Welcomes the members of Hosur Industries Association and other Dignitaries

1. Welcomes the members of Hosur Industries Association and other Dignitaries 28.10.2004

2. An insight into … CENVAT CREDIT RULES, 2004 by swamy associates chennai – coimbatore – bangalore - hyderabad

3. Duties of excise paid on inputs and capital goods. Duties of excise payable on final products. Cenvat Credit Rules, 2002 YES Service tax paid on input services. Service tax payable on output services. Service Tax Credit Rules, 2002

4. Duties of excise paid on inputs and capital goods. Duties of excise payable on final products. Cenvat Credit Rules, 2004 Service tax payable on output services. Service tax paid on input services.

5. Let us understand certain important terms

6. Inputs In case of manufacturers : All goods, except Diesel and Petrol used in or in relation to the manufacture of the final products whether directly or indirectly whether contained in the final product or not. In case of service providers : All goods, except Diesel and Petrol used for providing output service.

7. Capital goods • Goods falling under Chapters 82, 84, 85, 90, 6802 and 6801.10. (b) Pollution control equipment. (c) Components, spares and accessories of the above. (d) Moulds, dies, jigs and fixtures. (e) Refractories and refractory materials. (f) Tubes, pipes and fittings thereof. (g) Storage tank. Used in the factory of manufacture of the final products Or for providing output service. Motor vehicle is declared as capital goods for certain categories of service providers.

8. Input service Any service Used by a service provider for providing output service. Used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and their clearance from the place of removal including certain specified services ...

9. services used in relation to setting up, modernisation, 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 upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal.

10. Output service Any taxable service for which a service provider is liable for payment of service tax. At present Service tax is liable on the following services.

12. First Stage Dealer A dealer who purchases the goods directly from the manufacturers / manufacturers’ depot / consignment agent of the manufacturer – under the cover of an invoice. Second Stage Dealer A dealer who purchases the goods from a First Stage Dealer.

13. Input Service Distributor Office of the manufacturer / output service provider. • Head office, Corporate office, Administrative office, etc. - Which is receiving invoices for input services. ISD – To distribute the service tax paid by them, to its various manufacturing premises (in case of manufacturing units) or to its various premises from where output services (in case of service providers) are rendered.

14. A little more peep into the ISD • No requirement of registration, as of now. • Should raise invoices to its various constituents (factories or service rendering premises, as the case may be) – to distribute the Service tax paid by it, on input services. • Shall maintain adequate records. • Shall file an half yearly return – regarding credit received and distributed. • The total amount distributed shall not exceed the service tax paid by the ISD. • If the service tax paid by the ISD is exclusively in relation to manufacture of exempted goods or rendering of any exempted service, such service tax shall not be distributed. • No norms for distribution.

15. What are the duties / taxes, for which credit facility is available? • Cenvat Duty (Basic Excise Duty). • Special Excise Duty (SED). • Additional Duty of Excise (Textiles and Textile Articles) {AED(TTA)}. • Additional Duty of Excise (Goods of Special Importance) {AED(GSI)}. • National Calamity Contingent Duty (NCCD). • Additional Duty of Excise on Tea and Tea Waste. • Additional Duty of Customs (CVD). • Education Cess on Excise Duties. • Service Tax • Education Cess of Service Tax.

16. Removal of Credit availed inputs / capital goods • When removed “as such” - credit originally availed shall be reversed. • No reversal of credit, if the removal of inputs is by an output service provider, for providing the output service. • No reversal of credit, if capital goods are removed by the output service provider, for providing output service. But they have to be brought back within 180 days or within another 180 days, subject to the permission of the AC/DC. • Can be removed to a job worker of the manufacturer, for further processing testing, repair, reconditioning or any other purpose. Should be received back within 180 days. • The restriction of 180 days is not applicable for jigs, fixtures, moulds and dies. • What if “used” capital goods are removed?

17. Certain conditions for availment of credit • Credit can be taken immediately on receipt of inputs. • Credit of Service Tax can be taken, only after making payment for the bill. • Credit on capital goods can be taken, only to an extent not exceeding 50 % of the duty, in any financial year. • Balance can be taken in any subsequent financial year. • Duty paid on capital goods, which is availed as credit, should not be capitalised for claiming depreciation under IT. • If inputs are directly delivered at job worker, credit should be taken, after receipt of the processed goods, in the factory of the manufacturer. • Finished goods emerging at job workers’ premises, can be directly cleared, with the permission of the CCE. • No credit on capital goods, if they are exclusively used in the manufacture of exempted goods or in rendering exempted services, barring value / quantity based exemptions.

18. What if I manufacture, both dutiable and exempted goods • No credit on inputs/input services - used in the manufacture of exempted goods. • Maintain separate records and avail credit only in respect of the inputs / input services, used in the manufacture of dutiable goods. • If not, • Reverse proportionate credit in specified cases. Or • Pay 8 % of the price of the exempted goods. Fuel

19. What if I render , both taxable as well as exempted services. • No credit on inputs/input services - used in rendering exempted service. • Maintain separate records and avail credit only in respect of the inputs / input services, used in rendering taxable service. • If not, • Utilise the credit only to an extent of 20 % of the service tax liability. • Balance credit can be carried forward.

20. What if I - • manufacture dutiable goods and render any exempted service; or • manufactures exempted goods and render taxable services. Such situations are not envisaged in the Rules.

21. Documents • Invoice issued by a manufacturer. • Invoice issued by an importer. • Invoice issued by FSD / SSDs. • Supplementary invoice for payment of differential duty (if such payment is not on account of fraud, etc.) • Bill of Entry. • Certificate issued by an Appraiser of Customs for imports through FPO. • Challan for payment of Service tax, is such Service tax is payable by recipients of service. • Invoice / Bill / Challan issued by an input service provider. • Invoice / Bill / Challan issued by an ISD.

22. Certain practical issues

23. I am a manufacturer. I have a bill for annual maintenance contract, covering the period April 2004 to March 2005, indicating service tax payment. The bill was issued on 01.04.2004. Can I take credit of the service tax indicated thereon? No. As the document has been issued prior to 10.09.2004 What if the bill was issued after 10.09.2004, for the above case? Credit can be taken on proportionate basis, for the service pertaining to the period after 10.09.2004.

24. Which copy of the invoice has to be used for availing credit? In case of invoices issued by the manufacturers - original / duplicate / triplicate copy of the invoices. In case of invoices issued by service providers, nothing has been envisaged in the rules.

25. Whether credit of Service tax paid on mobile phone bills can be availed? Why not? There are no restrictions other than the one contained in a Board’s Circular. If it otherwise satisfies the condition of input service, availment of credit on mobile phone bills, cannot be legally questioned.

26. Whether credit of service tax paid on transportation services can be availed? The levy of service tax on goods transport agency, is yet to take effect. Transport of goods by air is already subjected to Service tax. Credit of service tax paid on transportation can be availed, to the extent such transportation pertain to the inward movement of inputs and capital goods and outward movement of finished goods, upto the place of removal.

27. Computers and office equipments used in office are not eligible for Cenvat credit as capital goods. Whether the service tax paid on their maintenance can be availed as credit? The fact that they are not eligible capital goods, cannot influence the availment of credit of service tax paid on their maintenance. If such maintenance service satisfies the definition of input service, credit can be taken.

28. I am a manufacturer. I have to pay service tax on behalf of our foreign collaborator, as the agreement between us, for transfer of technology, is construed as “consulting engineering services”. Can I take credit of the service tax thus paid by me, on behalf of the foreign collaborator? YES

29. It is stated that the “job workers” are liable for payment of service tax. Being a manufacturer, I engage several job workers. Am I entitled to take credit of such service tax paid by my job workers? YES . Are all job workers liable for Payment of Service Tax?

30. THANKS s. jaikumar - g. natarajan - m. karthikeyan swamy associates chennai - coimbatore - bangalore - hyderabad mail@swamyassociates.com

31. Swamy associates 21/8 Rams Flats Ashoka Avenue Directors Colony Kodambakkam Chennai 600 024. Ph: 044-24811147 Fax : 044-24733344 Swamy associates 4 E Radhekrishna Apartments 33 Sarojini Street Ram Nagar Coimbatore 641 009 Ph: 0422-5377669 Fax : 0422-5378622 Swamy associates 884, 6th Cross 6th Block Koramangala Bangalore 560 095. Ph: 080-51303434 Fax : 080-51105739 Swamy associates H.No.3-6-659, Flat No.3C Anushka Enclave Street No. 9 Himayat Nagar Hyderabad - 500 029. Ph: 040 - 55526879