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CENVAT CREDIT CRITICAL ISSUES PRESENTATION ON 23.01.2015 KR RAMANKUTTY CHARTERED ACCOUNTANT ERNAKULAM.

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Presentation on theme: "CENVAT CREDIT CRITICAL ISSUES PRESENTATION ON 23.01.2015 KR RAMANKUTTY CHARTERED ACCOUNTANT ERNAKULAM."— Presentation transcript:

1 CENVAT CREDIT CRITICAL ISSUES PRESENTATION ON KR RAMANKUTTY CHARTERED ACCOUNTANT ERNAKULAM

2 LABOUR & OVERHEADS PROFIT INPUT TAX OR DUTY MATERIAL COST THE CASCADING EFFECT COST SALES PRICE EXCISE DUTY PAYABLE ON SALE PRICE WHICH INCLUDES INPUT TAX

3 LABOUR & OVERHEADS PROFIT MATERIAL COST THE CASCADING EFFECT REMOVED COST SALES PRICE EXCISE DUTY PAYABLE ON SALE PRICE WHICH DOES NOT INCLUDES INPUT TAX

4 THE PLAN TO AVAIL THE CREDIT TO KNOW WHAT ARE THE GOODS / SERVICES ON WHICH DUTY/TAX CREDIT CAN BE TAKEN? WHAT ARE THE DUTIES / TAXES ELIGIBLE FOR CREDIT ? WHAT ARE THE LEGAL PERMISSIONS AND RESTRICTIONS ?

5 CENVAT CREDIT CRITICAL ISSUES  A SCHEME INTRODUCED TO ARREST THE CASCADING EFFECT OF DUTY / TAX ON COST IN THE YEAR 1986 AS MODVAT SCHEME.  INITIALLY INTRODUCED ON GOODS, EXTENDED TO CAPITAL GOODS FURTHER EXTENDED TO SERVICES IN 2002 AND CROSS UTILIZATION OF GOODS AND SERVICES FROM  A SCHEME TO GRANT CREDIT IN RESPECT OF SPECIFIED E.DUTY/CVD /S.TAX PAID ON RAW MATERIAL PURCHASE/CAPITAL GOODS PURCHASE/SERVICES AVAILED IN CONNECTION WITH MANUFACTURE OF DUTIABLE FINAL PRODUCT /TAXABLE OUTPUT SERVICES AND USE THE CREDIT FOR PAYMENT OF CENTRAL EXCISE DUTY /OR SERVICE TAX.  THE OBJECTIVE IS TO ARREST THE CASCADING EFFECT OF TAX ON COST.

6 CENVAT CREDIT RULE 2004 AS AMENDED RULE -1 SHORT TITLE, EXTENT AND COMMENCEMENT RULE -2 DEFINITIONS RULE -3 VARIOUS COMPONENTS OF DUTY RULE -4 CONDITIONS FOR ALLOWING CREDIT RULE -5 REFUND OF CREDIT U/R 5,5A,5B RULE -6 CONSUMPTION OF COMMON INPUTS IN DUTIABLE AND NON-DUTIABLE PRODUCTS RULE -7&7A INPUTS SERVICE DISTRIBUTOR-MANNER OF DISTRIBUTION OF CREDIT BY DISTRIBUTOR RULE- 8 STORAGE OUTSIDE THE FACTORY AC/DC TO GRANT PERMISSION TO STORE CENVAT CREDIT AVAILED INPUT OUTSIDE THE FACTORY IN EXCEPTIONAL CIRCUMSTANCES.

7 RULE -9 SPECIFIED DOCUMENTS FOR AVAILING CENVAT CREDIT, THE STATUTORY REGISTER TO BE MAINTAINED UNDER RULE 9(5). RULE -9A INFORMATION RELATING TO PRINCIPAL INPUTS AND THE QUANTITY TO BE USED IN THE MANUFACTURE OF FINAL PRODUCT TO BE FILED WITH THE SUPDT. ANNUALLY BY 30 TH APRIL. RULE -10 TRANSFER OF CENVAT CREDIT ON SHIFTING OF FACTORY TO ANOTHER SITE OR DUE TO CHANGE OF OWNERSHIP ON ACCOUNT OF SALE/MERGER ETC. RULE-11 TRANSITIONAL PROVISION RULE-12 INPUT MANUFACTURED - SPECIFIED AREAS IN NORTH-EAST REGION ETC. RULE-12A PROCEDURE FOR LTU RULE-12AAA POWER TO IMPOSE RESTRICTIONS IN CERTAIN TYPE OF CASES RULE -13 POWER TO NOTIFY FOR DEEMED CENVAT CREDIT RULE- 14 RECOVERY OF CREDIT WRONGLY TAKEN OR ERRONEOUSLY REFUNDED WITH INTEREST RULE -15 CONFISCATION AND PENALTY

8 ELIGIBILITY OF GOODS AND SERVICES & THE VARIOUS DUTIES AND TAXES  DUTY PAID ON RAW MATERIALS (INPUTS), CAPITAL GOODS AND SERVICES USED FOR MANUFACTURE OF DUTIABLE GOODS OR TAXABLE SERVICES PROVIDED.  MANUFACTURER IS ENTITLED FOR TAKING CREDIT OF DUTY PAID ON INPUT MATERIAL, CAPITAL GOODS AND SERVICES USED FOR MANUFACTURE AND CLERENCE OF THE PRODUCTS FROM THE PLACE OF REMOVAL.  DUTY CREDIT UNDER RULE 16 – GOODS RETURNED TO THE FACTORY.  SERVICE PROVIDER IS ALSO ENTITLED FOR THE SAME BENEFITS.  WHAT ARE ALL THE GOODS/SERVICES ELIGIBLE FOR CREDIT, WHAT ARE THE DUTIES /TAXES ELIGIBLE FOR CREDIT ARE DEPENDENT UPON THE CENVAT CREDIT RULES – SET OF 16 RULES. THE ELIGIBILITY OF GOODS FOR MANUFACTURE OR SERVICE ARE LISTED UNDER THE CATEGORY OF CAPITAL GOODS AND INPUT. ELIGIBLE SERVICES ARE DEFINED UNDER INPUT SERVICES.

9 CAPITAL GOODS ELIGIBLE FOR CREDIT: 1. GOODS DEFINED BY TARIFF HEAD 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; AND COMPONENTS, SPARES AND ACCESSORIES OF THE ABOVE –> CAN FALL UNDER ANY CHAPTER CVD -PROJECT IMPORTS 9801 RULE 3(1) EXPL Cost A 2. GOODS DEFINED BY DESCRIPTION POLLUTION CONTROL EQUIPMENT; AND COMPONENTS, SPARES AND ACCESSORIES OF THEREOF MOULDS AND DIES, JIGS AND FIXTURES; REFRACTORIES AND REFRACTORY MATERIALS; TUBES AND PIPES AND FITTINGS THEREOF; STORAGE TANK, [AND]

10 CAPITAL GOODS 3. GOODS DEFINED BY DESCRIPTION & TAFIFF HEAD MOTOR VEHICLES OTHER THAN THOSE FALLING UNDER TARIFF HEADINGS 8702, 8703, 8704, 8711 AND THEIR CHASSIS [BUT INCLUDING DUMPERS AND TIPPERS AND PARTS], FOR MANUFACTURERS MOTOR VEHICLES FOR SERVICE PROVIDERS REFER (B) (i) (ii) (iii) AND (C ) (i) (ii) (iii) COMPONENTS & PARTS FOR (B) & (C) CG: MANUFACTUER  Used in the factory [or outside the factory (  Generation of power)] but office equipments excluded. CG:SERVICE PROVIDER  used for providing output service Office equipments included. THE GENERAL PRINCIPLES: ELIGIBILITY DEPENDS UPON THE LAW PREVAILING ON THE DATE OF RECEIPT. OWNERSHIP IMMATERIAL. NO CONDITION THAT SHOULD BE USED FOR MANUFACTURE, USED IN FACTORY NOT ELIGIBLE FOR ITx DEPRECIATION ON EXCISE DUTY PART 50% OF DUTY IN THE FIRST YEAR AND 50% IN NEXT YEAR NOT AVAILED IN THE FIRST YEAR 100 % IN SECOND YEAR AS PER CASE LAW. 100 % IN THE FIRST YEAR ONLY FOR ADDL DUTY OF CUSTOMS UNDER 3(5) OF CUSTOMS TARRIF ACT- NOT ELIGIBLE FOR SERVICE PROVIDER

11 CERTAIN POINTS TO NOTE CPITAL GOODS ARRIVED AT SITE BEFORE CENTRAL EXCISE REGISTRATION OBTAINED FOR NEW PLANT – TAKE CREDIT ONLY AFTER REGISTRATION, DESIRABLE TO INFORM RANGE SUPDT/AC AND GET ACK LETTER.[cir 88/88/94 dated ]. CG LIKE PIPE LINE EXTENDING OUTSIDE THE FACTORY FOR DISCHARGIG EFFLUENT –CONVEYOR/ROPE WAY EXTENDING OUTSIDE- PIPE LINE FROM SHORE TO SPM UNDER THE SEA - CG USED OUTSIDE THE FACTORY – BUT INTERALLY CONNECTED WITH MFG ELIGIBLE – VIKRAM CEMENT SUPREME COURT. PARTS/ COMPONENTS /ACCESSORIES OF SPECIFIED CG NEED NOT FALL UNDER , BUT USAGE TO BE ASCERTAINED TO FIX THE ELIGIBILITY. PART OF A PART IS ALSO A PART ELIGIBLE STORAGE TANK CONSTRUCTED AT SITE BECOMING IMMOVABLE PROPERY- CREDIT ELIGIBLE ON CEMENT -MS/HS SHEETS ANGLES CHANNELS USED FOR CONSTRUCTION OF TANK – PLATES USED REPAIR ALSO ELIGIBLE. SPECIFICALLY EXCLUSION FOR ANGLES CHANNES,CTD/TMT BARS –[expl- 2: to input def] ALSO IN VANDANA GLOBAL

12 REMOVAL OUTSIDE THE FACTORY REMOVAL CAPITAL GOODS OUTSIDE : CG FOR JOB WORK – RETURN WITHIN 180 DAYS – OR REVERSE –R 4(5)(a) AS SRCAP – duty on the transaction value USED CAPITAL GOODS- FOLLOW RULE 3 2.5% of Cenvat /qtr or duty on transaction value which ever is greater SALE – (removal as such) – REVERSE FULL CENVAT AVAILED- R 3(5)  ISSUES CAPITAL GOODS EXTENDING OUTSIDE THE FACTORY  PART OF THE MACHINERY WORN OUT REMOVED AS SCRAP  CAPITAL GOODS EXPORTED FOR REPAIRS – WHETHER REVERSAL?  ACCOUNTING CONTROL FOR CG & REMOVAL  STEEL PLATES USED FOR REPAIR OF TANK / MATERIALS USED FOR REPAIR OF CAPITAL GOODS -

13 INPUTS (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; This is subject to exclusions in clause (A) to (F)

14 INPUT SERVICE (l) “input service” means any service, - (i)used by a provider of [output service] for providing an output service; or (ii)used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products 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; Exclusions (A) to (C ) PL REFER

15 INPUT SERVICE THE MEANS PART OF THE DEFINITION THE INCLUSIIVE PART OF THE DEFINITION DELETION OF THE WORDS “ACTIVITY RELATING TO BUSINESS” THE IMPACT ISSUES ARISING OUT OF “OUTWARD TRANSPORTATION UPTO THE PLACE OF REMOVAL”………………………”STORAGE UPTO PLACE OF REMOVAL” INPUT SERVICE NOT FALLING WITHIN THE INCLUSIVE PART STATUTORY REQUIREMENTS LIKE RUNNING OF CANTEEN, POLLUTION CONTROL /EFFLUENT TREATMENT PLANT/ENVIRONMENT LAWS LIKE GARDENING /CULTIVATION OF PLANT, TREES ETC……….ADMISSIBILITY ? THE FUNDAMENTAL PRINCIPLES: IF THE PROCESS IS INTEGRALLY CONNECTED WITH THE PRODUCTION BUT FOT THE PROCESS THE PRODUCT CANNOT BE PRODUCED, THE INPUT USED IN THE PROCESS IS ELIGIBLE FOR CENVAT CREDIT- JK COTTON MILLS (SC), EASTEND PAPER MILLS (SC)

16 DOCUMENTS FOR AVAILING THE CREDIT RULE 9 OF THE CCR – INVOICE, SUPPLMENTARY INVOICE, BOE, CHALLAN, INVOICE OR BILL ISSUED BY THE SERVICE PROVIDER ETC. SUPPLEMANTARY INVOICE PRECAUTIONS : - INDEMINITY BOND ETC. ANY COPY OF THE INVOICE CAN BE USED. INVOICE ADDRESSED TO HO CAN BE TAKEN BY BRANCH OR PLANT. ENDORSED COPY OF THE DOCUMENTS, XEROX COPY OF THE DOCUMENTS NOT SPECIFIED IN THE RULE.RELIEF CAN BE OBTAINED FROM TRIBUNAL OR COURT SUBJECT TO FACTUAL EVIDENCE AND OTHER CONDITIONS. LOSS OF ALL COPIES OF INVOICE. PRESCRIBED PROCEDURE AS PER THE OLD RULE LIKE LODGING FIR OBTAIN RANGE SUPRINDENT CERTIFICATE OF MATERIAL RECIEPT ETC CROSS VERIFICATION WITH THE RANGE OF THE SUPPLIER-EXTRA COPY OF THE INVOICE FROM THE SUPPLIER OR XEROX COPY. IN EXCEPTIONAL CASE CREDIT IS ALLOWED. TIME LIMIT INTRODUCED FROM 2014 SEPT ONWARDS – 6 MONTHS FROM DATE OF INVOICE. INVOICE ISSUED PRIOR TO 01/09/2014 WHETHER HIT BY TIME BAR? WHETHER TIME BAR CAN BE CONTESTED? OSRAM SURYA (SC). TIME LMIT APPLIES ONLY FOR INPUT OR INPUT SERVICES AND NO RESTRICTION FOR CG. FOR TAKING RECREDIT TIME LIMIT WILL NOT APPLY.

17 VARIOUS DUTIES AND TAXES ELIGIBLE DETAILED LIST RULE 3(1).IN SHORT CENTRAL EXCISE DUTY, CESS, ADDITIONAL DUTY OF CUSTOMS UNDER SECTION 3(3) OF THE CTA (KNOWN AS CVD) ADDITIONAL DUTY OF CUSTOMS UNDER SECTION 3(5),DUTY PAID AT THE TIME OF DEBONDING OF EOU, DUTY PAID UNDER TARIFF PROJECT IMPORT ETC ETC. ADDITIONAL DUTY OF CUSTOMS UNDER SECTION 3(5) IS NOT ELIGIBLE FOR SERVICE PROVIDER. FOR CAPITAL GOODS ONLY 50 % OF CREDIT IN THE FIRST YEAR AND NEXT 50% IN THE NEXT YEAR. AS PER TRIBUNAL DECISIONS 100% IS ELIGIBLE IN THE NEXT YEAR IF 50% IS NOT AVAILED IN THE FIRST YEAR. THE DUTY PAID UNDER ADDITIONAL DUTY OF CUSTOMS UNDER SECTION 3(5) THERE IS NO RESTRICTION OF 50%. INPUT CREDIT AVAILABILITY RESTRICTED TO QUANTITY OF RECIEPT (GRN QTY). EVAPORATION LOSS OR NATURAL LOSS DUE TO ANY OTHER REASON PERMITTED WITHIN REASONABLE LIMIT(0.1% - 0.5% BY TRIBUNAL DECISIONS). REVERSE CHARGED SERVICE TAX CREDIT CAN BE TAKEN SUBJECT TO ELGIBILITY. WEF WHEN ST IS PAID CREDIT CAN BE TAKEN IN THE CASE OF FULL REVERSE CHARGE, IN THE CASE OF PARTIAL THE FULL PAYMENT TO SERVICE PROVIDER TO BE MADE. REFER TO PROVISIO ADDED TO RULE 4 (7).

18 UTILISATION FOR DUTY PAYMENT ON FINAL PRODUCT FOR REMOVAL OF INPUT OR CAPITAL GOODS AS SUCH. DUTY PAYMENT UNDER RULE 16 OF THE CENTRAL EXCISE. SERVICE TAX ON OUTPUT SERVICE. WHETHER CAN BE UTILISED FOR PAYMENT OF INTEREST AND PENALTY ? WHETHER CAN BE UTILISED FOR MAKING PRE-DEPOSIT OF DUTY FOR COMPLYING WITH SECTION 35F OF CENTRAL EXCISE? THE BALANCE OUTSTANDING ON THE LAST DAY OF THE MONTH AFTER STATUTORY REVERSAL ONLY CAN BE UTILISED FOR PAYMENT ON 05 TH OF THE NEXT MONTH. FUND PLANING FOR EXCISE/SERVICE TAX – REVERSE CHARGE LIABILITY

19 REMOVAL OF INPUT OR CAPITAL GOODS OUTSIDE THE FACTORY FOR JOB WORK - RETURN WITHIN 180 DAYS IF NOT REVERSE CREDIT AND TAKE RECREDIT WHEN GOODS ARE RETURNED. REMOVAL AS SUCH - PAYBACK THE CENVAT CREDIT UNDER AN INVOICE. REMOVAL AFTER USAGE (CG) - 2.5% OF DUTY CREDIT PER QUARTER OR DUTY ON THE TRANSACTION VALUE WHICHEVER IS HIGHER TO BE PAID.DIFFERENT RATE FOR COMPUTERS. WRITE OFF IN THE BOOKS (EG NON MOVING STOCK). REVERSE FULL CREDIT AND TAKE RECREDIT WHEN PUT TO USE. REMISSION OF DUTY REVERSE SERVICE TAX + ED CONSUMED IN THE FINAL PRODUCT. TAKE A TECHNICAL CERTIFICATION + COST ACCOUNTANT CERTIFICATE FOR THE CREDIT TO BE REVERSED.

20 COMMON INPUT/ INPUT SERVICE CONSUMED IN DUTIABLE OR NON DUTIABLE PRODUCT/ SERVICES COMMON INPUT OR INPUT SERVICE CONSUMED IN DUTIABLE AND NON DUTIABLE PRODUCT/TAXABLE AND NON TAXABLE SERVICE RESTRICTION IN THE RULE. ONLY PROPORTIONATE CREDIT PERMITTED IF NO SEPARATE ACCOUNTING IS MAINTAINED. ALTERNATIVELY AN AMOUNT EQUAL TO 6% OF THE VALUE OF EXCEMPTED GOODS OR SERVICES IS TO BE PAID. THE FORMULA GIVEN IN RULE 6 (3A) APPEARS INCORRECT AND IS BEING CHALLENGED IN COURT. THYSSENKRUPP INDUSTRIES (2014-TIOL-1825T MUM). THE SIMPLE FORMULA TO BE USED IS : EXCEMPTED GOODS OR SERVICES/ TOTAL VALUE OF SERVICES x TOTAL CENVAT………………………………………….(THIS IS THE FORMULA). THE SUGGESTED FORMULA WOULD BE ???? FORMULA FOR BANK & NBFC IS RULE 6 (3B) i.e 50% OF THE CREDIT FOR THE MONTH. THE ABOVE RULE IS NOT APPLICABLE TO EXPORT UNDER BOND, TO CLEARANCES TO EOU & SEZ, ELECTRONICS HARDWARE TECHNOLOGY PARK OR SOFTWARE TECHNOLOGY PARK, SUPPLIES TO UN ETC.

21 REFUND OF CENVAT CREDIT RULE-5 REFUND TO MFG/EXPORTER – UNUTILISED CREDIT ENTITLED FOR REFUND. RULE 5 (1) REVERSE CHARGE SERVICE TAX WHICH CANNOT BE UTILISED BY THE SERVICE PROVIDER. RULE 5(B) RECOVERY OF WRONG CREDIT TAKEN AND UTILISED WRONGLY, SHOWCAUSE NOTICE TO FOLLOW – PERIOD OF SCN DEPENDING UPON WHETHER SUPPRESSION IS ALLEGED OR NOT. 12 MONTHS (11A APPLIED) OR 18 MONTHS(SECTION 73 APPLIED) OR 5 YEARS ( IF SUPPRESSION ALLEGED). PENALTY UPTO THE DUTY CREDIT OR SERVICE TAX UNDER 15 (1) PENALTY UNDER 15 (2) READ WITH 11 (AC) INCASE OF SUPPRESSION OF FACT. NO INTEREST PAYABLE FOR THE WRONG CREDIT AVAILED BUT NOT UTILISED.

22 NOW YOU SPEAK THANK YOU CA KR RAMANKUTTY FCA


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