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Discussion > Excise >

Clarification on Cenvat Credit Rules, 2011 (01-04-2011)

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Executive Excise


[ Scorecard : 1223]
Posted On 19 March 2011 at 13:55 Report Abuse

 



Hi, Eeverybody, Please provide New Cenvat Credit Rules, 2011 which is effective from 01.04.2011, and also clarify me for the below clause;



(C) capital goods except when used as parts or components in the manufacture of

a final product; 





CENVAT CREDIT RULES.

 

3.1  The definition of “input”  contained Rule 2 (k)  is totally revised. The new definition would be as under (with effect from 01-04-2011):

”(k) “input” means–

(i) all goods used in the factory by the manufacturer of the final product; or

(ii) any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products; or

(iii) all goods used for generation of electricity or steam for captive use; or

(iv) all goods used for providing any output service;

but excludes-

(A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol;

(B) any goods used for-

(a) construction of a building or a civil structure or a part thereof; or

(b) laying of foundation or making of structures for support of capital goods, except for the provision of any taxable service specified in sub-clauses (zn), (zzl), (zzm),

(zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act;

(C) capital goods except when used as parts or components in the manufacture of a final

product;

(D) motor vehicles;

(E) any goods, such as food items, goods used in a guesthouse, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; and

(F) any goods which have no relationship whatsoever with the manufacture of a final product.

Explanation. – For the purpose of this clause, “free warranty” means a warranty provided by the manufacturer, the value of which is included in the price of the final product and is not charged separately from the customer;‟

The earlier definition included all such goods which are directly or indirectly in relation to the manufacture of the final products used were deemed as ‘input’ materials and credit was allowed.  Now this is removed.

This revised definition would allow credit on all input materials which are used in the factory by the manufacturer of final products. It is clear that it excludes those which are specified in the definition and all such goods which do not have any relationship to the manufacture of final products/output service provider.

Further, any goods including accessories cleared alongwith the final product i.e, mandatory spares and goods used for providing ‘warranty replacements’ have also been included in the above revised definition and there is no necessity to reverse the cenvat credit availed.

Any goods used for generation of electricity or steam for captive consumption also included in the term ‘input’.

But any goods used for the construction of a building or a civil structure or laying of foundation or making of structure for support of any capital goods have been denied to be eligible as input.

Further, any goods used primarily for personal use or consumption of any employee including food articles, goods used in guest house, residential colony, club or a recreational facility or a clinical establishment  etc, have been expressly excluded from the definition. When any of these goods are used directly in the manufacture of final product or provision of output service, they will constitute as ‘input’.

 

3.2 The definition of ‘Input Services’ has also been revamped to impart clarity and to achieve coherence between goods and services so that service related to any of the goods excluded from the definition of ‘input’  are also excluded .  For e.g, goods used for construction have been excluded from the term ‘input’ and relative service viz, construction services, works contract services  etc which are used for construction have also been removed out from definition of ‘input service’. (with effect from 01-04-2011).

3.3 Cenvat credit of duty paid on capital goods used outside the factory for generation of electricity for the captive use within the factory has been permitted. (with effect from 01-04-2011).

3.4 Ship Breaking units have been allowed the cenvat credit not exceeding 85% of Addl.Duty of customs paid at the time of importation of ships for breaking  (with effect from 01-03-2011).

3.5 A manufacturer or Service Provider has to pay an amount equivalent to the Cenvat Credit taken in respect of inputs or capital goods in respect of these inputs/capital goodswritten off partially, before being put to use as against the existing provision of payment only when the value is written off fully (with effect from 01-03-2011).

3.6 Services relating to Motor Vehicles i.e, rent – a cab, use of tangible goods, insurance or repair of vehicles shall not constitute an ‘input service’ except in respect of output services where credit on motor vehicle is permitted as “Capital Goods” .

3.7 Any service meant primarily for the personal use or consumption of employeeswill not constitute an input service (with effect from 01-04-2011).

3.8 About 130 excisable goods which were hitherto exempted from excise duty has been withdrawn and brought to concessional excise duty of 1% advalorem subject non-availment of cenvat credit on inputs and input services (with effect from 01-03-2011).

3.9 Cenvat Credit Rule 3 has been amended restricting the allowing of cenvat credit of the duty paid on items that are being subjected to the levy of 1%  and would not be available to a manufacturer or service provider who buys/purchases them.  And also the manufacturer of these goods cannot discharge the duty of 1% by utlising the available Cenvat Credit.  This 1% duty has to be paid in cash, invariably (with effect from 01-03-2011).

3.10 The definition of Exempted service is amended to include taxable services which are partially exempted with the condition that cenvat credit is not availed on inputs and input services. It is further amplified that exempted services also include “Trading” (with effect from 01-04-2011).

3.11Especially the branded readymade garments and madeups were exempted from central excise duty on the condition that no credit of duty on inputs is availed by the manufacturer.  As the definition under Rule 2 of CCRs is amended to include ‘ every person who gets the goods falling under chapters 61,62,or 63 produced or manufacture on job work basis’ and will be liable to pay Central Excise duty at 10% (with effect from 01-03-2011).

3.12 Credit is allowed on capital goods used outside the factory for generation of electricity for captive consumption within in the factory by an amendment to Rule 4 (2)(a) of CCRs (with effect from 01-04-2011).

3.13 A proviso under Rule 4(7) of CCRs is added to allow reversal of proportionate credit by the manufacturer/service receiver who has received back the payment, either partially or fully, which has been returned by the Service provider/manufacturer (with effect from 01-04-2011).

3.14 The obligation of a manufacturer and output service provider specified in Rule 6 of Cenvat Credit Rules has been revamped as under (with effect from 01-04-2011):

  • The nomenclature of Rule 6 has been changed to “Obligation of a manufacturer or producer of final products and a provider of taxable service”.
  • The sub rule 1 is sufficiently amplified as “input used in or in relation to the manufacture of exempted goods or for provision of exempted services, or input service used in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services” as against “input or input service which is used in the manufacture of exempted goods or for provision of exempted services”.
  • The sub rule 2 has been amended to allow credit on inputs and input services which are used in the manufacture of or provision of services which are dutiable .  For this the manufacturer or output service provider should maintain separate accounts for the input materials and input services used in the manufacture/provision of output service, which are exempted and as well as dutiable.  
  • The sub rule 3 which contemplates the reversal of 6% amount on the value of taxable service, for not maintaining separate accounts in respect of dutiable and exempted services by an output service provider has been reduced to 5%, on par with the amount payable by a manufacturer of final products.
  • As the option to maintain separate accounts only in respect of input and not together with input services has been given, allocation of credit for the purpose of reversal as per formula given in Rule 6(3) can be done only so far as credits on input services are concerned.
  • A proviso under sub rule (3) has been inserted to clarify that if any duty of excise is paid on exempted goods, then the same will be reduced from the amount of 5% payable by the manufacturer or service provider in case of not maintaining separate accounts.
  • A second proviso has been inserted under sub rule (3) to clarify that in case of partially exempted services, which is normally by way of abatement, on the condition that no cenvat credit of inputs and input services used for providing such taxable services shall be taken, an amount of 5% to be paid only on the exempted portion of the value of service.
  • As an abundant caution explanation III has been added to sub rule (3) making it clear that cenvat credit cannot be availed on any goods and services that are not “inputs or input services”.
  • A sub rule (3B) has been inserted stipulating the Banking/Financial Institutions including Non-Banking Financial companies or other body corporates to pay 50% of the Cenvat credit availed on inputs and input services in that month.
  • Another sub rule (3C) has been inserted stipulating Life Insurance or Management of ULIPS, to pay 20% of the cenvat credit availed on inputs and input services availed during that month.
  • A new sub rule (3D) has been inserted to clarify that even if an amount of 5% is paid by the manufacturer or service provider, who has availed any exemption notification on the condition of non-availment of cenvat credit, not maintained separate accounts, the said amount will be treated as if no cenvat credit was availed and accordingly, the benefit exemption notification would be available to the assessee inspite of payment of 5% of the amount stipulated in Rule 3 of CCRs.
  • Explanations I, II and III have been added after sub rule 3D   to explain as under:

§  Section 3 has been added to determine the value under Central Excise Act alongwith section 4 and 4A.

§  In case of taxable services if assessee avails option under Rule (7), (7B) or (7C) of Service Tax Rules,1994 or Works Contract (Composition Scheme for payment of Service Tax) Rules,2007, then the value for the purpose  of sub rule (3) and (3A) would be the option availed by the assessee.

§  In respect of Trading, which is an exempted service, the difference between the purchase value and sale value would be reckoned as the value of goods traded.

§  The amounts stipulated in sub rules (3), (3A), (3B) and (3C) can be paid from Cenvat credit account by debit.

§  In case the amount payable under sub rules (3), (3A), (3B) or (3C) is not paid, the same would be recovered under Rule 14 of CCRs,2004.

§  As the concept of proportionate allocation is introduced, sub rule (5) allowing full credit of seventeen specified services used for manufacture of excisable goods and exempted goods and for providing taxable and exempted services has been omitted.

3.15 A new sub rule 6A has been inserted to allow provision of services without payment of Service Tax to a unit in SEZ or to a Developer in SEZ for their authorised operationswithout requirement of reversing the cenvat credit.

3.16 An amendment is made, with effect from 01-03-2011, to the proviso under sub rule (7) under Rule 9 stipulating the SSI units who are under SSI exemption notification to file their quarterly returns within 10 days after the close of the quarter instead of 20 days to which the quarterly return relates.

3.17 Service Tax leviable under section 66A (Import of Services) has been added in the list of eligible credits under Rule 3 with retrospective effect from 18-04-2006 by contemplating a retrospective amendment in the Finance Bill.




Online classes for CA CS CMA



U S Sharma
glidor@gmail.com


[ Scorecard : 19381]
Posted On 19 March 2011 at 14:05

 

(C) capital goods except when used as parts or components in the manufacture of a final product; 

==================================================================================

 

This is old rule itself, the board has defined the list of items eligible for cenvat credit of capital goods, but at certain times the assesee uses the same item as input also , 

 

example : 1) assesee has plant and machinery in which they use "electric motors" and avail or not avail the input credit on capital goods 

2) assesee manufacture machines and uses "electric motors" as component input and avail cenvat credit on these motors as input, 

 

now the assesee used to get similer item in capital goods and input both, so the board has clarified the limitation of capital goods, but the input list is open.

 

in recent past years several cases has been booked that assesee has once taken credit on such capital goods and then used those capital goods in process of manufacture and consumed in finish goods as inputs, ( hardware tools, jigs , wrenches, screw drivers , electric motors) thats why the board has made it now compulsary that if credit has been availed then it should not be used as parts of exisble manufactured goods. 

 

(C) species the condition that if the item has not been used parts / component in finish good ( cleared or to be cleared as taxable output sale) then only such capital good credit is available.





DAYANANDA K N
ACCOUNTS EXCECUTIVE


[ Scorecard : 575]
Posted On 19 March 2011 at 14:05

(C) capital goods except when used as parts or components in the manufacture of

a final product;   

 

 This means if you use any capital goods as defined under cenvat rule as input for manufacuturing final product than it will qualify as input and restrictions related to capital goods on taken credit (Upto 50% 1st year and remaining in subsequent year) will not apply.

 

Refer attached file for cenvat rules amendment



Attached File : 10 amendments cenvat rules notification.pdf downloaded 1130 times


Ajay Raghatate
Sr Executive (Excise & Accounts)


[ Scorecard : 701]
Posted On 18 June 2011 at 11:23

Dear Sharma Sir,

our company, having 16 Excise registered  plants and a depot, company are trding from Depot, so in that case, is Rule 6 amended applicable  or not.

Another company is manufacturing company, in that place not produce any exempted goods as well as not providing any exempted service, but from another location company providing Exempted service. so in that case also, rule 6 applicable or not.

plz clarify 

Thanks

 




U S Sharma
glidor@gmail.com


[ Scorecard : 19381]
Posted On 18 June 2011 at 13:49

Originally posted by : Ajay Raghatate


Dear Sharma Sir,

our company, having 16 Excise registered  plants and a depot, company are trding from Depot, so in that case, is Rule 6 amended applicable  or not.

- Company having trading Excise registration, have to demark the area of goods on which excise register is maintained, and on which excise regisrter is not maintained, i.e at notime such goods on which excise documents are not to be passed to next dealer should not mix up the stock of excise register goods.

- company has to get ensure that duty has been cleared on such goods before bringing them to their depot, as similer to manufacture goods found without proper duty payment may be booked as self manufactured and cleared without duty. 

Another company is manufacturing company, in that place not produce any exempted goods as well as not providing any exempted service, but from another location company providing Exempted service. so in that case also, rule 6 applicable or not.

- if they are maintaining centralized registration, then rule 6 applies, i.e they are taking credit of all branches, then they have to reverse as per rule for exempted.

- all such units are clubbed togather for valuation purpose, and running progressive total is to be maintained datewise for all such units to establish liability of tax.

plz clarify 

Thanks

 




CS Rajveer Rai, Gurgaon
CS


[ Scorecard : 638]
Posted On 14 November 2011 at 16:40

Its simple..

when capital goods are used in manufacture of final product , it is input otherwise not input..




MADHAVI
JOB


[ Scorecard : 35]
Posted On 08 February 2012 at 13:20

Can anyone guide me regarding Availability of Cenvat Credit on Repairs to Building 




U S Sharma
glidor@gmail.com


[ Scorecard : 19381]
Posted On 09 February 2012 at 11:53

Originally posted by : MADHAVI

Can anyone guide me regarding Availability of Cenvat Credit on Repairs to Building 

buildings are not covered under the CCR 2004 as capital goods, hence no input creditl,




Ritu Sedwal
Chartered Accountant


[ Scorecard : 407]
Posted On 10 February 2012 at 13:38

Hi Madhavi

As per Rule 2(k) of Cenvat Credit Rules, 2004 input used for construction of building is excluded hence no CCr is available.

But duty paid on goods used for repairing of such building/civil construction can be availed as input credit.




MADHAVI
JOB


[ Scorecard : 35]
Posted On 10 February 2012 at 16:27

thanx everyone



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