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Cenvat Credit

Cenvat Credit. By: A.Saiprasad B.Com, LLB, ACA, DISA, AMIMA Advocate. Session Outline. Introduction, CCR 04, Scope & Extent Basic Concepts/ Definitions in CCR, 04 Capital Goods Inputs Input Services Output Services Exempted Goods Exempted Services. Session Outline.

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Cenvat Credit

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  1. Cenvat Credit By: A.Saiprasad B.Com, LLB, ACA, DISA, AMIMA Advocate

  2. Session Outline • Introduction, CCR 04, Scope & Extent • Basic Concepts/ Definitions in CCR, 04 • Capital Goods • Inputs • Input Services • Output Services • Exempted Goods • Exempted Services

  3. Session Outline • What are the components of Cenvat Credit ? • Who can avail/ utilise Cenvat Credit ? • When can Cenvat Credit be availed ? • What can Credit be utilised for ? • Manner of Utilisation of Credit • When should credit be reversed ?

  4. Session Outline • Can Refund of Cenvat Credit be claimed ? • For Exports • For service providers providing services on RCM • Can credit be availed to provide exclusively exempted services ? • How to avail credit when services/ goods commonly used for providing taxable & exempt services?

  5. Session Outline • Concept of Input Service Distributor • Manner of Distribution by ISD • What are the documents based on which Cenvat Credit may be taken ? • What are the records to be maintained ? • Cenvat Credit & SSI/ SSP • Benefits available to LTUs • Recovery of credit wrongly taken & Penalty

  6. Introduction • Service tax is a value added tax • Tax/ Duty credit assists to: • Tax only the value addition by providing credit • Remove cascading effect of tax. • Modvat • Offset duty payable at final product stage against duty paid at input stage. • Cr on inputs from 01.03.1986 • Cr extended to C.G. from 01.03.1994

  7. Cenvat Credit Rules, 2004 • Notification No.23/2004 – C.E.(N.T.) dt.10.9.04 • Replaced • Cenvat Credit Rules, 2002 • Service Tax Credit Rules, 2002 • Integration of Mfg with Service Sector • Sets of duty/ tax incidence.

  8. Scope & Extent • Extends to whole of India • Provisions relating only to credit of service tax – not to apply to state of J & K. • Proviso to R.1(2) of CCR, 04 • Reason • Service tax applies to whole of India except the state of J & K – S.64(1) of FA, 94

  9. Basic Concepts – C.G. • Capital Goods – R.2(a): • Used in the factory • Factory – S.2(e) of CEA, 44 • Used Outside the factory • Generation of Electricity • Captive consumption – inside the factory • Used for providing O/P service • Used in an office • Equipment & Appliances in office

  10. Basic Concepts – C.G. • Capital Goods – R.2(a) – Includes: • Goods falling under CETA: • 82 – Tools, implements, cutlery of base metals and parts thereof of base metals • 84 – Nuclear Reactors, Boilers, Machinery and mechanical appliances; parts thereof • 85 – Electrical Machinery and equipments and parts thereof, etc • 90 – Optical, photographic, measuring, precision, medical instruments, parts thereof, etc

  11. Basic Concepts – C.G. • Capital Goods – R.2(a) – Includes: • Pollution Control Equipments & parts • Moulds & Dies, • Jigs & fixtures • Refractories & Refractory Materials • Tubes, pipes & fittings thereof • Storage Tanks

  12. Basic Concepts – C.G. • Capital Goods – R.2(a) – Includes: • Dumpers & Tippers • Motor Vehicles other than: • 8702 – MV for transport of 10 or more persons • 8703 – M Cars & MV principally designed for transport of persons (other than 8702) • 8704 – MV for transport of goods • 8711 – M Cycles including mopeds • MV to be used in the factory

  13. Basic Concepts – C.G. • Special provisions for Service providers - I • MV for transportation of goods, used for: • Courier Agency services • Defined U/s 65B(20) of FA,94 • Renting out of such MV • Transportation of I/P & C.G. used to provide O/P service – Pendal & Shamiana Service • MV & Chasis - Registration

  14. Basic Concepts – C.G. • Special provisions for Service providers - II • MV designed to carry passengers, used for: • Transportation of passengers • Other than –ve list – S.66D • Renting of such MV • Imparting motor driving skills • MV & Chasis - Registration

  15. Can Mfr take Cr on MV used to transport employees/ transport its final product? Basic Concepts – C.G.

  16. Basic Concepts – Input • Input – R.2(k) – Includes • All Goods used in factory by Mrf’er • What if goods used outside by Service Provider? • Goods used to mfr electricity/ steam for captive consumption • What if electricity wheeled out to the Grid – No CC • Maruti Suzuki Ltd – ‘Process & Use Test’ • 2009 (240) ELT 641 (SC) • Doubted in Ramala Sahakari Chini Mills Ltd • 2010 (260) ELT 321 (SC)

  17. Input – R.2(k) – Includes • Goods used for providing O/P service • Goods including accessory • Cleared along with final product • Value to be included in final product • Accessories • Banco Products • (2009) 235 ELT 636 (T) • Goods used to provide free warranty

  18. Basic Concepts – Input • Input – R.2(k) – Excludes • LDO, HSDO, Motor Spirit – Petrol • Goods used for: • Construction of building/ Civil structure • Laying foundation/ support structures for capital goods • Under Construction Service/ Works Contract Service • Except when goods used for providing • Construction Service/ Works Contract Service ?? • Explanation 2 to Rule 2A of ST Valn Rules – Restriction. • Entry No.12 – Ntfn 26/12 ST – Condition of Cr on I/p only.

  19. Basic Concepts – Input • Input – R.2(k) – Excludes • Capital Goods • Except when used as a part or component of final product • Motor Vehicle • Hence MV can only be CG!! • Food items, goods used in Guest House, Residential Colony, Club, Recreational Facility, Clinical Establishment – used primarily for personal use of employee • Goods having no relation to mfr of final product

  20. Basic Concepts – Input Service • Input Service – R.2(l) – Any service: • Used to provide O/P service • Used by Manufacturer • Whether directly or indirectly • In or in relation to manufacture of Final product • Doypack Systems, 1988 (36) ELT 201 (SC) • Clearance of FP upto place of removal • From place of Removal – Upto 31.3.08 • ABB Ltd, 2011 (23) STR 97 (Kar)

  21. Basic Concepts – Input Service • Input Service – R.2(l) – • Specifically Includes services in relation to: • Ponds India, (2008) 227 ELT 497 (SC) • Modernisation • Renovation • Repairs • Factory, premises of provider of O/P service • Office in relation to factory/ premises

  22. Basic Concepts – Input Service • Input Service – R.2(l) – Specifically Includes • Advertisement • Sales promotion • Market Research • Business Exhibition • Storage upto place of removal • Procurement of inputs • Outward Transportation – Upto POR • Inward Transportation of I/P & C.G. Marketing services Services relating to transportation of inputs

  23. Basic Concepts – Input Service • Input Service – R.2(l) – Specifically Includes • Accounting • Auditing • Financing • Credit Rating • Share Registry • Recruitment & Quality Control • Coaching & Training Financial expenses Personnel expenses

  24. Basic Concepts – Input Service • Input Service – R.2(l) – Specifically Includes • Computer Networking • Security • Legal services

  25. Basic Concepts – Input Service • Input Service – R.2(l) – Specifically Excludes • Construction/ W/C service used for: • Construction of building/ Civil structure or • Laying of foundation/ support structures for capital goods • Except when goods used for providing • Construction Service/ Works Contract Service • Mirror provision to definition of input.

  26. Basic Concepts – Input Service • Input Service – R.2(l) – Specifically Excludes • Renting of Motor Vehicle • When MV is not a CG • Stanzen Toyotetsu India Pvt Ltd • 2011 (23) STR • Activities relating to business • Omitted from Defn of I/P service from 1.4.11 • Coca Cola case, (2009) 15 STR 657 (Bom.) • Ultra Tech Cement case, (2010) 20 STR 577 (Bom.)

  27. Basic Concepts – Input Service • Input Service – R.2(l) – Specifically Excludes • Services of General Insurance, Servicing, Repair & Maintenance w.r.t. MV, which is not a C.G. • What if MV is CG? – Cr allowable • When would MV be CG – already discussed • Exceptions: • Mfr’er of motor vehicle in respect of MV mfd by them • Insurance Co in respect of re-insurance or MV, repairs to MV payable due to insurance.

  28. Basic Concepts – Input Service • Input Service – R.2(l) – Specifically Excludes • Outdoor Catering • GTC Industries Ltd, (2008) 12 STR 468 (T-LB) • Ace Desigeners Ltd, (2012) 26 STR 193 (Kar) • Beauty Treatment • Health Services, cosmetic & plastic surgery • Membership of clubs • Life & Health insurance • Stanzen Toyotetsu, 2011 (23) STR 444 (Kar.) • Travel benefits, health & fitness centre • Service primarily for personal use/ Consumption of ‘ee

  29. Input Service – Press Note • A Press Note dated August 12, 2004, • In principle, credit of tax on those taxable services would be allowed that go to form a part of the assessable value on which excise duty is charged. • This would include certain services which are received prior to commencement of manufacture but the value of which gets absorbed in the value of goods. • As regards services received after the clearance of the goods from the factory, the credit would be extended on services received upto the stage of place of removal (as per section 4 of Central Excise Act).

  30. Input Service – Press Note • In addition to this, services like advertising, market research etc. which are not directly related to manufacture but are related to the sale of manufactured goods would also be permitted for credit. • Full credit of service tax on services (such as telephone, security, construction, advertising service, market research etc.) which are received in relation to the offices pertaining to a manufacturer or service provider would also be allowed.                   

  31. Basic Concepts – Output Service • Output Service – R.2(p) – Means • Service provided by provider of service • Located in taxable territory • Shall not include: • Negative Services – S.66D • Services where whole of ST liable to be paid by recipient of service. • S.68(2) of FA, 94 r/w R.2(1)(d) of STR, 94 r/w Ntfn No.30/12 ST dt.20.6.12. • But can Cr be taken on such services?

  32. Basic Concepts – Exempted Service • Exempted Service – R.2(e) – Means • Service wholly exempted • Non taxable service - Not chargeable U/s 66B • Partially exempted service • Condition – No Cr on I/P and I/P services • Notification No.26/12 ST dt.20.6.12 • Shall not include: • Service Exported U/r 6A of STR, 94

  33. What can Cr be availed on ? • Cr available on: • Capital Goods – R.2(a) • Inputs – R.2(k) • Input Services – R.2(l) • Service provider may provide: • Output service – R.2(p) - which is taxable • Exempted Service – R.2(e) – on which tax not payable • Can Cr be availed on I/P, I/P Service & C.G. used exclusively for provision of Exempted Goods/ Service? – Expln II to R.6(3).

  34. Who can avail Credit ? • Manufacturer of final product • Producer of final product • Provider of output service • First Stage Dealer • Second Stage Dealer • Who can not avail • Mfr/ Provider of O/P service availing turnover based exemption notification.

  35. What can be availed as credit ? • Basic Excise Duty • Exception – Goods exempt U/n 1/11 CE • Special Excise Duty • Additional Duty of Excise – T & TA, GSI • NCCD • EC & SHE C on Excise Duty • CVD = BED levied U/s 3 of CTA • SAD = VAT/ ST levied U/s 3 of CTA • Exception - Provider of O/P service

  36. What can be availed as credit ? • ST U/s 66 – Upto 30.6.12 • ST U/s 66A – Upto 30.6.12 – Import of Service • ST U/s 66B – From 1.7.12 • EC & SHE C paid on ST • ADE leviable U/s • 157 of FA, 2003 – Tea & Tea waste • 85 of FA, 2005 – Pan Masala & Certain Tobacco products • Rule 3(1)

  37. What can the Cr be used to pay • S.T. on O/P service • Duty of Excise on Final Product • I/P cleared as such/ partially processed • C.G. removed as such • Goods re-cleared after repair/ further processing • R.3(4)

  38. Removed as Such • I/P and C.G. Removed as such • Amount equal to Cr Availed – Reversal • What if I/P and C.G Removed as such • But for providing O/P service • Should Cr be reversed? • Can Cr of EC & SHE on I/P be used to pay EC & SHE on I/P service and vice versa? • Proviso to Rule 3(7)(b)

  39. To what extent Cr can be used • Cr as on 30.11.12 – Rs.60,000 • Cr as on 5.12.12 – Rs. 70,000 • S.T. payable for the month of Nov-Rs. 75,000 • Nature of A’ee – Company • S.T. to be payable by 5.12.12 • How much Cr can be used? • Proviso to R.3(4)

  40. To what extent Cr can be used • Cr as on 30.11.12 – Rs.60,000 • S.T. to be paid on: • GTA service – Rs.10,000 • Sponsorship service – Rs.5,000 • Renting of IMP service – Rs.40,000 • How much Cr can be utilised (OR) Should any tax be paid compulsorily without taking Cr? • Explanation to last proviso of R.3(4)

  41. When can Cr be availed • For I/P: - R.4(1) • On receipt of I/P in the factory. • For C.G: - R.4(2) • On receipt of C.G. in the factory • Max 50% in the F.Y. in which received • Bal 50% in the subsequent F.Y. • What if purchased & sold in same F.Y. ? • Can Cr portion also be capitalised and claimed as depreciation U/s 32 of IT Act, 1961? – R.4(4)

  42. When can Cr be availed • For C.G: • Can Cr be availed if C.G. is acquired on lease, hire purchase or loan agreement ? • R.4(3) • Cr available on C.G. Rs.1,00,000 • Received in factory on 30.3.12 • How much Cr can be taken on 30.3.12 ? • How much Cr can be taken on 1.4.12 ? • R.4(2)

  43. When can Cr be availed • For I/P service: • S.T. paid by provider of service • Date of receipt of invoice/ bill by service receiver • R.4(7) • S.T. paid by recipient of service • Date of payment of I/P service & ST by recipient • Proviso to R.4(7) • Invoice - Rs.100, ST – Rs.10. • ST paid but Inv Not paid. Can Cr be availed?

  44. When can Cr be availed • For I/P service: • S.T. payable by service provider • Service receiver avails cr on date of receipt of invoice provided by service provider • But service receiver defaults on payment. • Can Cr still be taken though ST not paid by service receiver? • Payment of value & ST necessary within 3 months from the date of invoice, else Cr taken to be reversed – II Proviso to R.4(7)

  45. When Cr should be reversed • When I/P, C.G. cleared as such – R.3(5) • IF C.G. not cleared as such but after being used either as C.G./Scrap/ Waste – 3(5A) • Reversal = Higher of [ (Initial Cr availed - % points calculated on SLM for each quarter during which such C.G. used) OR (duty leviable on Trn value)

  46. When Cr should be reversed • For Computers cleared • % points as per rule 3(5) • Every quarter of Ist year - 10% • Every quarter of IInd year – 8% • Every quarter of IIIrd year – 5% • Every quarter of IVth & Vth year – 1% • For other C.G. – 2.5.% every quarter

  47. When Cr should be reversed • If I/P or C.G. before being put to use • Written off fully or partially • Provision to write off fully or partially • Should Cr be reversed? • If so how much? • What if I/P or C.G. later used? • R. 3(5B) • What if F.G. is remitted U/r 21 of CER, 02

  48. When Cr should be reversed • When I/P or C.G. cleared for Job work for: • Further processing, • Testing • Repair, reconditioning • Mfr of intermediate product • Any other purpose • Goods not received back within 180 days • Rule 4(5)

  49. F.G. cleared by Job Worker • I/P or Partially processed I/P • Sent to Job worker • Job worker manufactures & clears F.G • Order of A.C./D.C. • Jurisdiction • Validity • Conditions • R.4(6)

  50. Refund of Cenvat Credit • On export of goods under bond or LOU • i.e. without payment of tax • On export of services, without payment of tax • Refund Amt = { [ (Export T/o of Goods + Export T/o of services) ] / Total T/o } x Net Cenvat Credit • Necessary conditions provided in Ntfn No.27/12 CE (N.T.) • R.5

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