Cenvat Credit Rules

Introduction

• Excise Duty and Service Tax are Central Government Levies-Union List I

• Both are destination based consumption tax, in which incidence is passed on to ultimate consumer. (All India Federation of Tax Practitioners Vs UOI (2007) 10 STT 166 SC)

• They operate under Value Added Scheme (VAT) of taxation wherein each person in transaction chain is taxed on the value addition done by him and this concept is achieved by granting credit of input tax or duties to manufacturer or service provider through Cenvat Credit Scheme.

• Cenvat Credit Scheme operates through Cenvat Credit Rules 2004. This scheme integrates indirect taxes viz. Excise Duty and Service Tax.

• To avoid the cascading effects of indirect taxes.
• To minimize tax incidence on ultimate consumer of goods / services.
• To ensure levy of tax on value addition by respective assessee.
• To eliminate or minimize the possibility of tax on tax.

The basic philosophy underlying cenvat scheme is that of a mutual trust. The revenue authorities normally rely on the records of the assessee, hence it is necessary for the assessee to be very cautious and conservative while availing cenvat benefit.

Cenvat Credit Rules, 2004

• CENVAT Credit Rules 2004 (CCR) was introduced wef 10th Sept.2004 vide notification No.23 /2004 – Central Excise (N.T) dt. 10th Sept. 2004.

• Common for Excise & Service Tax -> Input Credit Mechanism under both legislation is governed by these rules.

• CCR is applicable to whole of India with exception of Jammu & Kashmir. Service Tax is not applicable to J&K, as under

• Manufacturer LOCATED in J&K is entitled for CENVAT credit on inputs & capital goods, however not entitled to claim CENVAT credit on service tax paid on input service.

• Service provider LOCATED in J&K is not entitled to CENVAT credit of duty or tax on inputs, capital goods & input services.

Cenvat Credit Rules uses following terms for various cost elements suffering input tax incidence.

A manufacturer or service provider is eligible for availing cenvat credit of service tax paid on his input services, excise duty paid on his inputs and capital goods.

Input Services  – These are the services used for manufacturing or service provision.

Capital Goods  –  These are the assets used for manufacture or service provision.

Input  –  This covers Raw Material , Consumables and other goods used in manufacture or service provision.

Definition & Analysis – Input Services

Definition of input services ( wef 1-4-2011), Input Services means any service –

• Used by a provider of output service for providing an output service
• Used by a manufacturer, whether directly or indirectly, in or in relation to 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 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 and 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 execution of works contract and construction services including service listed under clause (b) of section 66E of the Finance Act, in so far as they are used for.

Cenvat Credit Rules

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