CENVAT CREDIT RULES, 2004

Introduced vide Notification No.23/2004-CE (NT) dated 10th September, 2004. In supersession of CENVAT Credit Rules, 2002 & Service Tax Credit Rules, 2002. Rule 2-Credit of service tax not available/utilizable in the state of Jammu & Kashmir.

Capital Goods means (A) the following goods, namely:(a) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act; Chapter 82 includes tools, implements, cutlery, spoons, forks etc. of base metal and parts thereof. Chapter 84 includes items such as nuclear reactors, boilers, machinery and mechanical appliances and parts thereof. Chapter 85 includes electrical machinery and equipments and parts thereof, sound recorders and reproducers, television image and sound recorders and reproducers and parts and accessories of such articles. Chapter 90 includes optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus and parts and accessories thereof. Heading 6805 includes natural and artificial abrasive powder or grain, on a base of textile material, of paper, of paperboards or of other materials, whether or not, cut to shape or sewn or otherwise made up. Heading 6804 includes millstones, grindstones, grinding wheels and the like, without framework, for grinding, sharpening, polishing, trueing or cutting, hand sharpening or polishing stones, and parts thereof, of natural stone, of agglomerated natural or artificial abrasives, or of ceramics, with or without parts of other material. (b) (c) (d) Pollution control equipment; Components, spares and accessories of the goods specified at (i) and (ii) Moulds and dies, jigs and fixtures;

(e) Refractories and refractory materials; (f) Tubes and pipes and fittings thereof; (g) Storage tank; and (h) 1Motor vehicle other than those falling under tariff heading 8702, 8073, 8704, 8711 & their chassis 2(but including dumpers & tippers). Used(1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or (1A) outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory; or (2) for providing output service; (B) 2(motor vehicle designed for transportation of goods including their chassis registered in the name of the service provider, when used for(a) providing an output service of renting of such motor vehicle; or (b) transportation of inputs & capital goods used for providing an output service; or (c) providing an output service of courier agency;) (C) 2(motor vehicle designed to carry passengers including their chassis, registered in the name of provider of service, when used for providing output service of (a) transportation of passengers; or (b) renting of such motor vehicle; or (c) imparting motor driving skills;) (D) 1(Components, spares and accessories of motor vehicles which are capital goods for the assessee) CENVAT Credit Rules provides following conditions for availment of credit on capital goods: Sr.No. Rule 1. 4(2) Condition Credit in respect of capital goods shall be allowed only up to 50% of the duty paid on such capital goods in the same financial year & the credit for balance duty is allowed in the subsequent year if the possession of the asset remains with service provider or the manufacturer. Provided entire CENVAT shall be allowed for capital goods which is removed as such in the same financial year CENVAT of additional duty U/s.3(5) of Customs Tariff Act shall be allowed immediately on receipt of
1 2

Inserted Vide Notification No. 18/2012- CE(NT) w.e.f 1st April, 2012 Inserted Vide Notification No. 28/2012-CE(NT) w.e.f 1st July, 2012

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capital goods in the factory of manufacturer. W.e.f 1st April, 2010 SSI units are eligible to take CENVAT Credit of whole amount of duty paid on capital goods in the same financial year subject to certain conditions specified in the notification.(Notification No.06/2010 CE(NT) dt. 27th February, 2010) CENVAT Credit on capital goods is also allowable even if the capital goods are acquired on lease/hire purchase/loan agreement from financing company No CENVAT Credit on that part of value of capital goods which represents the amount of duty on which manufacturer/service provider has claimed depreciation U/s.32 of The Income Tax Act, 1961 CENVAT Credit also allowed on Inputs & CG partially processed sent to job worker for further process or manufacture etc. on maintenance or relevant records thereto & Input/CG received back in factory within 180 days. CENVAT Credit also allowed in respect of jigs, fixtures, moulds and dies sent by manufacturer to a job worker for manufacturing goods on his behalf. The capital goods shall not be exclusively used for purpose of manufacture of the exempted goods (other than vide notification where exemption is granted based upon value or quantity) When inputs or CG on which CENVAT are taken are removed as such from the factory, the manufacturer is required to pay an amount equal to credit availed except where such input are removed outside the factory as free warranty of final products. When Capital goods are removed after being used or as scarp or waste, the manufacturer or provider of output service to pay : an amount equal to the CENVAT Credit taken on the said capital goods reduced by 2.5 per cent for each quarter of a year or part thereof from the date of taking the Cenvat Credit of the capital goods which are removed; or The amount of duty payable on transactional value. Whichever is higher. (Notification No.39/2007-CE (NT) dated 13th November, 2007 & Notification No. 18/2011-CE (NT) dated 17th March, 2012). W.e.f from 27th February, 2010 in case of removal of capital goods after being used or as scrap or waste, the manufacturer or provider of output Page 3 of 18

2.

4(3)

3.

4(4)

4.

4(5)(a)

4.

4(5)(b)

5.

6(4)

6.

3(5) 3(5A)

service is required to pay amount equal to CENVAT Credit taken on Computer & Computer Peripherals at the percentage mention here below or the amount of duty payable on transactional value (Notification No.06/2010-CE(NT) dt. 27th February, 2010 & Notification No. 18/2011-CE (NT) dated 17th March, 2012): For each quarter in the first year @10% For each quarter in the second year @8% For each quarter in the third year @5% For each quarter in the fourth & fifth year @1% In case value of inputs/capital goods (before being put to use) on which CENVAT taken is written off fully or partially or provision to write off fully or partially made in books, then manufacturer or service provider to pay amount equivalent to CENVAT taken If such input/capital goods is subsequently by Mfg/SP, they shall be entitled to take the amount of CENVAT paid earlier.

7.

3(5B)

Rule 2(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; 3 (B) any goods used for(a). construction or execution of works contract 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 service portion in the execution of works contract or construction service as listed under clause (b) of section 66E of the Act; (C) capital goods except when used as parts or components in the manufacture of a final product; (D) motor vehicles;

Substituted vide Notification No. 28/2012-CE (NT) w.e.f 1st July, 2012

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(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 warrant 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. CENVAT Credit Rules provides following conditions for availment of credit on inputs:

Sr.No. Rule Condition 1. 4(1) Credit on input may be taken immediately on receipt of the input in the factory of manufacturer or premise of output service provider or 4(deliver to provider of output service subject to maintenance of documentary evidence of delivery & location of inputs) 2. 6(1) Inputs should not be used for wholly exempted services or goods.

Rule 2(l)-Input Service means any service, (i) Used by a provider of output service for providing an output service; or (ii) Used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching & training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; but excludes,(A) Service portion in the execution of a works contract & construction services including service listed under clause (b) of section 66E of The Finance Act (hereinafter referred as specified services) in so far as they are used for (a) Construction or execution of works contract of a building or a civil structure or a part thereof; or

Inserted Vide Notification No. 18/2012-CE (NT) w.e.f 1st April, 2012

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(b) Laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or (B)
5(Services

provided by way of renting of motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or)
5(Service

(BA)

of general insurance business, servicing, repair and maintenance, in so far as they relate to a motor vehicle which is not a capital goods, except when used by (a) A manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person; or (b) An insurance company in respect of a motor vehicle insured or reinsured by such person; or)

(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic & plastic surgery, membership of a club, health & fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee.

CENVAT Credit Rules provides following conditions for availment of credit on input Services:

Sr.No. Rule Condition 1. 4(7) CENVAT Credit in respect of input service shall be allowed on or after the day when invoice, bill or challan as the case may be is received -Provided in case the liability of service tax is discharged under reverse charge mechanism, CENVAT Credit in respect of such input service is allowed on or after the day on which payment for value of input service & service tax thereon is made. (1st Proviso) -Provided further that in case the payment for value of input service & service tax thereon is not made within 3 months from the date of invoice/bill/challan, the manufacturer/service provider to pay an amount equal to CENVAT Credit availed on such input service. Manufacturer/service provider is entitled to take such CENVAT Credit on payment of value of input service & service tax thereon. (2nd Proviso) -Provided also that in case where any payment towards an input service is refunded or credit note is received, manufacturer/service provider to pay an amount equal to
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the CENVAT Credit availed in respect of the amount refunded/credited. Such amount to be paid on or before due date for payment of excise duty/service tax. (3rd Proviso) -Provided also that CENVAT Credit in respect of input services, for which invoice/bill/challan is issued before 01/04/2011, is allowed on or after the day on which payment for value of input service & service tax thereon is made. (4th Proviso) Such amount is to be paid by manufacturer/service provider on or before due date for payment of excise duty/service tax. In case manufacturer/service provider fails to pay such amount, the same is liable to be recovered along with interest & penalty as provided in Rule 14. (Explanation 1) Inputs Service should not be used for wholly exempted services or goods.

2.

6(1)

Point at which CENVAT Credit is available-

For input Payment of value of service and service tax thereon for the service invoice/bill issued before 1st April,2011 For the invoice issued after 1st April,2011, the date on which the invoice/bills is received subject to conditions. In case of liability to discharge service tax is under reverse charge mechanism, the CENVAT credit shall be allowed after the date of payment of value of service & service tax thereon. For input Receipt of goods in the premises 6(deliver to provider of goods output service subject to maintenance of documentary evidence of delivery & location of inputs) For capital Receipt of goods in the premises 7(deliver to provider of goods output service subject to maintenance of documentary evidence of delivery & location of Capital Goods) Rule 2(d)-Exempted goods means a excisable goods which are exempt from whole of the duty of excise leviable thereon, & includes goods which are chargeable to NIL rate of duty goods in respect of which the benefit of exemption under notification no.1/2011-CE dated 1st March, 2011 or under entries at serial nos. 67 & 128 of notification no. 12/2012-CE dated 17th March, 2012 is availed. 2(e)-Exempted Service means a 1) Taxable service which is exempt from the whole of the service tax leviable thereon; or 2) Service, on which no service tax is leviable under section 66B of the Finance Act; or
8(Rule

6 7

Inserted Vide Notification No. 18/2012-CE (NT) w.e.f 1st April, 2012 Inserted Vide Notification No. 18/2012-CE (NT) w.e.f 1st April, 2012 8 Substituted Vide Notification No. 28/2012-CE (NT) w.e.f 1st July, 2012

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3) Taxable service whose part of value is exempted on the condition that no credit of inputs and input services used for providing such taxable service, shall be taken; But shall not include a service which is exported in terms of rule 6A of the Service Tax Rules, 1994)

2(p)-Output Service means any service provided by a provider of service located in the taxable territory but shall not include a service (1) specified in section 66D of The Finance Act; or (2) where the whole of the service tax is liable to be paid by the recipient of service.)

8(Rule

INPUT SERVICE DISTRIBUTOR: Rule 2(m)-Input Service Distributor means an office of the manufacturer or producer of final products or provider of output service, which receives invoices issued under rule 4A of the Service Tax Rules, 1994 towards purchases of input services and issues invoice, bill or, as the case may be, challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be. The input service distributor may distribute the CENVAT Credit in respect of service tax paid on the input service to its manufacturing unit or unit providing output service subject to following conditions namely (Rule 7): a. The credit distributed against a document referred to in Rule 9 does not exceed the amount of service tax paid thereon. b. Credit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed. c.
9(Credit

of service tax attributable to service used wholly in a unit shall be distributed to that unit only); and

d.

of service tax attributable to service used in more than one unit shall be distributed pro-rata on the basis of the turnover during the relevant period of the concerned unit to the sum total turnover of all the units to which the service relates during the same period.)

10(Credit

e. The relevant period shall be the month/quarter previous to the month/quarter during the CENVAT credit is distributed f. Total turnover shall be as determined in the manner prescribed in Rule 5 of The CCR, 2004.

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Inserted vide Notification No. 18/2012-CE (NT) w.e.f 1st April, 2012 Substituted vide Notification No. 28/2012-CE( NT) w.e.f 1st July, 2012

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g. In case of assessee do not have any total turnover in the said period, the ISD shall distribute credit only after the end of such period wherein the total turnover of its unit is available.

Rule-3-Manufacturer/producer of final product or provider of service shall be allowed to take credit of:

11(output)

a. Basic excise duty except duty paid on any good in respect of which benefit of exemption under notification 1/2011-CE dated 1st March, 2011 availed & duty paid on goods specified under serial nos. 67 & 128 of notification no. 12/2012-CE dated 17th March, 2012 availed. b. Special excise duty c. Additional duty on textile and textile articles d. Additional duty on goods of special importance e. National calamity contingent duty f. Education cess on excisable goods g. Secondary & Higher Education cess on excisable goods h. Additional duty U/s. 3 of the Customs Tariff Act, 1975 (CVD) i. Additional duty leviable U/s.3(5) of Customs Tariff Act,197512 j. Additional duty of excise of tea k. Service tax paid U/s 66 & 66A of the Finance Act, 1994 l. 13Service tax paid U/s 66B of The Finance Act, 1994 m. Education cess on service tax n. Secondary & Higher Education cess on service tax o. Additional duty of excise on pan masala & tobacco products Paid on; i) any input or capital goods received in the factory of manufacturer of final product or premises of the provider of the output service on or after 10th September,2004. ii) any input service received by the manufacturer of final product or by the provider of output services on or after 10th September,2004 including the said duties or tax or cess paid on any input or input service as the case may be used in the manufacture of intermediate products by a job worker availing the benefit of exemption specified in the notification of the Government of India in Ministry of Finance No.214/86/CE dated 25th March,1986 published in the Gazette of India. CENVAT Credit can be utilized for payment of (Rule 3(4)); a. Any excise duty on final product; b. CENVAT Credit taken on input if such inputs are removed as such; c. CENVAT Credit taken on capital goods if such capital goods are removed as such; d. Amount under Rule 16(2) of the Central Excise Rules, 2002. (payment of CENVAT on account of sales return)
11

Substituted for taxable vide Notification No. 28/2012-ST w.e.f 1st July, 2012 Provider of output service shall not be eligible to take credit of such additional duty. 13 Inserted Vide Notification No. 28/2012-CE(NT) w.e.f 1st July, 2012
12

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e. Service Tax on any output service. Provided that while paying duty/tax, the CENVAT Credit shall be utilized only to the extent of such credit available on the last day of month or quarter as the case may be for payment of duty/tax relating to the month or quarter. Provided CENVAT credit shall not be utilized for payment of duty on goods for which exemption under notification no.1/2011-CE is availed. (Goods on which 1% duty is levied) Explanation-CENVAT credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient. Proviso to Rule 3(7)(b)
Nature of Can be utilized against liability of CENVAT Excise Service EC on Excise SHE Cess Int/Penalty Credit Duty Tax Duty/Service on Excise Tax Duty/ Service Tax Excise b b b b r Duty Service b b b b r Tax EC on Excise r r b r r Duty/Serv ice Tax SHEC on Excise r r r b r Duty/Serv ice Tax

Refund of CENVAT (Rule 5): The manufacturer who clears final/intermediate product for export without payment of a duty under bond or undertaking which is cleared for export or provider of output service which is exported without payment of Service Tax shall be allowed refund of CENVAT Credit as determined by the formula. Refund amount = (Export Turnover of goods + Export Turnover of Service) * NET CENVAT Total turnover

The procedure & conditions for filing refund claim are prescribed U/n. 27/2012-CX (NT) dated 20th June, 2012 Refund claim is required to be filed within a period of 1 year.

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 No refund shall be allowed if claim for drawback under customs & CE Duty Drawback Rules, 1995 is allowed. The term, NET CENVAT Credit, Export Turnover of Goods, Export Turnover of Services, Total Turnover, Relevant Period & such other relevant terms are defined in the rules.

Refund of CENVAT to service provider providing services taxed on reverse charge basis (Rule 5B): A provider of service providing services notified U/s. 68(2) & being unable to utilize the CENVAT credit availed on Inputs & Input Services for payment of service tax on such output services, shall be allowed refund of such unutilized CENVAT credit subject to procedure, safeguard, conditions & limitation as may be specified.

Transfer of CENVAT Credit (Rule 10): In case of shift of factory or transfer on account of change of ownership or merger or amalgamation etc., the manufacturer/service provider shall be allowed to transfer unutilized CENVAT Credit lying in his account to such new account after transfer. The transfer of CENVAT is allowed only if stock of inputs/WIP is also transferred along with factory or ownership & input/capital goods on which credit is availed are duly accounted for to the satisfaction of AC/DC

Obligations, Records & Accounts (Rule 6): a. Rule 6(1)- provides that the CENVAT credit shall not be allowed on such quantity of input or input services which is used in manufacture of exempted goods or for provision of exempted service except in the circumstances mentioned in Rule 6(2). b. Rule 6(2)a manufacturer/provider of output service availing CENVAT Credit manufactures/provide dutiable & exempted goods or services, then such person shall maintain separate account of receipt, consumption and inventory of input/input service meant for use in manufacturing dutiable goods and providing output service. In such case, CENVAT credit of duty/tax shall be allowed only on that input/input service which is used for manufacturing dutiable goods/providing taxable output service.

c. Rule 6(3)- manufacturer of dutiable as well as exempted goods or provider of output service as well as exempted service opts not to maintain separate account as per rule 6(2), shall follow any one of the following options: Page 11 of 18

(i) Pay an amount equal to exempted service; or

146%

of value of exempted goods and

(if any excise duty is paid on exempted goods, the same shall be reduced from amount payable) (If any abatement in respect of taxable services is granted with a condition for non availment of CENVAT Credit, the amount to be paid shall be 6% of the value so exempted.) (In case of transport of goods/passenger by rail, the amount to be paid shall be 2% of the value so exempted.) (ii) Pay an amount as determined under Rule 6(3A); or (iii)Maintain separate accounts for receipt, consumption & inventory of inputs as provided in Rule 6(2)(a), take CENVAT only on inputs used in or in relation to manufacture of dutiable goods or for provision of output services and pay an amount as determined under Rule 6(3A) in respect of input services. Consequently, the provisions of Rule 6(3A)(b)(i) & (ii) & Rule 6(3A)(c)(i) & (ii) in respect of inputs shall not apply to such payment. Any option U/r 6(3) exercised by manufacturer/service provider, shall not withdraw the same during the remaining part of the financial year. d. Rule 6(3A)(a) of the CENVAT Credit Rules, 2004 provides that while exercising the option of proportionate reversal, the provider of output service/mfg of dutiable goods shall intimate in writing to the superintendent of CE giving the following particulars namely: (i) name, address and registration No. of the manufacturer of goods or provider of output service; (ii) date from which the option under this clause is exercised or proposed to be exercised; (iii)description of dutiable goods or taxable services; (iv) description of exempted goods or exempted services; (v) CENVAT credit of inputs and input services lying in balance as on the date of exercising the option under this condition; e. Rule 6(3A)(b) & (c) of the CENVAT Credit Rules, 2004 provides the mechanism for determining the amount equivalent to CENVAT Credit attributable to inputs/input service used in relation to provision of exempted services. f. Rule 6(3A)(d), (e) & (f) of the CENVAT Credit Rules, 2004 provides that:

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Substituted Vide notification No. 18/2012-CE(NT) w.e.f 1st April, 2012 for the words 5%

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The short paid amount arising due to the reversal mechanism provided under Rule 6(3A) (b) & (c) to be paid on or before 30th June of the succeeding financial year. (Rule 6(3A)(d) The interest rate for payment of short paid amount after 30th June is 24% per annum. (Rule 6(3A)(e) The excess amount arising due to the reversal mechanism provided under Rule 6(3A) (b) & (c) to be adjusted suo motu by his own, by taking credit of such amount. (Rule 6(3A)(f)

g. Service provider shall intimate to the jurisdictional superintendent of Central Excise, within a period of 15 days from the date of payment as per under (Rule 6(3A)(d) or adjustment of the excess payment in the CENVAT credit (Rule 6(3A)(f), the following particulars namely: Month wise detail of CENVAT Credit attributable to exempted goods & exempted services for the financial year calculated provisionally on the basis of turnover of the preceding financial year. (Provisional reversal) Month wise detail of CENVAT Credit attributable to exempted goods & exempted services for the financial year calculated on the basis on the turnover of the current financial year. (Final reversal) Amount short paid determined along with the date of payment of such amount or excess amount to be taken back as credit. Amount of interest payable, if Any Credit taken on account of excess payment (Rule 6(3A)(g)

h. Where the amount of CENVAT attributable to exempted goods/services cannot be determined due to no dutiable goods manufactured/no taxable services provided in preceding year, the manufacturer/service provider is not required to do the reversal exercise every month but should do at the end of the financial year & pay the amount before 30th June of succeeding year. (Rule 6(3A)(h)

i. Rule 6(3B) provides that a banking company & a financial institution including NBFC engaged in providing services by way of extending deposits, loans or advances to pay an amount equal to 50% of CENVAT credit availed on inputs & input services every month. j. Rule 6(3D) provides that in cases where any abatement in respect of taxable services is granted with a condition for non availment of CENVAT Credit, payment of amount under Rule 6(3) shall be deemed to be CENVAT Credit not taken for the purpose of exemption notification. k. Explanation I to rule 6 provides that in case of taxable services where option to pay tax is availed under composition scheme under :Rule 6(7) (i.e. Air Travel Agents); Rule 6(7A) (i.e Insurer carrying LIC business) 6(7B) (i.e. forex brokers & money changers); 6(7C) (i.e. distributors of lotteries); or Page 13 of 18

the value for the purposes of Rule 6(3) & Rule 6(3A) shall be the value on which the rate of service tax when applied for calculation results in the same amount of tax as calculated under the option availed. l. As per explanation I to Rule 6, the value for the purposes of Rule 6(3) & Rule 6(3A) shall be the difference between the sale price & the cost of goods sold (determined as per the generally accepted accounting principles without including expenses incurred towards their purchases) or 10% of cost of goods sold, whichever is more. m. 15In case of trading of securities, value shall be difference sale price & purchase price of the securities traded or 1% of the purchase price, whichever it more. n. Value shall not include value of service by way of extending deposits, loans or advances if the consideration is represented by way of interest or discount. o. Rule 6(4) of the CENVAT Credit Rules, 2004 provides that the capital goods shall not be exclusively used for purpose of manufacture of the exempted goods (other than vide notification where exemption is granted based upon value or quantity) p. The Provision of Rule 6(1) to (4) shall not be applicable in case the excisable goods removed without payment of duty are either: (i) (ii) cleared to a unit in a special economic zone or to a developer of a special economic zone for their authorized operations; or cleared to a hundred per cent. export-oriented undertaking; or

(iii) cleared to a unit in an Electronic Hardware Technology Park or Software Technology Park; or (iv) supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 108/95-Central Excise, dated the 28th August, 1995, number G.S.R. 602 (E), dated the 28th August, 1995; or (iva)supplied for the use of foreign diplomatic missions or consular missions or career consular offices or diplomatic agents in terms of the provisions of notification No. 12/2012-Central Excise dated the 17th March, 2012; or (v) cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002; or

(vi) gold or silver falling within Chapter 71 of the said First Schedule, arising in the course of manufacture of copper or zinc by smelting; or

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(vii) all goods which are exempt from the duties of customs leviable under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty leviable under sub-section (1) of section 3 of the said Customs Tariff Act when imported into India and are supplied, (a) against International Competitive Bidding; or (b) to a power project from which power supply has been tied up through tariff based competitive bidding; or (c) to a power project awarded to a developer through tariff based competitive bidding, in terms of notification No. 12/2012-Central Excise, dated the 17th March, 2012; or (viii) Supplies made for setting up of solar power generation projects or facilities. (Rule 6(6)) q. Rule 6(7) - whereby provision of Rule 6(1) to Rule 6(4) are not applicable in case the taxable services are provided without payment of service tax to a developer/unit of SEZ for their authorised operations or when a service is exported. r. Rule 6(8) for the purpose of Rule 6, a service shall not be treated as exempted service when : The service satisfies the conditions specified under Rule 6A of the Service Tax Rules, 1994 & the payment for the service is to be received in convertible foreign currency; and Such payments has not been received for a period of six months or such extended period as may be allowed by RBI, from the date of provision.

Documents & Accounts: (Rule 9) a. CENVAT shall be allowed to manufacturer/Service Provider/ISD on the basis of following :i. Invoice issued by manufacturer/importer/first stage dealer/second stage dealer. ii. Supplementary invoice issued by manufacturer/importer of input or capital goods in terms of provision of central excise rules, 2002 in case of additional amount of excise, except when such amount become recoverable from such manufacturer or importer on account of short levy/non levy on account of fraud, collusion, suppression, willful misstatement or any other contravention of any provisions with intent to evade tax. iii. Supplementary invoice issued by provider of output service except when such amount become recoverable from such service provider on account of short levy/non levy on account of fraud, collusion, suppression, willful misstatement or any other contravention of any provisions with intent to evade tax. iv. Bill of Entry Page 15 of 18

v. vi. vii. viii.

Certificate issued by appraisal of customs in respect of imported goods through foreign post office. A challan evidencing payment of service tax by a service recipient. An invoice/bill/challan issued by service provider. An invoice/bill/challan issued by ISD.

b. The invoices/Bill/challan should contain all the details prescribed under CER, 2002 & STR, 1994. In absence of all such details, AC/DC as the case may be, may allow the CENVAT credit after being satisfied. Returns: a. Manufacturer to file monthly return within 10 days from the end of the month. However, if manufacturer is availing exemption under notification based on value/quantity of clearance in a financial year, he shall file quarterly return. (Rule 9(7)) b. Service provider to file half yearly return in Form ST-3 within one month of the end of half year (Rule 9(9)). c. Input service distributor to file half yearly return16 Form ST-3 within one month of the end of half year (Rule 9(10)). d. Revised return to be filed within 60 days from the date of submission of original return (Rule 9(11)). Recovery of CENVAT refunded(Rule 14):
17Rule

Credit

wrongly

taken

or

erroneously

14 amended w.e.f 17th March, 2012, whereby the manufacturer/service provider to pay interest only when the CENVAT credit has been taken and utilized wrongly or has been erroneously refunded.

CBEC vide Circular No. 897/17/2009-CX dated 3rd September,2009 has clarified that interest is recoverable when credit has been wrongly taken, even if it has not be utilized, in terms of Rule 14 of the CENVAT Credit Rules, 2004 which is clear and unambiguous. It further clarified that the decision of Honble P & H High Court in the case of CCE, Delhi II Vs. Maruti Udyog Ltd. (2007) 214 ELT 173 (wherein it was held that assessee is not liable to pay interest in the cases where credit was only taken and not utilized) was delivered in the context of erstwhile Rule 57I of the Central Excise Rules, 1994. The Honble SC has dismissed the SLP filed by the revenue against the above decision. The order of SC under reference was only a decision & not a judgment.

16 17

Notification No.28/2005-CE (NT) dated 7th June,2005 w.e.f. 16th June, 2005 Inserted Vide Notification No. 18/2012-CE(NT) w.e.f 17th March, 2012

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 Honble P & H High Court in the case of Ind-Swift Laboratories Ltd.

Vs. UOI (2009) 240 ELT 328 held that CENVAT credit is benefit of duties levied or paid. Interest liability arises when duty not levied or paid or delays in payment of duties. Question of payment of interest does not arise on amount of CENVAT credit availed but not utilized. Interest can not be claimed simply for taking credit wrongly as availment by itself does not create any duty liability in view of Section 11AB of CE Act, 1944 read with Rule 14 of the CCR, 2004... However said decision is

reversed by Apex Court

Honble Supreme Court in the case of UOI Vs Ind-Swift Laboratories Ltd (2011) TIOL 21 SC-CX has held that the interest is payable from date of taking Credit & not from the date when the CENVAT credit is utilized. Rule 14 of CCR, 2004 provides that
where CENVAT credit has been taken OR utilized wrongly OR has been erroneously refunded, the same along with interest would be recovered from the manufacturer or the provider of the output service. On the happening of any of the three aforesaid circumstances such credit becomes recoverable along with interest from the date of availment of CENVAT Credit. Honble Karnataka High Court in the case of CST Vs. Bill Forge Pvt Ltd 2011 (TIOL) 799 held that credit of excise duty in the register maintained for the said purpose is only book entry. Before utilization of such credit, the entry has been reversed, it amounts to not taking of credit. Interest is compensatory in character, and is imposed on an assessee, who has withheld payment of any tax, as and when it is due and payable. Interest U/s 14 not payable if credit reversed before utilization of CENVAT credit.

Penalties (Rule 15 of the CENVAT Credit Rules,2005 substituted vide Notification No.06/2010- CE(NT) dt. 27th February, 2010): Particulars of contravention Availment or Utilization of CENVAT Credit wrongly or in contravention of any provisions In respect of Penalty

Input goods/ Goods liable for capital goods/ confiscation & Penalty not Input Services exceeding the amount of duty/tax or Rs.2,000/whichever is higher. Wrong availment/ Input goods/ Over and above the utilization of CENVAT capital goods/ penalty stated in item Credit due to fraud, Input Services no.1, the penalty collusion, willful U/s.11AC of The Central misstatement, suppression Excise Act, 1944 shall be or contravention of any levied i.e. 100% of the provision with intent to duty sought to be evaded evade payment of duty by the manufacturer. Wrong availment/ Input goods/ Over and above the utilization of CENVAT capital penalty stated in item Credit due to fraud, goods/Input no.1, the penalty U/s.78 collusion, willful Services of The Finance Act, 1994 Page 17 of 18

misstatement, suppression or contravention of any provision with intent to evade payment of tax General PenaltiesFor contravention of any provisions of CCR,2004 for which no penalty is provided

shall be levied i.e. 100% of the service tax sought to be evaded by the service provider. Upto Rs 5,000/-

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