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Inputs - Cenvat Credit Rules, 2004 - Cenvat Credit - Ready Reckoner - Cenvat Credit

Inputs - Cenvat Credit Rules, 2004
  • Contents

Inputs – Cenvat Credit Rules, 2004

Reference:

Rule - 02 - Definitions

Rule - 03 - Cenvat Credit

Rule - 04 - Conditions for allowing CENVAT credit

Inputs which are goods are eligible for cenvat credit by both manufacturer as well as service provider.

FAQ  

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Reply

What is meaning and scope of the term "Inputs" under Cenvat Credit Rules, 2004?

Please refer Rule 2(k) of the CCR, 2004

Whether all goods are eligible for Cenvat Credit as Input?

No. The inputs which are qualifying the conditions of Rule 2(k) are eligible of input credit. 

Items specifically excluded from the scope of Inputs.

There are 6 categories of items excluded from the scope of the term Inputs. i.e.

-Petrol, Diesel, LDO etc.

-Material used in construction or execution of works contract of a building or making / laying of foundation / structures for support of capital goods (however service portion of works contract is allowed)

-Capital Goods except used as parts or components in manufacturing of a final product

-Motor Vehicles;

-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 item which is having no relationship with manufacture.

Items specifically included in the scope of Inputs.

Goods used within the factory premises – in case of manufacture

Goods used for providing output services – in case of taxable services

Goods used for free service / free warranty or as accessories when supplied with final products – provided value of warranty is included in the gross value.

Goods used for generation of electricity or steam for captive use.

Furnace oil is eligible for input tax credit.

 

Goods which are not falling within the definition of Capital Goods under rule 2(a) may qualify as Inputs if other conditions are met.

Goods used for Captive generation of electricity or steam- eligible

All goods used for generation of electricity or steam for captive use is eligible. Furnace oil is eligible input. However, HSD, LDO and petrol have been specifically excluded from the definition of input even if used for providing any output service.

In Maruti Suzuki Ltd. 2009 (8) TMI 14 - SUPREME COURT, it was held that Cenvat credit is not available in respect of fuel used for generation of electricity, which has been sold outside to joint ventures, vendors etc..

In Reliance Industries Ltd. 2008 (3) TMI 591 - CESTAT, AHMEDABAD, it was clarified that fuel used for generation of electricity is eligible if electricity is used within factory for any purpose but not fuel used for electricity which leaves the factory.

In Flex chemicals 2007 (3) TMI 134 - HIGH COURT, MP, it was held that fuel used partly in manufacture of excisable goods and partly non-dutiable or exempt goods is eligible for Cenvat credit.

 

Important points emerged out from the definition of Input:

  • Only those structural components which are used for foundation or making structure for support of capital goods are excluded from definition. Structural components which are essential parts of machinery/ equipment will be eligible as input.  Whether a particular component is a part of machinery / equipment or a support component is a question of fact and need to be examined on case to case basis.
  • Only those goods defined as capital goods under CCR, 2004 will be excluded, other capital goods if used in factory should be eligible as inputs.
  • Petrol, Diesel  have been specifically  excluded  in the definition of inputs, so these will not be eligible even if used for generation of electricity or any other purpose.
  • It is not necessary to physical presence of inputs in final product for availing CENVAT. Hence goods used for testing are eligible for Cenvat credit.  The same principal emerges out in case of Flex Engineering Ltd. 2012 (1) TMI 17 – SC.
  • If inputs are short received and there is loss during transit, the goods short received cannot be termed as used in manufacture of final product and Cenvat credit will not be allowed. In case of loss in transit of inputs is due to natural causes i.e. due to moisture loss, full Cenvat credit will be allowed on inputs. In case of Somaiya Organo Chemicals 2011 (6) TMI 629 - CESTAT, MUMBAI it was held that loss of molasses up to 2% in transit and storage is permissible and Cenvat credit is not required to be reversed.
  • There is one exclusion that goods having no relationship with manufacture of final product will not eligible as input, increase the scope of inputs. One such of example is, In case of Steel authority of India Ltd. 2014 (7) TMI 62 - CESTAT NEW DELHI, it was held that safety shoes are eligible for Cenvat.
  • In case of Service providers, definition of Input is restrictive. Only those inputs used for providing any output service would be eligible.
  • The service provider will be entitled to avail Cenvat credit on inputs even if he avail the inputs outside the place which is not a factory.
  • Small value capital goods which have a value upto ten thousand rupees per piece will be eligible as inputs and not capital goods w.e.f. 1.4.2016.Thus entire 100%cenvat credit will be available in the first year itself.
  • Goods used for pumping of water are eligible for cenvat credit even if these are used outside the factory (w.e.f. 1.4.2016) .
  • Inputs directly sent to site and fitted there are eligible as input. In the case CCEv.Central Electronics Ltd(2011)271 ELT 586 (CESTAT) it was held that since the system was to be manufactured at various sites, each such site will be considered as part of manufacturing premises for that system and hence inputs received at those sites should be considered as having been received in the factory.
  • Inputs should be stored within the factory. However, if manufacturer is unable to store the inputs inside the factory for want of space, hazardous nature of goods etc., he can store the inputs outside the premises. The storage point will be treated as extension of the factory.
  • No cenvat credit if inputs were not intended for manufacture.

 

 

Rule 3 – CENVAT CREDIT

When inputs removed as such : The inputs on which cenvat credit taken are removed as such from the factory of manufacturer/premises of service provider, then the manufacturer/ service provider shall pay an amount equal to cenvat credit availed earliar.

Such removal shall be made under the cover of an invoice.

Such payment not required if inputs removed outside the premises of service provider for providing output service or for providing free warranty for final products.

If inputs written off fully/partially or provision made to write off fully/partially : If the inputs on which cenvat credit taken,

  • is written off fully, or
  • provision made in the books of account to write off fully or partially,

then the manufacturer/service provider shall pay an amount equal cenvat credit taken on such inputs.

If the said goods are used subsequently, the manufacturer/service provider shall take the cenvat credit equal to the amount paid earlier.

Where on any goods payment of duty is ordered to be remitted under rule 21 of the Central Excise Rules, 2002, the cenvat credit taken on the inputs used in the manufacture of the said goods, shall be reversed.

Where an amount is required to be paid (for reversal of credit), it shall be paid by the manufacturer/service provider, on or before the 5th day of the following month for the months from april to February, and for the month of march it shall be paid on or before 31st day of march.

            If the manufacturer/ service provider, who is required to pay an amount (for reversal of credit), fails to pay the amount, it shall be recovered in the manner as provided in rule 14.

 

Inputs produced/manufactured by a 100% EOU, a unit in EHTP, STP:

Cenvat credit on inputs produced/ manufactured by a 100% EOU,EHTP, STP, and

  • used in the manufacture of final products/provision of service in any place other than India and
  • the unit pays excise duty under section 3 of the Excise Act read with serial number 2 of the notification No. 23/2003-Central Excise, dated the 31st March, 2003, [G.S.R. 266(E), dated the 31st March, 2003],

then the cenvat credit allowed shall be calculated as follows :

Fifty per cent. of [X multiplied by {(1+BCD/100) multiplied by (CVD/100)}], where BCD and CVD denote ad valorem rates, in per cent., of basic customs duty and additional duty of customs leviable on the inputs or the capital goods respectively and X denotes the assessable value.

 

       The CENVAT credit in respect of inputs cleared on or after the 7 th September, 2009 from an export-oriented undertaking or by a unit in Electronic Hardware Technology Park or in a Software Technology Park, as the case may be, on which such undertaking or unit has paid -

  • excise duty leviable under section 3 of the Excise Act
  • the Education Cess and the Secondary and Higher Education cess

then the cenvat credit available shall be equal to excise duty equal to additional duty under section 3(1) and under section 3(5) of the customs tariff act and the education cess and higher secondary cess.

.

Rule 4 – CONDITIONS FOR ALLOWING CENVAT CREDIT

The cenvat credit in respect of inputs may be taken immediately when the inputs are received in the factory of manufacturer/premises or service provider/premises of job worker in case goods are sent directly to the job worker on the direction of manufacturer/ service provider.

The CENVAT credit in respect of inputs may be taken by the provider of output service when the inputs are delivered to such provider, subject to maintenance of documentary evidence of delivery and location of the inputs.

 The manufacturer/service provider shall not take CENVAT credit after one year of the date of issue of any of the documents specified in sub- rule (1) of rule 9.

 

When inputs sent to job worker:

The cenvat credit on inputs allowed if inputs as such or after being partially processed are sent to a job worker and from there sent to another job worker and is received back by the manufacturer/service provider within 180 days of their being sent to any job worker.

Cenvat credit also allowed if inputs sent directly to job worker without their being first brought to factory of manufacturer/ service provider.in this case period of 180 days shall be counted from the date of receipt of such input in the premises of job worker.

If inputs not received back in the premises of manufacturer/ service provider within 180 days, then the manufacturer/ service provider shall be required to pay an amount equal to cenvat credit taken. But the manufacturer/ service provider shall again take the cenvat credit when the inputs are received in his premises.

 

Cenvat credit also allowed to manufacturer/service provider in respect of jigs, fixtures, moulds and dies or tools falling under chapter 82 of the first schedule to excise tariff act sent by a manufacturer to another manufacturer/ job worker.

The Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction over the factory of the manufacturer of the final products who has sent the input or partially processed inputs outside his factory to a job-worker may, by an order, which shall be valid for three financial years, in respect of removal of such input or partially processed input, and subject to such conditions as he may impose in the interest of revenue including the manner in which duty, if leviable, is to be paid, allow final products to be cleared from the premises of the job-worker.

 

 
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