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Need for modifications in CENVAT Credit scheme

Central Excise - By: - Hardik Shah - Dated:- 15-12-2015 - CENVAT Credit scheme was introduced with an objective to offer offset of the taxes paid on procurement against the output taxes however it has been observed that the credit eligibility was always been a subject matter of litigation on various grounds. CENVAT Credit Rules have not been amended as swiftly as required to keep the pace with the changing requirement of trade and industry and also on account of removal of anomalies & for si .....

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ich require amendment appears to be the definition of the term capital goods . The scope of the term capital goods , at present is restrictive and covers only those goods which are featuring in the specified Chapters of Excise Tariff and few identified motor vehicles. In the present day, the meaning of the term capital goods in business parlance has increased multi-folds to cover a lot of other goods which was probably not envisaged when the definition was drafted a decade ago. This was done to .....

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or encouragement to manufacturing sector, it is suggested to provide the benefit of credit on capital goods in the first year of purchase only as against the principle of availment in installments. With respect to the definition of input service, there is an apparent distinction between the eligibility of credit to a manufacturer and service provider. Manufacturer can avail the credit of those services which even contributes indirectly to the manufacturing activities however the same is not true .....

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uthorities may disallow the claim of CENVAT Credit of service tax paid on the insurance services. Accordingly, it is suggested to expand the scope of eligibility of credit to service providers so as to bring them at par with manufacturers. In furtherance, with the deletion of the word setting-up from the inclusive portion of the definition of input service, authorities have got the avenue to challenge the claim of offset on credits relating to establishment of factory or office. In this regard, .....

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or Input or capital goods removed after usage or Input or capital goods written off from the books of account. Rule 3(4) of CENVAT Credit Rules lays down the principles for which credit can be utilised. The allowance of usage of CENVAT Credit in respect of (i) capital goods when removed after use and (ii) inputs or capital goods when written off from the books of accounts; have not been specified in the aforementioned provision. Accordingly, to avoid any unnecessary litigation, it is suggested .....

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eed to be provided shall not be an exempted service when:- (a) the service satisfies the conditions specified under rule 6A of the Service Tax Rules, 1994 and the payment for the service is to be received in convertible foreign currency; and (b) such payment has not been received for a period of six months or such extended period as maybe allowed from time-to-time by the Reserve Bank of India, from the date of provision. The drafting of the specified provision seems to be confusing as the provis .....

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