AN UPDATE ON AMENDMENTS IN CENVAT CREDIT RULES IN 2014

[Dr. Sanjiv Agarwal]

In just 90 days of 2014, Cenvat Credit Rules, 2004 (in short, CCR), which governs the Cenvat Credit of Central Excise Duty and Service Tax in India have already been amended five times in 2014 as on 3^rd April 2014 as summarized herein below :

Amendment	Notification	Date	Effective From
First Amendment	1/2014-CX (NT)	08.01.2014	08.01.2014
Second Amendment	2/2014-CX (NT)	20.01.2014	20.01.2014
Third Amendment	5/2014-CE (NT)	24.02.2014	01.04.2014
Fourth Amendment	9/2014-CE (NT)	28.02.2014	01.04.2014
Fifth Amendment	15/2014-CE(NT)	21.03.2014	21.03.2014

Earlier, CCR rules were last amended in December, 2013 only. These amendments have been briefly discussed below:

First Amendment

Cenvat Credit (First Amendment) Rules, 2014 have been notified vide Notification No. 1/2014-CX (NT) dated 08.01.2014 w.e.f. 08.01.2014 to amend Rule 3 of the Cenvat Credit Rules, 2004 (in short CCR). In Rule 3, following changes have taken place:

1. explanation to sub rule (5B) has been omitted
2. in sub-rule (5C), following two explanations have been added:

1. "Explanation 1 .- The amount payable under sub-rules (5), (5A), (5B) and (5C), unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, where such payment shall be made on or before the 31st day of the month of March.
2. Explanation 2.- If the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rules (5), (5A), (5B) and (5C), it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken and utilised."

The afore mentioned changes provide for the reversal of Cenvat Credit taken on input services used for manufacture of goods on which duty is remitted under rule 21 of Central Excise Rules, 2002. Sub-rule (5C)  of Rule 3 of the Cenvat Credit Rules, 2004 has been amended to provide that  Cenvat credit taken on input services used in or in relation to the manufacture or  production of goods on which payment of duty is remitted under rule 21 of Central Excise Rules, 2002, shall also be reversed by the assessee. Also, sub­ rules (5B) and (5C) of Rule 3 of the CCR have been amended to provide that the amount payable by the assessee in respect of removal of  input or capital goods under sub-rules (5), (5A) and (5B) of Rule 3 and reversal of input  and input service credit under sub-rule (5C) should be paid latest by the 5th day of the following month except for March, where it should be paid by 31st March. If the amount so payable is not paid by the assessee, it shall be recovered under Rule 14 of the Cenvat Credit Rules, 2004 considering it as Cenvat credit wrongly taken and utilized.

Second Amendment  

Cenvat Credit (Second Amendment) Rules 2014 have been notified vide Notification No. 2/2014-CX(NT) dated 20.01.2014 w.e.f. 20.01.2014 to amend Rule 12 of the CCR. Accordingly, Rule 12 of the Cenvat Credit Rules, 2004, which provides special dispensation in respect of  inputs manufactured in factories located in specified areas of North East Region,  Kutch District of Gujarat, State of Jammu and Kashmir and State of Sikkim has been amended to include reference to Notification No. 1/2010-C.E., dated 6-2-2010 providing exemption to all goods other than specified in Annexure and cleared from specified units in Jammu and Kashmir.

Third Amendment

Cenvat credit (Third Amendment) Rules, 2014 have been notified vide Notification No. 5/2014-CE (NT) dated 24.02.2014 w.e.f. 1.4.2014 to amend Rule 7 of CCR in respect of manner of distribution of credit by Input Service Distributor (ISD). The explanation defining 'relevant period' has also been substituted.

Accordingly, Service Tax credit attributable to service used by one or more units exclusively engaged in manufacture of exempted goods or rendition of exempted service shall be barred from distribution of credit. Further, credit of services used wholly by a unit shall be distributed only to that unit. Pro-rata distribution of Service Tax credit shall be based on turnover of units using said service during relevant period to total turnover of all its units operational in current year, during said relevant period. Assessee shall have to ascertain the turnover of all such units to distribute credit.

The definition of  "relevant period" has been changed and now, it shall mean -

(a)  If the assessee has turnover in the ‘financial year’ preceding to the year during which credit is to be distributed for month or quarter, as the case may be, the said financial year; or

(b)  If the assessee does not have turnover 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.”.

Thus, the ratio of distribution of cenvat credit to concerned unit for financial year 2014-15 would be turnover of a concerned unit for the financial year 2013-14, as divided by turnover of all the related units for the financial year 2013-14.

Effectively, services used by more than one unit exclusively engaged in exempted goods or exempted services shall not be distributed. Further, credit pertaining to or used only and wholly by a unit shall be distributed to that unit only.

Fourth Amendment

Cenvat Credit (Fourth Amendment) Rules 2014 have been notified vide Notification No. 9/2014-CE (NT) dated 28.02.2014 w.e.f. 01.04.2014 to amend Rule 9 of CCR. Accordingly, in Rule 9 which deals with documents and accounts, in sub-rule (8), registered importer has also been added and accordingly, he shall also be required to submit within 15 days from the end of each quarter, a prescribed return, in electronic form to the Superintendent of the Central Excise.

Fifth Amendment

Cenvat Credit (Fifth Amendment) Rules, 2014 have been notified vide Notification No. 15/2014-CE (NT) dated 21.03.2014 w.e.f. 21.03.2014. Rule 12AAA which provides for power to impose restrictions in certain type of cases has been substituted by new rule. The new rule provides for measures to prevent misuse of the provisions of Cenvat Credit Rules. Chief Commissioner of Central Excise shall have powers to withdraw the facilities or impose restrictions on a manufacturer, first stage dealer, second stage dealer or an exporter including restriction on utilization of Cenvat credit and suspension of registration of dealer. The new rule contains an explanation which clarifies that the proposals initiated under Notification No. 5/2012-CE(NT) dated 12.03.2012 and pending shall be considered as if initiated in terms of procedure specified under the rule now substituted and shall be decided accordingly.

The revised procedure has been notified in supersession of Notification No. 5/2012-CE(NT) vide Notification No. 16/2014-CE(NT) dated 21.03.2014.

Procedure for refund under Rule 5B

Besides the above amendments, Vide Notification 12/2014-Central Excise (N.T.) dated March 3, 2014, CBEC  has notified the procedure for filling refund application by service provider under Rule 5B of the Cenvat Credit Rules 2004 for claiming refund of unutilized Cenvat credit availed on inputs and input services received on and after July 1, 2012 in respect of the following specified  services under partial reverse charge mechanism:

1. renting of a motor vehicle designed to carry passengers on non-abated value, to any person who is not engaged in a similar business;
2. supply of manpower for any purpose or security services; or
3. service portion in the execution of works contract

The refund claim under rule 5B shall therefore be file in terms of this Notification.