Cenvat Credit Rules By S.H.Sane & Co. Chartered Accountants CA Shekhar Sane (B.Com, ACMA, FCA, DISA(ICAI) Date : 3 rd October, 2015 Flat No.6, Radha Krishna.

Cenvat Credit Rules By S.H.Sane & Co. Chartered Accountants CA Shekhar Sane (B.Com, ACMA, FCA, DISA(ICAI) Date : 3 rd October, 2015 Flat No.6, Radha Krishna Heights, Khajina Vihir Chowk, Off Tilak Road, Near Grahak Peth, Pune 411030 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 1

2 INDEX Sr. No.TOPICSLIDE NUMBERS 1Introduction4-7 2Cenvat Credit Rules 20048-9 3Definitions10-26 4Case Studies27-30 5Restrictions31 6Input goods/Services32-35 7Cenvat Credit Amendments Budget 28-02-201536-39 8Common Mistakes in Availing Cenvat40-41 9Input Service Distributor42-46 10Cenvat Credit Availment & Utilization47-58

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 3 INDEX Sr. No.TOPICSLIDE NUMBERS 11Case Study59-67 12Duty Paying Documents & other Cenvat Issues68-75 13Practical Aspects of Cenvat76-80 14Exempted output, goods, services81-85 15Related Case Studies86-91 16Proportionate Reversal of Cenvat92-95 17Removal of inputs/Capital Goods as such96-100 18Related Case Studies101 19Cenvat availment procedure, Returns & Other Restrictions 102-111 20Case Studies112-120 21Summarized Highlights of Cenvat Credit Scheme 121-125

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 4 Introduction Excise Duty and Service Tax are Central Government Levies- Union List I Both are destination based consumption tax, in which incidence is passed on to ultimate consumer. (All India Federation of Tax Practitioners Vs UOI (2007) 10 STT 166 SC) They operate under Value Added Scheme (VAT) of taxation wherein each person in transaction chain is taxed on the value addition done by him and this concept is achieved by granting credit of input tax or duties to manufacturer or service provider through Cenvat Credit Scheme. Cenvat Credit Scheme operates through Cenvat Credit Rules 2004. This scheme integrates indirect taxes viz. Excise Duty and Service Tax.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 5 Basic objectives of Cenvat Credit Mechanism To avoid the cascading effects of indirect taxes. To minimize tax incidence on ultimate consumer of goods / services. To ensure levy of tax on value addition by respective assessee. To eliminate or minimize the possibility of tax on tax. The basic philosophy underlying cenvat scheme is that of a mutual trust. The revenue authorities normally rely on the records of the assessee, hence it is necessary for the assessee to be very cautious and conservative while availing cenvat benefit.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 6 Legislative Background – How law has travelled…… PeriodScheme / RulesAssessee Entitlement 1 st March 1986 28th Feb 1994 MODVAT Scheme Credit for duties paid on input 1 st March 1994 9 th Sept. 2004 MOVDAT Scheme Credit for duties paid on input And Capital Goods 10 th Sept. 2004 onwards Cenvat Credit Rules, 2004 Credit for duties paid on input and Capital Goods Credit for Service Tax on input Services Manufacturer

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 7 Legislative Background – Earlier Schemes Service Provider PeriodScheme / RulesAssessee Entitlement 1 st July 1994 to 15 th August 2002 No SchemeNo Credit for input service tax 16th August 2002 to 14 th May 2003 Service Tax Credit Rules 2002 Credit for service tax paid on input service falling under same category 15 th May 2003 to 9 th Sept.2004 Service Tax Credit Rules 2002 Credit for service tax paid on input services used for providing output services 10 th Sept. 2004 onwards Cenvat Credit Rules 2004 Credit for duties paid on input and Capital Goods Credit for Service Tax on input Services

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 8 Cenvat Credit Rules, 2004 CENVAT Credit Rules 2004 (CCR) was introduced wef 10 th Sept.2004 vide notification No.23 /2004 – Central Excise (N.T) dt. 10 th Sept. 2004. Common for Excise & Service Tax -> Input Credit Mechanism under both legislation is governed by these rules. CCR is applicable to whole of India with exception of Jammu & Kashmir. Service Tax is not applicable to J&K, as under Manufacturer LOCATED in J&K is entitled for CENVAT credit on inputs & capital goods, however not entitled to claim CENVAT credit on service tax paid on input service. Service provider LOCATED in J&K is not entitled to CENVAT credit of duty or tax on inputs, capital goods & input services.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 9 Nature of Input Tax Credit Cenvat Credit Rules uses following terms for various cost elements suffering input tax incidence. A manufacturer or service provider is eligible for availing cenvat credit of service tax paid on his input services, excise duty paid on his inputs and capital goods. Input Services - These are the services used for manufacturing or service provision. Capital Goods - These are the assets used for manufacture or service provision. Input - This covers Raw Material, Consumables and other goods used in manufacture or service provision.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 10 Definition & Analysis – Input Services Definition of input services ( wef 1-4-2011), Input Services means any service – Used by a provider of output service for providing an output service Used by a manufacturer, whether directly or indirectly, in or in relation to manufacture of final products and clearance of final products upto the place of removal. and includes services used in relation to modernization, renovation or repairs of factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto 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 upto the place of removal ; but excludes A] Service portion in execution of works contract and construction services including service listed under clause (b) of section 66E of the Finance Act, in so far as they are used for

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 11 Definition & Analysis – Input Services (a)Construction or execution of works contract of a building or a civil structure or a part thereof (b) laying of foundation or making of structures for support of capital goods except for provision of one or more specified services B] Services provided by way of renting of motor vehicle, in so far as they relate to motor vehicle which is not a capital goods BA] Service of general insurance business, servicing, repairs 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 motor vehicle manufactured by such person (b) an insurance company in respect of a motor vehicle insured or reinsured by such person 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.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 12 Definition & Analysis – Input Services The definition of input service is classified in 3 categories Input Service Main Part Inclusions Exclusions Meaning of expression In Relation to BROADER TERM / COMPREHENSIVE TERM DIRECT AND INDIRECT SIGNIFCANCE SYNONYMOUS – CONCERNING WITH / PERTAINING TO

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 13 Services Covered under inclusive part of definition of input services. Thus, if the input service is in relation to any of the above referred activities or use by service provider for providing output service or used directly or indirectly in manufacture of final products or clearance upto place of removal, will be eligible for Cenvat credit, unless it is specifically excluded in exclusions. If we analyse further, we can see five M (Men, Machine, Money, Material and Minutes[ activities ] ) are listed in the inclusive part of the definition, unless those which are specifically excluded.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 14 Services excluded from definition of input services. Interpretations : Expenditure having no impact on “manufcture” / “taxable output services” / Expenditure on “Original Works” on following is not eligible for cenvat credit Factory and office building Motor vehicle, considered as luxury even if used for employees or for business purposes. All employee benefits such as canteen, transport, health care, insurance & other welfare activities. Thus barring above specific exclusions and wasteful expenditure, other input services will be eligible for CENVAT credit. However such input services should have some direct or indirect nexus with taxable output services. If such nexus CAN NOT be established, then it can not qualify as input service.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 15 Definition of Capital Goods Manufacturers and service providers are entitled to avail cenvat credit on capital goods used by them. Capital Goods Means A] The following goods, namely All goods falling under chapter 82,84,85,90, heading no.6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the first schedule of Excise Tariff Act. Pollution control Equipments Components, spares, accessories of the goods specified in above two Moulds and dies, jigs and fixtures *Refractories and refractory material Tubes, pipes and fittings thereof / *Storage tank and Motor Vehicles other than those falling under tariff headings 8702,8703,8704,8711 and their chassis but including dumpers and trippers Used in i)The factory of the manufacturer of final products, but does not include any equipment or appliance used in an office; or ii)Outside the factory of manufacturer of the final products for generation of electricity for captive use within the factory;or iii)For providing output service

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)16 Vehicles falling under heading 8702 (Motor vehicles for transport), 8703 (Motor Cars and vehicles for passengers), 8704 (Motor vehicles of transport of goods), 8711 (Motor cycles) are not eligible for CENVAT credit for manufacturers and for service providers. CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)

17 Definition of Capital Goods B] Motor vehicle designed for transportation of goods, including their chassis registered in the name of service provider, when used for (i) providing 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 output service of courier agency. C] Motor vehicle designed to carry passengers including their chassis, registered in the name of provider of service, when used for providing output service of (i) transportation of passengers or (ii) renting of such motor vehicles or (iii) imparting motor driving skills D] Components, spares and accessories of motor vehicles which are capital goods for the assessee.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 18 Analysis of Definition of Capital Goods Following capital goods are covered in clause A(i) Tools, Hand tools, knives falling under Chapter 82 Machineries covered under chapter 84 Electrical Machinery under chapter 85 Measuring, testing & checking machines under chapter 90 Grinding wheels and the like, and parts thereof falling under subheading no.6804 Abrasive powder or grain on a base of textile material of paper board or other materials falling under chapter heading 6805 The capital goods must be used in a factory of manufacturer but does not include appliances used in office. Capital goods procured under hire purchase, lease or loan agreement from a financing company are eligible for Cenvat credit. In such cases, it is advisable that the invoice issued by a manufacturer of capital goods demonstrates the name of manufacturer as consignee even though the invoice will be in the name of financing company.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 19 FactsDiscussion Accessories and goods used for providing free warranty Refer Rule 2(k) of CCR 2004, value included in final product vs. value charged separately X Ltd. Who is manufacturer has paid following amounts, whether CENVAT credit is eligible :- i)Customs Duty ii)CVD u/s 3(1) of the customs Tariff Act – popularly called as “Additional Duty” iii)Safeguard Duty iv)EC & SHEC paid with reference to Customs Duty whether allowed Not Eligible Eligible Not Eligible Whether X Ltd. Could have availed CENVAT credit of “ additional duty” if he would have been service provider Yes Eligibility of service providers as well

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 20 A)“Exempted goods” means excisable goods which are exempt from the whole of the duty of excise leviable thereon, and includes goods which are chargeable to ‘Nil” rate of duty [and goods in respect of which the benefit of an exemption under Notification No. 1/2011-CE, dated 1 st March, 2011 or under entries at serial numbers 67 and 128 of Notification No.12/2012-CE., dated 17 th March, 2012 is availed] B) “Exempted service” means a – 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

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 21 C) “First Stage Dealer” means a dealer, who purchases the goods directly from,- i) the manufacturer under the cover of an invoice issued in terms of the provisions of Central Excise Rules, 2002 or from the depot of the said manufacturer, or from 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, under cover of an invoice; or ii) an importer or from the depot of an importer or from the premises of the consignment agent of the importer, under cover of an invoice; D) “Manufacturer” or “producer”,- i) in relation to articles of [jewellery or other articles of precious metals falling under heading 7113 or 7114 as the case may be] of the First Schedule to the Excise Tariff Act, includes a person who is liable to pay duty of excise leviable on such goods under sub-rule (1) of rule 12AA of the Central Excise Rules, 2002; ii) in relation to goods falling under Chapter 61,62 or 63 of the First Schedule of the Excise Tariff Act, includes a person who is liable to pay duty of excise leviable on such goods under sub-rule (1A) of rule 4 of the Central Excise Rules, 2002

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 22 E) “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 F) “Place of removal” means- i) a factory or any other place or premises of production or manufacture of excisable goods; ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty; iii) a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory, from where such goods are removed

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 23 Analysis of Definition of Capital Goods Capital Goods used exclusively for manufacture of exempted goods or providing exempt service are NOT ELIGIBLE for cenvat credit, however partial use of capital goods to manufacture exempted goods or provision of exempt output service is permissible. Capital goods used in office are not eligible for cenvat, however this restriction is applicable only to manufacturer and not for service provider. If the assessee is both manufacturer and service provider, he can avail CENVAT on capital goods used in office, if they are used for providing output services.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 24 Depreciation can not be availed on Cenvat portion of capital goods According to Rule 4(4), a manufacturer can not claim depreciation on cenvat credit availed on the capital goods. Example Basic Cost of machinery Rs.10 Lacs Excise Rs. 1 Lacs Total value of Machine Rs.11 Lacs Less : Cenvat availed Rs. 1 Lacs Total Capitalised value Rs. 10 Lacs Thus Depreciation can be claimed on capitalised value of Rs. 10 Lacs and not on Rs. 11 Lacs. AS-10 : NON REFUNDABLE DUTIES: Accounting PRINCIPLES AND GUIDELINES prescribed by ICAI. AVOID AVAILMNET OF CENVAT CREDIT AS WELL AS DEPRECIATION

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 25 CENVAT credit on capital goods to be availed in two stages Cenvat credit on capital goods is required to be availed in more than one financial year, i.e 50% can be availed in the financial year in which capital goods are received and balance 50% in any subsequent financial year. The condition for taking balance credit in subsequent years is that capital goods should be in possession of assessee. The exception is that in case of consumables like spare parts, components, moulds& dies,refractories, refractory material, abrasive powder or grain and grinding wheels, the balance credit can be availed in subsequent year even if they are not in possession. Another exception is in case of Additional Customs Duty paid u/s 3(5) of Customs Tariff Act (Special CVD), 100% credit is available in the first year itself even if these goods are Capital Goods. Service Providers are however not eligible for this. Third exception is for units claiming exemption as SSI. In this case CENVAT credit can be availed 100% in the first year itself. This provision is applicable in respect of capital goods acquired on or after 01-04-2010.

26 Input Service Distributor Manufacturer or service provider may have Head office or Regional office at different locations. The services may be received at Head office or regional office but indirectly it will be used for manufacture or for providing output service. In such cases Head office or Regional Office can be registered with Excise department as Input Service Distributor and it can raise invoice on manufacturer or service provider. According to Rule 2(m) of Cenvat Credit Rules, input service distributor means An office managing the business of manufacturer or producer of final products or provider of output service. Which receives the invoices issued under rule 4A of the Service Tax Rules 1994 towards purchase of input service and Issues invoice,bill or, as the case may be, challan for the purpose of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be. CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)

27 Case Studies for CENVAT Eligibility for following types of assessees Type of business/ profession Remarks CA Service CS Service CMA Service Capital Goods eg. Air Conditioner, office equipments, computers not allowed as they are “goods” CENVAT embedded in maintenance or AMC Bills Architect Individual Construction related credit not allowed. ( Original Works not allowed ) Maintenance Credit allowed. Architect Company ST paid under RCM(Individual /firm) Original Works – Not eligible Repairs / renovation Eligible CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)

28 Air Travel Agent (IATA Recognized) Composition Domestic International Composition.60 % / 1.20 % (As amended after elevation of 14 % of ST rate ) No restriction on availment of CENVAT credit as per Rule 6 (7) Even if option of Composition is adopted 0.60 % 1.20 % FOREX Dealers Composition scheme Difference between sale and purchase value. CENVAT Credit is eligible Rule 2 B Valuation methodology CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)

29 Lottery Dealers Composition scheme Refer Rule 6(7) of Service Tax Rules No restriction on availment of CENVAT credit Cosmetic Surgery Clinic ( Separate establishment ) Accident, Trauma, Injury, congenital defects, developmental abnormalities, degenerative diseases Turnover should be separated from taxable turnover and Promoter, developer, Builder Flat Sale Composition Rate VAT-1 % - price ST 25 % Value @ 14 % i.e. 3.50 % Including land No input credit is allowed in inputs but on “input services” and “capital goods”. CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)

30 Acquiring, development and selling freehold plots No CENVAT credit is allowed since there is no service tax recovered There are no chances for refund since there are no export services Mutual Fund Companies Insurance Companies ST paid on RCM to advisors, agents, dealers allowed as input credit is allowed. A company engaged in marketing of plots and earning commission. It is also engaged in construction of bungalows for customers referred to it by the company for whom they are marketing. Input services for Commission – credit allowed. Construction related – input services and capital goods credit allowed. CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)

31 Restrictions that can be placed and facilities that can be withdrawn  If a merchant exporter is found to knowingly involved in offences specified in para 1(f) of notification, the facility of self sealing of container will be withdrawn. In such cases, the export consignments will be examined and sealed by jurisdictional Excise Officer.  Registration of a dealer can be suspended for specified period during which he can continue business but issue the invoices without showing duty of excise in it.  Withdrawal of any other facility given to manufacturer or registered dealer. If the offence is for first time then facilities can not be withdrawn for more than 6 months, however in case of repetitive offence restrictions can go up to one year.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 32 Input Goods According to Rule 2(k) of CENVAT credit rules ( wef 1-4-2014) 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 final product, the value of which is included in the value of final product and goods used for providing free warranty for final products or iii.All goods used in generation of electricity or steam for captive use or iv.All goods used for providing any output service But excludes Light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 33 Input Goods 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 provision of service portion in the execution of a works contract or construction service as listed under clause (b) of sec.66E of the Act Capital goods except when used as parts or components in manufacture of a final product Motor Vehicles Any goods such as food items, goods used in a guest house, residential colony, club or recreation facility and clinical establishments, when such goods are used primarily for personal use or consumption of any employee and Any goods which have no relationship whatsoever with manufacturer of final products.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 34 Input Goods for service providers Duty paid on input goods used by service providers is also eligible for CENVAT credit but in a restricted way. Here the words used are used for providing output services, meaning only those goods (except LDO, HSD, Petrol) used directly for providing output service will be eligible for CENVAT credit.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 35 Partial or full write off of inputs As per rule 3(5B) of CENVAT Credit Rules (inserted wef 11-5- 2007 and amended on 1-3-2015), if inputs or capital goods before being put to use, are written off fully or partially or any provision is made in books of account to write off fully or partially, the manufacturer or service provider is required is required to an “ amount ” equal to CENVAT credit taken in respect of such inputs or capital goods. If these are subsequently used in manufacture of final products or provision of output service, manufacturer / service provider can take CENVAT credit of amount which was paid earlier.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 36 CENVAT CREDIT CENVAT Credit changes 1.CENVAT availment on “inputs” and “input services” No time limit restriction for availment of CENVAT credit on “capital goods” CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 36 Position prior To 01.10.2014 Position Between 01.10.2014-01.03.2015 Position On 01.03.2015 For availing CENVAT Credit No time limit was as such prescribed for “inputs”, “input services”, “capital goods” Vide notification 21/2014- 11.07.2014 time limit of “6 months” from the date of document for “inputs” and “input services” Vide notification 6/2015- 01.03.2015 time limit of “1 year” from the date of document for “inputs” and “input services”

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 37 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 37 Finance Minister has given final chance to avail CENVAT Credit on “inputs” and “input services” for the differential period between 02.03.2014 till 01.03.2015 as an effect of above amendment, considering the hardship faced by the tax payers owing to procedural difficulties Disclosure in books of account Disclosure in the service tax returns should go hand in hand CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 37 CENVAT CREDIT

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 38 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 38 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 38 2.Partial Reverse Charge CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 38 Position prior To 01.04.2015 Position after 01.04.2015 For availing CENVAT Credit it was necessary to payment of value of the taxable service provided in the invoice and the service tax liable to be paid directly as a recipient of the service. Rule 4(7) CENVAT Credit of the service tax paid under Partial Reverse Charge by the service receiver shall be allowed without linking the payment to the service provider Accordingly, CENVAT credit of service tax liable to be paid directly to the Government exchequer by the service recipient, in case of full as well as partial reverse charge, shall be allowed as soon as the said tax is paid wef 01.04.2015 CENVAT CREDIT

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 39 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 39 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 39 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 39 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 39 Position prior To 01.04.2015 Position after 01.04.2015 For availing CENVAT Credit it was necessary to payment of value of the taxable service provided in the invoice and the service tax liable to be paid directly as a recipient of the service. Further, value of service portion and service tax was required to be paid within 90 days of the invoice / bill / challan to the service provider. A failure of such payment was requiring person availing CENVAT credit to PAY and amount equal to CENVAT CREDIT Rule 4(7) CENVAT Credit of the service tax paid under Full Reverse Charge by the service receiver shall be allowed without linking the payment to the service provider Accordingly, CENVAT credit of service tax liable to be paid directly to the Government exchequer by the service recipient. CENVAT CREDIT

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 40 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 40 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 40 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 40 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 40 Availing value of goods as Cenvat credit? Availing Cenvat Credit of Customs Duty in the case of imported goods. Double credit on the same document. Availment of Cenvat credit without receipt of material. Rejection / Return of inputs without reversal of Cenvat credit Full credit on capital goods (instead of 50%) in the year of receipt of capital goods. Availing Cenvat Credit as well as Depreciation on the same capital goods. Cenvat Credit on inputs used in manufacture of exempt goods. Cenvat Credit on inputs used in exempt output services. Cenvat Credit on goods used for trading. Cenvat Credit on ineligible capital goods such as storage racks, furniture, air conditioners etc.. CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 40 Common Mistakes in availing CENVAT CREDIT

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 41 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 41 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 41 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 41 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 41 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 41 Non reversal of Cenvat credit on raw material / inputs written off. Cenvat Credit on ineligible goods such as HSD, LDO, goods used in construction of factory building etc. Cenvat Credit on ineligible services such as outdoor catering services, rent a cab services, services used for construction of factory / office building. Cenvat Credit on the basis of ineligible documents such as photocopy of invoices, photocopy of Bill of Entry, Debit notes etc. Utilization of credit of cess for payment of excise duty. Non receipt of goods sent for job work within specified time of 180 days. Non maintenance of separate account for dutiable and exempted products. Premature availing and utilization of credit. Non reversal of Cenvat credit pertaining to exempted services CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 41 Common Mistakes in availing CENVAT CREDIT

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 42 Input Service Distributor It is not necessary that each and every office of assessee must be registered as Input service distributor. Assessee can register only if it wants to distribute. As per Rule 9(1)(g) Invoice / Challan / bill issued by an input service distributor under Rule 4A of Service Tax Credit Rules, are considered as eligible documents for taking cenvat credit. The invoice / bill / challan issued by input service distributor should be :- Signed by authorized signatory Document should be for each recipient of the credit distributed. Document should be serially numbered.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 43 Input Service Distributor Invoice should contain following details : i.Name,address and registration number of the person providing input services, serial number and date of invoice / bill / challan. ii.Name and address of input service distributor iii.Name and address of recipient of the credit distributed. iv.Amount of credit distributed.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 44 Input Service Distributor : Distribution of Cenvat Credit (wef 1-4-2014) As per Revised Rule 7 of Cenvat Credit Rules, the distribution should be as follows a)Credit distributed should not be more than credit of input service tax available. b)Credit of service tax attributable to services used by one or more units exclusively engaged in manufacture of exempted goods or providing exempted services shall not be distributed. c)Credit of service tax attributable to service used wholly by a unit shall be distributed only to that unit. d)Credit of service tax attributable to service used by more than one unit shall be distributed pro rata on the basis of turnover of such units during the relevant period to the total turnover of all units which are operational in the current year during the relevant period.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 45 Input Service Distributor : Distribution of Cenvat Credit (wef 1-4-2014) Relevant Period means a.If the assessee has turnover in the financial year preceding to the year during which credit is to be distributed for the month or quarter, as the case may be the said financial year OR b.If the assessee does not have for some or all the units in the preceding financial year, the last quarter for which details of turnover of all the units are available, previous to the month or quarter for which credit is to be distributed. In case of an assessee, who does not have any turnover in the said period as in case of new company, ISD shall distribute any credit only after the end of such relevant period wherein total turnover of its units are available. In case of new unit, wherein any credit is exclusively used, credit can be distributed in total to such unit.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 46 Input Service Distributor : Responsibility Input Service Distributor has following responsibilities Take reasonable steps to satisfy himself about identity and address of provider of input service Submit half yearly return in Form ST-3, within one month from close of half year.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 47 CENVAT Credit Availment and Utilization

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 48 Differentiation between Availment & Utilisation of Cenvat Credit There is a general misconception that availment & utilization of Cenvat credit is one & same, however it is NOT so. The differentiating factors are given below. This is assessee’s entitlement to claim input tax credit Availment is a credit entry in self maintained pass book. Assessee is entitled to avail tax / duty credit on input or capital goods or input services used for providing taxable services or manufacture of dutiable goods. AvailmentUtilisation This is use of CENVAT credit balance for payment of output tax such as Excise Duty, Service Tax, Education Cess etc. Utilization is a debit entry in self maintained passbook. Output tax liability can be discharged from accumulated cenvat.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 49 Cenvat Credit The term CENVAT credit as used in various rules means aggregate of Basic Excise Duty and corresponding CVD on imports. Service Tax on input services paid u/s 66B of the Finance Act (wef 1-7-2012) Additional Customs Duty paid u/s 3(5) of Customs Tariff Act (SAD or Special CVD, this credit is not available for service providers) National Calamity Contingent Duty (NCCD) leviable under sec.136 of Finance Act, 2001 and corresponding CVD paid on imported goods. This Credit can however be used for payments of NCCD on outputs only and not for any other duty

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 50 Cenvat Credit Additional Excise Duty paid u/s 85 of Finance Act 2005 on pan masala and certain tobacco products. This credit can be utilised for payment of this duty only, any other credit can not be utilised and balance needs to be paid in cash only. Central Excise Duty paid on capital goods at the time of debonding of EOU. Buyer / User can avail cenvat credit of the amount paid under rule 3(5) or 3(5A) on inputs and capital goods removed as such or after use.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 51 Cenvat Credit : Transitory provisions for Education Cess and SAHE Cess According to Rule 3 (7) of Cenvat Credit Rules, Cenvat Credit for Education and SAHE Cess can be utilised only for payment of Education and SAHE Cess. Education and SAHE Cess on Excise Duty has been exempted wef 1-3-2015 and on service tax wef 1-6-2015. Transitory provisions in respect of this are as follows. There is no clarification for utilisation of balances as on 01.03.2015 in EC & SHEC account lying as regards “excise duty” Similarly there is no clarification for utilisation of balances as on 01.06.2015 lying in EC & SHEC as they relate to Service Tax.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 52 Cenvat Credit : Transitory provisions for Education Cess and SAHE Cess A manufacturer may receive input services between 1-3-2015 till 1-6-2015, from the service provider on which education cess and SAHE cess would have charged. In such case, manufacturer can utilise cenvat credit of Education Cess and SAHE Cess paid on input services for payment of excise Duty. In case of Capital Goods, manufacturer must have taken 50% credit of excise duty paid along with Education Cess & SAHE Cess in 2014-15.Credit for balance 50% can be taken after 1-4- 15 and be utilised for payment of excise duty. No provision has been made about utilisation of opening balances of Education Cess and SAHE Cess for manufacturers as on 1-3-2015 and service providers on 1-6- 2015.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 53 Cenvat Credit : Inter changeability Credit of Basic Excise duty / CVD on imported Duty, Service Tax on input services /Additional Customs Duty u/s 3(5) of Customs Tariff Act can be utilized for payment of basic excise duty, NCCD (except on mobile phones), Education Cess and SAHE Cess. Thus credit can be utilized for payment of NCCD (except on mobile phones) education and SAHE Cess but not vice versa. Credit of EC & SHEC paid on goods and paid on services are interchangeable. According to rule 3(4)(a) of Cenvat Credit Rules,Cenvat credit may be utilised for payment of any duty of excise on any final product or service tax on output service. There is no requirement of establishing one to one correlation between input / input services and final product / output services.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 54 Cenvat Credit availability in case of merger or amalgamation When two entities decide to amalgamate, the amalgamation becomes effective from the effective date, as mentioned in the amalgamation scheme and approved by the High Court. After the amalgamation, all assets and liabilities are transferred to amalgametee company, hence CENVAT credit of amalgamating company can be availed by amalgamatee company. CCE Vs Motherson Sumi Electric Wires(2009)239 ELT 250 (Kar HC DB)

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 55 Taking and utilisation of Cenvat Credit Duty paid through Cenvat is also excise duty, assessee should therefore use credit first and then pay cash, if required. Cenvat credit can be utilised for payment of following  Any duty on any financial product manufactured by manufacturer.  Payment of amount if inputs are removed as such or after partial processing.  Payment of amount on capital goods if they are removed as such  Payment of amount if goods are cleared after repairs under rule 16(2) of Central Excise Rules.  Service tax on output service  Payment under CENVAT Credit Rule 6 of amount on exempted goods or reversal of credit on inputs when common inputs or common input services are used for exempted as well as dutiable final products.  Reversal of cenvat credit, if assessee opts out of cenvat.  Payment of amount if goods sent out for job work are not returned within 180 days.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 56 Taking and utilisation of CENVAT Credit If bye product, scrap or waste is dutiable as excisable goods, duty will be payable on it as if it is a final product. Cenvat Credit however can not be utilised for payment of interest. CCE vs Maharashtra Seamless (2009) 238 ELT 645 (CESTAT SMB) Cenvat credit can not be utilised when a person is liable to pay service tax under reverse charge mechanism. The duty paying documents are valid for a period of one year from the date of duty paying document. (wef 1-3-2015, earlier limit was for six months). This limit is for taking the credit or availing the credit. There is no limit for utilization of Cenvat Credit.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 57 Taking and utilisation of CENVAT Credit Cenvat credit can be taken on receipt of invoice by service provider. However, as per provisio to rule 4(7) of Cenvat Credit Rules, assessee is required to pay amount equal to Cenvat Credit taken if payment is not made within three months. This is called as reversal of cenvat credit. Assessee can take back Cenvat credit after making payment to service provider. This provision exists only in Service Tax and not in Central Excise.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 58 Time limit for taking Cenvat Credit when service tax is payable under reverse charge Following changes have been made wef 1-3-2015 where service tax is payable under reverse charge basis (partly or fully) Where entire service tax is payable by service receiver, he can take CENVAT credit on the basis of GAR -7 challan generated after making payment of service tax. He can take the cenvat credit irrespective of whether payment is made to service provider or not of the invoice value. This credit should be taken within one year from date of payment of GAR-7. In respect of portion of service tax charged by service provider in his invoice, that portion is allowable immediately on receipt of invoice. If payment is not made to the service provider within Three months, then cenvat credit taken is to be reversed and to be taken back only when payment is made to him.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 59 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) XYZ Ltd. is manufacturing gas pipes. From the following details, compute CENVAT credit admissible to PQR Ltd. under CENVAT Credit Rules, 2004: Duties (including Education Cess) paid on purchases are detailed below ParticularsAmount Raw Steel25000 Gas pipe making machine20000 Spare parts for the above machine10000 Grease and oil2500 Office Equipment15000 Light Diesel Oil15000 XYZ Ltd. is not eligible for SSI exemption. Provide explanation for treatment of various items

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 60 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) ParticularsAmount Raw Steel25000 Gas Pipe Making Machine (50% of 20000) -Note 1 10000 Spare parts for the above machine (50 % of 10000) -Note 1 5000 Grease and oil2500 CENVAT Credit admissible42500 Computation of CENVAT Credit available

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 61 Notes:- In respect of 1)Gas Pipe Making Machine and Spare parts, being capital goods, only 50% credit is available (Rule 2(a) along with Rule 4(2)(a) of CENVAT Credit Rules 2004 2)A Manufacturer can avail credit on office equipment since the definition of capital goods under rule 2(a) of CENVAT Credit Rules 2004 specifically excludes any equipment/appliance used in an office 3)No credit is available on Light Diesel Oil since definition on input under Rule 2(k) of CENVAT Credit Rules, 2004 specifically excludes the same.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 62  Case Study : ‘ X ’ Ltd., NBFC, is engaged in providing the banking and other financial services. Information for the month…… particularsAmount CENVAT CREDIT AVAILED ON INPUTS 1,00,000/- ON SERVICES2,00,000/- SERVICE TAX LIABILITY 10,00,000/- CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)

63 Note : X ltd. is not eligible for small service providers’ exemption under Notification No.33 / 2012 - ST Dated 20.06.2012 for the preceding financial year. What is the cenvat credit available for the month and the service tax payable by ‘X’ Ltd. for the month. Approach : According to rule 6(3B) of the Cenvat Credit Rules 2004, Banking company is entitled to utilize only 50% of the CENVAT Credit in respect of inputs and input services notwithstanding anything contained in Rule 6(1)(2(3) CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)

64 CENVAT CREDIT available to X ltd. for the month… ParticularsAmount Cenvat Credit availed on Inputs 1,00,000/- Cenvat Credit availed on Input Services 2,00,000/- Total amount of Credit availed 3,00,000/- CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)

65 Less : Payment of 50% of Cenvat Credit availed on Inputs and Input Services 1,50,000/- Net cenvat credit available for the month 1,50,000/- Net service tax payable ParticularsAmount Service Tax Liability for …. month10,00,000/- Less Eligible CENVAT credit 1,50,000/- Net Service tax Payable 8,50,000/- CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)

66  Case Study : -Provisions relating to payment of Excise Duty on used capital goods cleared as second hand goods on which cenvat credit is availed. S NoType of Capital Good % Point (Straight Line Method) For each quarter in Percentage Computer and peripherals Year 110% CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)

67 Year 28% Year 35% Year 4 and 51% Other Capital Goods 2.5% Quarter for each year If amount so Calculated < the duty leviable on transaction value, the amount to be paid = duty leviable on Transaction value ( USUALLY SELLING PRICE ). CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)

68 Duty Paying Documents for Cenvat Rule 9(1) prescribes following documents on the basis of which Cenvat credit can be taken 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. He can either sell directly or from his premises or consignment agent. 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 appraiser of Customs in respect of goods imported through foreign Post office.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 69 Duty Paying Documents for Cenvat GAR-7 Challan evidencing payment of service tax by the service recipient as the person liable to pay service tax. Invoice / Bill/ Challan issued by input service distributor under rule 4A of Service Tax Rules. Certificate from Railways regarding service tax with copy of RR. General provisions of eligible documents 1.Duty paying document is valid for one year from it’s date. 2.Entire duty paid by supplier is available as credit. Cenvat credit can be taken even if duty is paid under protest. 3.Earlier, cenvat credit was allowed only on copy marked as Duplicate for Transport. However, now there is no such requirement.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 70 Defects in Duty Paying Documents for Cenvat Cenvat credit is available on the basis of proof of duty paying documents, however sometimes there can be minor technical defects in the same. However the fact of duty payment is not in doubt. Rule 9(2) prescribes that if all prescribed details are not available on duty paying document, then at least following details should be available 1.Details of duty or service tax payable 2.Description of goods or taxable service 3.Assessable value 4.Central excise or service tax registration number 5.Name and address of factory or warehouse or premises of first or second stage dealer or provider of taxable service.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 71 Defects in Duty Paying Documents for Cenvat In case of defective documents, if above referred minimum details are available and the jurisdictional Assistant / Deputy Commissioner is satisfied that such goods or services covered in defective documents have been received and accounted in the books of account of the receiver, then he may allow the credit.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 72 Supplementary invoices for differential excise duty / service tax It is quite possible that manufacturer who had supplied input / capital goods may have to pay further duty due to any demand or audit objection or cost escalation granted by buyer etc. On the similar lines, service provider may have to pay additional service tax at later date. In such case, the supplier manufacturer or service provider should issue supplementary invoice to the buyer. After receipt of such supplementary invoice, the manufacturer using the input / capital goods will get further credit of the additional duty paid by the supplier or additional service tax paid by service provider.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 73 Certificate from Railways with copy of RR When goods are transported through Railways, the Railway Receipt (RR) is required to be submitted to the railways at the time of taking delivery. Further, railways do not issue any invoice. In such cases,Cenvat credit can be taken on the basis of Service Tax Certificate for transportation of goods by Rail (STTG) issued by Indin Railways along with photocopies of railway receipts mentioned in STTG certificate. Notification no.26/2014 –CE (NT) dt. 27-8-2014. STTG is to be issued within 30 days from date of request by customer. It is to be issued by Commercial department of concerned zonal railways on receipt of verification by Traffic Accounts office.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 74 Cenvat on goods purchased from Traders When goods are purchased from depot or consignment agent of manufacturer or through wholesaler or retailer, then in such cases provision has been made to allow dealers / depots / consignment agents to issue invoice so that the buyer of inputs can avail cenvat credit. This invoice will be documentary evidence enabling the manufacturer to avail cenvat credit. All the dealers / depots / consignment agents issuing invoice for cenvat purposes, are required to register with central excise authorities under Rule 9 of Central excise rules. Only first and second stage dealers are allowed to issue cenvatable invoices.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 75 Cenvat on goods purchased in the course of transit sale If the goods are despatched from the manufacturer to the final buyer but sale is effected through a dealer, then such transaction is called as Transit sale. In such cases, cenvat will be permissible if the name of the final buyer is shown as consignee in the invoice, though invoice will be in the dealer’s name. The consignee can avail cenvat on the basis of the duplicate copy of manufacturer issued under rule 11. In this case, goods need not be brought to the premises of registered person and invoice of registered person (dealer) is not required for availing cenvat by the consignee……CBE&C circular No. 96/7/95 dt.13- 2-1995.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 76 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) FactsDiscussion Whether Service provider is eligible for “Special CVD” as CENVAT credit No It is called as “Additional Customs Duty” leviable u/s 3(5) of the Customs Tariff Act,1975 Manufacturer has paid ST on Freight under RCM for bringing in Raw Material Inward transportation of capital goods / inputs Refer Rule 2(I) – Yes allowed X Ltd., a manufacturer decides to claim depreciation on without duty price of machinery. Whether he can take CENVAT credit? No Depreciation benefit vs CENVAT credit benefit Refer Rule 4(4)

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 77 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) FactsDiscussion Whether a manufacturer can avail duties paid for following items as CENVAT credit:- i)Petrol which is use among other inputs ii)Motor Vehicle used by Director of Company iii)Air-conditioner used in an office Not Eligible Is it compulsory that the inputs / capital goods are to be purchased only from the manufacturers for the purpose of availment of credit? No. Refer Rule 9 of CENVAT Credit Rules, 2004.)- 1 st and 2 nd Stage Dealer. Both should be registered Whether manufacturer can avail CENVAT credit in the month of September 2015, though inputs are issued for production process in October 2015 Yes eligibility is on Receipt basis Refer Rule 4(1)

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 78 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) FactsDiscussion X Ltd. A manufacturer wants to take CENVAT credit of duties on input service. Whether he can avail such credit even payment is not made against invoice of such input service? Yes. Refer Rule 4(7) -Credit on accrual basis Payment to be made within 90 days Otherwise reverse and then take credit when payment is made to supplier. Whether X Ltd. is allowed to transfer unutilized input credit in case of transfer of ownership by factory by way of sale along with inputs and capital goods? Yes. Transfer of inputs and Capital goods to new ownership Refer Rule 10(1)

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 79 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) FactsDiscussion T Ltd. wrongly avails CENVAT credit on certain inputs. What will be the consequences? Penal provision Refer Rule 15 – Credit taken or Rs. 2000 whichever is higher Z Ltd. wants to take credit of excise duty on input, which is used in intermediate product, which is exempt from duty, but final product is dutiable Yes Refer Chapter 5 Para 3.7 of CBEC’s Excise Manual of Supplementary Instructions 2005- relation of inputs to dutiable final product, directly or indirectly CENVAT credit is eligible. Can not be denied since intermediary is exempt as final product is “dutiable” Y Ltd. wants to take refund of service tax paid on input services which are used in providing output services which are exported. Whether it is allowable? Yes. Refer Rule 5 - taxes not exported

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 80 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) FactsDiscussion In above case, if Y Ltd. is using only 50% of input services for exported output services and remaining for taxable output service Rule 5 – proportionate refund (i.e. Export T/O Total T/O) X Net Cenvat Credit W Ltd. wants to take credit of duty paid on inputs, which are damaged and were found to be not usable. Can it be availed? No If damage is noticed prior to “usage” Refer Rule 2(k) – goods used in factory X Ltd. wants to take credit on duty paid on inputs, based on Xerox copy of invoice, which are attested by Range Superintendent of supplier. Whether Credit can be availed? Yes Case law – CCEx & Cus. Vadodara II vs. Steelco. Gujrat Ltd. 2010 (255) ELT 518 (Guj.)

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 81 Exempted Goods, Exempted Services and Cenvat Credit

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 82 Exempted Goods : Meaning According to Rule 2(d) of Cenvat Credit Rules exempted goods means, goods which are exempt from whole of duty of excise leviable thereon and includes goods which are chargeable to NIL rate of duty and the goods in respect of which the benefit of an exemption under notification no.1/2011-CE dt.1 st March 2011 or under entries at serial no.67n and 128 of notification no.12/2012-CE dt.17 th March 2012 is availed. Thus exempted goods are the ones Which are chargeable to NIL duty Exempt by notification issued under 5A 2% excise duty has been paid under notification no.1/2011-CE dt.1 st March 2011 or 1% under notification no.12/2012-CE dt.17 th March 2012. Non excisable goods are considered as exempted goods or final products for the purpose of Rule 6(1) i.e proportionate reversal or 6% payment of amount.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 83 Exempted Services : Meaning Exempted Services means Output service which is exempt from the whole of the whole of the service tax leviable thereon or Service on which no service tax is leviable u/s 66B of the Finance Act or 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. Services on which no service tax is leviable are also exempted services. However, export of service is not considered as exempt service for rule 6 of Cenvat Credit Rules- Para 6 of CBE&C circular no. 868/6/2008-CX dt.9-5-2008.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 84 Exempted Services : Meaning The definition of exempted services is expanded wef 1-4-2011, by providing that taxable service whose part of value is exempt on the condition that no credit of inputs and input services used in providing such taxable service has been taken, shall be exempted service. In some cases, cenvat credit of input services is available but not of input goods. Such services are not considered as exempt services. In case of some services, abatement is subject to condition that the service provider does not take the credit of excise duty paid on inputs or capital goods in providing services or service tax paid on input services used in providing output services. In case of Traded Goods, value of the exempt service shall be the difference between the sale price and the cost of goods sold (without purchase cost) or 10% of cost of goods sold whichever is more…notification no.13/2011- CE(NT) dt.31-3-2011

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 85 Exempted Services : Meaning Services provided to unit or developer in SEZ is not an exempt service for the purpose of Rule 6. Similarly, export of service is also not considered as exempt service.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 86 FactsDiscussion Can CENVAT credit be utilized for payment of ED on goods in respect of which benefit of Notification 1/2011-CE-01.03.2011 is availed No Rule 3(4) On such goods concessional ED of 2% is payable subject to non- availment of CENVAT credit on inputs and input services Can CENVAT credit be utilized for payment of Clean Energy Cess leviable u/s 83 of Finance Act, 2010 No Rule 3(4) read with Rule 3(1) CCR 2004 Can credit of duty paid @ 2% on inputs wide Notification 1/2011-CE- 01.03.2011 is available to manufacturer and service provider? No Proviso to clause (i) Rule 3(1)

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 87 FactsDiscussion Is CENVAT credit required to be reversed in respect of “inputs” lying in stock / process contained in final product, when the final product is subsequently exempted from payment of duty As per Rule 11(3) CCR 2004 when a final product is exempted u/s5A of the Central Excise Act the manufacturer is required to pay an “amount” equal to CENVAT credit on inputs lying in stock or process Balance remaining is also not allowed as “input credit” for payment of ED on final product or payment of service tax on “taxable output service” Is CENVAT credit required to be reversed if goods sent for processing are not received within 180 days Yes Rule 4(5)(a) Credit already reversed if any can be restored once goods are received back Whether CENVAT Credit on services used in repairs / renovation of factory or office is available ? Yes eligible Rule 2(l)

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 88 FactsDiscussion Whether CENVAT Credit on services used in repairs / renovation of factory or office is available? Yes eligible Rule 2(l) CENVAT credit in respect of duty paid on capital goods used exclusively in the manufacture of dutiable goods cleared Not available if Capital Goods are exclusively used Otherwise, available in entirely if Capital Goods are used partly in manufacture of exempted final product CENVAT credit “capital goods” used outside the factory of manufacture for generation of electricity for captive use within the factory Yes Eligible Rule 2(a)

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 89 FactsDiscussion Capital Goods are cleared as waste or scrap ED is payable on the “transaction value” Whether CENVAT Credit is allowed without bringing “inputs” to premises of output service subject to documentation regarding delivery and location Yes eligible Rule 4 Provided that, they are used for providing “taxable output service” Correct documentation be maintained

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 90 FactsDiscussion A manufacturer is having storage godowns, cycle sheds, canteen, housing complex of employees ( staff and workers ) in the premises. Assessee had a CPP supplying electricity to factory as well as housing complex. CENVAT credit on furnace oil used in generation of power proportionately as applicable to “manufacturing activities can only be availed” as per Rule 2(k) of CCR, 2004. It can not be availed on housing complex etc. Assessee is engaged in manufacture of machines as per “customer’s” Specifications. After customer’s satisfaction about desired results sale use To be made to “customers”. While testing certain inputs were consumed during the course of testing of such machines. CENVAT credit prior to sale and during the course of testing is available or not ? Yes Flex Engineering v. Commissioner of Central Excise (276) ELT 153 (SC) “process of testing is connected with the sale without which sale could not have been completed” It was an essential ingredient of “process of manufacturer” itself

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 91 FactsDiscussion A manufacturer has been transferring raw material, consumables from a material handling system / ropeway located few kilometers away from factory. CENVAT credit on capital goods is available, including spare parts / components Birla Corporation v. CCE 2005 (186 ELT 266 (SC) Rule 2(a) provides that, “capital goods” means “used in the factory of the manufacturer of final products” Whether interest can be recovered from an assessee who wrongly takes CENVAT credit but reverses before its utilization. No Applicable only if utilized As per Rule 14 of CCR 2004

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 92 Proportionate Reversal Of Cenvat When assessee intends to pay amount on proportionate basis as given in rule 6(3)(ii), amount is to be calculated as provided in rule 6(3A) of Cenvat Credit Rules. This amount is to be paid provisionally on monthly basis and at the end of the year, assessee is required to calculate exact amount and adjust the difference. Information to Superintendent regarding option of proportionate reversal Name, Address, registration No. of manufacturer or output service provider. Date from which option under this clause is exercised or proposed to be exercised. Description of dutiable goods or output service. Description of exempted goods or exempted service. Cenvat Credit of input or input services lying in balance on the date of exercising the option.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 93 Proportionate Reversal Of Cenvat Credit Calculation of amount to be reversed at the end of each month Rule 1] 6(3A)(b)(i) Inputs used for exempted final products 2] 6(3A)(b)(ii)Inputs used for exempted services (proportionate basis, based on ratio of previous year) 3] 6(3A)(b)(iii)Input services used for exempted final products and exempted services (proportionate basis, based on ratio of previous year) Total1+2+3 = Amount to be reversed every month on provisional basis At the end of the year, assessee should calculate the ratios on actual basis, make fresh calculations and pay difference, if any, before 30 th June. In case of excess payment, he can adjust the difference himself by taking credit. In the first year of production or provision of service, calculation should be made after year is over, and amount attributable to cenvat credit on exempted products or services be paid.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 94 Calculation of Amount on provisional basis every month AThe amount equivalent to Cenvat credit attributable to inputs used in or in relation to manufacture of exempted goods during the month BTotal value of exempted services provided during the preceding financial year CTotal value of dutiable goods manufactured and removed plus total value of output services provided plus total value of exempted services provided, during the preceding financial year DTotal CENVAT Credit taken on inputs during the month minus A (credit taken on inputs for manufactured final products) (B/C * D)Amount to be reversed every month on provisional basis as per Rule 6 (3A)(b)(ii) Amount of Cenvat credit attributable to inputs used for provision of exempted service should be calculated as follows

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 95 Calculation of Amount on provisional basis every month ETotal Value of exempted services provided plus total value of exempted goods manufactured and removed during the preceding financial year. FTotal value of taxable and exempted services provided and total value of dutiable and exempted goods manufactured and removed during preceding financial year GCenvat credit taken on input services during the month (E/F) * GAmount to be reversed every month on provisional basis As per Rule 6(3A)(b)(iii) Amount attributable to input services used in or in relation to manufacture of exempt goods or exempted services is calculated as follows

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 96 Other Issues relating to CENVAT

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 97 Removal of inputs / Capital Goods ‘as such’ A Manufacturer / service provider who obtains the inputs / capital goods gets immediate credit of the duty paid by supplier on the inputs used by him. Manufacturer or service provider uses these inputs / Capital Goods for manufacturing final products. However, sometimes he may be required to remove the inputs from the factory or premises of output service provider for following purposes Sale or disposal Job work or processing outside and return Rejected inputs for rework and return. It is necessary to control these removals since credit on this has already been taken. The inputs or capital goods can be removed as such from factory or premises on payment of an amount equal to CENVAT credit availed. It amounts to reversal of CENVAT.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 98 Removal of Capital Goods after use Capital Goods can be removed either as scrap or second hand capital goods. According to Rule 3(5A)(a) effective 27-9-2013, if capital goods are removed after use, the manufacturer or output service provider shall pay an “amount” (a) equal to original cenvat credit taken reduced as per prescribed rates based on number of years used or (b) equal to excise duty payable on transaction value, whichever is higher. If capital goods are cleared as waste or scrap, manufacturer shall pay amount equal to duty leviable on transaction value [ Rule 3(5A)(b)].

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 99 Reduction allowed in original CENVAT credit taken on Capital Goods CENVAT credit originally taken on the capital goods is to be reduced as follows In case of computers & computer peripherals  In the first year 10% each quarter ( total 40 %)  8% for each quarter in second year (total 32%)  5% each quarter in third year ( total 20%)  1% for each quarter in fourth & fifth year (total 8% ) On other capital goods by 2.5% for each quarter of a year or part thereof from the date of taking CENVAT credit. The provision for payment of “amount” applies even if capital goods are sold after 10 years.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 100 Removal of capital Goods as waste and scrap AS per Rule 3(5A)(b), wef 27-9-2013, if capital goods are removed as scrap, the manufacturer shall pay an amount equal to duty payable on transaction value. It means an amount equal to duty on scrap value should be paid. Rule 3(6) makes it clear that buyer can avail CENVAT credit of the amount.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 101 FactsDiscussion Z, manufacturer, has paid excise duty on inputs and sent them to job worker for processing on day of receipt itself. Job worker sent 50% of processed inputs within 4 months and balance 50% after 8 months. Refer Rule 4(5)(a) (i)– inputs to be received back within 180 days In above case, instead of inputs, capital goods has been sent to job worker Rule 4(5)(a)(ii)- Capital goods to be received back within 2 years Assessee is engaged in manufacturing. It has following fixed assets a) Jigs b) Fixtures c) Moulds CENVAT paid on above Rs. 50000 Fixed assets were given to another manufacturer for producing goods similar to specifications of the manufacturer Assessee is entitled to claim CENVAT- Rule 4(5)(b) of CCR 2004 50% in the first year and remaining in the subsequent year

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 102 CENVAT Availment Procedure Main procedure for CENVAT availment is as follows : Maintaining proper records of input and capital goods. Maintaining records of credit received and utilized. Submit proper returns in forms ER-1 to ER 8. Returns by Dealers / Service Provider / Input Service Providers. Records of Input Services / Capital Goods : Records should contain information regarding Value, duty paid, CENVAT credit taken & utilized, person from whom input or capital goods are procured. Here, burden of proof regarding admissibility of CENVAT Credit is on manufacturer or provider of output service taking credit. [ Rule 9(5) of CENVAT Credit Rules]

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 103 CENVAT Availment Procedure Records of Input Services : Records should contain information regarding Value of input services, Tax Paid, CENVAT Credit taken and utilised, person from whom input services are procured. The burden of proof regarding admissibility of CENVAT credit lies with the person taking credit [ Rule 9(6) of CENVAT Credit Rules] CENVAT Credit Record : This is just an account of Cenvat credit received, credit utilised and credit balance. This gives details of credit availed against each input / capital goods, Credit utilised against each clearances of final products or removal of input as such or after processing or removal of capital goods as such and the Balance Credit available.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 104 Returns Under CENVAT Manufacturer is required to submit following returns to Range Superintendent of Central Excise. 1.Quarterly Return by first stage / second stage dealer within 15 days from close of the quarter [ Rule 9(8)]. 2.Half yearly return within 25 days from close of half year by provider of output services. Rule 9(9) of Cenvat Credit Rules prescribes one month but rule 7(2) of Service Tax Rules allows only 25 days. 3.Half yearly return within one month from close of a half year by input service distributor [ Rule 9(10) of Cenvat Credit Rules]. All service providers, dealers, manufacturers are required to submit the returns electronically wef 1-10-2011. Revised returns can be filed only by service provider within 60 days of filing original return. This facility is NOT available for manufacturers.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 105 Transfer / Merger / Shifting of Undertaking In case manufacturer shifts his factory to other site or provider of output services shifts his business or either of them transfers his factory/ business due to change of ownership or due to sale, merger, amalgamation, lease or transfer of factory to a joint venture, the manufacturer / service provider can transfer unutilized cenvat credit to the transferred / sold / merged/ leased or amalgamated factory / business. This transfer of credit is subject to following conditions a)There should be specific provision for transfer of liabilities of such factory / business of service provider.[ rule 10(1) and 10(2)]. b)Transfer is allowed only if stock of inputs as such or in process or the capital goods are also transferred along with the factory / premises of service provider to the new site or ownership and the inputs or capital goods on which credit has been availed, are duly accounted to the satisfaction of Assistant / Deputy Commissioner. [Rule 10(3)]

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 106 Recovery of CENVAT credit wrongly taken or erroneously refunded ( wef 1-3-2015) If CENVAT credit is taken wrongly but not utilised, the same shall be recovered from manufacturer or the provider of output service and provisions of Sec.11A of Central Excise ACt, and Sec.73 of Finance Act,1994 shall apply mutatis mutandis for effecting the recovery. [ Rule 14(1)(i) of Cenvat Credit Rules] If CENVAT Credit has been taken and utilised wrongly or has been erroneously refunded, the same shall be recovered with interest from the manufacturer or provider of output service and provisions of sec.11A and 11AA of Central Excise Act and Sec.73 and 75 of Finance Act,1994 shall apply mutatis mutandis for effecting the recovery. [ Rule 14(1)(ii) of Cenvat Credit Rules]

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 107 CENVAT utilisation on FIFO Basis For the purpose of Rule 14 (1), all CENVAT Credit shall be deemed to have been taken on the last day of each month. CENVAT Credit shall be deemed to have been utilised as follows Opening Balance of the month to be utilised first. Credit admissible in terms of these rules taken during month have been utilised next. Credit admissible during the month, to be utilised thereafter. [Rule 14(2) of Cenvat Credit Rules] Thus CENVAT credit is to be utilised on FIFO Basis.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 108 Withdrawal of facilities in case of misuse. In case of mis utilisation of CENVAT Credit, a provision has been insterted effective 25-8-2014 for withdrawal of facilities to manufacturer / exporter / provider of taxable services / registered dealer and suspension of registered dealer. Further, in order to prevent evasion of,and default in payment of excise duty or misuse of provisions of Cenvat Credit, various restrictions can be place on manufacturer, registered dealers or exporters and certain facilities can be withdrawn. Registration of dealer can be suspended.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 109 When the facilities can be withdrawn As per notification No.16/2014-CE(NT) dt. 21-3-2014 facilities to manufacturer / exporter / dealer can be withdrawn and restrictions be imposed if prima facie, he is found to be knowingly involved in following Removal of goods without cover of invoice and without payment of duty. Removal of goods without declaring correct value for payment of duty, where a portion of sale price is received by him or on his behalf but not accounted for in the books of account. Taking CENVAT credit without receipt of goods specified in the document based on which the CENVAT credit is taken. Taking the CENVAT credit on invoices or other documents which a person has reason to believe as not genuine. Issue of excise duty invoice without delivery of goods specified in invoice.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 110 When the facilities can be withdrawn Claiming of refund or rebate based on excise duty paid invoice or other documents which a person has reason to believe as not genuine. Removal of inputs as such on which CENVAT was taken, without paying amount equal to CENVAT Credit availed.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 111 Restrictions that can be placed and facilities that can be withdrawn  Payment of duty before clearance instead of monthly payment.  Restriction on utilization of CENVAT credit. Assessee will be asked to pay the duty through PLA instead of utilizing CENVAT credit.  Keeping the records of principal inputs on which CENVAT not taken which constitutes at least 10% of total cost of raw material for manufacture of unit quantity of that product.  Intimation about receipt of principal inputs to the Superintendent within prescribed time on which CENVAT credit is not taken.  In case of second or subsequent offence, the invoice can be countersigned by the Inspector or Superintendent.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 112 Case Study

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 113  Y Ltd. Purchased raw material ‘A’ 10,000 Kg @ Rs.80 Per Kg plus excise duty. The said raw material was used to manufacture intermediate product ‘P’. Such product was captively used for the manufacture of finished product ‘Z’, which was exempt from excise duty. ‘Y’ Ltd. Is not eligible for SSI Exemption under Notification No. 8/2003 – C.E. The other information i) Processing Loss : 2% of inputs in manufacture of ‘P’ ii)Assessable value of ‘P’ : Rs.100 / kg iii) Assessable value of ‘Z’ Rs.20 Lac(for total output)

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 114 iv)Other material ‘M’ used in the manufacture of ‘Z’ Rs.2 Lac plus Excise Duty. v)Duty on capital goods imported during the period And used in the manufacture of ‘P’ -Basic Customs duty Rs. 20,000/- -Additional duty of customs u/s 3(1) of the Customs Tariff Act, 1975 Rs.10,000 and -Additional duty of customs u/s 3(5) of the Customs Tariff Act, 1975 Rs.4000

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 115 vii) Rate of Central Excise Duty on ‘A’, ‘M’ and ‘P’ 12.36% (Including Education Cess as applicable) What is the amount of Cenvat Credit available and central excise duty payable.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 116 The amount of CENVAT Credit available PARTICULARSRsRs. On Inputs Raw material ‘A’ (10,000 Kg x Rs.80 x 12.36%) Note 2 Raw material ‘M’ (Note 3) On Capital Goods : Basic Customs Duty Additional Duty of Customs u/s 3(1) of Customs Tariff Act, 1975 (Note 4) Additional duty of customs u/s 3(5) of Customs Tariff Act, 1975 (Note 5) Total Credit available 98,800 Nil 5,000 4,000 98,800 9,000 1,07,880

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 117 ii) Computation of net central excise duty payable, ParticularsRs. Central excise duty payable on intermediate product ‘P’ (10,000 Kg x 98% (2% processing loss ) x Rs.100 x 12.36% (Note 1) Central Excise Duty on exempt final product ‘Z’ Total central excise duty payable Less : CENVAT Credit available Net Central excise duty payable (In Cash) 1,21,128 NIL 1,21,128 1,07,880 13,248

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 118 Notes : 1.Intermediate goods are exempt from payment of excise duty if the same are consumed captively for manufacture of dutiable final products. 2.Since input ‘A’ is used in manufacture of dutiable intermediate product ‘P’. CENVAT credit will be available on the entire quantity of the same regardless of the processing loss as that quantity of inputs is also used in the manufacture of intermediate product.

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 119 3.Since raw material ‘M’ is used in manufacture of final product ‘Z’ which is exempt from payment of duty, credit will not be available on the same [Rule 6(1) of CENVAT Credit Rules, 2004] 4.Up to 50% of the Credit in respect of Additional duty of Customs livable u/s 3(1) of customs Tariff Act, 1975 can only be availed in the year in which capital goods are received in the factory of the manufacturer [Rule 4(2)(a) of CENVAT Credit Rules, 2004]

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 120 5.CENVAT credit in respect of additional duty of customs leviable u/s 3(5) of Customs Tariff Act, 1975 is allowed immediately on receipt of the capital goods in the factory of the manufacturer [Second proviso to Rule 4(2)(a) of CENVAT Credit Rules, 2004].

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 121 Highlights of CENVAT Scheme

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 122 Highlights of Cenvat Scheme  Cenvat Credit on receipt of inputs  Credit of duty on receipt of invoice in case of input services provided payment is made within 90 days from date of invoice.  Cenvat Credit shall not be allowed after six months of the date of document (Invoice Date / Challan Date (w.e.f. 01.09.2014)  Where entire service tax is payable by service recipient, Cenvat Credit can be availed after the service tax is paid.  Where service recipient is liable to pay part service tax, Cenvat Credit can be taken on/ after payment is made of the value of input service and the service tax paid or payable as indicated in invoice,

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 123  Input goods eligible for Cenvat to service provider  Inputs can be sent to Job Worker  No credit of service in J&K  Input goods eligible for Cenvat to manufacturer

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 124  Services Billed/ Received at Head / Regional Offices  Credit of duty paid on capital goods  Removal of used capital goods as scrap or second hand capital goods  Credit on motor vehicles used to provide output service  Credit on basis of specified documents  Credit available instantly incase of input goods and input services Highlights of Cenvat Scheme

CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com) 125  Cenvat credit of capital goods in two stages  Cenvat to manufacturer available only if there is a ‘manufacture’  Utilization of Cenvat credit  One-to-one correlation not required  No input credit if final product/ output service exempt from duty/ service tax  Partial manufacture/ provision of exempted products/ services  No cash refund, except in case of export or supply to SEZ Highlights of Cenvat Scheme

126 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)

Thank You!! Contact : CA Shekhar Sane (M) 098230 91364 (O) 020-2446 1345 E-Mail : shekharsane@vsnl.net shekhar@cashekharsane.com Website : www.cashekharsane.com 127 CA Shekhar Sane - 98230-91364 (shekharsane@vsnl.net and shekhar@cashekharsane.com)

Cenvat Credit Rules By S.H.Sane & Co. Chartered Accountants CA Shekhar Sane (B.Com, ACMA, FCA, DISA(ICAI) Date : 3 rd October, 2015 Flat No.6, Radha Krishna.

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Presentation on theme: "Cenvat Credit Rules By S.H.Sane & Co. Chartered Accountants CA Shekhar Sane (B.Com, ACMA, FCA, DISA(ICAI) Date : 3 rd October, 2015 Flat No.6, Radha Krishna."— Presentation transcript:

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Cenvat Credit Rules By S.H.Sane & Co. Chartered Accountants CA Shekhar Sane (B.Com, ACMA, FCA, DISA(ICAI) Date : 3 rd October, 2015 Flat No.6, Radha Krishna.

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Presentation on theme: "Cenvat Credit Rules By S.H.Sane & Co. Chartered Accountants CA Shekhar Sane (B.Com, ACMA, FCA, DISA(ICAI) Date : 3 rd October, 2015 Flat No.6, Radha Krishna."— Presentation transcript:

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