the Form specified, by a notification, by the Board, in respect of information regarding the receipt and consumption of each principal inputs with reference to the quantity of final products manufactured by him.
[Omitted]
(4) The Central Government may, by notification and subject to such conditions or limitations, as may be specified in such notification, specify manufacturers or class of manufacturers who may not be required to furnish declaration mentioned in sub-rule (1) or monthly return mentioned in sub-rule (3).
(5) Every assessee shall file electronically, the declaration or the return, as the case may be, specified in this rule.
Explanation: For the purposes of this rule, “principal inputs”, means any input which is used in the manufacture of final products where the cost of such input constitutes not less than 10% of the total cost of raw-materials for the manufacture of unit quantity of a given final products.
Commentary
CENVAT Credit on Input, Input Services and Capital Goods can be Obtained as follows :
Rule 9(1) of Cenvat Credit Rules prescribes that Cenvat Credit can be taken on the basis of ;
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 from his premises or consignment registered with Central Excise
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 customs in respect of goods imported through foreign post office
GAR-7 challan evidencing payment of service tax by the service recipient as the person liable to pay service tax
Invoice , bill or Challan issued by provider of input service on or after 10-09-2004
Invoice, Bill or Challan issued by input service distributor under rule 4A of Service Tax Rules.
Credit can be on the basis of any copy – Earlier, Cenvat credit was allowable only on basis of Invoice copy marked ‘Duplicate for Transport’. Now there is no such copy specified.
Credit can be taken on basis of own invoice – In Madhava Laxmi Mills Ltd. v. CCE (2006) 3 STT 147 (CESTAT), assessee cleared manufactured goods (single yarn) to job workers for purpose of doubling. After return of double yarn (which was intermediate product), assessee too Cenvat credit on the basis of his own invoices. It was held that assessee is within his right to do so.
Cenvat credit can be taken on basis of own invoice – Godavari Sugar Mills v. CCE 2006 (196) ELT 74 (CESTAT).
No Cenvat on Photostat/Xerox copy? – Cenvat credit cannot be taken on basis of Photostat/Xerox copy of Invoice – Nexus Computers v. CCE 2005 (190) ELT 55 (CESTAT) * CC v. Avis Electronics (2000) 117 ELT 571 (CESTAT Large bench) * CCE v. Vandana Energy (2008) 9 STR 31 = 223 ELT 83 (CESTAT SMB) * CCE v. Survoday Blending (2012) 278 ELT 373 (CASTAT SMB) * DSM Sugar v. CCE (2013) 287 ELT 236 (CESTAT SMB).
Credit if duty paying document is lost
There is no specific provision to avail Cenvat credit if all copies of duty paying documents are lost.
As per proviso to rule 9(2), if prescribed document contains required minimum details but does not contain all details and if Jurisdictional Assistant/Deputy Commissioner is satisfied that such goods or services covered by the document have been received and accounted for in books of account receiver, he may allow Cenvat credit.
Thus, document containing prescribed minimum details should be available. The rule makes no provision of situation where no document is available at all.
In Bombay Goods Transport Assn v. UOI 1995(77) ELT 521 (Born HC DB), it was held that MODVAT credit (based on certified copy or authenticated copy) cannot be mechanically disallowed. Assessee can prove that excisable goods used had been subjected to duty.
Can permission of AC/DC be taken post facto – One issue is whether assessee can take credit and apply for permission post facto, or when objection is raised during audit.
The proviso to rule 9(2) does not prescribe any procedure or time limit for submitting application for permission of AC/DC. In fact, the wording is such that AC/DC can allow credit even on his own i.e. suo motu, without making any specific application.
Further, proviso to rule 9(2) does not require prior approval or permission. In LIC of India v. Escorts Ltd. – AIR 1986 SC 1370 (1986) 59 Comp Cas 548 (SC) (1986) 1 SCC 264 (1986) 8 ECC 189, it has been held that as long as law does not state that prior approval should be obtained , such approval can be given later with retrospective effect. – followed in Date & Carrington Investment v. PK Prathapan (2004) 54 SCL 601 122 Comp Cas 161 AIR 2005 SC 1624 2004 AIR SCW 5143 * Texmaco Ltd. v. Dy Director, Enforcement (1997) 88 Comp Cas 228 (Cal HC DB).
In CCE v. System India (2008) 232 ELT 459 (CESTAT SMB), assessee took credit on basis of original invoice instead of duplicate invoice. It was held that AC/DC can grant post facto permission.
Thus, it can be argued that post facto approval can be given, after objection is raised by excise audit party.
Unsigned invoice or printed signature on generated on computers
Rule 11(1) of Central Excise Rules and rule 4 A(1) of Service Tax Rules state that invoice should be ‘signed’. It does not say that it should be signed in link. Thus, even mechanical signature means it is ‘signed’.
Further, even if not signed, it is at the most a technical lapse. It is well settled that a substantive benefit cannot be lost on account of procedural lapses.
Industry is not static. There are continuous progresses therein. New processes and methods are developed and new material and components or types of components supersede others. It is unreasonable to give a static interpretation to words used in a tariff schedule by ignoring the rapid march of technology – Progress cannot be stifled by over rigid interpretation – CCCE v. Lekhraj Jessumal and Sons 1996 (82) ELT 162 13 RLT 300 101 STC 480 (SC) AIR 1997 SC 145.
Wrong or different address given – In CCE v. Jammu Woodplast 2000 (121) ELT 777 (CEGAT SMB), Cenvat was permitted when the only defect was that address of assessee was different, which occurred due to clerical mistake of consigner’s staff – same view in Om Textiles v. CCE 2006 (199) ELT 47 (CESTAT) * Strides Research v. CCE (2008) 227 ELT 479 (CESTAT SMB).
Invoice in name of Head Office/administrative office – Invoice with address of Head Office is eligible for Cenvat credit –Modern Petrofils v. CCE (2010) 29 STT 111 (CESTAT SMB) * CCE v. Chamundi Textiles (2010) 270 ELT 531 50 VST 217 (CESTAT SMB) * Krisha Maruti v. CCE (2012) 34 STT 576 18 taxmann.com 225 (CESTAT SMB).
Cenvat credit cannot be denied only on the ground that invoice is on address of administrative office – Moving Picture Company v. CST (2012) 34 STT 33 (Mag) 16 taxmann.com 74 (CESTAT) * Krishna Maruti v. CCE (2012) 277 ELT 357 (CESTAT SMB).
Is name of user of goods/receiver of services using inputs/input services necessary on Invoice?
In Wiptech Peripherals v. CCE (2009) 19 STT 306 (CESTAT SMB), it was held that Cenvat credit on mobile phones will be eligible even if the cell phones are in name of employees, if the phone is used for business of assessee.
In CCE v. Proctor and Gamble (2010) 258 ELT 268 (CESTAT SMB), invoice showed name of job worker ‘On account’ of Principle Manufacturer. Job worker certified that he has not availed Cenvat credit. It was held that Principal Manufacturer can avail Cenvat credit.
This is indeed correct as Central Excise Duty is on ‘manufacture’ – ‘ownership’ is irrelevant.
Cenvat Credit Rule 3(1) also makes it clear that a manufacturer/service provider shall be allowed to take credit of duty paid on inputs received in the factory/premises of service provider – it does not mention about ‘purchase’ of capital goods at all.
In a contrary decision, in Prakash Strips P Ltd. v. CCE 1998 (100) ELT 155 (CEGAT), Cenvat credit was denied when the invoice did not contain name of assessee as consignee. In Bazpur Coop Sugar Factory v. CCE 1998 (104) ELT 372 (CEGAT), Cenvat was denied when invoice was not in the name of manufacturer – similar decision in Steel Authority of India v. CCE (2008)227 ELT 265 (CESTAT).
Transfer to another unit – In Schlafhorst Engineering v. CCE 1999 (108) ELT 299 (CEGAT), it was held that exchanges between units by multi-unit manufacturer can be made by endorsement of invoice even after 1-9-1994, i.e. even after introduction of system of dealer’s invoice.
In Ajay Poly v. CCE (2011) 273 ELT 85 (CESTAT SMB), it was held that goods received wrongly in one factory of manufacturer can be transferred to other factory by endorsement of invoice/Bill of Entry.
In a contrary decision, in CCE v. Lakshmi Mills Co. Ltd. 1999 (105) ELT 101 (CEGAT), it was held that transfer of goods to another unit of same company should be under invoice under rule 57G [Now comparable rule is 3(4)] and not by endorsement of invoice
Supplementary Invoice by supplier-manufacturer or service provider for differential excise duty/service tax
It is possible that a manufacturer who had supplied input/capital goods and who had paid duty on such inputs/capital goods may have to pay further duty on these inputs/capital goods on account of any demand or audit objection or finalization of provisional assessment or on account of cost escalation granted by buyer or for any other reason. Similarity, a service provider may be liable to pay additional service tax at a later stage.
In such cases, the other manufacturer who is using that input/capital goods will get further credit of additional duty paid by the supplier of inputs/capital goods or additional service tax paid by service provider.
If supplementary invoice can be issued by manufacturer on account of price rise given by buyer, the buyer can avail Cenvat credit – Ispat Industries v. CCE (2008) 221 ELT 540 (CESTAT).
Bill of Entry
Cenvat credit is available on additional duty (CVD) paid on imported goods [Rule 9(1)(c)].
As per Customs procedures, customs duty is payable by using a document called ‘Bill of Entry’. This is the authentic document regarding payment of CVD.
Cenvat credit is available even if Bill of Entry is only provisionally assessed and not finally assessed – Monarch Catalyst v. CCE (2012) 278 ELT 668 (CESTAT).
– If Bill of Entry is name of head of office, Cenvat credit will be available if there is declaration on Bill of Entry that goods are imported on account of a particular factory. This declaration should be on reverse of triplicate copy of Bill of Entry (duplicate copy in case of EDI system) and should be endorsed by Customs Officer. In case of clearness from bonded warehouse from where goods are diverted to a particular factory (either entire consignment or part consignment), there should be a declaration on reverse of third copy of Ex-bond Bill of Entries will be verified Range Superintendent. – CBE&C Circular No. 179/13/96CX dated 29-2-1996. Pune Commissionerate TN 40/96 dated 16.4.1996.
In Krishna Insulation v. CCE – (1996) 84 ELT 220 7 RLT 59 (CEGAT), Kay Polyplast Ltd. v. CCE (1996) 83 ELT 681 (CEGAT), Shri Krishna Strips Ltd. v. CCE – 1995 (10) RLT 650 (CEGAT), Filament India Ltd. v. CCE – 1996 (84) ELT 214 (CEGAT), Superpax India Pvt. Ltd. v. CCE 1997 (94) ELT 144 (CEGAT), Gehring India v. C 1997 (96) ELT 74 (CEGAT), Reckitt & Colman India Ltd. v. CCE – 1996 (86) ELT 299 (CEGAT),. , Cenvat credit was allowed on basis of endorsed Bill of Entry.
In Maruti Udyog v. CCE 2004(165) ELT 226 (CESTAT), it has been held that Cenvat credit can be availed on basis of endorsed Bill of Entry – same view in CCE v. Pepsi Foods (2010) 254 ELT 284 (P&H HC DB). – same view in CCE v. Sunder Castings (2007) 7 STR 24 223 ELT 59 (CESTAT), where it was held that endorsed Bill of Entry is Permissible even if part of consignment is transferred.
q Sale on high seas – In case of high sea sales, Cenvat credit can be taken on basis of endorsed Bill of Entry – Maharaja International Ltd. v. CCE – (1996) 84 ELT 466 (CEGAT). If Bill of Entry indicates name of person who has purchased goods on high seas sale and has cleared goods from harbour, further endorsement or certificate from customs authorities is not necessary. Cenvat credit can be taken on such Bill of Entry – Mayura Caps v. CCE 1997 (95) ELT 493 (CEGAT).
Other documents eligible for Cenvat credit
Other documents which are eligible got taking Cenvat credit are as follows:
Invoice/bill/ challan of service provider – An invoice, bill or challan issued by a provider of input service on or after 10-9-2004 will be an eligible document [rule 9(1)(f)]
Invoice from depot or consignment agent – Invoice issued by manufacturer from depot or premises of consignment agent or any other premises where goods are sold on behalf of manufacturer is eligible for availing Cenvat credit [rule 9(1)(a)(i)(I)]. The duty is paid by manufacturer, which is passed on by the depot/consignment agent. However, the depot/consignment agent of manufacturer is not a ‘first stage dealer’. The depot/consignment agent should be registered with Central Excise.
Invoice of Registered Imported – An importer may import goods in bulk and then sell them to local buyers from his godown. In such case, Cenvat of CVD paid can be claimed on basis of invoice of the imported. The importer must be registered with Central Excise and his Invoice should contain details similar to those required for Dealer’s Invoice. Invoice issued from depot or consignment agent of importer is also eligible for availing Cenvat Credit [rule 9(1)(a)(ii) and 9(1)(a)(iii)].
Invoice of first stage and second stage dealer – Sometimes, goods are dispatched by manufacturer to his depot and then sold from there.
Often goods are purchased in bulk by wholesaler/distributor from manufacturer’s factory or from manufacturer’s depot and then subsequently sold.
These may be bought by sub-dealer and then sold to ultimate user (who will avail the credit). In such case, the dealer who has purchased goods from manufacturer or manufacturer’s depot or sub-dealer who has purchased from wholesaler/distributor will raise an invoice.
Only first stage and second stage dealers can issue Cenvatable Invoice. The dealer issuing such Invoice must be registered with Central Excise. The Invoice should contain details as prescribed [rule 9(1)(a)(iv)].
Transit sale – In case of transit sale, dealer’s invoice is not requires. Cenvat can be availed by buyer on the basis of invoice issued by manufacturer. Invoice can be in name of dealer through whom goods are purchased, provided that name of buyer appears as consignee.
Certificate issued by Appraiser of Customs in post office – A certificate issued by an appraiser of customs in respect of goods imported through a foreign post office is an eligible document for Cenvat credit. [Of course, only CVD portion of duty will be eligible for Cenvat credit] [rule 9(1)(d)]
Payment of further CVD subsequent to clearance – It may happen that assessee may pay customs duty on provisional basis and may pay further duty subsequent to clearance from the customs. In such case, he can take Cenvat credit of further CVD paid by you subsequent to clearance. He can take credit on basis of challan or any other document by which he paid the further duty. Such challan or other document will be treated as ‘supplementary invoice’ – Explanation to Rule 9(1)(b).
in CCE v. Ennore Foundries (2009) 244 ELT 288 (CESTAT), it was held that differential credit of CVD can be taken on basis of certificate issued by Appraising Officer, Customs.
In Lakshmi Automatic Loom Works v. CCE (2010) 259 ELT 545 (CESTAT SMB), duty was paid later as initially goods were cleared without payment of duty under advance authorization. It was held that Cenvat credit can be taken on basis of Certificate from Customs authorities.
Debit Note issued by service provider
In Chemplast Sanmar Ltd. v. CCE (2009) 21 STT 283 = 16 STR 94 = 2009 TIOL 443 (CESTAT), assessee availed Cenvat credit on basis of debit note. The document contained all the required details as required in invoice or challan. It was prima facie held that Cenvat credit cannot be denied solely on the basis that document was titled as ‘debit note’ – same view in Pharmalab Process v. CCE (2009) 242 ELT 467 (CESTAT SMB) * Pallipalayan Spinners v. CCE (2010) 28 STT 424 (CESTAT SMB) * CCE v. Jalaram Plastic Pack (2012) 35 STT 94 = 19 taxamann.com 184 (CESTAT SMB).
There is contrary view in Godrej Consumer Products Ltd. v. CCE (2011) 30 STT 48 (CESTAT SMB).
In Shriram Pistons v. CCE (2012) 281 ELT 90 (CESTAT), it was held that Cenvat credit is allowable on the basis of letter issued by Head Office (as Input Service Distributor) even if not mentioned as invoice or challan, if it contains all required details.
In CCE v. Graphite (I) (2007) 212 ELT 54 (CESTAT SMB), Cenvat credit on basis of ‘cash memo’ was held as admissible. It was observed that hyper technicalities should not be made to disallow Cenvat credit.
In CCE v. Gwalior Chemicals (2011) 274 ELT 97 (CESTAT SMB), it was held that Cenvat credit can be taken on basis of document titles ‘Debit Note cum Bill’.
Section 67 of Finance Act, states that ‘gross amount charged’ includes debit notes. Thus, charging service tax by debit note is recognized by Statute itself. A rule cannot be override provisions of Statute.
The words used in rule 4A(1) of Service Tax Rules are ‘invoice, challan or Bill’. Rule 11 of Central Excise Rules specified the document as ‘Invoice’. This indicates that in case of service tax, specific nomenclature is not essential.
In fact, first and second proviso to rule 4A(1) uses the term ‘any document, by whatever name called’. Thus, rules do envisage flexibility in nomenclature depending on trade and business practices. Different practices are followed in different trades. Nomenclature can vary from trade to trade or business to business.
As per rule 5(1) of Service Tax Rules, the records maintained by assessee including computerized data maintained by assessee in accordance with various other laws are acceptable. Thus, private documents maintained in normal course of business are acceptable. No special records or registers or change in business practices envisaged. This is also indicates that law does not envisage that trade should change its normal practices.
As per Explanation (c) to section 67 Finance Act, 1994, “Gross amount charged” includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment. Thus, charging of any amount by debit note and credit note has been accepted.
Responsibility of person taking Cenvat credit
If there is even minor defect in duty paying document, assessee is required to seek permission of AC/DC for availing Cenvat credit.
Burden of proof on manufacturer or service provider – Rule 9(5) of Cenvat Credit Rules states that burden of proof regarding admissibility of Cenvat credit shall be on manufacturer of final product or provider of output services. Really, the manufacturer can only provide proof over which he has control.
Is the person availing credit responsible to check dealer’s records? – Rule 9(4) of Cenvat Credit Rules states that Cenvat credit of inputs or capital goods purchased from a first stage or second stage dealer shall be allowed only if such dealer has maintained proper records and amount of duty on pro rata basis has been indicated in the invoice issued by him. Now, the buyer has absolutely no control over these aspects and he has to rely on the invoice issued by the dealer. How can he ensure compliance with these requirements?
Buyer not responsible for fraud of supplier – In R S Industries v. CCE 2003 (153) ELT 114 (CEGAT), the manufacturer supplied goods to buyer on duty paying document. The manufacturer had availed Cenvat credit on inputs fraudulently. It was held that the buyer is not responsible for fraud of supplier and he is entitled to Cenvat credit on basis of a valid duty paying document.
Buyer/service receiver cannot produce evidence that the supplier/service provider has actually paid duty/service tax – Buyer or service receiver cannot prove that the supplier of goods/provider of service has actually paid the excise duty/service tax. In Aarvee Denims v. CCE (2009) 22 STT 356 (CESTAT SMB), it was held that assessee cannot be expected to produce evidence to show that service provider has actually deposited dues with Government. Documentary evidence showing collection of service tax from assessee would meet requirement of law (same principle would apply to excise duty also).
Procedure for Cenvat
The main procedures for availment of Cenvat are –
Maintaining records of inputs and capital goods
Maintaining records of credit received and utilised
Submit returns of details of Cenvat credit availed, Principal Inputs and utilization of Principal Inputs in Forms ER – 1 to ER – 8.
Returns by dealer/service provider/input service distributor
Returns of inputs and capital goods – The manufacturer of final products or provider of output service or input service distributor shall maintain proper records for the receipt, disposal, consumption and inventory of the inputs and capital goods. The record should contain relevant information regarding (a) value (b) duty paid (c) Cenvat credit taken and utilised (d) the person from whom inputs/capital goods have been procured. Burden of proof regarding admissibility of Cenvat credit is on the manufacturer or provider of output service taking the credit – Rule 9(5) of Cenvat Credit Rules.
Record of input services – The manufacturer of final products or the provider of output service shall maintain proper records for receipt and consumption of the input services. The record should contain relevant information regarding – (a) Value of service (b) Tax paid (c) Cenvat Credit taken and utilised (d) Person from whom input service has been procured. The burden of proof regarding the admissibility of Cenvat credit shall lie upon the person taking such credit. [rule 9(6)].
Cenvat Credit Record – Cenvat Credit record should be maintained, which is similar to PLA. It is a current account of Cenvat credit received, credit utilised and credit balance. This should give details of (a) credit availed against each input/capital goods (b) credit utilised against clearance of final products or removal of inputs as such or after processing or removal of capital goods as such (c) balance credit available.
No Interest if wrong credit reversed on own – In Emmllen Biotech v. CCE 2004 (163) ELT 172 (CEGAT), it was held that if Cenvat credit wrongly taken is reversed before issue of show cause notice, interest is not payable quoted and followed in Hari Krishna Steel Corporation v. CCE 2006 (194) ELT 63 (CESTAT) [see also case law under ‘penalty’ in another chapter].
Returns under Cenvat
A manufacturer has to submit returns to Range Superintendent of Central Excise in the prescribed forms ER – 1 to ER – 8 in respect of Cenvat Availed, Principal Inputs, utilization of Principal inputs etc. Others have to submit returns as follows-
Quarterly return by first stage/second stage dealer within 15 days from close quarter [rule 9(8)]
Half yearly within 25 days from close of half year, by provider of output services [rule 9(9) of Cenvat Credit Rules prescribes time of one month but rule 7(2) of Service Tax Rules allows only 25 days] Return should be in form ST-3 electronically.
Half yearly return within one month from close of half year, by Input Service Distributor [rule 9(10) of Cenvat Credit Rules] Return should be in form ST – 3
Compulsory e-filing of returns – All dealers, manufacturers and service providers have to file return electronically only w.e.f. 1-10-2011.
Revised return – A revised return can be filed by a service provider within 60 days of filing of original return [rule 9(11) inserted w.e.f.1-3-2007]. This facility is only to service providers and not to manufacturers.
Though the Rule 7B of Service Tax Rules,1994 provides that Revised ST-3 to correct a mistake or omission , can be filed within period of [ Ninety days ] [inserted w.e.f. 1.3.2008] , from the date of submission of the return under rule 7.
If assessee has not taken Cenvat credit of certain inputs, input services or capital goods, and mistake comes to notice after 60 days, he can avail it in subsequent period, since there is no time limit for availing Cenvat credit. This will be reflected in his return for that subsequent period, as in normal course.
Records to be maintained for Cenvat
Cenvat Rules do not prescribe any statutory records. However, quantitative record of inputs and capital goods is required as per rule 9(5) of Cenvat Credit Rules. Record of service tax credit is required as per rule 9(6).
Record of Cenvat credit taken and utilized is required to be maintained so that monthly/quarterly return can be submitted in prescribed form.
Records can be maintained on computers.
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