CENVAT Credit FAQ
What is CENVAT Credit Scheme with reference to Service Tax?
The CENVAT Credit Rules, 2004, introduced with effect from 10.9.2004, provides for availment of the credit of the Service Tax paid on the input services/Central Excise duties paid on inputs/capital goods/Additional Customs duty leviable under section 3 of the Customs Tariff Act, equivalent to the duties of excise. Such credit amount can be utilized towards payment of Service Tax by an assessee on their output services. (Refer to Rule 3 of CENVAT Credit Rules, 2004). 28 Such credit availed by a manufacturer can also be utilized for discharging their liability towards Service Tax and / or Central Excise duties [Refer Rule 3 of CENVAT Credit Rules, 2004 read with Notfn,.No.27/2007- CE(NT) dated 12.05.2007].
What are the duties / taxes that can be availed as credit?
As mentioned at para 1, Duties paid on the inputs and capital goods, and the Service Tax paid on the input? services can be taken as credit. Education Cess paid on the Excise duty and Service Tax can also be taken as credit. However, the credit of such Education Cess availed can be utilized only for payment of Education Cess relating to output service.
The interest and penalty amounts cannot be taken as credit.
Is it compulsory that the inputs / capital goods are to be purchased only from the manufacturers for the purpose of availment of credit?
No. The inputs/capital goods can be procured from the First stage and Second stage dealers also. Those dealers should have registered themselves with the Central Excise Department. The invoices issued by them should contain proper details about the payment of duty on those goods. (Refer Rule 9 of CENVAT Credit Rules, 2004.)
What are the records to be maintained by the persons availing credit?
There is no specific format of records to be maintained. However, they have to maintain adequate records showing the details such as receipt, disposal, consumption and inventory of inputs and capital goods, the amount of credit taken and utilized etc. (Refer rule 9(5) of CENVAT Credit Rules, 2004).
Whether Cenvat credit is admissible on capital goods which are exclusively used in providing exempted goods?
No.
Is unutilized CENVAT credit refundable?
Refund of accumulated credit is admissible only in case of exports of finished goods or output service. Where any input or input service is used in providing output service or manufacture of goods which are exported, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilized towards payment of service tax on any other output service or excise duty on other excisable goods. If such adjustment is not possible due to any reason, it will be allowed as refund subject to the safeguards, conditions and limitations specified by the Central Government.
Whether service tax paid on Group medi-claim policy, Workmen’s accident policy, landscaping of factory garden etc. can be allowed as credit?
Expenses incurred towards outdoor catering in the canteen of the manufacturer, Medical personal accident policy, group personal accident policy, insurance, personal accident policy, personal vehicle services, landscaping of factory garden, catering bills.
CESTAT, Larger Bench, GTC Industries 2008 (12) STR 468
CESTAT, Bangalore in Millipore India Limited 2009 (236) ELT 145
CESTAT, Mumbai in Endurance Systems India Private Limited 2009 9237) ELT 204
Expenses which form part of manufacturing cost as per CAS 4 will be allowed as credit.
Whether Penalty under section 11AC can be imposed when Cenvat Credit reversed prior to issue of Show Cause Notice.
It was held by CESTAT, Mumbai, that provisions of section 11AC of Central Excise Act, cannot be invoked and penalty equal to duty amount is not imposable when the Cenvat Credit wrongly availed by the assessee was reversed immediately on being notified by the department and the same was done even prior to the issue of SCN. 2009 (237) ELT 95 Balaji Amines Limited.
Whether input service tax credit can be taken on the date of issue of cheque or realisation of cheque?
Credit of service tax paid on input service can be availed only when payment is made. Whether credit should be taken on the date of issue of cheque or realisation of cheque was addressed by the Mumbai Bench of CESTAT in Ahmednagar Forgings Limited, 2009 (14) STR 402. It was held that as the amount of cheques for which credit was raised in PLA was not dishonored and the said amount was credited to the Government treasury the date of issue of cheque to the service provider was the relevant date of taking credit.
What is the position in law when depreciation as well as Cenvat Credit is availed on the Capital Goods?
The appellant ACC Limited had taken depreciation under the Income Tax Act, as well as availed Cenvat Credit on capital goods. The appellant reversed the depreciation as soon as mistake was noticed. It was held that Cenvat Rules do not have provision to allow credit on capital goods on withdrawal of depreciation claim. 2009 (237) ELT 77, Principal Bench, New Delhi.
In Sri Vishnu Shankar Mill Limited, CESTAT, Chennai, 2007 (5) STR 30 the appellant had availed credit and also the depreciation under Income Tax Act. The Cenvat value of goods were deducted by income tax authorities and assessment finalized. Since the Cenvat value of the goods was deducted by the income tax authorities for calculation of taxable income and certified copy of assessment order was produced before the Tribunal it was held that there was no simultaneous
availment of credit and depreciation.
Whether goods which are received beyond the date of their expiry are eligible for Cenvat Credit?
The appellants received duty paid biscuits manufactured by them from one of their customers. They wanted to claim Cenvat Credit on the said goods which were returned. An inquiry was conducted by the Superintendent which revealed that the said biscuits were received after their expiry date printed on the packets and hence were unfit for human consumption. It was held that since the rejected goods are not fit for re-processing or remaking the appellants are not entitled to Cenvat Credit. CESTAT, Principal Bench, New Delhi, U.S.Foods Private Limited 2009 (236) ELT 719.
Whether Capital Goods which are acquired on hire-purchase, lease or loan should be only through a finance company and not otherwise?
The appellants acquired certain capital goods on hire purchase from a Company which is not a Finance Company as per Reserve Bank of India Rules. On reference, the CESTAT, Ahmedabad Bench, granted full stay on the ground that prima facie such condition do not exist in Cenvat Credit Rules. Wimplast Limited 2009 (236) ELT 700.
Whether credit available on inputs/capital goods used in power plant set up by manufacturer?
Service tax paid on charges paid for getting cement brand price and overhauling of DG set installed in power plant. Held, Cenvat credit used on inputs/capital goods used in power plant set up by manufacturer is admissible if final product is dutiable. Hence credit is available on overhauling of DG set installed in power plant. CESTAT, Ahmedabad, Sanghi Industries Limited 2009 (236) ELT 617.
Whether Cenvat Credit is allowed on Mobile Phones?
A common question in the minds of the service providers and manufacturers. It is allowed as there is no specific provision in the Rules to disallow. CESTAT, Mumbai, Indian Rayon & Industries Limited, 2006 (4) STR 79.
Can credit be taken on photo copies of duty paying documents?
Credit taken on photocopy of bill of entry certified by bankers and notary public as triplicate copy of bill of entry was misplaced the information of which was given to the Police and customs authorities. Held that credit was permissible on photocopy of authenticated invoice and triplicate or attested copy of bill of entry. CESTAT, Mumbai, Vardhman Acrylics Limited, 2006 (4) STR 489.
Whether amounts can be collected under Rule 6(3) from the buyers and if so should the same be deposited under Section 11D of the Central Excise Act?
8% amount was debited in the Modvat account and collected from customers. Debited amounts to payment of the stipulated amount. Department contends that amounts collected from customers should be deposited under Section 11D. The Larger Bench of CESTAT held that payment of 8% is as per rules and the appellant has not collected any amount from buyers which are not paid to Government. Since the amounts recovered from the buyers not retained by the appellant there is no question of deposit under section 11D. Section 11D is applicable only when amount collected as duty and it is only to ensure that manufacturers do not collect amounts falsely representing as excise duty and retain the same unjustly. CESTAT, Larger Bench, Unison Metals Limited, 2006 (4) STR 491.
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