cenvat credit international tax ca. group new delhi december 13, 2014 international tax ca. group...

CENVAT CREDIT INTERNATIONAL TAX CA. GROUP New Delhi December 13, 2014 INTERNATIONAL TAX CA. GROUP New Delhi December 13, 2014 Presented by: CA Gaurav Gupta FCA, LLB, DISA Partner MGS & Co.

Concept of Cenvat Credit Cenvat Credit Rules, 2004 CA Gaurav Gupta 2 Customer Total Value of services received = Rs 100 + Service tax of Rs 10 Input services Rs 40 + Service tax of Rs 4 Service provider Value Adds Rs 40 Inputs Rs 20 + Excise Duty of Rs 2 Government Service tax of Rs 4

Overview RulesParticular 1 Extends to whole of India except state of J&K. Applicable from 10.9.04 2Definitions. Certain important definition: 2(a) : Capital Goods 2(d) : Exempted goods 2(e) : Exempted Service 2(k) : Input 2(l) : Input Service 3 Availability of Cenvat Credit of what? Available options of utilisation of Cenvat Credit Reversal of Cenvat Credit on removal as such of inputs and capital goods / removed after being put to use / written off Cenvat Credit Rules, 2004 CA Gaurav Gupta 3

Overview RulesParticular 4Conditions for allowing Cenvat Credit i.e. when to take Cenvat Credit 5Refund of Cenvat Credit 6Obligation of a manufacturer or producer of final products and a provider of output service providing both taxable as well as exempt 7Manner of Distribution of Cenvat Credit by ISD 8Storage of input outside the factory of the manufacturer 9 Required documents for claiming Cenvat Credit Maintenance of records 10.Transfer of Cenvat Credit 11.Transitional Provisions. Cenvat Credit Rules, 2004 CA Gaurav Gupta 4

Overview RulesParticular 12, 12AMiscellaneous Specific provisions 13Power of Central Government to notify goods for deemed CENVAT credit 14Recovery of CENVAT credit wrongly taken or erroneously refunded 15Confiscation and Penalty 15AGeneral Penalty 16Supplementary provisions Cenvat Credit Rules, 2004 CA Gaurav Gupta 5

Conditions Rule 3 RULE 3. 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 paid on - (i)any input or capital goods received in the factory of manufacture of final product or by the provider of output service on or after the 10th day of September, 2004; and (ii)any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004, Cenvat Credit Rules, 2004 CA Gaurav Gupta 6 Excise Duty AED on Goods of special importance AED on Goods of special importance Additional Duty of Customs Section 3 Additional Duty of Customs Section 3 NCCD AED on Textiles AED on Textiles Additional Duty of Customs Section 3(5) Additional Duty of Customs Section 3(5) Education Cess Service Tax Secondary and Higher Education Cess Secondary and Higher Education Cess

Conditions Rule 3 RULE 3. -Includes duties or cess paid on any input or input service, as the case may be, used in the manufacture of intermediate products, by a job-worker availing exemption under No. 214/86- Central Excise -Available credit when goods/ services become taxable Cenvat Credit on stock in hand on the date when such goods/ services becomes taxable: Cenvat Credit Rules, 2004 CA Gaurav Gupta 7 Manufacturer: -inputs lying in stock -in process -inputs contained in the final Manufacturer: -inputs lying in stock -in process -inputs contained in the final Service Provider: -inputs lying in stock Service Provider: -inputs lying in stock

Conditions Rule 3 Rule 3(4) Cenvat Credit Rules, 2004 CA Gaurav Gupta 8 Cevnat Credit utilisatiion An amount under sub-rule (2) of rule 16 of Central Excise Rules CENVAT credit taken on capital goods removed as such Service Tax CENVAT credit taken on inputs when removed as such or after being partially processed Excise on any final product Duty paid goods which are brought to any factory for being re-made, refined, re-conditioned or for any other reason

Conditions Rule 3 Should qualify as either inputs, input services or capital goods Must be used for the provision of output service and to a provider of output service Should not be used exclusively for providing exempt service Special rule when used for both taxable and Exempted Service There should be a proper duty paying document (invoice, bill, etc.) provider of taxable service includes person liable for paying Service Tax. output service means any service provided by a provider of service located in the taxable territory but shall not include a service,- (1) specified in section 66D of the Finance Act; or (2) where the whole of service tax is liable to be paid by the recipient of service Cenvat Credit Rules, 2004 CA Gaurav Gupta 9

What is not an output service -Negative List -Where recipient is liable to pay Insurance agent providing services to person carrying on business of insurance agency Specified service recipient in case of Goods transport agency Sponsorship services provided to a body Corporate or partnership firm located in taxable territory Services by Arbitral Tribunal when provided to any business entity located in taxable territory services provided or agreed to be provided by individual advocate to a Business entity located in taxable territory services provided or agreed to be provided by way of support service by Government or local authority to Business entity located in taxable territory services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on abated value by any individual, Hindu Undivided Family or proprietary firm or partnership firm, located in the taxable territory to any company formed or registered under the Companies Act, 1956 (1 of 1956) or a business entity registered as body corporate located in the taxable territory. service provided or agreed to be provided by any person who is located in non-taxable territory to any person located in taxable territory Cenvat Credit Rules, 2004 CA Gaurav Gupta 10

Restrictions No Cenvat against exempted Services / exempted goods or goods not exigible to excise Effective July 1, 2012, an explanation has been inserted after Rule 3(4) to provide that 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. Interest liability cannot be discharged through Cenvat Credit - CCE, Raigad v. Maharashtra Seamless Ltd. [2009-TIOL-84-CESTAT-MUM] Cenvat credit shall be utilized only to the extent such credit as 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. Cenvat Credit Rules, 2004 CA Gaurav Gupta 11 Creates an blockage in Cenvat Chain as complete service gets taxed and not mere value addition

Restrictions CENVAT credit shall not be utilised for payment of any duty of excise on goods in respect of which the benefit of an exemption under Notification No. 1/2011-C.E., dated the 1st March, 2011 is availed - Advolerem payment of Excise on certain products at reduced rate of 1% 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 No reversal on removal of inputs or capital goods outside premises for provision of output services No reversal where any inputs are removed outside the factory for providing free warranty for final products Rule 3(7) - Credit of the education cess can be utilized for payment of the education cess Rule 3(7) - Credit of the Secondary and Higher Education Cess can be utilized for payment of the Secondary and Higher Education Cess There is no restriction then Cenvat credit of Basic Excise Duty can be used for payment of Education Cess & Secondary Education Cess - 2009 (233) ELT 0221 (Tri. Ahmd.) Commissioner of Central Excise, Vapi Versus Donear Inds. Ltd. Cenvat Credit Rules, 2004 CA Gaurav Gupta 12

Can Cenvat be taken for period prior to Registration Yes Sutham Nylocots v. CCE, Coimbatore [(2005) 188 ELT 26 (Tri-Chennai)], Digital Color Lab v.Commissioner of Central Excise I, Jaipur-I[2012] 27 taxmann.com 232 (New Delhi CESTAT) Is it necessary to render taxable service before availing Cenvat Credit No - Jindal Steel & Power Ltd. v. CCE, Raipur [2008-TIOL-1450- CESTAT-DEL] Does Cenvat on input be reduced on reduction in value of inputs No. Mahaveer Surfactants (P) Ltd. v. CCE, Pondicherry [2008-TIOL-1447- CESTAT-MAD] Can I avail credit relating to prior periods relatable to last year returns Yes, Central Bank of India v. Commissioner of Central Excise & Service Tax, Coimbatore [2012] 26 taxmann.com 274 (Chennai - CESTAT) However restricted to six months wef September 1 2014 Important Points

Can Cenvat Credit when not disputed at Providers end, cannot be disputed at receivers end No. CCE, Ahmedabad-III v Nahar Grinities Limited [2014] 45 taxmann.com 190 (Gujarat)] Can Mere procedural lapse form basis for rejection of available Cenvat Credit No Vimal Enterprise v UOI [2006 (195) E.L.T. 267 (Guj.)] Salzer Controls Limited v. CCE, [2003 (160) E.L.T. 1169 (Tri. - Che)] Raj Khosla & Co. Pvt. Ltd. v. CST, New Delhi reported 2008 (07) LCX0297 Can Cenvat Credit to bona fide Recipient be denied for non payment by provider No. CCE, Jhalandhar v Kay Kay Industries [CIVIL APPEAL No. 7031 of 2009] Important Points

Can I pay interest and penalty from Cenvat Credit No Sutham Nylocots v. CCE, Coimbatore [(2005) 188 ELT 26 (Tri-Chennai)] Can I use Cenvat paid under reverse charge on September 5 for August towards payment of output liability of August No credit as 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 Important Points

Reversal on removal Cenvat Credit Rules, 2004 CA Gaurav Gupta 16 RuleRemoval ofReversal 3(5)inputs or capital goods removed as such 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. Note: in this case, 100% Cenvat Credit is available if Capital goods are removed in the first year 3(5A)(i)capital goods removed after being used CENVAT Credit taken reduced by the percentage points calculated by specified percentage or Duty payable on transaction value; whichever is Higher 3(5A)(ii)capital goods cleared as waste and scrap An amount equal to the duty leviable on transaction value 3(5B)Input or capital goods before put to use; is written off fully or partially or where any provision to write off fully or partially has been made in the books of account Amount equivalent to the CENVAT credit taken in respect of the said input or capital goods An assesse can reavail such Credit if such goods are used later for manufacture of excisable goods / provision of taxable services

Do I need to pay duty on Removal of scrap of input once it is put to use Yes, but only on value of waste -Tata Oil Mills Co. Ltd. [1998 (102) ELT (479) -- Nahar Spinning Mills v CCE [2010 56 ELT 92(CESTAT)] Will sale of factory mean removal of Inputs and capital goods No - Metzeller Automotive v CCE [2004 (167) ELT 208 (CESTAT)] Do I need to reverse Cenvat Credit on inputs cleared for exports No. Rico Auto v CCE [2003 (57) RLT 653] In case of damage of Capital goods by floods, fire etc. do I need to pay Cenvat Credit on amount received from insurance company No, but on value of waste or scrap of he Capital goods so sold - Total Oil India v CCE [2012 (276) ELT 377(CESTAT)] Important Points

Conditions for availing Cenvat Credit Cenvat Credit Rules, 2004 CA Gaurav Gupta 18 Conditions for Aviailing Cenvat credit on Inputs Condition for availing Cenvat credit on Input Services Conditions for availing Cenvat credit on capital goods Rule 4

Conditions for Input Cenvat Credit Rules, 2004 CA Gaurav Gupta 19 all goods used in the factory by the manufacturer of the final product; or 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 all goods used for generation of electricity or steam for captive use; or all goods used for providing any output service; Diesel / Petrol; Goods used for construction or laying of foundation of capital goods, except for the provision of service portion in the execution of a works contract or construction service; capital goods except when used as parts in manufacture of final product; motor vehicles; when used primarily for personal use or employee consumption any goods which have no relationship whatsoever with the manufacture of a final product InclusionsExclusions Definition: -

Conditions for Input CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of manufacturer or in the premises of output service provider Post July 1, 2012, Cenvat Credit in respect of inputs may be taken by the provider of an output service without any restriction of receipt in his premises subject to condition that documentation in this regard for their delivery and location is received. There is no condition for making payment to manufacturer of excisable goods before credit is availed on such inputs. [Praveen Jain & Co. Pvt. Ltd v CCE reported in 2012 (25) S.T.R. 196 (Tri. - Del.)] Cenvat Credit Rules, 2004 CA Gaurav Gupta 20

Conditions for Input The Cenvat Credit is allowable even if any input goods are sent as such or after being partially processed to a job worker for further processing, testing, repair, re- conditioning, etc. In, the Punjab & Haryana High Court held that there is no requirement to reverse the Credit on input services of GTA when inputs are removed as such under Rule 3(5) as the said Rule talks about the Cenvat credit taken on inputs or capital goods and does not refer to the Cenvat on input service. Cenvat Credit Rules, 2004 CA Gaurav Gupta 21

Conditions for Capital Goods Cenvat Credit Rules, 2004 CA Gaurav Gupta 22 Capital Goods Specified goods which are considered as capital goods (Part A) Motor Vehicles for transportation of goods considered as capital goods for specified service provider (Part B) Component, spares and accessories of motor vehicle. (Part D) Specified Motor vehicle designed to carry passengers (Part C)

Conditions for Capital Goods Part A Following goods falling under the Chapters, heading or sub-heading of First Schedule to the Excise Tariff Act, 1985: o all goods falling under Chapter 82 (i.e. tools, implements, cutlery, spoons, forks and parts of these goods, made of base metal); o all goods falling under Chapter 84 (i.e. machinery and mechanical appliances and parts thereof); o all goods falling under Chapter 85 (i.e. electrical or electronics machinery and equipments); o all goods falling under Chapter 90 (i.e. photographic, measuring, checking, precision instruments and apparatus, etc.); o all goods falling under CET Schedule [heading 6805, grinding wheels and the like and parts thereof falling under heading 6804. Cenvat Credit Rules, 2004 CA Gaurav Gupta 23

Conditions for Capital Goods Part A Pollution control equipments; Components, spares and accessories of the goods specified at (i) and (ii); Moulds and dies, jigs and fixtures; Refractories and refractory materials; Tubes and pipes and fittings thereof; Storage tank. Motor vehicles and other than those falling under tariff heading 8702, 8703, 8704, 8711 and their chasis but excluding dampers and tippers. Cenvat Credit Rules, 2004 CA Gaurav Gupta 24

Conditions for Capital Goods Part B Motor vehicle which are: designed for transportation of goods including their chassis are registered in the name of the service provider, and 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 Cenvat Credit Rules, 2004 CA Gaurav Gupta 25

Conditions for Capital Goods Part C Motor vehicle which are: 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 Cenvat Credit Rules, 2004 CA Gaurav Gupta 26

Conditions for Capital Goods Part D Components, spares and accessories of motor vehicles, dumpers or tippers used to provide taxable services specified taxable services, namely: (i)transportation of passengers; or (ii)renting of such motor vehicle; or (iii)imparting motor driving skills (iv) providing an output service of renting of such motor vehicle; or (v) transportation of inputs and capital goods used for providing an output service; or (vi) providing an output service of courier agency Cenvat Credit Rules, 2004 CA Gaurav Gupta 27

Conditions for Capital Goods When can be Cenvat credit on Capital Goods taken Cenvat Credit in respect of capital goods is allowed to be taken in two different years. In the first instance when capital goods are received in the premises during a given financial year, he can take credit to the extent of 50% in that financial year. The balance of Cenvat credit may be taken in any subsequent financial year. CENVAT credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, in respect of capital goods shall be allowed immediately on receipt of the capital goods in the factory of a manufacturer The only condition is that the capital goods should be in the possession of the provider of output service in such subsequent years. In DCW Limited v. CCE [(2009) 93 RLT 295], the Tribunal has held that the restriction on availment of Cenvat credit on capital goods to the extent of 50% each year applies to the education cess as well. Cenvat Credit Rules, 2004 CA Gaurav Gupta 28

Conditions for Capital Goods When can be Cenvat credit on Capital Goods taken 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 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 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 Cenvat Credit Rules, 2004 CA Gaurav Gupta 29

Conditions for Input Services Cenvat Credit Rules, 2004 CA Gaurav Gupta 30 Inputs service Means any Service Used by service provider for providing output service Includes Services used in modernisati on, repair, of premise, computer networking market research, advertisem ent, sale promotion, business exhibition Recruitmen t, coaching & training Accounting, auditing, financing, quality control, legal, share registry, credit rating Storage upto place of removal, procureme nt of inputs Inward transport of inputs & CG / outward transport upto place of removal

Conditions for Input Services Cenvat Credit Rules, 2004 CA Gaurav Gupta 31 Inputs service Means any Service Used by service provider for providing output service Excludes Specified services used in construction of a building except when for certain specified services Services of renting of motor vehicles so far as they relate to a motor vehicle which is not a capital good. Specified services used in laying of foundation or making of structures for support of capital goods except when used in the provision of such specified services Services used primarily for personal consumption or use of an employee like outdoor catergin, beauty treatment etc. 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

Conditions for Input Services Important Points 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 : Where the service tax is paid on reverse charge on input services 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 In case the payment of the value of input service and the service tax paid or payable as indicated in the invoice etc, is not made within three months of the date of the invoice, bill or, as the case may be, assessee shall pay an amount equal to the CENVAT credit availed on such input service In case the said payment is made, the assessee shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier Cenvat Credit Rules, 2004 CA Gaurav Gupta 32

Conditions for Input Services Important Points In case any payment or part thereof, made towards an input service is refunded or a credit note is received by the assessee, he shall pay an amount equal to the CENVAT credit availed in respect of the amount so refunded or credited In respect of invoices issued before the 1st day of April, 2011, Cenvat Credit on input services 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. Cenvat Credit Rules, 2004 CA Gaurav Gupta 33

Services which are not expressly mentioned in the definition of input service it cannot be said that they do not constitute input service Yes, -CCE v Stanzen Toyotetsu India (P) Ltd Is one to one correlation is required between Input Services and Output services is required No - M/s Capiq Engineering Pvt. Ltd. V CCE Vadodara [2008-TIOL-1967- CESTAT-AHM] Important Points

Cenvat Credit Rules, 2004 CA Gaurav Gupta 35 Sl. No.DecisionInput service 1. CCE, Mumbai-V v. M/s. GTC Industries Ltd. [2008-TIOL-1634-CESTAT-MUM-LB = 2008 (12) S.T.R. 468 (Tri.)] Outdoor caterer service 2. M/s. Finolex Cables Ltd. v. CCE, Pune-I, [2009-TIOL-122-CESTAT-MUM = 2009 (14) S.T.R. 303 (Tri.-Mumbai)] Insurance of plant and machinery 3.CCE, Nasik v. Cable Corporation of India Ltd. [2008-TIOL-1180-CESTAT-MUM = 2008 (12) S.T.R. 598 (Tri.-Mumbai)] Hiring of cars for transportation of employees

Important Points Cenvat Credit Rules, 2004 CA Gaurav Gupta 36 Sl. No.DecisionInput service 4. CCE & C, Aurangabad v. M/s. Endurance Systems India Pvt. Ltd. [2009-TIOL-210- CESTAT-MUM = 2009 (237) E.L.T. 204 (Tri.- Mumbai)] Group Mediclaim policy and Workmens accident policy. 5. Ferromatik Milacron India Ltd. v. CCE, Ahmadabad [2009-TIOL-01-CESTAT-AHM = 2009 (15) S.T.R. 282 (Tri.)] Outdoor caterer 6.Milipore India Ltd. v. CCE, Bangalore [2009 (13) S.T.R. 616 (Tri. Bang.) = 2009 (236) E.L.T.145 (Tri. - Bang.)] (1) Medical and personal accident policy (2) Group Personal accident policy (3) Insurance (4) Personal accident policy (5) Personal vehicle services (6) Landscaping of factory garden (7) Catering

Important Points Cenvat Credit Rules, 2004 CA Gaurav Gupta 37 Sl. No.DecisionInput service 7. CCE, Raipur v. BeekayEngg. & Castings Ltd. [2009-TIOL-1326-CESTAT-DEL = 2009 (16) S.T.R. 709 (Tri. - Del.)] Mobile/landline phones, Rent-a-cab service, General insurance premium on fire, machinery breakdown, group gratuity, group accident policy, Courier, C&F services, etc. 8. M/s. StanzenToyotetsu India Pvt. Ltd. v. CCE, Bangalore [2009-TIOL-697-CESTAT- BANG = 2009 (14) S.T.R. 316 (Tri.)] Canteen, transportation and group health insurance for employees. 9.M/s. Cadmach Machinery Co. Pvt. Ltd. v. CCE, Ahmedabad [2009-TIOL-1503- CESTAT-AHM] Outdoor catering services, tour operator services and repair and maintenance of vehicles.

Important Points Cenvat Credit Rules, 2004 CA Gaurav Gupta 38 Sl. No.DecisionInput service 10. CCE, Chennai-II v. M/s. Sundaram Clayton Ltd. [2010-TIOL-69-CESTAT- MAD] Employees medical insurance and employees personal accident insurance. 11. M/s. Hindustan Coca-Cola Beverages Pvt. Ltd. v. CCE, Hyderabad [2010-TIOL- 160-CESTAT-BANG = 2010 (19) S.T.R. 93 (Tri. Bang.) Mediclaim policy, security at depots, vehicle insurance, car rentals, pest control activities 12.M/s. Dr. Reddys Lab Ltd. v. CCE, Hyderabad [2010-TIOL-194-CESTAT- BANG = 2010 (19) S.T.R. 71 (Tri. - Bang.)] Air travel agent, Rent -a-Cab Operation scheme, Outdoor catering service and servicing of motor vehicle.

Important Points Payment of Service Tax under Reverse charge from Cenvat Credit Effective July 1, 2012, an explanation has been inserted after Rule 3(4) to provide that 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. Payment is mandatory for input services and not inputs There is no condition for making payment to manufacturer of excisable goods before credit is availed on such inputs. [Praveen Jain & Co. Pvt. Ltd v CCE reported in 2012 (25) S.T.R. 196 (Tri. - Del.)] Cenvat Credit Rules, 2004 CA Gaurav Gupta 39

Cenvat Credit Rule 6 Cenvat Credit Rules, 2004 CA Gaurav Gupta 40 RuleProvisions Rule 6(1) Cenvat credit of inputs and input services used for the provision of exempted services not to be allowed except in the case of a job worker Rule 6(2) Allowability of Cenvat Credit by a provider of taxable as well as exempted services when separate records are maintained in respect of Cenvat credit on inputs and input services used in provision of taxable as well as exempt services Rule 6(3) Allowability of Cenvat Credit by a provider of taxable as well as exempted services when separate records are not maintained in respect of Cenvat credit on inputs and input services used in provision of taxable as well as exempt services Rule 6(4)No Cenvat Credit shall be allowed on Capital goods when used exlusively for exempted services Rule 6(5) This rule provided that Cenvat credit of sixteen services which are common, would be applicable in full even if an assessee is providing exempted services also. The Rule is now withdrawn w.e.f. 1-4-2011. Rule 6(6) Rule provides that no disallowance under above Rules would apply in case of excisable goods cleared to a unit in specified zones. Rule 6(6A)Rules removes restrictions on the availability of Cenvat credit on taxable services when such taxable services are provided to a unit in Special Economic Zone for authorized operations.

Cenvat Credit Rule 6 Cenvat Credit Rules, 2004 CA Gaurav Gupta 41 Exempted goods shall include all goods which: Are exempt from the whole of the duty of excise leviable thereon Are chargeable to Nil rate of duty goods in respect of which the benefit of an exemption under Notification No. 1/2011-CEor under entries at serial numbers 67 and 128 of Notification No. 12/2012-CEis availed Exempted goods shall not include goods cleared: to a unit in a SEZ or to a developer of a SEZ for their authorised operations to a hundred per cent. export-oriented undertaking; or to a unit in an Electronic Hardware Technology Park or Software Technology Park; to the UN or international organization for official use or to their funded projects for the use of foreign diplomatic missions or consular missions or diplomatic agents for export under bond in terms of the provisions of the Central Excise Rules, 2002; Specified imported goods supplies made for setting up of solar power generation projects or facilities.

Cenvat Credit Rule 6 Cenvat Credit Rules, 2004 CA Gaurav Gupta 42 Exempted services shall include all services: Which are exempt from the whole of the Service tax leviable thereon On which no service tax is leviable under section 66B of the Finance Act Taxable services 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 Exempted services shall not include all services provided without payment of tax to: to a unit in a SEZ or to a developer of a SEZ for their authorised operations Services fulfiling conditions under Rule 6A of Service Tax Rules, 1994 and whose consideration is received within a period of six months or such extended period as maybe allowed from time-to-time by the RBI, from the date of provision

Cenvat Credit Rule 6 Cenvat Credit Rules, 2004 CA Gaurav Gupta 43 Provider of Taxable as well as exempt Services Maintain Seperate Accounts [Rule 6(2)] For Taxable services Cenvat credit is Avialable For exempted services Cenvat Credit is not available Do Not Maintain seperate Accounts [Rule 6(3)] Option I Credits on all inputs / input services available and service tax is to be paid as follows on the output services On taxable Services Pay Service tax at normal rates On Exempted services Pay 6% of value of exempted goods/ services Option II Credits on all inputs / input services available Cenvat credit to be Reversed on proportionate basis Option III Maintain Seperate records for Inputs only

Cenvat Credit Rule 6 Cenvat Credit Rules, 2004 CA Gaurav Gupta 44 Payment of an amount under sub-rule (3) shall be deemed to be CENVAT credit not taken for the purpose of an exemption notification wherein any exemption is granted on the condition that no CENVAT credit of inputs and input services shall be taken. Value for the purpose of sub-rules (3) and (3A), (a)shall have the same meaning as assigned to it under section 67 of the Finance Act, read with rules made thereunder or, as the case may be, the value determined under section 3, 4 or 4A of the Excise Act, read with rules made thereunder; (b)in the case of a taxable service, when the option available under sub-rules (7), (7A), (7B) or (7C) of rule 6 of the Service Tax Rules, 1994, has been availed, shall be the value on which the rate of service tax under section 66B of the Finance Act, read with an exemption notification, if any, relating to such rate, when applied for calculation of service tax results in the same amount of tax as calculated under the option availed; (c)in case of trading, shall be the difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or ten per cent. of the cost of goods sold, whichever is more; (d)in case of trading of securities, shall be the difference between the sale price and the purchase price of the securities traded or one per cent. of the purchase price of the securities traded, whichever is more; (e)shall not include the value of services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount

Cenvat Credit Rule 6 Cenvat Credit Rules, 2004 CA Gaurav Gupta 45 Cenvat credit on Capital Goods Used for providing exempt services No Cenvat credit is Avialable Used for providing Taxable as well as exempt services Full Cenvat credit Available

Cenvat Credit Rule 6 Cenvat Credit Rules, 2004 CA Gaurav Gupta 46 Important PointClarification Whether an assessee availing option (i) in respect of certain exempted goods/services can also avail option (ii) in respect of other exempted goods or services simultaneously No, Circular No. 868/6/2008-CX dated 09.05.2008. Once exercised same full FY Assessee opting for option (i) is required to pay an amount equivalent to 10% of value of exempted goods or 8% of value of exempted services. How to determine "value" for the said purpose No, Circular No. 868/6/2008-CX dated 09.05.2008. Value of exempted goods = As per Section 4/4A of CEA, 1994 (Transaction Value u/s 4 in case goods chargeable to specific rate of duty) Value of exempted services = Gross amount charged for providing exempted service (without abatement)

Cenvat Credit Rule 6 Cenvat Credit Rules, 2004 CA Gaurav Gupta 47 Important PointClarification Whether input services distributor can also opt for option (i) or option (ii) No, Circular No. 868/6/2008-CX dated 09.05.2008. Whether services exported equates to exempted services No, Circular No. 868/6/2008-CX dated 09.05.2008. Whether services where place of provision is J&K equates to exempted services Yes

Cenvat Credit special cases Cenvat Credit Rules, 2004 CA Gaurav Gupta 48 EntityReversal requirement A banking company and a financial institution including a non-banking financial company, engaged in providing services by way of extending deposits, loans or advances Shall pay for every month an amount equal to fifty per cent. of the CENVAT credit availed on inputs and input services in that month

Cenvat Credit - Document Cenvat Credit Rules, 2004 CA Gaurav Gupta 49 Original or Duplicate Invoice, Dealers Invoice, Bill of Entry, Supplementary Invoice Permissible documents (with requisite particulars as provided in respective Rules) on which Cenvat Credit can be availed: o Invoice issued by manufacturer, importer, first/second stage dealer o supplementary invoice, bill or challan issued by a manufacture / provider of output service, o a bill of entry; or o certificate issued by an appraiser of customs in respect of goods imported through a Foreign Post Office; or o a challan evidencing payment of service tax, by the service recipient o an invoice, a bill or challan issued by a provider of input service o an invoice, bill or challan issued by an input service distributor Documents required in original photocopies not permitted. Endorsed Invoice/Bill of Entry permissible In case of defect in document, Cenvat can be availed with Permission of AC/DC

Input Service Distributor Cenvat Credit Rules, 2004 CA Gaurav Gupta 50 HO or Branch or Depot can pass on credit to factories / premises Conditions imposed for an ISD to transfer input service tax credit to its units: Credit distributed does not exceed the amount of service tax paid Credit attributable to exclusive exempt unit shall not be distributed Credit attributable to service used wholly in a unit shall be distributed only to that unit; and Credit attributable to service used in more than one unit shall be distributed pro-rata on the basis of the turnover of the concerned unit during the relevant period They have to register, file returns etc. Monthly Invoice No credit where input service exclusively for exempted goods or exempted service Distribution on turnover basis of previous month

Recovery and Penalty Cenvat Credit Rules, 2004 CA Gaurav Gupta 51 Rule 14 of Cenvat Credit Rules provides that where the Cenvat credit has been taken and utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output service and the provisions of sections 11A and 11AA of the Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries. Thus, in order to effect recovery under Rule 14: o Cenvat credit has been taken; and o utilized wrongly or has been erroneously refunded Interest under Section 75 shall apply 18%/ 24% /30% Penalty under Section 76 and 78 shall apply to such cases

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