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BRIEF NOTE ON CENVAT CREDIT
I have prepared small notes on Cenvat credit. I sought your help to include some more points make it understandable to our forum members. I have given lecture to our company executives and we have to fine tune the same.
1986 MODIFIED VALUE ADDED TAX i.e. MODVAT INTRODEUCED BY THE CENTRAL GOVERNMENT WHICH ENABLED THE MANUFACTURERS TO AVAIL CREDIT OF EXCISE DUTY PAID ON THE INPUT USED IN OR IN RELATION TO MANUFACTURE OF END PRODUCT
OFFSET OF DUTY PAID ON INPUT STAGE AGAINST DUTY PAYABLE AT THE FINAL STAGE.
IN 1994, MODVAT WAS EXTENDED TO CAPITAL GOODS
MODVAT SCHEME WAS RECHRISTENED TO BE CALLED CENTRAL VALUE ADDED TAX SCHEME i.e. CENVAT SCHEME
IN 2000 WITH THE OBJECT TO CONSOLIDATE AND UNIFY THE RULES 57AA TO 57AK FOR CAPITAL GOODS AND INPUT GOODS INTO ONE SET OF RULES THE CENVAT CREDIT RULES, 2001 WAS FRAMED
IT WAS FURTHER SIMPLIFIED AND REVIEWED INTO NEW CENVAT CREDIT RULES 2002.
SCHEME DESIGNED TO REDUCE THE CASCADING EFFECT OF INDIRECT TAXES ON FINAL PRODUCTS.
Particulars Under non-Cenvat Rs. Under Cenvat Rs.A Raw material 100 100
Add excise duty @16% 16 16
Total 116 116
Credit allowable Nil 16
Net cost of X 116 100
B Value Addition 100 100
Product Y 216 200
Add excise duty @16% 34.56 32
Total cost 240.56 232
Credit allowable Nil 32
Net cost of X 240.56 200
c Value Addition 100 100
Product Z 340.56 300
Add excise duty @16% 54.40 48
Total cost of Z 394.56 348
Credit allowable Nil 48
Net cost Z 394.56 300
Sailent features of New CENVAT CREDIT RULES, 2004
New Cenvat Credit Rules 2004 have been introduced with effect from 10-9-2004 in place of earlier CENVAT CREDIT RULES , 2002 AND SERVICE TAX CREDIT RULES,2O02
This credit can be utilized for payment of excise duty on final products and service tax on output services. Credit taken on input services can be used for payment of excise duty and vice versa.
Credit can be taken for all services used in relation to setting up, modernization or repairs of a factory, services relating to advertisement or sales promotion, management, recruitment etc.
UTILISATION OF CENVAT CREDIT
Rule 3 (4) provides that the Cenvat credit may be utilised for payment of
a) any duty of excise on any final product 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 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.
Rule 3 of the CENVAT credit Rules 2004 lays down the provisions related Cenvat Credit as follows:-
Specified duties of which Credit is available
Rule 3(1) provides that a manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit of the following duties.
1) Excise duty
2) Special Excise duty
3) Additional Excise duty under section 3 of the Additional Duties of excise (Textile and Textiles Articles) Act, 1978
4) Additional duty of Excise
5) National Calamity Contingent duty
6) Education cess
7) additional custom duty
8) Additional Excise duty leviable under section 157 of the finance act 2003
9) Service tax
10) Education cess on taxable services
Rule 3 (2) provides that the manufacturer or producer of final products shall be allowed to take CENVAT credit of the duty paid on inputs lying in stock or in process or inputs contained in the final products lying in the stock on the date on which any goods manufactured by the said manufacturer or producer cease to be exempted goods or any goods become excisable.
Rule 3(3) provides that in relation to a service which ceases to be an exempted service exempted service, the provider of output service shall be allowed to take CENVAT credit of the duty paid on the inputs received on and after 10th day of September 2004 and lying in stock on the date on which any service ceases to be an exempted service and used for providing such service.
In jaypee Rewa Cement Ltd Vs CCE the Supreme Court held that even where inputs are used outside the factory premises, but if the same were essential for manufacturing process, the same shall be eligible for CENVAT CREDIT.
The procedure to avail CENVAT Credit on input as set out in rules 3 and 4 are as follows:
1. Receipt of goods
Available on receipt of the materials only
ownership of the material is irrelevant for the purposes of claiming Cenvat Credit on inputs
invoices should be addressed to the manufacture and/or inputs consigned to him
admissible in proportion to usable and actual quantity received.
Eligibiltiy under the rules is determined by the exclusion
Except HSD and Petrol, all inputs used in or in relation to manufacture, directly or indirectly are eligible.
Check whether the inputs are used for the manufacture of exempted goods
if so Goods used only for manufacture of exempted products, where no credit can be availed.
Goods used only for manufacture of dutiable products where credit can be availed.
Goods being used for both the dutiable products as well as exempted products but the quantum of use at the stage of receipt of inputs is not ascertainable. In such case credit should be availed and at the time of removal, but reversal of amount equal to 8% of the value of exempted final product, is admissible in terms of rule 6 (3) (b)
Goods being used for both the dutiable products as well as the exempted products, but the quantum of use is ascertainable at the time of receipt. In such case, the credit should be availed only for the inputs, used for dutiable final product. However the inputs should be separately recorded, stored and issued.
Transfer of CENVAT CREDIT
Rule 10 lays down the following provisons for transfer of Cenvat Credit
1) If a manufacturer of the final products shifts his factory to another site or the factory is transferred on account of change in ownership or on account of merger, amalgamation, lease or transfer of the factory to a joint venture with the specific provision for transfer of liabilities of such factory, then the manufacturer shall be allowed to transfer the Cenvat credit lying unutilized in his accounts to such transferred sold mreged, leased or amalgamated factory
2) If a provider of output service shifts or transfers his business on account of change in ownership or on account of of merger, amalgamation, lease or transfer of the business to a joint venture with the specific provision for transfer of liabilities of such business, then the provider of output service shall be allowed to transfer the Cenvat credit lying unutilized in his accounts to such transferred, sold to such transferred sold mreged, leased or amalgamated factory
3) The transfer of the Cenvat credit shall be allowed only if the stock of inputs as such or in process or the capital goods is also transferred along with the factory or business premises to the new site or ownership and the input or capital goods on which credit has been availed of are duly accounted for to the satisfaction of the Deputy Commissioner of Central Excise or as the case may be, the Assistant Commissioner of Central Excise.
Rule 15 provides Confiscation and Penalty
1) If any person takes CENVAT Credit in respect of capital goods wrongly or without taking reasonable steps to ensure that appropriate duty on the said input or capital goods has been paid as indicated in the document accompanying the input or capital goods specified in rule 9 or contravenes any of the provision of these rules in respect of any input or capital goods , then all such goods shall be liable to confiscation and such person, shall be liable to a penalty not exceeding the duty on the exercisable goods in respect of which any contravention has been committed or ten thousand rupees whichever is greater.
2) In a case where the CENVAT credit in respect of input or capital goods has been taken or utilized wrongly on account of fraud, wilful mis-statement, collusion or supression of facts or contravention of any of the provision of the Excise Act or the rules made thereunder with intention to evade payment of duty, then the manufacturer shall also be liable to pay penalty in terms of the provisions of Section 11AC
3) If any person takes CENVAT credit in respect of input services, wrongly or without taking reasonable steps to ensure that appropriate service tax on the said input services has been paid as indicated in the document accompanying the input services specified in Rule 9, or contravenes any of the provisions of these rules in respect of any input service, then such person shall be liable to a penalty which may extend to amount not exceeding ten thousand rupees.