CENVAT - OVERVIEW AS PER CENVAT - OVERVIEW AS PER NEGATIVE LISTNEGATIVE LIST

By Bhupendra Agarwal

CenvatCenvat Credit – An overviewCredit – An overviewOutput

o Excisable goods – Excise dutyo Taxable services – Service tax

Procurement o Capital goods – Excise dutyo Inputs - Excise duty o Input services - Service tax

# Equivalent paid on import of goods / services

Only value addition is taxed as set off given for taxes paid on procurement

Only goods / services to be exported AND not the taxes

Business – Manufacturer of GoodsBusiness – Manufacturer of Goods

S. No Particulars Availability of Cenvat Credit

1 Fully exempt from ED NO

2 Chargeable to NIL rate NO

3 2% ED # NO

4 Export outside India YES

5 Goods supplied to SEZ Developer / Unit YES

6 Goods supplied to EOU / EHTP / STP YES

7 Goods supplied to Mega Power Project YES *

Cenvat not available if business is EXEMPT:

# Notf 1/2011 – CE and 12/2012 – CE (entries at Sl. No. 67 and 128) * Subject to prescribed conditions

Business – Provider of serviceBusiness – Provider of service

S. No Particulars Availability of Cenvat Credit

1 Negative List / Exempt from Service tax NO

2 Not leviable NO

3 Part of the value is exempt NO*

4 Trading in Goods NO

5 Export outside India (including by SEZ Unit) YES

6 Services provided to SEZ Developer / Unit YES

7 Service provider located in Non-Taxable territory (J&K)

NO

Cenvat not available if business is EXEMPT:

* Conditional exemption – Exemption available only if credit on inputs and input services NOT taken

Capital Goods – DefinitionCapital Goods – Definition

S. No Particulars Recipient #

A (i) CH 82, 84, 85, 90, 68.02 and 6801.10 Both

(ii) Pollution Control Equipment Manufacturer

(iii) Components, spares and accessories (i) and (ii) Both

(iv) Moulds and dies, jigs and fixtures Both

(v) Refractories and refractory materials Manufacturer

(vi) Tubes and pipes and fittings Both

(vii) Storage Tank Both

Capital Goods MEANS the following:

# To be used in the factory of the manufacturer or for providing output service$ Outside the factory for generation of electricity for captive use of electricity within the factory also eligible

Capital Goods – Contd..Capital Goods – Contd..

S. No Particulars Recipient #

(viii) Motor vehicles and their chassis including dumpers and tippers (excluding falling under tariff headings 8702, 8703,8704,8711)

Manufacturer

B Motor vehicles (including chassis) designed for transportation of goods registered in the name of service provider

Renting of motor vehicle, transport of goods by service provider and Courier agency

C Motor vehicles (including chassis) designed to carry passengers registered in the name of service provider

Transportation of passengers, renting of motor vehicle, imparting motor driving skills

10 Components, spares and accessories of capital goods which are capital goods for user

Manufacturer and Service provider

Capital Goods MEANS the following:

IssuesIssuesCapital Goodso Used outside the factory - Implications when part of the electricity is either sold to grid /

consumers or transferred to other factories

Inputs – DefinitionInputs – Definition

S. No Particulars Recipient

1 Used in the factory Manufacturer

2 Cleared with Finished product (accessories) Manufacturer

3 Replacement under free warranty Manufacturer

4 Generation of electricity / steam – captive use Manufacturer

5 Providing output service Service Provider

Inputs INCLUDES the following:

Inputs – Inputs – Contd..Contd..

S. No Particulars Recipient

1 LDO / HSD / Petrol Both

2 Construction of building / Civil structure or execution of Works Contract * Manufacturer / Service provider

3 Foundation / Structure for capital goods

4 Capital goods Both

5 Motor vehicles Both

6 Food items, used in guest house etc (personal use of employee)

Both

7 No relationship with manufacture Manufacturer

Inputs EXCLUDES the following:

* Admissible only for execution of service portion in the Works contract or construction service specified in section 66E(b)

IssuesIssues Inputs Is consumption of goods necessary in order to be ‘inputs’? Is anything which is not ‘capital goods’ to be treated as ‘inputs’? Treatment of goods used outside the factory (for instance mines, power plant) If motor vehicle excluded, whether cycle can be treated as input? Inputs used in manufacture of capital goods

Sector specificTelecommunications Towers

Cement / Steel plant (Mines)

Input Service – DefinitionInput Service – Definition

S. No Particulars Recipient

1 Providing output service Service Provider

2 Manufacture of final product Manufacturer

3 Clearance / Outward transportation of finished products (up to the place of removal)

Manufacturer

4 Modernization, renovation or repairs of factory / office / premises

Both

5 Others (As specified) Both

Input Service INCLUDES the following:

Input Service – Input Service – Contd..Contd..

S. No Particulars Recipient

1. Service portion in the execution of Works Contract and construction service used for building / civil structure and foundation for support of capital goods

Manufacturer/ Service provider *

2. Renting of motor vehicles – if motor vehicle is NOT a capital goods

Both

3. In relation to Motor vehicles - General insurance, servicing, repairs and maintenance – if motor vehicle is NOT a capital goods

Both **

4. Personal use or consumption of any employee (outdoor catering, beauty treatment, life and health insurance, travel benefits)

Both

Input Service EXCLUDES the following:

* Specified service provided by service provider are eligible ** Manufacturer of motor vehicle and insurance company eligible in specified cases

IssuesIssuesWhy there is a need to give restricted definition to input services when the definition of “Service” including almost everything under the Sun…………….Service to be used by manufacturer / service provider to be termed as input service

o Even though the provider of service require to pay service tax even if no services are provided (agreed to be provided, amount received and forfeited)

Non – compete fees paid to competitor liable for payment of service tax o Whether Coke / Reebok can take credit for amount paid to Pepsi / Bata for closing their

business» Amount paid to rule out competition but not related to manufacture

Exempted serviceWhy there is a need to clarify that services exported are not “Exempted service”

Trading in goods not specified as “Exempted service” but Rule 6(3) consider the same as exempted service for reversal of Cenvat credit

IssuesIssues Contd..Contd..

No concept of “Capital services” – How to avail credit of input services avail during setting up of the Factory / premises etc

No turnover during setting up period hence ratio method can not be applied

Implications of deletion of the phrase “Setting up” from the definition of input service

Personal use or consumption of employee – distinction between personal and official

Conditions for Availing Cenvat CreditConditions for Availing Cenvat CreditManufacturer

Inputs & capital goods On receipt of goods in the factoryDuty paying documents received from supplier

Service provider Inputs & capital goods

On receipt of goods at any placeDuty paying documents received from supplier

Manufacturer and Service provider Input services

Service are received Invoice containing prescribed particulars is received

Refund of CENVAT – Specified casesRefund of CENVAT – Specified cases Export of goods / services outside India

Service recipient is liable for payment of Service tax

Refund not admissible Goods supplied to STPI / SEZ Unit / Developer Goods supplied to Power Plant eligible for excise duty exemptionImported goods where higher duties are paid (ACD plus SAD) Draw drawback / Rebate of duties are claimed

Cenvat – service recipient pays STCenvat – service recipient pays ST

Specified services – Service tax liability on Service recipient Output service definition excludes services where service recipient is liable to pay

service tax As per Rule 3, Cenvat credit admissible to provider of Output service If the services are not “Output service” how service provider is eligible to claim

Cenvat credit New Rule 5 B of CCR grants refund of unutilized Cenvat credit when service

recipient is liable to pay service tax Without availing credit how to claim refund

Input Service Distributor – Concept Input Service Distributor – Concept Manner of Distribution : i.) No credit distribution exceeding ST paid. Ii.) No Credit distribution to Unit – Engaged in Exclusive Manufacture of Exemtped

Goods/ Providing of Exempted Services Iii.) Distribution of Full credit to single unit – wholly attributable Iv) Otherwise prorata basis – turnover basis of relevant period No distribution when no turnover for a Unit.

Relevent period means :- Expl 3(a) : The month prior to the month in which CENVAT Credit distributed. Expl 3(b) : The quarter prior to the quarter in which CENVAT Credit distributed –

Special cases – ST paid per Rule 6 of ST Rules 1994 or Rule 8 of CE Rules 2002.

Some more ……………Some more ……………Service tax under reverse charge to be paid in Cash and not by Cenvat

No payment required to be made where inputs are removed ‘as such’ outside the factory for providing free warranty of final product

Partial provision or write-off of CG or inputs also to attract reversal of Cenvat credit

Cenvat credit can not be used for payment of service tax as a recipient of service tax Service tax to be paid if services are received from provider located in Jammu & Kashmir (Non-Taxable territory)

What if contract is executed in J&K and part of the work sub-contracted to service provider located in J&K who raises invoice on company located in Hyderabad

Availing Credit – OptionssssssssssAvailing Credit – OptionssssssssssRule Scheme

Rule 6 (1) Credit not allowed on inputs / input services used for exempt business

Rule 6 (2) Credit allowed only on input / input services used for taxable business provided separate accounts are maintained for input and input services

Rule 6 (3) Where separate accounts are not maintained:-

Rule 6 (3) (i) Outright payment on exempt output Pay 6% of exempt business Output service whose part of the value is exempted (condition no credit allowed on inputs and input services), Cenvat credit allowed on payment of 6% of the exempted value6% payment to be considered as credit not availed for the purposes of such exemption notifications

Rule 6 (3) (ii)- Rule 6 (3A)

Proportionate credit for taxable businessPay proportionate credit for exempt business (Take full credit and reverse for exempt)

Rule 6 (3) (iii) Cocktail - 6(2) for inputs & 6 (3A) for input services

Rule Scheme

Cocktail Rule 6 (3) (iii)

Loss of proportionate credit on input services exclusively used for taxable businessGain of proportionate credit on common input services and input services exclusively used for exempt business

Trading Explanation to Rule 6 (3) and 6 (3A)

‘Value’ in the case of ‘Trading’: Difference between purchase and sale value to be considered for the purposes of reversal of Cenvat credit

BFS / NBFC Provider of BFS eligible to avail only 50% of Cenvat credit (Net)

Scheme for availing CreditScheme for availing Credit

Cenvat Credit – Other issuesCenvat Credit – Other issues

1. Trading of Securities : Exempted part of Service for the purpose of Cenvat credit –

i.) Diff between Selling Price and Purchase Price; or

ii.) 1% of Purchase price

whichever is more

Issue : What if purchase and sale of securities occurs in different years

2. Loans, Deposits and Advances CENVAT Credit not to be reversed with respect to Loans, Advances and Deposits

represented by way of Interest or Discount.

3. Banking and Financial Institutions including NBFC 50% of CENVAT Credit(on inputs/input services) availed to be paid every month.

THANK YOUTHANK YOU