E2-E3

Finance

VAT & CENVAT Credit

For internal circulation of BSNL only

WELCOME

This is a presentation for the E2-E3

(Finance) Core Module for the Topic: VAT

& CENVAT Credit .

Eligibility: Those who have got the Up

gradation from E2 to E3.

This presentation is last updated on 21-3-

2011.

You can also visit the Digital library of

BSNL to see this topic.

For internal circulation of BSNL only

AGENDA

Concept of VAT

Concept of CENVAT credit

BSNL instructions on CENVAT credit

For internal circulation of BSNL only

CENVAT

Cenvat has its origin in

the system of

VAT.

For internal circulation of BSNL only

BASIC CONCEPT OF VAT

A tax that applies to most business transaction that

involves the transfer of goods or services.

VAT replaces the Sales Tax imposes by State

Government.

A tax on the value addition.

Remove defect in tax system.

Good and transparent tax collection system.

VAT to avoid the cascading effect.

VAT & CENVAT exist and operate in parallel manner.

For internal circulation of BSNL only

CENVAT CREDIT

MODVAT 1986 - applicable for

manufacturers.

1994 - MODVAT 1986 extended to capital

goods.

2001 - MODVAT scheme rechristened to

Cenvat credit rules.

2002 - Cenvat credit rules simplified and

reviewed.

10-09-2004: Cenvat rules 2004 issued.

For internal circulation of BSNL only

CONCEPT OF CENVAT CREDIT

Grant credit of specified duties paid on

capital goods, inputs & input

services to the service provider.

Credit is utilized for payment of service tax

on output service.

Credit is available only when the output

service is taxable.

For internal circulation of BSNL only

Capital

Goods

Input

Goods

Input

Services

Various

Services

For internal circulation of BSNL only

SPECIFIED DUTIES FOR CENVAT CREDIT

Basic Excise Duty and corresponding CVD

on imported goods.

Special and Additional Excise Duty

National Calamity Contingent duty

EC and SAH on the above.

Service tax on input service.

EC and SAH on the above.

For internal circulation of BSNL only

EXCLUSION OF DUTIES

Basic Customs duty.

Special Customs duty.

Special additional duty under customs.

Education cess paid in aggregate Customs

duty.

Secondary & Higher education cess on

Customs duty.

For internal circulation of BSNL only

CAPITAL GOODS [RULE 2(A)]

The following items used for providing

output service:

(a) All goods falling under chapter 82,

chapter 84, chapter 85, chapter 90,

heading No.6805, grinding wheels and

the like, and parts thereof falling under

heading 6804 of the first schedule to the

Excise Tariff Act.

For internal circulation of BSNL only

CAPITAL GOODS [RULE 2(A)]

(b) Pollution control equipment

(c) Components, spares & accessories of the

goods at (a) & (b) above

(d) Moulds and dies, jigs and fixtures

(e) Refractory and refractory materials

(f) Tubes and pipes and fittings thereof

(g) Storage tank

For internal circulation of BSNL only

CAPITAL GOODS [RULE 2(A)]

(h) Motor vehicles in respect of certain services:

Cargo handling Agency’s service

Courier Agency’s service

Outdoor caterer’s service

Pandal or shamiana contractor’s service

Tour operator’s service

Transport of goods by road service (GTA)

For internal circulation of BSNL only

CAPITAL GOODS

Up to 50% credit can be availed in first year and

balance in subsequent years.

Depreciation should not be claimed on the

excise portion of the capital goods.

Capital goods obtained on hire

purchase/lease/loan are eligible for credit.

For internal circulation of BSNL only

Capital CAPITAL GOODS

• Capital goods should be used for providing

output service.

• Duration is not specified. Hence , if the capital

goods are used for one day, Cenvat eligibility

is established as they are used.

• Credit can be taken when the capital goods

are received in the premises of provider of

output service.

.

For internal circulation of BSNL only

INPUTS [RULE 2(K)]

The following goods used for providing

output service:

All goods, except light diesel oil, high speed

diesel oil, motor spirit, commonly known as

petrol and motor vehicles used for providing

any output service

For internal circulation of BSNL only

INPUT SERVICES

The benefit of CENVAT credit has been

withdrawn to GTA service under CENVAT

Credit scheme

For internal circulation of BSNL only

INPUT SERVICES

Mere payment of service tax to service

provider is not sufficient

Credit of Cenvat only after payment is made

to service provider

For internal circulation of BSNL only

EXEMPTED OUTPUT SERVICES [RULE 6]

Capital goods used exclusively for providing

exempt service are not eligible for Cenvat credit. If

capital goods are partly used for taxable services

Cenvat credit will be available.

For internal circulation of BSNL only

EXEMPTED OUTPUT SERVICES [RULE 6]

As per Rule 6(5) of Cenvat Credit Rules 2004,

Certain services even if they are partly used

in exempted services, entire credit will be

available for utilization to the service

provider.

For internal circulation of BSNL only

EXEMPTED OUTPUT SERVICES [RULE 6]

Option to service providers when no separate

accounts are maintained for input and input

services-

1. Pay 6% on exempted services

or

2. Amount equivalent to cenvat credit

attributable to inputs and input services

used in exempted services( provisionally

every month)

For internal circulation of BSNL only

NOTIFIED DOCUMENTS FOR AVAILING CENVAT CREDIT

[RULE 9(1)]

1. An invoice issued by -

(a) a manufacturer for clearance of

input goods or capital goods.

(b) an importer.

(c) a first stage dealer or second stage

dealer.

2. Supplementary invoice issued by

manufacturer or importer.

For internal circulation of BSNL only

NOTIFIED DOCUMENTS FOR AVAILING CENVAT CREDIT

[RULE 9(1)]

3. A bill of entry.

4. A certificate issued by an appraiser of

customs for goods imported through a

foreign post office.

5. An invoice or bill or challan issued by

input service provider.

6. An invoice, bill or challan issued by input

service distributor.

For internal circulation of BSNL only

RETURNS

Form ST-3: Half yearly return within one

month from close of half year, by provider of

output services.

Form ST-3: Half yearly return within one

month from close of half year, by Input

service Distributor.

For internal circulation of BSNL only

CONFISCATION AND PENALTY

If Cenvat credit is taken wrongly or

without taking correctly, penalty will be the

amount not exceeding the duty on the

excisable goods or Rs.10,000/- whichever is

greater.

For internal circulation of BSNL only

BSNL INSTRUCTIONS

Cenvat credit can be availed by all revenue

earning SSAs/Units having service tax

registration number.

Others can avail Cenvat credit by passing the

net debit balance to the nominated “Nodal

Offices” through ATD.

For internal circulation of BSNL only

BSNL INSTRUCTIONS

All non-revenue earning circles/units like

Project, Maintenance, Q&A, Data net works,

Civil, Electrical, Store depot, Adm offices etc

may get registered with Service Tax

authorities as Input Service Distributor.

Invoice along with ATD are issued.

Half yearly return in Form ST-3 is filed.

For internal circulation of BSNL only

BSNL INSTRUCTIONS

Availing of Cenvat credit by SSA/Units on

capital goods/input received from CTSDs.

CTSDs have to register as 1st Stage or 2nd

Stage dealer with Central Excise/ Service Tax

authorities.

In such case CTSD can issue

invoice/challan, on the basis of which unit can

avail Cenvat credit.

For internal circulation of BSNL only

REMOVAL OF INPUT, CAPITAL GOODS

AND WASTE

The inputs or capital goods can be removed as such from the premises of service provider on payment of an amount equal to Cenvat credit availed when the credit was taken

If capital goods on which Cenvat is availed are cleared as such (i.e. without use) an amount equal to Cenvat credit availed is required to be paid

If capital goods are sold as scrap, an amount equal to duty payable on scrap value of capital goods is payable

For internal circulation of BSNL only

EFFECT OF CENVAT ON THE TRANSFER OF CAPITAL GOODS

[PROVISO UNDER RULE3(5)]

If capital goods on which Cenvat credit has

been taken, are removed after being used,

the provider of output service shall pay an

amount equal to the Cenvat credit taken on

the said capital goods reduced by 2.5% for

each quarter of a year or part thereof from

the date of taking the Cenvat credit.

For internal circulation of BSNL only

CENVAT CREDIT ON TENDER EVALUATION

The evaluation and comparison of

responsive bids shall be done on the basis of

the net cost to BSNL on the price of the

goods offered inclusive of duties and taxes

(but excluding Cenvat –able duties and

taxes), sales tax, packing, forwarding, freight

and insurance charges.

For internal circulation of BSNL only

For internal circulation of BSNL only