TMI BlogCENVAT CREDITX X X X Extracts X X X X X X X X Extracts X X X X ..... bject to the conditions laid down in the rules. 2. Definitions 2.1.1 Certain definitions have been incorporated in rule 2 of the Credit Rules itself. The definition of 'capital goods' is comprehensive. It includes components, spares and accessories as also other capital goods like moulds and dies, refractories and refractory materials, etc. It has been clarified that the components, spares and accessories may fall under any Chapter but they should be components, spares or accessories of capital goods. Storage tanks were added to the list of capital goods w.e.f 1.3.2001. 2.1.2 Credit of duty paid on motor vehicles has been allowed for the services like Tour operators where it is a part of the process of providing output services. 2.2.1 Input Rule 2 (k) of Credit Rules defines "input" as under: "input" means all goods, except [ diesel oil]*, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not, and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) For providing output service; (B) motor vehicle registered in the name of provider of output service for providing taxable service as specified in sub-clauses (f), (n), (o), (z r), (z z p), (z z t) and (z z w) of clause (105) of section 65 of the Finance Act; 2.2.4 Exempted goods and Exempted Services Rule 2 (d) of CENVAT Credit Rules defines 'exempted goods' as under:- "exempted goods" means goods which are exempt from the whole of the Duty of excise leviablé thereon, and includes goods which are chargeable to "Nil" rate of duty. Similarly, 'exempted services' have been defined as Per rule 2(e) of CENVAT Credit rules as, "exempted services" means taxable services which are exempt from the Whole of the service tax leviable thereon, and includes services on which no service tax is leviable under section 66 of the Finance Act. 2.2.5 Final Products Rule 2 (h) of CENVAT Credit Rules defines final products as under:- "final products means excisable goods manufactured or produced from input, or using input service.* * Matches have been brought under CENVAT scheme w.e.f. 9.7.2004. 2.2.6 . Input Service Distributor As per rule 2(m), Input service distri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for the manner of utilization of credit in different situations. Sub- rule (5) provides that when inputs or capital goods on which the CENVAT credit has been taken are removed as such from the factory or premises of provider of output service, an amount equal to the credit availed is to be paid. However, such amount on inputs and capital goods is not required to be paid when the inputs and capital goods are removed outside the premises of the provider of output service for providing output service and capital goods are received back in the premises within 180 days or within such period as extended by jurisdictional DC/AC. 2.4 Utilisation of credit 2.4.1 The CENVAT credit may be utilized for payment of:- (a) any duty of excise on any final products; or (b) an amount equal to CENVAT credit taken on inputs if such inputs are removed as such or after being partially processed; or (c) an amount equal to the CENVAT credit taken on capital goods if such capital goods are removed as such; or (d) an amount under sub-rule (2) of rule 16 of Central Excise Rules, 2002; or (e) service tax on any output service. 2.4.2 Restrictions on utilization of Credit There are certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at any point of time in a given financial year can be taken only for an amount not exceeding fifty per cent. of the duty paid on such capital goods in the same financial year. However, if the capital goods are cleared as such in the same financial year, then the CENVAT credit can be taken in full. Further, the credit of duty leviable under sub-section (5) of section 3 of Customs Tariff Act, 1985 read with clause 72 of Finance Bill, 2005 is also allowed to be taken in full immediately on receipt of capital goods. (3) The CENVAT credit in respect of the capital goods is allowed to a manufacturer or provider of output service even if the capital goods are acquired by him on lease, hire purchase or loan agreement, from a financing company. (4) The CENVAT credit in respect of capital goods is not be allowed in respect of that part of the value of capital goods which represents the amount of duty on such capital goods, which the manufacturer or output service provider claims as depreciation under section 32 of the Income-tax Act, 1961( 43 of 1961). (5) The CENVAT credit is allowed in respect of jigs, fixtures, moulds and dies sent by a manufacturer of final products to a job work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notification based on the value or quantity of clearances in a financial year. 2.8 Rule 7 provides the manner of distribution of credit by input service distributor. The input service distributor may distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or units providing output service, subject to the conditions that the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon and credit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed. 2.9 Rule 8 of the CENVAT Credit Rules is regarding storage of inputs outside the factory of the manufacturer. The Assistant Commissioner or Deputy Commissioner of Central Excise having jurisdiction over the factory of a manufacturer of final products in exceptional circumstances having regard to the nature of the goods and shortage of space at the premises of such manufacturer may permit to store inputs in respect of which CENVAT credit has been taken, outside such factory, subject to such limitations and condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... output service is required to maintain proper records for the receipt, disposal, consumption and inventory of the inputs and capital goods in which the relevant information regarding the value, duty paid, the person from whom the inputs or capital goods have been procured is recorded and the burden of proof regarding admissibility of CENVAT credit shall lie upon manufacturer! provider of output service taking such credit. 2.10.4 Similarly, the manufacturer of final products or the provider of output service is required to maintain separately proper records for the receipt and consumption of the input services in which the relevant information regarding the value, tax paid, CENVAT credit taken and utilized, the person from whom the input service has been procured is recorded and the burden of proof regarding the admissibility of the CENVAT credit shall lie upon the manufacturer or provider of output service taking such credit. For the sake of removal of doubts, it is clarified that separate records should be maintained for availment of credit on inputs and input services. 2.11 Information relating to Principal inputs 2.11.1 Rule 9A has been inserted w.e.f. 25.11.2004 requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VAT credit shall submit a half-yearly return in form specified, by notification, by the Board to the Superintendent of Central Excise, by the end of the month following the particular quarter or half year. 2.12.5 The input service distributor shall submit a half yearly Statement, giving the details of credit received and distributed during the said half year to the Superintendent of Central Excise, by the end of the month following the half year. 2.13 Transfer of credit Under rule 10 of the Credit Rules, it has been provided that the manufacturers or provider of output service shall be allowed to transfer CENVAT credit lying unutilized in their accounts to such transferred, sold, merged, leased or amalgamated factory! business on account of shifting his factory! business to another site or factory! business transferred due to change in ownership on sale, merger, amalgamation, lease or transfer of a factory! business to joint venture with specific provision for transfer of liabilities of such factory. This shall be allowed only if stock of inputs as such or in process or capital goods is also transferred to new site and the same is duly accounted for to the satisfaction of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the 9th September, 2003, shall be utilized only for payment of duty on final products cleared after availing of the exemption under the said notifications. 2.18 Power of Central Government to notify goods for availment of deemed credits are contained in rule 13 of the CENVAT Credit Rules. Accordingly, certain inputs were notified on which the duties of Excise or additional duties paid shall be deemed to have been paid at the prescribed rate and allow credit of such amount subject to certain conditions. (Notification Nos. 52/2001-CE (NT), 53/2001-CE (NT), 54/2001-CE (NT), 55/2001-CE (NT) all dated 29.6.2001). These provisions cease to exist w.e.f. 1.4.2003. 2.18. Recoveries of credit wrongly taken or utilized or erroneously refunded are governed by rule 14 of the CENVAT Credit Rules. Where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from manufacturer and the provision of Section 11-A of the Central Excise Act, 1944 shall apply mutatis mutandis for effecting recoveries. 2.20 Provisions for confiscation and penalty, for contravention of the CENVAT Credit Rules are contained in rule 15. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NVAT credit may be taken immediately on receipt of inputs in the factory. This, however, does not mean, nor it is even intended that if the manufacturer does not take credit as soon as the inputs are received in the factory, he would be denied the benefit thereof. 3.6 Air-conditioners and refrigerating equipment and computers are eligible to CENVAT credit as capital goods. The only condition is that the manufacturers should use them in the manufacture of final product. For example, an air-conditioner used in the office premises or a computer used in the office premises of the factory shall not be eligible to CENVAT credit. 3.7 CENVAT credit is also admissible in respect of the amount of inputs contained in any of the waste, refuse or bye product. Similarly, CENVAT is not to be denied if the inputs are used in any intermediate of the final product even if such intermediate is exempt from payment of duty. The basic idea is that CENVAT credit is admissible so long as the inputs are used in or in relation to the manufacture of final products, and whether directly or indirectly. 3.8 If the inputs or capital goods are cleared to a job worker, they should be received back within 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods/ exempted services 3.12 No credit can be taken on inputs! Input services which are used exclusively in or in relation to the manufacture of exempted final products! exempted services. The basic principle underlying the CENVAT scheme is that credit is admissible if duty is paid on final products/ output service. Attention is drawn to sub-rule (1) of rule 6 of the CENVAT Credit Rules, which clearly provides that CENVAT credit shall not be allowed on such quantity of inputs or input services which is used in the manufacture of exempted goods/ exempted services, except in circumstances specified in sub-rule (2). The provisions of sub- rule (2) and sub-rule (3) of rule 6 provide as to how to deal with and account for the inputs and credit of duty in cases where the inputs are used in manufacture of both dutiable as well as exempted products! Services. In other words, in terms of Rule 6, the assessee who has not maintained separate inventory and has taken credit on common inputs! input services to manufacture dutiable and exempted products [ in the cases mentioned in i- provisions contained in sub-Rule (3) (a)] has no option but to reverse 10 % of price of the exempted goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods written off including partial write off is as follows (i) In cases, where unused inputs are fully written off, Board's instructions dated 22.2.95 shall apply i.e. the credit availed must be paid back. (ii) In cases where the value of the inputs is partially written off ! reduced in the accounts of the company, but the inputs are still capable of and available for use in the manufacture of finished goods, there would be no question of payment of CENVAT credit availed. (iii) In respect of capital goods viz, components, spare parts etc; which are written off before use and hence are not proposed to be used, the CENVAT credit availed will have to be paid back on the same lines as applicable to "inputs" as mentioned in (i) above. 3.16 Modvat/Cenvat credit of duty paid on the inputs contained in finished products on which duty remission has been granted shall not be admissible and reversal thereof should be ensured before granting remission of duty. Further, before granting remission of duty on any finished products destroyed or damaged in fire, accident etc., it should also be ensured that the insurance amount claimed by the assessee does not include the duty element for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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