Cenvat Credit

1. Rajesh Kumar T. R. B�Com, LLB, ACA, DISA(ICA) Rajesh Kumar T.R. Cenvat Credit

2. Coverage Today Rajesh Kumar T.R. Understanding of CENVAT credit and the provisions relating thereto Benefits of CENVAT credit Issues under CENVAT credit

3. Dimensions Rajesh Kumar T.R. Facilitating provision and not levy provisions Key in decision making Impact on Cost/Profit Impact on Market Impact on Finance Compliance

4. Background of CENVAT Credit Rajesh Kumar T.R. It is based on VAT concept to avoid cascading effect of tax. Power Sec. 37(2) (xvia) & (xviaa) of Central Excise Act, 1944 Sec. 94(1)(ee) & Sec 94(1)(eee) of Finance Act, 1994 Central Excise Credit came in 1986 � MODVAT Changed into CENVAT credit in 2000 Service Tax Credit in 2002 Merged into one in 2004

5. Credit for which duties and taxes? Rajesh Kumar T.R. Central Excise duty � BED, SED Additional duty of customs on imports(CVD) Equal to Excise duty � 4% for Sales tax(Mfr) Additional duty of excise T & T and GSI. Education cess on Excise Duties. Service tax. Education cess on Service Tax. NCCD duty, Cess on Tea, AED (P&TP)

6. Paid on what Rajesh Kumar T.R. Inputs � Recd. in Factory or TSP premises Capital Goods - Recd. in Factory or TSP premises Input Services � Recd. By Mfr. or TSP

7. Rajesh Kumar T.R. Inputs Definition - Before �input� means � all goods, except LDO, HSD, MS, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not

8. Inputs Definition - Before Rajesh Kumar T.R. and includes � lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production; All goods, except LDO, HSD, MS and motor vehicles, used for providing any output service;

9. Rajesh Kumar T.R. Inputs Definition - New �input� means � all goods used in the factory by the manufacturer of the final product; or any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products; or all goods used for generation of electricity or steam for captive use; or all goods used for providing any output service; �

10. Rajesh Kumar T.R. Inputs Definition � New - Exclusions LDO, HSD or MS; Any goods used for construction of a building or a civil structure or a part thereof; or laying of foundation or making of structures for support of capital goods, Exception � if the same is used for providing Port Services or Airport Services Commercial of Industrial Construction Services, Residential Complex Services, Works Contract Services. Capital goods except when used as parts or components in the manufacture of a final product Motor vehicles;

11. Rajesh Kumar T.R. Inputs Definition � New - Exclusions Any goods, such as food items, goods used in a guesthouse, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; and Any goods which have no relationship whatsoever with the manufacture of a final product.

12. Rajesh Kumar T.R. Input Service - Before �input service� means any service, - used by a provider of taxable service for providing an output service, or used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs,

13. Rajesh Kumar T.R. Input Service - Before activities relating to business, such as � (removed) 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

14. Rajesh Kumar T.R. Input Service - New "input service" means any service, - used by a provider of taxable service for providing an output service; or used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,

15. Input Service - New Rajesh Kumar T.R. and includes services used in relation to modernization, renovation or repairs of (setting up is removed) 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, accounting, auditing,

16. Rajesh Kumar T.R. Input Service - New financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, - New legal services, - New inward transportation of inputs or capital goods and outward transportation upto the place of removal;

17. Rajesh Kumar T.R. Input Service � New - Exclusion But Excludes � Port Services or Airport Services; Commercial of Industrial Construction Services; Residential Complex Services; Works Contract Services in so far as they are used for- Construction of a building or a civil structure or a part thereof; or

18. Rajesh Kumar T.R. Input Service � New - Exclusion But Excludes � Laying of foundation or making of structures for support of capital goods, Exception � it is used for providing one or more of the above said specified services; � Insurance, Rent-a-cab, authorised service station & supply of tangible goods services relating to motor vehicle Exception � courier, tour operator, rent-a-cab, cargo handling, GTA, outdoor catering & Pandal and shamiana services�

19. Rajesh Kumar T.R. Input Service � New - Exclusion Services in relation to following 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;

20. What is Capital Goods Rajesh Kumar T.R. Goods falling under Chp.82(Tools), 84(mach.) , 85(Mach. & Equip), 90(Instruments & apparatus), 68.02(abrasive), 68 01.10(grinding wheel) Pollution Control Equipments components, spares and accessories of above; moulds and dies, jigs and fixtures refractories and refractory materials tubes and pipes and fittings thereof; and storage tank.

21. What is Capital Goods(Cont) Rajesh Kumar T.R. Used in Factory of Mfr. but does not include any equipment or appliance used in an office Used for providing taxable service. For specified service category of service providers Motor Vehicle will be considered as capital goods. Courier, Tour operator, Rent-a-cab, Cargo handling, GTA, Outdoor Caterer, Pandal & Shamiana Any goods which are used in the manufacture of capital goods used in the factory of the manufacturer is considered as inputs

22. Rajesh Kumar T.R. Capital Goods Definition after change �capital goods� means :- The following goods, namely :- all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, [heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804] of the First Schedule to the Excise Tariff Act; pollution control equipment; components, spares and accessories of the goods specified at (i) and (ii); moulds and dies, jigs and fixtures; refractories and refractory materials; tubes and pipes and fittings thereof; and storage tank,

23. Rajesh Kumar T.R. Capital Goods Definition after change used - in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory; for providing output service; motor vehicle registered in the name of courier, tour operator, rent-a-cab, cargo handling, GTA, outdoor catering & Pandal and shamiana services provider for providing such services dumpers or tippers, falling under Chapter 87 (motor vehicle), registered in the name of Site formation services or Mining services provider for providing such services components, spares and accessories of motor vehicles, dumpers or tippers, as the case may be, used to provide above services

24. How Much to take Rajesh Kumar T.R. For inputs entire duty paid immediately on receipt of the goods For Input Service Service tax attributable to payment of value of the taxable service. For capital goods not more than 50% of the duties entitled for. But full Addl. CVD can be taken in the year of receipt. Balance credit in subsequent years on holding possession of such goods(except for components, spares etc.,) .

25. Based on What Doc. Rajesh Kumar T.R. Invoice of Mfr., his agent, Importer, his agent, First Stage dealer, Second Stage dealer, Bill of Entry Supplementary Invoice Certificate by appraiser of Customs Challan evidencing payment of duty by specified Service Provider Invoice, Bill or Challan issued by TSP or ISD

26. Conditions for Credit of Inputs Rajesh Kumar T.R. Eligible input as per the definition Receipt into the Factory or premises Should not be used Exclusively in the manufacture of exempted goods or Exempted service

27. Rajesh Kumar T.R. Conditions for Credit of Input Services Changes in the time of availment of CENVAT Credit The Cenvat Credit on input services availed on receipt of invoice. The payment made within three months If not the credit availed has to be reversed/paid Credit on the invoices issued prior to 01.04.2011 by the service provider would continue to be eligible only on payment basis

28. Conditions for Capital Goods Credit Rajesh Kumar T.R. Eligible Capital goods as per the definition Receipt into the Factory or premises. Not used exclusively in exempted goods/ service No depreciation on credit to be claimed has to be claimed under Income Tax.

29. Rajesh Kumar T.R. Other Changes - Point of taking credit for capital goods The CENVAT credit in respect of capital goods received in a factory or in the premises of the provider of output service or outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory, at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent. of the duty paid on such capital goods in the same financial year.

30. Rajesh Kumar T.R. Other Changes � reversal of credit if any payment or part thereof, for an input service is returned, the manufacturer or the service provider who has taken credit on such input service, pay an amount proportionate to the CENVAT credit availed in respect of the amount so returned. This amount paid by debiting the CENVAT credit or otherwise on or before the 5thof next month/quarter or 31st in case of march. If failure happens, it would be recovered in terms of Rule 14. �

31. What to do with Credit Rajesh Kumar T.R. Any duty of Excise on final product Removal of inputs and capital goods as such Payment of duty on removal of returned goods Service Tax on output service Restrictions Additional CVD is not available for paying service tax AED(TTA), NCCD, Education Cess, CVD equal to these Credit, Cess on Tea and AED (P&TP) can be utilised only for paying the the respective duty.

32. Job Work Related Rajesh Kumar T.R. Credit availed materials can be sent for JW under challan Same has to come back within 180 days. There is no time limit for jigs, fixtures, moulds and dies With the permission from AC/DC, the goods can be directly removed from JW Premises on following certain proc.

33. Rajesh Kumar T.R. Other Changes � removal as such Credit availed to be reversed on removal of input/capital goods as such Exceptions � if removed for providing Taxable output service for providing free warranty for final products

34. Rajesh Kumar T.R. Other Changes � written off If the value of any, input, or capital goods before being put to use, on which CENVAT credit has been taken is written off fully or partially or where any provision to write off fully or partially has been made in the books of account then the manufacturer or service provider, as the case may be, pay an amount equal to the CENVAT credit taken on said input or capital goods : If the said input or capital goods is subsequently used in the manufacture of final products or the provision of taxable services, the manufacturer or output service provider, shall be entitled to take the credit of the amount equal to the CENVAT credit paid earlier.

35. Refund of Credit Rajesh Kumar T.R. Not available except for exporters Credit on inputs and input services used in export of goods and services is available for other domestic payments. Not possible refund can be claimed Export of service is in terms of Export of Service Rules, 2005.

36. Exempted Goods/Services-Before Rajesh Kumar T.R. Output service = Taxable Service Exemp Serv= Serv not specified + exempted under Section 93 Export of Taxable service will not be considered as exempted services. Exempted goods = Exempted by Notification and Nil rate of goods.

37. Credit in case of exempted service-Before Rajesh Kumar T.R. Inputs/Input service used exclusively for exempted services � No credit Inputs/Input service exclusively used for providing taxable services � Full Credit Inputs partially used for taxable and exempted Option 1. � Separate records - take credit only used for taxable portion. Option 2. � No separate records � take entire credit but Utilise Credit of specified 16 services fully. Utilise Other credits only to the extent of 20% of total ST -1.4.2008-after-10% upto 7.7.2009- then 8%

38. Rajesh Kumar T.R.