Cenvat Credit Service Tax CA Madhukar N Hiregange Introduction 1978 Jha Comm gt 1986 Profroma Credit gt Movdat Expanded yr after yr gt 1994 Capital Goods Dealers Passing on gt 2000 CENVAT creditgt CR 2004 Cross sectional gt list contract ID: 218569
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Value Addition thru Cenvat Credit -Service Tax
- CA. Madhukar N HiregangeSlide2
Introduction1978- Jha Comm -> 1986 Profroma Credit -> Movdat Expanded yr after yr -> 1994 Capital Goods + Dealers Passing on -> 2000 CENVAT credit-> CR- 2004 Cross sectional -> list contracted yr after yr -> 2014 - 6 Months Restriction
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CA Madhukar N HiregangeSlide3
Outline Of Cenvat CreditCenvat Credit is a beneficial piece of legislation – unless specifically excluded – cannot be denied.Final product is dutiable – Cenvat on inputs used is to be allowed as credit cannot be denied – Formica India division V/s CCE 1995 (77) E.L.T. 511 (S.C.)- Arti 2653CA Madhukar N HiregangeSlide4
Utilization Of Cenvat CreditAll taxes and duties specified in rule 3(1) of Cenvat Credit Rules form a ‘pool’. This credit can be utilised by manufacturer of excisable goods or provider of taxable service. Cross utilisationThe credit can be used for the payment of any tax or duty as specified in rule 3(4) of Cenvat Credit Rules.One to one relation not required.Slide5
Capital Goods – Rule 2(a)All goods falling under Pollution control equipment;Components, spares and accessoriesMoulds and dies, jigs and fixtures; Chapter 82Chapter 84Chapter 85Chapter 90 Heading 6805
Grinding wheels and parts thereof falling under heading 6804Outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factorySlide6
Capital Goods – Rule 2(a)Refractories and refractory materialsTubes and pipes and fittings thereofStorage tank and……Slide7
Capital Goods – Rule 2(a)Motor Vehicle other than CETA 8702, 8703, 8704 & 8711 chassis (but including dumpers and tippers) Used in the factory of manufacturer–equipments/appliances used in office excludedUsed for providing output serviceMotor Vehicle and its components/spares/accessories– Restricted to specific purposes- motor vehicle designed for transport of goods/carry passengers etcSlide8
Capital Goods – Rule 2(a)motor vehicle designed for transportation of goods including their chassis registered in the name of the SP, when used for-(i) providing an 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 an output service of courier agency;] [(C) motor vehicle designed to carry passengers including their chassis, registered in the name of the provider of service, when used for providing output service of-(i) transportation of passengers; or(ii) renting of such motor vehicle; or(iii) imparting motor driving skills;]Slide9
When Can The Credit Be Availed On Capital Goods?50% on receipt of the goods in the factory on the basis of Excise Invoice Bill of Entry (in case of import of goods) Any other documents as per Rule 9 of CCR, 2004 Internal records (GRN receipt note). Balance in the subsequent Financial Year. SSI - can avail 100% Cenvat credit on the CGSlide10
Capital Goods – Some Random ThoughtsCGs do not include office appliances - in factoryUsed for providing output services – SP can take such creditProcured on hire purchase/lease/loan eligible for Cenvat - 4(3) of CCR, 2004.Slide11
Capital Goods – Some Random ThoughtsUsed exclusively for exempted final products and output services - Ineligible.Depreciation cannot be availed on Cenvat portion. Eg: Cost of the capital asset - Rs.10K including duty of Rs.1K Depreciation to be claimed only on Rs.9K.Slide12
Capital Goods - BenefitsOn spare parts credit can be taken – it is just like capital goods-what if used for providing services-AMC printers? Dealer – more competition – credit will be passed on – benefit same at lesser price.Credit can be taken on AC, Computer – proof– used for manufacturing purpose or providing servicesPartial usage of capital goods – full credit available.Slide13
Capital Goods – Issues SSI Exemption Vs Cenvat Credit availment.Capital goods not covered under specified chapter heading as per the definition-parts of the CG such as of heading 84/85??Rule 6 of CCR Vs Capital Goods Credit.Slide14
Input – Rule 2(k) - Inclusions: All goods used in the factory by the manufacturer of the final product Any goods including accessories cleared along with the final product and goods used for providing free warranty.Goods used for generation of electricity or steam for captive use also constitute inputs.All goods used for providing any output service.Slide15
Light/ high speed diesel oil, Motor spirit,-petrolAny goods used for Construction/execution of WC of a building/civil structure Or, laying of foundation/making of structure for support of CG except for provision of specified servicesInput – Rule 2(k) - Exclusions:Slide16
Input – Rule 2(k) - Exclusions:CGs except - parts and components in manufacture of final products motor vehicles.Goods - personal use or consumption of any employee incl. food items etc-uniforms?. Goods- no relationship with manufacture of final product.Slide17
Eligible Inputs For Service ProvidersDuty paid on inputs by service provider while providing the taxable serviceUsed directly for providing taxable servicesChemicals/paper??Slide18
Inputs - BenefitsReduction in purchase cost.No Cascading - From start to finish.Includes cap goods-can treat as inputs + spares.SSI planning.Job Work Planning.Initial setting up.Centralized registration.Slide19
Input Service – Rule 2 (l) ANY SERVICEUsed by a provider of output service for providing output service; orUsed by a manufacturer, whether directly or indirectly, in or in relation to Manufacture of final product and Clearance of final products upto the place of removalSlide20
Input Service - Inclusionsinput service" means any service,-(i) used by a provider of output service for providing an output service; or (ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory /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;Slide21
Input Service - ExclusionsFollowing declared services:Service portion in the execution of works contract,Construction services including services listed under clause (b) of section 66E of the Finance Act in so far as they are used for Construction/execution of WC of a building/civil structure/ part thereof; oflaying of foundation/making of structures for support of CG, EXCEPT for the provision of one or more of the specified service.Slide22
(B) Following specified services:Renting of motor vehicle -to extent MV is not CGGeneral insurance business, servicing, repair and maintenance In so far as they relate to a motor vehicle which is not a capital goods EXCEPT when used by:Manufacturer of a motor vehicle.Insurance company in respect of motor vehicle insured or reinsured.Input Service - ExclusionsSlide23
(C) Services such as those provided in relation to:Outdoor catering,Beauty treatment, health service, cosmetic and plastic surgery,Membership of a club, Health and fitness centre, Life insurance, Health insurance andTravel benefit is extended to employees on vacation such as leave or home travel concessionWhen such services are used primarily for PERSONAL USE or consumption of any EMPLOYEE. Input Service - ExclusionsSlide24
As Such Removal Of Capital Goods/Inputs – Rule 3(5) Availed once the goods are received in to the factory/premises. When inputs and capital goods areRemoved as suchAfter partial processing Sale or Disposal from factory or premises
Shall pay an amount equal to the credit availed in respect of such inputs or capital goodsSuch removal be made under cover of an invoice as per Rule 9 of CCR, 2004.
orWhenever the inputs or capital goods are removed outside the premises of SP for providing the output service no payment is required Slide25
Removal Of Capital Goods After UseAre removed after being usedIf capital goods, on which Cenvat credit has been takenShall pay an amount (not excise duty) As capital goodsAs scrap
As waste By a manufacturer or provider of output services
If capital goods, equal to Original Cenvat Credit taken, as reduced by prescribed percentage on the basis of number of years usedEqual to excise duty payable on transaction valueW.E.HORORSlide26
Cenvat Credit – Job WorkGoods cleared under job work exemption are not exempted goods, as ultimately duty is paid by the principal manufacturer.The job worker is permitted to use his own capital goods / inputs / input services in the job work.When the job worker uses his own capital goods / inputs / input services in job work, he is entitled to take credit of duty. In this case, final product should not be exempted goods.Slide27
Disputes In CenvatSlide28
Common Disputes in Cenvat CENVAT credit availability on free issue of materialCENVAT credit availed on photocopy of invoiceCENVAT credit availed on courier Bill of EntrySlide29
Common Disputes in Cenvat CENVAT credit availed on invoice where buyer and consignee are different CENVAT credit on goods directly delivered to job worker/ depot from the supplierSlide30
Avoiding Disputes in Cenvat All items checklist on eligibility, disclosure, Prompt availment, Prudence- 5% on possible personal use, valid invoice ( bank charges), system to ensure no duplication/ completeness, written clarifications in case of doubt.Reconciliation & regular verification before/ post filing of return.Slide31
Value Addition under CCR, 2004Inputs / Input ServicesCredit on inputs – on receipt of the inputs in the factory or on delivery to the service provider Credit on input services – to be allowed on or after the receipt of the invoice or bill. On payment at times of vendor + ST. RC- on payment of ST onlyCA Madhukar N Hiregange31Slide32
Value Addition under CCR, 2004Inputs / Input ServicesTime limit for availment of credit on inputs and input services – No TL at present. W.e.f., 1st September 2014 - Credit on inputs or input services shall not be allowed after the expiry of six months from the date of invoice or bill. CA Madhukar N Hiregange32Slide33
Value Addition under CCR, 2004Input ServicesCredit of tax paid on input services under RCM- Credit allowed on or after the date of payment of value of input service + service tax – Current provisionw.e.f., 1st September 2014CA Madhukar N Hiregange33ST payable under RCM- credit allowed after ST payment.ST payable under JCM- credit allowed after payment of value + ST.Slide34
Value Addition under CCR, 2004Input ServicesCredit on input service to be reversed- on failure to pay value of input service + ST within 3 months. Credit to be re-taken on making of payment.Distribution of input service by ISD under Rule 7 of CCR, 2004- effective from 17.05.2012. CA Madhukar N Hiregange34Slide35
Value Addition under CCR, 2004InputsRemoval as such - duty to be reversed on inputs.Write off of inputs- duty to be reversed on inputs.On remission of duty on final products u/r 21 of CER, 2002- Credit on inputs to be reversed.CA Madhukar N Hiregange35Slide36
Options- R 6(3)Separate Records of Inputs/ IS- actual- bestIf not possible then:6% reversal on removal of exempted goods or provision of exempt service.Separate for Inputs + IS- Proportion 3A.CA Madhukar N Hiregange36Slide37
Reversal R 6(3)Inputs – Only that used in manufacture of dutiable goods eligible.Input services:-> Exclusively used for taxable – 100%-> Exclusively used for non taxable – 0%-> Commonly used for taxable/ non- Proportion-> Traded goods = SP- COGS or 10% higher is exempted. Then apply proportionCA Madhukar N Hiregange37Slide38
To avail credit- Ownership of Capital goods not required. Goods procured under HP/ lease- Credit could be availed.Equipment or appliance used in an office – Not eligible unless it is part of factory or used for providing taxable services.Value Addition under CCR, 2004- CG38CA Madhukar N HiregangeSlide39
Value Addition under CCR, 2004Credit on “Capital goods” or “Inputs”- To be examined.Only 50% of the credit allowed in the year of purchase.Balance 50% credit allowed in the subsequent year.39CA Madhukar N HiregangeSlide40
Value Addition under CCR, 2004Restriction of availing 50% credit- do not apply to the assessees claiming SSI exemption or on removal as such.Balance 50% credit allowed- subject to the possession of capital goods. Exception: components, spares, accessories, moulds, tools, dies, refractories and refractory material.CA Madhukar N Hiregange40Slide41
Value Addition under CCR, 2004Removal of Capital Goods in the year of purchase- 100% credit allowed in the same financial year.Construction of Malls- eligibility of credit on capital goods [escalators, lifts, DG sets, A/c Unit, CCTV, Fire Protection equipment .... etc]???- Judicial confirmation awaited. 41CA Madhukar N HiregangeSlide42
Value Addition under CCR, 2004 Capital goods exclusively used for manufacturing exempted goods or providing exempted service- Credit not eligible. Partial usage of capital goods for manufacturing excisable and exempted goods, or for providing taxable and exempted service- Full credit eligible- unlike Inputs.CA Madhukar N Hiregange42Slide43
Best Practice – Availment of CreditCredits that can be availed & not availed- a list to be prepared every year- reason also- case law?.Credits objected by the revenue or/ doubtful credits- to be availed but not utilised.Option to pay tax and avail the credits or/ Exemption notification?- to be examined. 43CA Madhukar N HiregangeSlide44
Value Addition under CCR, 2004 SAD -Additional duty under section 3(5) - Service providers not eligible to take credit. No restriction for manufacturers.Inputs or input services used in the manufacture of intermediate products by a job worker- Credit allowed subject to the utilisation by manufacturer for further use in relation to manufacture.CA Madhukar N Hiregange44Slide45
Value Addition under CCR, 2004Reverse charge and Joint charge credits- missed (as they are paid by the assessee himself).Clearance of goods for direct exports- not exempt sales- Credit can be availed on inputs used for manufacture of goods cleared for direct exports. Credit for inputs [beyond chap. 22], input services & capital goods- Restaurants can avail. 45CA Madhukar N HiregangeSlide46
Value Addition under CCR, 2004Mot.veh.- allowed if used for providing output services: motor driving school, mining, transp. of passenger/ goods, construction, courier, logistics, freight forwarders or mere renting of MVs.Supplies to contracts under International competitive bidding, SEZ, 100% EOU are without payment of duty- Credit can be retained.46CA Madhukar N HiregangeSlide47
Value Addition under CCR, 2004Inputs used as consumables in service contracts- Credit to be examined. Paper credit for photography or in study material for coaching classes.Credit of duty paid on inputs and input services to be availed within six months (w.e.f., 1-09-2014)- System to be in place to ensure credits are taken. 47CA Madhukar N HiregangeSlide48
Exporter of Services & Goods- two refund claims to be submitted for each quarter.
In refund for manufacturers the method of payment of duty using cenvat has been found fastest.
Manufacturers claiming drawback of customs/ procure under Adv
Lic + Cenvat credit refund eligible. Value Addition under CCR, 200448CA Madhukar N HiregangeSlide49
Value Addition under CCR, 2004
Failure to file statutory returns (like ER-1, ST-3) or wrong filing of returns- Incomplete application - Refund may be denied.
For service providers there is a lot of delay/ red tape and use of RTI along with massive follow can only lead to a little faster realisation.
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CA Madhukar N HiregangeSlide50
Value Addition – Job WorkJob workers working under Not.214/86 - Credit on consumables and capital goods/ spares can be retained.Exemption to Job workers- only an option – they can avail the credit and discharge the duty on the finished goods. [Comm. v. Aries Dyechem Industries - 2014 (299) E.L.T. A88 (Guj.)]50CA Madhukar N HiregangeSlide51
Value Addition – Job WorkJob workers can choose to pay service tax on processes not amounting to manufacture where the manufacturer can avail credit against his final duty payment. There are implications of scrap to the job workers end if not returned- Quantity reconciliation are imperative.51CA Madhukar N HiregangeSlide52
Value Addition – Other AspectsReversal of credit on oral instruction of visiting officers or audit without due verification- cause issues in re credit. If being forced, to be paid under protest.Dealers can also pass on cenvat credit of imported or duty paid goods selectively.Proper classification of goods & services- is of utmost importance for not losing the credits.52CA Madhukar N HiregangeSlide53
Value Addition under CCR, 2004Exempted goods -not include the portion on which abatement claimed unless credit is restricted for both inputs as well as input services. They would also not include inputs/ input services used for export.Transfer of credit in case of shifting, merger etc.53CA Madhukar N HiregangeSlide54
Action Prior to 1st Sep- 14Confirm that excess reversals not doneAny audits where Co has reversed credit or has not availed credit due to lack of clarityAny disputes still in progressPost removal credits??GTA Outwards creditRC/JC creditsBranches/ ISD credits…. Could be many moreCA Madhukar N Hiregange54Slide55
55CA Madhukar N Hiregangemhiregange@gmail.commadhukar@hiregange.com