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As most of the readers would be aware, the honourable finance minister has presented the budget 2014 on 10th July 2014. In this article, I would like to focus on few changes in cenvat credit provisions. Even though the number of changes is very few, the impact it has is huge for manufacturers and service providers who are under Cenvat credit regime.

Time limit for CENVAT credit

Rule 4(1) and Rule 4(7) of CCR 2004 has been amended in order to fix a time limit for manufacturer and service provider to avail the cenvat credit on inputs and input services. As per the amendment the manufacturer or service provider shall not take Cenvat credit after six months of the date of issue of any of the documents specified in sub- rule (1) of rule 9. This Rule would be effective from 1st September 2014. The change has major implications in indirect tax compliance. The assessee now onwards should take great care to ensure that all the credits are properly availed and utilised within 6 months. Few implications which I could think of at the moment are as follows:

• On reading of the amended provision, it is not clear if the time limit of 6 months would be applicable only for the invoices issued on or after 1st September 2014 or even for invoices which are eligible for credits prior to 1st September 2014 but assessee failed to avail the credit and time limit of 6 months lapsed.

• It is not clear if any manufacturer or service provider who failed to discharge the taxes in the past and who has got the demand from the department would be eligible to avail credits for the past years also as time limit of 6 months would have been lapsed.

• There could be instances wherein the date of cenvat invoice would be dated much earlier than the date of actual receipt of goods. In this scenario, the assessee loses substantial time. It would have been better if six months time period is allowed from the date of receipt of goods instead of issue date/invoice date.

• There could be a scenario where cenvat invoice is lost by the assessee. In such a case it is not clear if date of issue would be of original invoice or the subsequent invoice.

• Sometimes, the credits will not be availed be properly which includes short availment of credits. This could be because of wrong accounting of amount of credit or non accounting of credit due lack of clarity about eligibility. This could result in loss of credit due to introduction of the new provision.

• There are many other repercussions which could come into highlight once the rule becomes effective. If that is the case, then there would be subsequent clarifications issued by the CBEC.

• It is very important to note that the time limit of 6 months is applicable only for inputs and input services and not for capital goods. This could be due to practical difficulty in implementation of provision as presently only 50% credit allowed in initial year of procurement of capital goods.

• To be on the beneficial side, the manufacturers and service providers shall ascertain the cenvat credit missed out or kept on hold in past period, if any and avail the credits immediately before 1st September 2014.

Clarity on cenvat credit of tax paid under reverse charge, joint charge

Rule 4(7) has been amended to provide that the credit of tax paid under reverse charge mechanism (such as sponsorship service, legal services, import of services etc.) would be eligible when the service tax amount has been paid to the department. Earlier to this amendment, even the value of service should have been paid in addition to tax amount to be eligible for cenvat credit.

However, the rule continues to provide for availment of credit of tax paid under joint charge mechanism only on or after the day on which payment is made of the value of input service and also the service tax paid or payable as indicated in invoice, bill or, as the case may be, challan referred to in rule 9. These amendments would have immediate effect that is from 11th July 2014.

Cenvat credit when export consideration received/not received

A proviso has been added to sub rule 8 of Rule 6 of CCR 2004 stating that the credit reversed in terms of Rule 6(3) of CCR 2004 on exports treating the same as ‘exempted services’ could be claimed again if the export proceeds which were not received earlier are received after the specified or extended period allowed by the Reserve Bank of India but within one year from such period. This Rule is effective from 11th July 2014. Before this amendment it was not clear if such reversal was required at all for non-receipt of export consideration.

Transfer of credits by large tax payer units (LTU)

Rule 12A of CCR 2004 has been amended stating that the credit taken, on or before the 10th July, 2014, by one of his (LTU) registered manufacturing premises or premises providing taxable services could be transferred to other units. After this amendment, LTU would not be in a position to transfer the credits claimed from 11th July 2014 from one unit to other unit.  However, the credits accumulated till 10th July 2014 should be eligible for transfer as per my understanding.

CA Mahadev.R

(The author could be reached at mail id mahadev@hiregange.com)

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