CCR Good Notes

CENVAT CREDIT RULES.
2004
AMENDMENTS
FOR MAY-12 EXAMINATION
CENVAT CREDIT RULES, 2004

BY C.A. VISHAL BHATTAD
CA VISHAL BHATTAD PH.NO. 9890953771
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CENVAT CREDIT RULES. 2004
CENVAT CREDIT RULES,2004

DEFINITIONS
Rule 2(a) Capital goods
capital goods means :(B) motor vehicle registered in the name of provider of output service for providing taxable service as specified as below Courier agency Tour operator (ii) pollution control equipment; Rent-a-cab scheme operator (iii) components, spares and accessories of the Cargo handling goods specified at (i) and (ii); agency Goods transport (iv) moulds and dies, jigs and fixtures; agency Outdoor caterer (v) refractories and refractory materials; Pandal or shamiana (vi) tubes and pipes and fittings thereof; and A) the following goods, namely :(i) 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. (vii) storage tank, (C) dumpers or tippers, falling under Chapter 87 of the First Schedule to the Central Excise Tariff Act, 1985, registered in the name of provider of output service for providing taxable services as specified as below Site formation and clearance, excavation & earthmoving & demolition & etc. Mining of mineral, oil or gas. (D) components, spares and accessories of motor vehicles, dumpers or tippers, as the case may be, used to provide taxable services as specified in sub-clauses (B) and (C)
used
Manufacturer
OSP
(1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or
(Inserted in F.A. 2011) (1A) outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory
(2) for providing output service;
Clause (B),(C)& (D) are only for OSP providing aforesaid specified services. Thus the benefit of Motor vehicle, Dumpers or Tippers and related accessories is not available to manufacturer.
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CENVAT CREDIT RULES. 2004 CAPITAL GOODS
MANUFACTURER
OSP
Used in the factory for manufacture of F.P.
Used in the factory but not in manufacturing process.
Used in the stores of factory
Used in the office attached to factory.
Used in the office outside the factory.
Used in the premise for providing output service.
Used outside the premise for providing output service.
Cenvat Credit available
Cenvat Credit not available
MOTOR VEHICLE
MANUFACTURER
OSP
As Capital goods
As Inputs
Providing specified services e.g. Courier agency, Tour operator or etc.

Cenvat Credit is available as C.G.
In case of other services
Cenvat Credit is not available as
Inputs & C.G.
MADRAS CEMENTS LTD. 2010 (S.C.)

Brief Facts: Assessee manufacture cement and avail of Cenvat credit of the duty paid on machinery, equipments and parts and accessories thereof used in the mines of limestone. Show cause notice was issued to them for disallowing the Cenvat credit of the duty paid on machinery, equipments and parts and accessories thereof used in the mines of limestone. If the mines are captive mines so that they constitute one integrated unit together with the concerned cement factory, Cenvat credit on capital goods used in mines will be available to the assessee.
Issue :
whether the Cenvat credit of duty paid on machinery, equipments and parts and accessories thereof used in the mines of limestone is available to them under Cenvat credit rules,2004 Decision: As regards the Cenvat credit on capital, goods, if the mines are captive mines so that they constitute one integrated unit together with the concerned cement factory, Cenvat credit on capital goods will be available to the assessee. On the other hand, if the mines are not captive mines but they supply to various other cement companies of different assessee, and it is found that the said goods were being used in the lime stone mines outside the factory of the assessee, Cenvat credit on capital goods used in such mines will not be available to the concerned assessee under the appropriate Cenvat Rules. In order to get a clear finding on the issue, all the matters are remanded to the respective original authorities for decision only on the above issue.
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Rule 2(k) Input

Input means :-
all goods used in the factory by the manufacturer of the final product; or
(i)
Refer NOTE -1
(ii) any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product & goods used for providing free warranty for final products; or 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.
(iv) all goods (iii) all goods used for for generation of used electricity or steam providing any output service; for captive use; or Comment: All goods used inside & OUTSIDE the factory for generation of electricity or steam are eligible for Cenvat credit. Provided that entire production of electricity or steam used in factory for any purpose
Applicable to OSP
Refer NOTE -2
but excludes
B) any goods used for(D) (C) capital goods motor (a) construction of a building or a civil except when vehicles. structure or a part used as parts or thereof; or components in the manufacture (b) laying of foundation of a final or making of structures product. for support of capital (i.e. LDO, goods, HSD & petrol) except for the provision of any taxable service specified below Port services in a port Port services in other port Airport or a civil enclave Commercial or industrial construction Construction of complex Works contract. (A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol. (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.
Refer NOTE -1
Refer NOTE -3
Comment: Capital goods excluded from the definition of Inputs because it is already covered in Rule 2(a) for which credit is available upto 50% in 1st year and balance in subsequent year. But if any goods falling under the definition of Capital Goods - Rule 2(a) (e.g. component or parts) used by the manufacturer in the manufacture of a final product then credit is available as Inputs (i.e. 100 % credit)
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CENVAT CREDIT RULES. 2004 NOTE -1: Eligibility of credit if all goods used in a factory
Input
means i) all goods
used in the factory by the manufacturer of the final product.
but excludes
(F) any goods which have no relationship whatsoever with the manufacture of a final product. TRU letter
The definition of input contained in rule 2(k) has been revised. The requirement (old definition) that goods should be used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not
been removed.
has
Comment: Scope of Inputs is substantially widened. Henceforth, all goods used in the factory by the manufacturer of the final product, except those specified in the negative list and goods having no relationship whatsoever with the manufacture of final product, would qualify for treatment as inputs.
Board clarification
How is the no relationship whatsoever with the manufacture of a final product to be determined? Credit of all goods used in the factory is allowed except in so far as it is specifically denied. The expression no relationship whatsoever with the manufacture of a final product must be interpreted and applied strictly and not loosely. Only credit of goods used in the factory but having with the manufacture of final product is not allowed.
absolutely no relationship
Goods such as furniture and stationary used in an office within the factory are goods used in the factory and are used in relation to the manufacturing business and hence the credit of same is allowed.
Authors opinion: Example given by board (furniture and stationary used in office) is unimaginable. If we refer this example then it seems that everything which is used in factory (production premise & connected office) is eligible for credit. Personally author is not agree on this example because furniture and stationary used in office are any way not having relationship with manufacturing of Final product. It need Right clarification. Till next clarification students have to fallow this Circular.
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CENVAT CREDIT RULES. 2004 NOTE -2: Eligibility of credit if any goods supplied with F.P. Or under free warranty
Input
Means (ii) any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product & goods used for providing free warranty for final products. 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. EXAMPLE-1 Any goods or Accessories, cleared along with the final product
Cenvat credit is available as Inputs

DROPPER FACTORY
MANUFACTURE
Price of Rs 110 medicine (includes price of Dropper )
EYE MEDICINE
EYE MEDICINE WITH DROPPER
PACKING
VALUE OF EYE MEDICINE
Rs 110
CUSTOMER
EXAMPLE-2 Any goods or Accessories, cleared along with the final product
BATTERY
CHARGER
FACTORY
Price of Rs 17500 MOBILE (includes price of battery, charger, hands free)
ASSESMBLY
MOBILE
MOBILE ACCESSORIES
PACK MOBILE
VALUE OF MOBILE
Rs 17500
CUSTOMER
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EXAMPLE 3: Goods used for providing free warranty for final products
500 motor purchased @ RS 3000 + E.D. RS 300
400 motors used in manufacture of washing machine
Sold to the customer Price RS 15000 Warranty RS 2000 Charges Total value RS 17000
E.D.@10% RS 1700 (1 year warranty for replacement of components)
During a month 100 motors supplied free under warranty replacement to various customers. Such 100 motors are eligible for cenvat credit as Inputs
Correspondingly amendment also made under Rule 3(5)

removed as such outside the factory for providing free warranty for final products, Cenvat credit availed on such Inputs need not to be pay or reversed.
As per proviso to Rule 3(5) If any inputs are
NOTE -3: Non eligibility of credit if any goods used for construction
Input excludes
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 below(i.e. credit
available if any goods used for following services)
Port services in a port or other port (i.e. Construction in port or other port) Airport or a civil enclave(i.e. Construction in Airport) Commercial or industrial construction Construction of complex Works contract.
Comment: Let us discuss with the help of following examples
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For Manufacturer
EXAMPLE-1:
Any goods used for construction of a building of manufacturer

FATORY BUILDING
Any goods used for construction of a building or a civil structure or a part thereof Not eligible for Cenvat credit as inputs
Any goods used for laying of foundation or making of structures for support of capital goods
EXAMPLE-2:
FATORY BUILDING
Any goods used for laying of foundation or making of structures for support of capital goods Not eligible for Cenvat credit as inputs
CAPITAL GOODS
Structures for support of capital goods
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FOR OSP
EXAMPLE-3:
Any goods used for construction of a building of OSP

CONSTRUCTION OF BUILDING OF OSP
Any goods used for construction of a building of OSP
Not eligible for Cenvat credit as inputs
EXAMPLE 4 If goods are used for providing Construction service or etc.

Port services in a port or other port (i.e. Construction in port or other port) Airport or a civil enclave(i.e. Construction in Airport) Commercial or industrial construction Construction of complex Works contract
COSTRUCTION CONTRACTOR
If goods are used for providing Following services Cenvat credit is available to Contractor
Subject restriction on credit under N/N 1/2006 of S.T.(Abatement) N/n 12/2003 of S.T.(Material sold) Works contract composition scheme
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Rule 2(l) Input service

Means Any service &
Deleted by F.A. 2011 Refer NOTE -1
include services used in relation to
Deleted by F.A. 2011 Refer NOTE -2
For OSP Used by provider of taxable service for providing an output service
For manufacturer Used by manufacturer whether directly or indirectly In or in relation to O Manufacture of final product or O Clearance of FP upto place of removal
setting up modernisation, 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,
Refer NOTE -1
New services Inserted in the list of input service
activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal
but excludes services

(A) following specified services architect Port services in a port Port services in other port Airport or a civil enclave Commercial or industrial construction Construction of complex Works contract. (B) following specified services general insurance rent-a-cab scheme operator authorised service station supply of tangible goods in so far as they relate to a motor vehicle except when used for the provision of taxable services for which the credit on motor vehicle is available as capital goods (C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and 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
in so far as they are 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 one or more of the specified services.
Refer NOTE -4
Refer NOTE -5
Refer NOTE -3
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ANALYSIS OF DEFINATIONS
MANUFACTURER
C.G. Rule 2(a) INPUTS Rule 2(k) INPUT SERVICE Rule 2(l)
Any service Used by manufacturer whether directly or indirectly In or in relation to o Manufacture of final product or o Clearance of FP upto place of removal And includes various services
OSP
C.G. Rule 2(a)
C.G. used for providing output service
INPUTS Rule 2(k)
INPUT SERVICE Rule 2(l)

Any service used for providing output service
Requirement of Definition for credit
C.G. in the factory of the manufacturer of the final products except used in office. AND C.G. used outside the factory for generation of electricity for captive use.
all goods used in the factory by the manufacturer of the final product except negative list
All goods used for providing output service
Conclusions
Inputs, capital goods must be used in factory order to avail credit
Input services need used in the factory of manufacturer for availing credit on such input services.
Inputs, capital goods must be used for providing output service. Use in premise is not a condition for credit.
Input services need not be used in premise of osp for availing credit on such input services.
NOTE -1 The term setting up is deleted from the definition. Implication: Any Input service is used for setting up (i.e. construction or etc) the factory or office of
manufacturer or OSP is not eligible for credit. Board Clarification ( CBEC Circular No. 943/04/2011.) Is the credit of input services used for repair or renovation of factory or office available? Clarification: Credit of input services used for repair or renovation of factory or office is allowed. Services used in relation to renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, are specifically provided for in the inclusive part of the definition of input services.
NOTE -2 The term activities relating to business, such as is deleted from the definition. Implications: Under old definition following decision was given by H.C. COCA COLA INDIA PVT. LTD.- 2009 (H.C.)
Wordings used in the definition of Input service Rule 2(l) are activities relating to business such as has very wider scope. It must follow that all and any activity relating to business falls within the definition .The word such as, also illustrative and not exhaustive. Thus In this decision H.C. allowed the credit all and any activity relating to business & court substantially wider the scope of Inputs service. But in Budget notification of F.A. 2011 Government has deleted the term activities relating to business, such as. Implication of this amendment is that the C.G. has given exhaustive meaning to the definition of Inputs service.
Hence only the services which are given in inclusive part of the definition are eligible for cenvat credit.
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CENVAT CREDIT RULES. 2004 NOTE -3
Input service
excludes

(A) following specified services architect Port services in a port Port services in other port Airport or a civil enclave Commercial or industrial construction Construction of complex Works contract. in so far as they are 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 one or more of the specified services.

Comment: let us discuss with the help of following examples
EXAMPLE-1:
Specified services used for construction of a building of

CONSTRUCTION OF FATORY BUILDING
manufacturer
architect Port services in a

port Port services in other port Airport or a civil enclave Commercial or industrial construction Construction of complex Works contract.
Commercial or industrial construction
Architect
Construction of complex
Works contract.
Port services in a port or other port Airport or a civil enclave (i.e.Construction at port or Airport)
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Specified services used for laying of foundation or making of structures for support of capital goods
EXAMPLE-2
architect Port services in a

port Port services in other port Airport or a civil enclave Commercial or industrial construction Construction of complex Works contract.
Architect
FATORY BUILDING
CAPITAL GOODS
Works contract.
Structures for support of capital goods

EXAMPLE-3
Specified services used for construction of a building of OSP

CONSTRUCTION OF BUILDING OF OSP
architect Port services in a Port services in

other port Airport or a civil enclave Commercial or industrial construction Construction of complex Works contract. port
Architect
Works contract.
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EXAMPLE 4: If specified services are used for providing Construction service or etc.
Rule 2(l)(A), the exclusion clause of the definition reads except for the provision of one or more of the specified services". What are the specified services mean? The services mentioned in the said clause are 'specified services'. If these services are used for construction of a building or a civil structure or part thereof, or laying of foundation or making of structures for support of capital goods, then credit w.r.to service tax paid on these services is not available. But the credit on these services is available, if these services are used for any of these 'Specified services'. For example, Architect service will be eligible as input service if used for port service or construction service or works contract service. And also if these services used for purposes other than construction of a building or a civil structure or part thereof or laying of foundation or making structures for support of capital goods (i.e. other purposes like, finishing services, repair, alteration or restoration), then credit on these input services is available. Credit of input services used for repair or renovation of factory or office is allowed. Services used in relation to renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, are specifically provided for in the inclusive part of the definition of input services. CBEC Circular No. 943/04/2011.
PROVIDING FOLLOWING SERICES Port services in a port or other port (i.e. Construction in port or other port) Airport or a civil enclave(i.e. Construction in Airport) Commercial or industrial construction Construction of complex Works contract
SUBCONTRACTOR
Architect

SUBCONTRACTOR
COSTRUCTION CONTRACTOR
SUBCONTRACTOR
SUBCONTRACTOR
Works contract.
If specified services of subcontractor are used for providing Following services Cenvat credit is
available Contractor
Subject restriction on credit under N/N 1/2006 of S.T.(Abatement) N/n 12/2003 of S.T.(Material sold) Works contract composition scheme
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CENVAT CREDIT RULES. 2004 NOTE -4

Rule 2(l)(A), the exclusion clause of the definition reads" - . except when used for the provision of taxable services for which the credit on motor vehicle is available as capital goods". When the credit on motor vehicle is available as capital goods? Motor vehicles shall be treated as capital goods, only if registered in the name of service providers providing the following services: a. Courier services b. Tour operator services c. Rent - a - cab scheme operator services d. Cargo handling agency services e. Goods Transport Agency services f. Outdoor caterer services g. Pandal or shamiana contractor The analysis of this exclusion clause is as follows: If the services mentioned in the clause are used for motor vehicle not registered in the name of above service providers, the said services used do not qualify as input services and credit not available. If the services mentioned in the clause are used for motor vehicle registered in the name of above service providers, the said services used qualify as input services and credit shall be available. If the services mentioned in the clause are not used for motor vehicle but used for other purpose, the said services used qualify as input services and credit shall be available. Services mentioned in this clause are: General Insurance services Rent a cab scheme operator's services Authorized service station's services Supply of tangible goods services
NOTE -5
From the combined analysis of the definition of Inputs as per Rule 2(k) and Input services as per Rule 2(l), it is clear that inputs/input services used for employees are not available as credit. Is this position true? From the analysis of Rule 2(k), it is clear that all goods (Not only food items) used in a guest house, residential colony, club or a recreation facility and clinical establishment are excluded from the purview of Inputs only if "such goods" are used Primarily for personal use or consumption of any employee. From the analysis of Rule 2(l), it is clear that all services (Not only the mentioned services because the words used are 'such as') when used primarily for personal use or consumption of any employee are excluded from the purview of Input services. The following Circular No. 943/04/2011 clarifies the position: It is not that the credit of only specified goods and services listed in the definition of inputs and input services shall not be allowed. The list is only illustrative. The principle is that CENVAT credit is not allowed when any goods and services are used primarily for personal use or consumption of employees. Some examples to support the above clarification: Outdoor catering for sales promotion would be eligible, even if some employees attend the lunch/dinner, since it is not primarily for personal use or consumption of employees. Mobile phones to employees mainly for business purposes should be eligible even if incidentally used for personal purposes. Club membership fee of a director will be eligible as he is not an employee.
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CLARIFICATIONS ON CENVAT CREDIT RULES, AS AMENDED BY NOTIFICATIONS PURSUANT TO FINANCE ACT 2011
Sl 1 Issue Is the credit of only specified goods and services listed in the definition of inputs and input services not allowed such as goods used in a club, outdoor catering etc, or is the list only illustrative? Is the credit of Business Auxiliary Service (BAS) on account of sales commission now disallowed after the deletion of expression activities related to business? Is the credit available on services received before 1.4.11 on which credit is not allowed now? e.g. rent-a-cab service Board Clarifications The list is only illustrative. The principle is that cenvat credit is not allowed when any goods and services are used primarily for personal use or consumption of employees.
The definition of input services allows all credit on services used for clearance of final products upto the place of removal. Moreover activity of sale promotion is specifically allowed and on many occasions the remuneration for same is linked to actual sale. Reading the provisions harmoniously it is clarified that credit is admissible on the services of sale of dutiable goods on commission basis. The credit on such service shall be available if its provision had been completed before 1.4.2011.
Rule2 (naa) manufacturer or producer.
(Newly inserted in 2011)
(i) in relation to articles of jewellery or other articles of precious metals falling under heading 7113 or 7114 as the case may be of the First Schedule to the Excise Tariff Act, includes a person who is liable to pay duty of excise leviable on such goods under sub-rule (1) of rule 12AA of the Central Excise Rules, 2002 (ii) in relation to goods falling under Chapters 61, 62 or 63 of the First Schedule to the Excise Tariff Act, includes a person who is liable to pay duty of excise leviable on such goods under subrule (1A) of rule 4 of the Central Excise Rules, 2002. Comment: Under Rule4 (1A) liability for payment of duty in relation to goods falling under Chapters 61, 62
or 63 of the First Schedule to the Excise Tariff Act is shifted on raw material supplier. Hence, the corresponding amendment is made Cenvat credit Rule and Rule 2(nna) is inserted to cover raw material supplier as manufacturer for taking cenvat credit of Inputs supplied to the job worker.
Rule 3(1) Eligible duties & taxes for Cenvat Credit

Rule 3 relating to the utilisation of the CENVAT credit amended to provide that a manufacturer or producer of final products/a provider of taxable service shall be allowed to take credit of the service tax leviable under section 66A of the Finance Act, 1994.
Under Rule 3(1) following proviso are inserted

Provided that CENVAT credit of such duty of excise shall not be allowed to be taken when paid on any goods in respect of which the benefit of an exemption under notification No.1/2011- CE, dated the 1st March, 2011 is availed;
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Provided that CENVAT credit shall not be allowed in excess of eighty-five per cent of the additional duty of customs paid under sub-section 3(1)of the Customs Tariff Act(ACD3(1)), on ships, boats and other floating structures for breaking up falling under tariff item 8908 00 00 of the First Schedule to the Customs Tariff Act Reason for amendment The process of obtaining the goods and material mainly melting scrap and re-rollable scrap of steel, by braking up of ship is deemed to be process of manufacture in terms of section note of CETA. In braking of the ship,a number of used serviceable articles such as pumps, Air conditioners, furniture, wooden panel are also generated. These are generally sold as second hand goods by ship braking units but no excise duty is payable on such goods as do not emerge from a manufacturing process. At the same time, ship breaking units are allowed to availed full credit of additional duty of customs paid on the ship when it is imported for breaking it. This resulting in misuse of the Cenvat credit scheme. Rule 3 has been amended to prescribe that Cenvat credit shall not be allowed in excess of 85% of additional duty of customs paid on ship imported for braking.
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RULE 4: CONDITIONS FOR AVAILMENT OF CENVAT CREDIT

RULE 4(1) INPUTS
Cenvat credit of inputs may be taken immediately on their receipt in the factory of the manufacturer or premises of OSP
RULE 4(2) CAPITAL GOODS

The cenvat credit shall be taken in respect of capital goods received in a factory or in the premises of the provider of output service or
RULE 4(7) INPUT SERVICE
outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory at any point of time
in a given financial year
The cenvat credit in respect of input service shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan referred to in rule 9 is received
Provided that in case of an input service where the service tax is paid on reverse charge by the recipient of the service, the cenvat credit in respect of such input service shall be allowed on or after the day on which payment is made of the value of input service and the service tax thereon. Provided further that in case the payment of the value of input service and the service tax thereon is not made within three months of the date of the invoice, bill or, as the case may be, challan, the manufacturer or the service provider who has taken credit on such input service, shall pay an amount equal to the cenvat credit availed on such input service and in case the said payment is made, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the cenvat credit paid earlier subject to the other provisions of these rules. Provided also that if any payment or part thereof, made towards an input service is refunded or a credit note is received by the manufacturer or the service provider who has taken credit on such input service, he shall pay an amount equal to the cenvat credit availed in respect of the amount so refunded or credited. Provided also that cenvat credit in respect of an invoice, bill or, as the case may be, challan referred to in rule 9, issued before the 1st day of april, 2011 shall be allowed, on or after the day on which payment is made of the value of input service and the service tax thereon Explanation I. For abovementioned payment manufacturer /OSP can utilized the credit Explanation II. - If the manufacturer of goods or the provider of output service fails to pay the amount payable under this sub-rule, it shall be recovered, in the manner as provided in rule 14, for recovery of cenvat credit wrongly taken.
If capital goods not removed as such in the same financial year
If capital goods removed as such in the same financial year
Cenvat credit available in a given financial year is upto 50% of excise duty paid on such capital goods. Provided that 100%. Credit is available in same financial year for ACD 3(5) (Spl. CVD) Provided that ssi can take 100% credit in same financial year.
Cenvat credit available = 100% of excise duty paid on such capital goods.
Remaining cenvat credit shall be taken in any subsequent financial year subject to condition that such capital goods must be in possession of manufacturer or osp. The condition of possession in subsequent year is not applicable to A. Component, spares & accessories. B. Refactories & refactories material C. Module & dies D. Goods falling under heading 6805 & 6804
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Definition of Exempted Goods is amended

Rule 2( d)
means
Exempted Goods
excisable goods which are exempt from the whole of the duty of excise leviable thereon, and
includes goods which are chargeable to Nil rate of duty and goods in respect of which the benefit of an exemption under notification No. 1/2011-CE, dated the 1st March, 2011 is availed
EXCISABLE GOODS
DUTIABLE GOODS
EXEMPTED GOODS
NIL RATED GOODS
PARTLY EXEMPTED GOODS
FULLY EXEMPTED GOODS
(Inserted F.A.2011) EXEMPTION UNDER N/N 1/2011 (COMPOSITION SCHEME)
For cenvat purpose these goods are treated as Dutiable goods
For cenvat purpose these goods are treated as Exempted goods
Notification No. 1/2011 Levy of 1% Excise Duty without Cenvat Credit on 130 items. (COMPOSITION SCHEME OF EXCISE)
However, in respect of 130 items which were fully exempt earlier are brought under excise duty. There are two excise duty rates specified for such items. Concessional rate of 1% is available only if the Cenvat credit is not availed under notification 1/2011 otherwise all these items attract 5% Excise duty(If assessee want avail Cenvat credit) as prescribed vide notification 2/2011-CE 1% composition scheme under excise on 130 items Object: simplified procedure for payment of excise duty with minimum physical interference of department. Benefit: Simplified procedure is being prescribed for them so that physical interface with them is minimized and the levy does not pose a compliance burden on them. Visits to such units should not be required in the normal course. If at all the need arises, the officer visiting them should do so only with the prior authorization of the Assistant Commissioner or the Deputy Commissioner Central Excise of the jurisdictional division. A simple format for this quarterly return Limitations Since units that exclusively manufacture items attracting the duty of 1% are neither allowed to take Cenvat credit nor to pass it on to their buyers. It means entire burden of 1% is on assessee
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If a manufacturer uses common inputs for both exempted and dutiable goods
Option 1
Rule 6(2) Where a manufacturer avails of CENVAT credit in respect of any inputs or input services
and manufactures such final products which are chargeable to duty as well as exempted goods , then, the manufacturer shall maintain separate accounts for (a) the receipt, consumption and inventory of inputs used (i) in or in relation to the manufacture of exempted goods; (ii) in or in relation to the manufacture of dutiable final products (b) the receipt and use of input services (i) in or in relation to the manufacture of exempted goods and their clearance upto the place of removal; (ii) in or in relation to the manufacture of dutiable final products, excluding exempted goods, and their clearance upto the place of removal;
and shall take CENVAT credit only on inputs or Input service used in dutiable Final product
Option 2
Rule 6(3) Notwithstanding anything contained in sub-rules (1) and (2),
the manufacturer of goods opting not to maintain separate accounts, shall follow the following options, as applicable to him, namely :(i) (ii) (iii)
any one of
pay an amount equal to 5% of value of the exempted goods or pay an amount as determined under sub-rule (3A); or (Inserted by notification to F.A.2011) maintain separate accounts for the receipt, consumption and inventory of inputs as provided for in clause (a) of sub-rule (2), take CENVAT credit only on inputs under sub-clauses (ii) of said clause (a) and pay an amount as determined under sub-rule (3A) in respect of input services.
(The provisions of sub-clauses (i) and (ii) of clause (b) and sub-clauses (i) and (ii) of clause (c) of subrule (3A) shall not apply for such payment ) Provided that if any duty of excise is paid on the exempted goods, the same shall be reduced from the amount payable as above. Explanation I. - If the manufacturer of goods, avails any of the option under this subrule, he shall exercise such option for all exempted goods manufactured by him and such option shall not be withdrawn during the remaining part of the financial year. Explanation II.- For removal of doubt, it is hereby clarified that the credit shall not be
allowed on inputs used exclusively in or in relation to the manufacture of exempted goods and on input services used exclusively in or in relation to the manufacture of exempted goods and their clearance upto the place of removal.
Explanation III. - No CENVAT credit shall be taken on the duty or tax paid on any
goods and services that are not inputs or input services.
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Let us discuss with help of following chart

If a manufacturer uses common inputs & Input service for both exempted and dutiable goods OR
INPUTS
INPUT SERVICE
RULE 6(2) OPTION -1
RULE 6(3) OPTION -2 Manufacturer of goods opting not to maintain separate accounts, shall
follow
Manufacturer shall maintain separate accounts for the receipt, consumption and inventory of inputs or input service used in
any one of the
following options, as applicable to him, namely :-
EXEMPTED GOODS
DUTIABLE GOODS
Avail the full credit of inputs & Input service commonly used & thereafter
Cenvat credit not available on inputs or input service used in Exempted goods
Cenvat credit available on inputs or input service used in dutiable goods
OR
OR
(i) pay an amount equal to 5% of value of the exempted goods
(ii) pay an amount as determined under subrule (3A)
(Inserted by notification to F.A.2011)
Provided that if any duty of excise is paid on the exempted goods (i.e. 1% payment under N/N 1/2011), the same shall be reduced from the amount payable as above. Comment: If manufacturer is manufacturing Dutiable goods as well as exempted goods covered under 130 items of N/N 1/2011 then amount payable under Rule 6(3)(i) is 4% (5%1%)
(iii) Maintain separate accounts for the receipt, consumption and inventory of inputs used in Dutiable goods & take CENVAT credit only on inputs Dutiable goods & also full credit of Input service and pay an amount as determined under sub-rule (3A) in respect of input services.
Summary
Options Rule 6(3)(i) Rule 6(3)(ii) Rule 6(3)(iii) Record No Separate record No Separate record Separate record s for inputs No separate records for Input service
Refer page no.125

Subsequently pay 5% value of exempted goods amount as determined under sub-rule (3A) In respect of Input service, amount computed as per Rule 6(3A) & no payment required for inputs
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Take credit at the time of receipt Full credit of Input or Input service commonly used Full credit of Input or Input service commonly used Inputs- Credit relatedto dutiable goods Inputs service-Full credit
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Definition of exempted services is amended

Rule 2(e) Exempted Services
means and taxable services which are exempt from the whole of the service tax leviable thereon,
includes services on which no service tax is leviable under section 66 of the Finance Act and taxable services 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. Explanation.- For the removal of doubts, it is hereby clarified that "exempted services" includes trading.
SERVICE
TAXABLE SERVICE (Covered u/s 65(105)
NON TAXABLE SERVICE (Not covered u/s 65(105)
CHARGEABLE SERVICE
EXEMPTED SERVICE
Partly exempted Service
Fully exempted service
(Inserted F.A.2011)
Trading
(Refer page no.123 )
Taxable services 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
E.g. Exemption under n/n 1/2006 of s.t. (abatement) scheme)
For cenvat purpose these goods are treated as Chargeable Service
For cenvat purpose these goods are treated as exempted service
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If OSP uses common inputs & input services for both exempted and Chargeable services
Option 1
Rule 6(2) Where a provider of output service avails of CENVAT credit in respect of any inputs or
input services and provides such output service which are chargeable to tax as well as exempted service , then, provider of output service shall maintain separate accounts for (a) the receipt, consumption and inventory of inputs used (i) for provision of exempted service (ii) for the provision of output services excluding exempted services; and (b) the receipt and use of input services (i) for the provision of exempted services; and (ii) for the provision of output services excluding exempted services
and shall take CENVAT credit only on inputs or Input service used in output services excluding exempted services
Option 2
Rule 6(3) Notwithstanding anything contained in sub-rules (1) and (2),
The provider of output service, opting not to maintain separate accounts, shall follow of the following options, as applicable to him, namely :(i) (ii) (iii) pay an amount equal to
any one
or pay an amount as determined under sub-rule (3A); or (Inserted by notification to F.A.2011) maintain separate accounts for the receipt, consumption and inventory of inputs as provided for in clause (a) of sub-rule (2), take CENVAT credit only on inputs under sub-clauses (ii) of said clause (a) and pay an amount as determined under sub-rule (3A) in respect of input services.
(The provisions of sub-clauses (i) and (ii) of clause (b) and sub-clauses (i) and (ii) of clause (c) of subrule (3A) shall not apply for such payment )
Provided further that if any part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs and input services, used for providing such taxable service (e.g. Exemption under notification 1/2006 of S.T. (Abatement scheme) ), shall be taken then the amount specified in clause (i) shall be five per cent. of the value so exempted. Explanation I. - If the provider of output service, avails any of the option under this subrule, he shall exercise such option for all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year. Explanation II.- For removal of doubt, it is hereby clarified that the credit shall not be
5%
(under old provision 6%)
of value of the exempted services
allowed on inputs used exclusively in for provision of exempted services and on input services used exclusively in for provision of exempted services.
Explanation III. - No CENVAT credit shall be taken on the duty or tax paid on any goods
and services that are not inputs or input services.
Let us discuss with help of following chart

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CENVAT CREDIT RULES. 2004 If OSP uses common inputs & Input service for both exempted and Chargeable services
INPUTS
OR
INPUT SERVICE
RULE 6(2) OPTION -1
RULE 6(3) OPTION -2 OSP opting not to maintain separate accounts, shall follow of the following options, as applicable to him, namely :-
OSP shall maintain separate accounts for the receipt, consumption and inventory of inputs or input service used in
any one
EXEMPTED SERVICES
CHAGEABLE SERVICES
Avail the full credit of inputs & Input service commonly used & thereafter
Cenvat credit not available on inputs or input service used in Exempted services
Cenvat credit available on inputs or input service used in chargeable services
OR
OR
(i) pay an amount equal to
5%
old 6%)
(under provision
(ii) Pay an amount as determined under subrule (3A)
(Inserted by notification to F.A.2011)
of value of the exempted services
Important comment: Exempted service includes trading. Value of trading= Sale price less cost of goods sold (excluding the expenses incurred towards their purchase) OR 10% of the cost of goods sold,
(iii) Maintain separate accounts for the receipt, consumption and inventory of inputs used in Dutiable goods & take CENVAT credit only on inputs chargeable services & also full credit of Input service and pay an amount as determined under sub-rule (3A) in respect of input services.
Whichever is more. (Refer page no.

25 & 26)
Refer page no. 125

Subsequently pay 5% value of exempted goods amount as determined under sub-rule (3A) In respect of Input service, amount computed as per Rule 6(3A) & no payment required for inputs
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Summary
Options Rule 6(3)(i) Rule 6(3)(ii) Rule 6(3)(iii) Record No Separate record No Separate record Separate record s for inputs No separate records for Input service Take credit at the time of receipt Full credit of Input or Input service commonly used Full credit of Input or Input service commonly used Inputs- Credit related to dutiable goods Inputs service-Full credit
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TRADING OF GOODS
Various service provider carrying trading of goods along with provision of service e.g. A.S. Foundation providing commercial training & coaching service & also sales books. Service providers were using Inputs or Input services exclusively in trading or commonly in output service & trading and availing entire credit on such Inputs or Input services against payment of service on output service. Hence to plug this loophole Govt amended the definition of exempted service & trading is included in it.
EXAMPLE
A.S.FOUNDATION Training & coaching Chargeable service S.T.=10.3%(GAC)
Inputs & inputs service commonly used in Trading & output service
Input & Input service exclusively used in Trading
Trading of book or registers
Exempted service Pay 5% of value of trading
Value of trading = 1) Sale price (excluding taxes) cost of goods sold i.e. purchase price (except expenses incurred for purchase)
OR 2) 10% of the cost of goods sold,
whichever is more.
Example: Sale price of books & Register Rs 500000 Purchase price of books & Register Rs Rs 400000 (Purchase price includes expenses of freight & handling Rs 30000) Calculate value of trading & amount payable under Rule 6(3)(i) Ans: value of trading = 1) Rs 500000 Rs 370000(Rs 400000 Rs 30000) or 2) 10% (370000)= Rs 37000 Whichever is more Thus value of trading = Rs 130000 Amount payable under rule 6(3)(i)= 5%(130000)= Rs 6500
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Board Clarification:
1. Can the credit of Inputs or Input services used exclusively in trading be availed? Clarification: Trading is an exempted service. Hence the credit of any inputs or input services used
exclusively in trading cannot be availed.

How the credit is available if Inputs or Input services commonly used in trading & output service?
Trading is an exempted service. If Inputs or Input services commonly used in trading & output service then provision of Rule 6(2) or Rule 6(3) as explained above is applicable.
How to determine the value of trading (exempted service) under Rule 6(3) (i) for payment 5% of value of exempted service?
In case of trading, value shall be the difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase i.e. freight, handling charges or etc)
or
10% of the cost of goods sold, whichever is more.
While calculating the value of trading what principle to follow- FIFO, LIFO or one to one correlation?
The method normally followed by the concern for its accounting purpose as per generally accepted accounting principles should be used.
Are the taxes and year end discounts to be included in the sale price and cost of goods sold while calculating the value of trading?
Generally accepted accounting principles need to be followed in this regard. All taxes for which set off or credit is available or are refundable/ refunded may not be included. Discounts are to be included.
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CENVAT CREDIT RULES. 2004 Method of determination of amount payable under Rule 6(3)(iii) of Cenvat Credit Rules 2004 (Authors Note for sake of reading)
Provisional calculations
Month Wise Calculation Provisional (for financial year) Provisionally determine the CC attributable to input services used in exempted goods and exempted services
Provisional CC attributable to inputs services used in exempted services or exempted goods
(E / F) * G
E F
= Total Value of Exempted Services + Exempted Goods (during preceding FY) = Total value of exempted and taxable and exempted services and total value of dutiable and exempted goods manufactured and removed (during preceding FY) = CC taken on input services during the month
Final Calculation
Month Wise Calculation Final (for financial year) Final determination of the CC attributable to input services used in exempted goods and exempted services
CC attributable to inputs services used in exempted services or exempted goods
(M / N) * P
M N
= Total Value of Exempted Services +Exempted Goods (during current FY) = Total value of exempted and taxable and exempted services and total value of dutiable and exempted goods manufactured and removed (during current FY) = CC taken on input services during the current FY
Consequence of Final Determination:
1 2 3
Where the amount of CC after final determination is more than the amount paid monthly - The difference is to be paid on or before 30th June, next year. For delayed payment, interest @24% shall be paid. Where the amount of CC after final determination is less than the amount paid monthly - The difference is to be self adjusted. Intimation shall be submitted with the Superintendent in the prescribed form within 15 days from the date of payment or adjustment.
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Rule 6(3-B) Payment 50% of credit if inputs & Input services commonly used in Banking services [Newly inserted]
(Provision of Rule 6(3)(i) i.e. 5% of value of exempted service is not applicable)
A banking company and a financial institution including a non-banking financial company, providing taxable service shall pay for every month(after taking full credit on inputs & Input services) an amount equal to 50% of the CENVAT credit availed on inputs and input services in that month.
Notes:1. Various banking services are exempt e.g. bill discounting, interest on cash credit,bank O/D or etc. Thus, credit admissible shall not be full. 2. As per the new rule, these service provider shall initially avail full credit of input and input services and then pay an amount equal to 50% of credit so availed on monthly basis. Credit of capital goods shall remain admissible in full (without requirement of any payment). example: ICICI Bank has provides taxable as well as exempted services. For the Month of April the value of taxable services is Rs.200 lakhs and exempted services is Rs 80 lakhs. It has availed full credit of Rs.8 lakhs on the inputs and inputs services used in providing taxable and exempted services and also a cenvat credit of Rs.5 lakhs on the capital goods used in providing taxable service as well as exempted service. Compute the amount of ST payable by bank for the month. Amount (Rs.) ST on taxable services [200 Lakhs x 10.30%] Less: Cenvat Credit [A] Credit of common input and input service Total credit availed 8,00,000 2,50,000 13,50,000 Less: 50% payment (4,00,000) [B] Credit of common Capital goods (50% in first F.Y.) Net ST payable 20,60,000 6,50,000
Rule 6(3-C) Payment 20% of credit if inputs & Input services commonly used in Life insurance or ULIP [Newly inserted]
(Provision of Rule 6(3)(i) i.e. 5% of value of exempted service is not applicable)
A provider of output service providing Life Insurance Service or ULIP service shall pay for every month (after taking full credit on inputs & Input services) an amount equal to 20% of the cenvat credit availed on inputs and input services in that month.
Note:1. Life Insurance service provider many times gives composite policy (Risk + saving policy) .Only the Risk component is taxable & Saving component is not taxable. That being so, they could have availed credit only of the extent of providing the taxable service. Segregation of credit was posing practical difficulties and was giving rise to disputes. To end those disputes, Rule 6(3-C) has been specially inserted to provide for special method of allowance of credit to Life Insurance Service provider. As per the new rule, life insurance service provider shall initially avail full credit of input and input services (common) and then pay an amount equal to 20% of credit so availed on monthly basis. Credit of capital goods shall remain admissible in full (without requirement of any payment).
Rule 6(6A) [Newly inserted]

Any taxable services are provided, without payment of service tax, to a unit in a special economic zone or to a developer of a special economic zone for their authorised operations then service provider can take full credit of capital goods, inputs & input services exclusively or commonly used in such service
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Rule 3(5): Input Or Capital Goods Removed As Such

When inputs or capital goods, on which CENVAT credit has been taken, are removed as such from(include sale, transfer to another factory or premise or etc.) the factory, or premises of the provider of output service, E the manufacturer of the final products or provider of output service, as the case may be, E shall pay an amount equal to the credit availed in respect of such inputs or capital goods and E such removal shall be made under the cover of an invoice referred to in rule 9. Provided that such payment shall not be required to be made where any inputs or capital goods are removed outside the premises of the provider of output service for providing the output service.
(Newly inserted) Provided further that such payment shall not be required to be made where any inputs are removed outside the factory for providing free warranty for final products.
Provided further that if the capital goods, on which CENVAT Credit has been taken, are removed after being used, the manufacturer or provider of output services shall pay an amount equal to the CENVAT Credit taken on the said capital goods reduced by the percentage points calculated by straight line method as specified below for each quarter of a year or part thereof from the date of taking the CENVAT Credit, namely:(a) for computers and computer peripherals: 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 and fifth year @1% (b) for capital goods, other than computers and computer peripherals @ 2.5% for each quarter. Rule 3(5A): Capital Goods Removed As waste & scrap If the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty leviable on transaction value. Rule 3(5B): Eligibility of Cenvat Credit If Value of Inputs or Capital Goods Written Off fully. If the value of any, Newly inserted (i) input, or (ii) capital goods before being put to use, on which CENVAT credit has been taken is written off fully or partially or where any provision to write off fully or partially has been made in the books of account then the manufacturer or OSP shall pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods . Provided that if the said input or capital goods is subsequently used in the manufacture of final products or providing output service, the manufacturer or OSP shall be entitled to take the credit of the amount equivalent to the CENVAT Credit paid earlier subject to the other provisions of these rules.
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OTHER IMPORTANT AMENDMENTS OF CENVAT

100% CREDIT ON CAPITAL GOODS IN FIRST FINANCIAL YEAR FOR SSI
Rule Rule 4(2)(a) Prior to amendment Cenvat credit in respect of capital goods could be taken only for an amount not exceeding 50% of the duty paid on such capital goods in the year of receipt of such capital goods in the factory (in case of both SSI and non-SSI) Amendment made by the notification no. 6/2010dated 27.02.2010 Third proviso to rule 4(2)(a) has been inserted which provides as follows:An assessee eligible to avail SSI exemption regardless of whether he actually claims it or opts to pay duty is allowed to take the cenvat credit in respect of capital goods for the whole amount of the duty paid on such capital goods in the same financial year.
Removal of jigs, moulds, dies, fixtures and dies to another manufacturer permitted without reversal of cenvat credit
Rule Rule 4(5)(b) Removal for job work Prior to amendment The cenvat credit, in respect of jigs, fixtures, moulds and dies sent by a manufacturer of final products to a job worker for the production of goods on his behalf according to his specifications is allowed. Comment: payment is not required if such capital goods not received within 180 days. Amendment made by the notification no. 6/2010-ce (nt) dated 27.02.2010 Rule 4(5)(b) has been substituted with the new clause which provides as follows:Cenvat credit is allowed, in respect of jigs, fixtures, moulds and dies sent by manufacturer of final products to:(a) another manufacturer for the production of goods, or (b) a job worker for the production of goods on his behalf according to his specifications Comment: facility of nonpayment of amount extended to vendor manufacturer.Thus if any mould & dies removed to vendor for production of goods then no need to pay any amount under Rule 4(5) even though not received within 180 days.
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Amendments in rule 9-Documents and accounts [Notification No. 13/2011-C.E. (N.T.) dated 31.03.2011]
(a) Sub-rule (1) Sub-rule (1) enumerates the documents on the basis of which the CENVAT credit shall be taken by the manufacturer or the provider of output service or input service distributor, as the case may be. Clause (bb) inserted prescribes the following additional document to be furnished:A supplementary invoice, bill or challan issued by a provider of output service, in terms of the provisions of Service Tax Rules, 1994 except where the additional amount of tax became recoverable from the provider of service on account of non-levy or non-payment or short-levy or short-payment by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Finance Act or of the rules made thereunder with the intent to evade payment of service tax. The aforesaid amendment is effective from 01.04.2011.
(b) Proviso to sub-rule (7)-SSI required to file the return within 10 days of the close of the quarter
With effect from 01.03.2011, the proviso to rule 9(7) has been amended so as to provide that SSI shall file a quarterly return in the form specified, by notification, by the Board within ten days after the close of the quarter to which the return relates.
(c) Proviso to sub-rule (8)
With effect from 01.06.2011, the quarterly return of CENVATABLE invoices submitted by the first/second stage dealer under rule 9(8) of the CENVAT Credit Rules, 2004 shall be filed electronically unconditionally.
[Notification No. 21/2010 CE (NT) dated 18.05.2010]
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BOARD CIRCULARS
CIRCULAR NO. 122/03/2010 ST DATED 30.04.2010 (V. IMP)
ISSUE1: whether cenvat credit of the service tax paid can be claimed under rule 4(7) of the
cenvat credit rules, 2004 when payments are made through debit/credit notes, debit/credit entries in books of account or by any other mode as mentioned in explanation (c) to section 67 of the finance act, 1994 for transactions between associate enterprises?
CLARIFICATION: It is clarified that cenvat credit is admissible in the said case. Rule 4(7) does
not indicate the form of payment and does not place any restriction on payment through debit in the books of accounts. If the service charges as well as the service tax have been paid in any prescribed manner which is entitled to be called gross amount charged, credit will be allowed under said rule.
ISSUE2: whether cenvat credit of the service tax paid can be claimed where a service receiver
does not pay the full invoice value and the service tax indicated thereon due to some reasons?
CLARIFICATION: It is clarified that cenvat credit of service tax can be availed where a service
receiver does not pay the full invoice value and the service tax indicated thereon due to reasons like discount, unsatisfactory service etc. Provided he has paid the amount of service tax (whether proportionately reduced or the original amount) to the service provider. The credit taken would be equivalent to the amount that is paid as service tax. However, in case of subsequent refund or extra payment of service tax, the credit would have to be altered accordingly.
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IMPORTANT CASE LAWS OF CENVAT YEAR 2011

Ind-Swift Laboratories Ltd. [2011] (SC) (Most expected)
Facts:
Assessee is a manufacturer of bulk drug. He has availed cenvat credit wrongly(on fake invoices) & also utilized for payment of excise duty. Department issued SCN against the assessee for recovery of cenvat credit along with interest. Department demanded the interest from the date of availment of Cenvat Credit upto the date of payment .Assessee has paid the amount of credit, but argued that interest shall be calculated from the date of utilization of credit as the credit was encashed only on that date. In case of wrong availment of cenvat Credit the interest is chargeable under sec 11AB from the date of wrong availment of credit & not from date when it is utilised.
Legal provision: RULE 14 of Cenvat Credit rule, 2004. Recovery of CENVAT credit wrongly taken or erroneously refunded.
Where the CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output service and the provisions of sections 11A and 11AB of the Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.
Decision:
Rule 14 of the CENVAT Credit Rules, 2004 provides that if any CENVAT credit has been taken OR utilized wrongly, the same along with interest shall be recovered from the manufacturer / service provider and the provisions of Excise section 11A / 11AB or Service Tax sections 73/75 shall apply therefor. The use of word OR makes it clear that even if the credit is taken wrongly, then also, it becomes recoverable along with interest. The provisions of interest u/s 11AB will apply from the date of wrong availment of CENVAT Credit. It is wrong to say the interest u/s 11AB will apply only from the date of wrong utilization of credit. Interest from the date of wrong availment of credit is justified because once the credit is taken, the manufacturer / service provider is at liberty to utilize the same, immediately thereafter, subject to the rules.
[CBEC
Circular of the same view: The CBEC has taken the same view in its Circular No. 942/3/2011-CX., dated 14-3-2011. Hence, even if the wrongly availed credit is reversed before utilization, interest under Rule 14 read with section 11AB shall be payable from the date of such wrong availment to the date of such reversal.]
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TATA ADVANCED MATERIALS LTD. 2011 (271) E.L.T. 62 (KAR.)

Facts: The assessee purchased some capital goods and paid the excise duty on it. Since, said capital goods were used in the manufacture of excisable goods, he claimed the CENVAT credit of the excise duty paid on it. However, after three years the said capital goods (which were insured) were destroyed by fire. The Insurance Company reimbursed the amount to the assessee, which included the excise duty, which the assessee had paid on the capital goods. Excise Department demanded the reversal of the CENVAT credit by the assessee on the ground that the assessee had availed a double benefit.
The assessee claimed the CENVAT credit on the duty paid on capital goods which were later destroyed by fire. The Insurance Company reimbursed the amount inclusive of excise duty. Cenvat credit shall not be denied.
Issue: The assessee claimed the CENVAT credit on the duty paid on capital goods which were later destroyed by fire. The Insurance Company reimbursed the amount inclusive of excise duty. Is the CENVAT credit availed by the assessee required to be reversed? Decision: CENVAT credit was validly taken is indefeasible and can be reversed only in accordance with the provisions of act or rules. In the instant case, the Insurance Company, in terms of the policy, had compensated the assessee. The High Court observed that merely because the Insurance Company had paid the assessee the value of goods including the excise duty paid, it would not render the availment of the CENVAT credit wrong or irregular. It was not a case of double benefit as contended by the Department. Accordingly, in absence of any provision in the act or the rules requiring reversal of credit, departments demand is seeking reversal of credit was invalid in law.
Ecof Industries Pvt. Ltd. 2011 (271) E.L.T. 58 (Kar.)

facts: the assessee was engaged in manufacturer of excisable goods in kolar & cuttack. Its head office, located in chennai, was registered as Input Service Distributor. The head office had paid service tax for services received by the head office and its units from various service providers. Thereafter, it had distributed the credit of service tax to its various units including the unit at kolar. The assessee availed and utilized the said credit for payment of central excise duty on their final products. Revenue contended that since the service tax was paid in respect of services obtained by cuttack unit, the credit of the said service tax paid could not be utilized by kolar unit.
ISD can distribute the credit of service tax from one unit to another unit. None of provisions of Cenvat Credit Rules provides that credit distributed should relate to or should be in proportion to services used for various units
Decision: as per Rule2 (m) of Cenvat credit rules, 2004 provides that ISD means an office, which receives invoices toward purchases of inputs services and issues invoices for distributing of credits thereof to various locations of same assessee. 2004 provides two conditions for distributing of credits (i) credit distributed should not exceeds service tax paid (ii) credit in respect of services used exclusively in manufacture or provision of exempted goods or services shall not be distributed High Court elucidated none of aforesaid provisions provides that credit distributed should relate to or should be in proportion to services used for various units However, the head office is expected to register itself as an input service distributor and thereafter, is entitled to distribute the credit of such input services in the manner prescribed under law. The High Court therefore held that Kolar unit had rightly availed the CENVAT credit of the service tax paid by its head office.
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As per rule 7
Cenvat credit rules
PRIME HEALTH CARE PRODUCTS 2011 (272) E.L.T. 54 (GUJ.)

Facts: the assessee was engaged in the manufacture of tooth paste. It was sold as a combo pack of tooth paste and a bought out tooth brush. The assessee availed cenvat credit of central excise duty paid on the tooth brush. Revenue contended that the tooth brush was not an input for the manufacture of the tooth paste and the cost of tooth brush was not added in the M.R.P. of the combo pack and hence, the assessee had availed cenvat credit of duty paid on tooth brush in contravention of the provisions of the cenvat credit rules, 2004. Combo-pack of bought out tooth brush sold alongwith tooth paste manufactured by assessee eligible as input under the cenvat credit rules, 2004
Issue: whether combo-pack of bought out tooth brush sold alongwith tooth paste manufactured by assessee eligible as input under the cenvat credit rules, 2004? Decision: the high court noted that the process of packing and re-packing the input, that was, toothbrush and tooth paste in a unit container would fall within the ambit of manufacture [as per section 2(f)(iii) of the central excise act, 1944. Further, the word input was defined in rule 2(k) of the cenvat credit rules, 2004 which also included accessories of the final products cleared along with final product. There was no dispute about the fact that on toothbrush, excise duty had been paid. The toothbrush was put in the packet along with the tooth paste and no extra amount was recovered from the consumer on the toothbrush*. Considering the definition given in the rules of input and the provisions contained in rule 3, the high court upheld the tribunals decision that the credit was admissible in the case of the assessee. Note: the definition of inputs under rule 2(k) has been substituted vide notification no. 3/2011-c.e. (n.t.) dated 1-3-2011. As per the new definition, any goods includes accessories of the final products cleared along with the final product. However, it has also added the condition that the value of such accessory should be included in the value of the final product. In the aforesaid judgment, since no extra amount was recovered from the customer on the toothbrush, it implies that the value of the toothbrush was included in the value of the final product i.e. Toothpaste. Hence, the judgment holds good as per the provisions of the new definition.
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YEAR 2010
Biopac India Corporation Ltd. [2010] (H.C.)
Issue: If capital goods are destroyed by fire in a factory then is it required to reverse Cenvat credit? Decision: NO If capital goods are destroyed by fire, the Department cannot seek reversal of CENVAT credit availed in respect thereof. CENVAT Credit Rules seek reversal of credit only when capital goods are removed : as such, or, as such after being used, or, as waste or scrap. Since destruction by fire doesn't fall in any of the said cases, therefore, there can't be any liability of payment of any duty/CENVAT credit. When the capital goods are destroyed after being used for some years; it could not be said that the CENVAT credit was not admissible on them.
If capital goods are destroyed by fire in a factory then is it not required to reverse cenvat credit
Bansal alloys & metals ltd.-2010 (tri)(imp)

Brief facts: assessee is engaged in the manufacture of iron and steel ingots and availed cenvat credit of service tax on inward transportation of inputs procured. Subsequently, assessee removed the inputs as such after reversal of cenvat credit on input availed by them under rule 3(5) of cenvat credit rules, 2004. Department contended that assessee transportation service is related to input removed as such, hence credit of service tax pertaining such inward transportation service required to reversed.
As per rule 3(5) it is clear that the manufacturer shall be required to pay an amount equal to the credit in respect of such input or capital goods removed as such. rule 3(5) does not indicate for payment of equal amount in respect of credit of input service.
Decision: Rule 3(1) provides that the manufacturer shall be allowed to take credit of the
duty paid on any input or capital goods and any input service. Rule 3(5) of the rules provides that the manufacturer of final product, or provider of output service, as the case may be, at the time of removal of input or capital goods as such from the factory, shall pay an amount equal to the credit availed in respect of such input or capital goods. From the plain reading of rule 3(5) it is clear that the manufacturer shall be required to pay an amount equal to the credit in respect of such input or capital goods. Rule 3(5) does not indicate for payment of equal amount in respect of credit of input service. So, reversal of credit on input service in respect of goods transportation agency service is not justified.
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CENVAT CREDIT RULES.

CENVAT CREDIT RULES, 2004

CA VISHAL BHATTAD PH.NO. 9890953771

CENVAT CREDIT RULES. 2004

CENVAT CREDIT RULES,2004

(2) for providing output service;

CA VISHAL BHATTAD PH.NO. 9890953771

CENVAT CREDIT RULES. 2004 CAPITAL GOODS

Used in the factory for manufacture of F.P.

Used in the factory but not in manufacturing process.

Used in the stores of factory

Used in the office attached to factory.

Used in the office outside the factory.

Used in the premise for providing output service.

Used outside the premise for providing output service.

Cenvat Credit available

Cenvat Credit available

Cenvat Credit available

Cenvat Credit not available

Cenvat Credit not available

Cenvat Credit available

Cenvat Credit available

Providing specified services e.g. Courier agency, Tour operator or etc.

In case of other services

Cenvat Credit not available

Cenvat Credit not available

Cenvat Credit is not available as

Inputs & C.G.

MADRAS CEMENTS LTD. 2010 (S.C.)

CA VISHAL BHATTAD PH.NO. 9890953771

CENVAT CREDIT RULES. 2004

Rule 2(k) Input

used in the factory by the manufacturer of the final product.

CA VISHAL BHATTAD PH.NO. 9890953771

Cenvat credit is available as Inputs

EYE MEDICINE WITH DROPPER

VALUE OF EYE MEDICINE

Cenvat credit is available as Inputs

Cenvat credit is available as Inputs

CA VISHAL BHATTAD PH.NO. 9890953771

CENVAT CREDIT RULES. 2004

500 motor purchased @ RS 3000 + E.D. RS 300

400 motors used in manufacture of washing machine

E.D.@10% RS 1700 (1 year warranty for replacement of components)

Correspondingly amendment also made under Rule 3(5)

Comment: Let us discuss with the help of following examples

CA VISHAL BHATTAD PH.NO. 9890953771

CENVAT CREDIT RULES. 2004

Any goods used for construction of a building of manufacturer

Structures for support of capital goods

CA VISHAL BHATTAD PH.NO. 9890953771

CENVAT CREDIT RULES. 2004

Any goods used for construction of a building of OSP

Any goods used for construction of a building of OSP

Not eligible for Cenvat credit as inputs

EXAMPLE 4 If goods are used for providing Construction service or etc.

CA VISHAL BHATTAD PH.NO. 9890953771

CENVAT CREDIT RULES. 2004

Rule 2(l) Input service

include services used in relation to

Deleted by F.A. 2011 Refer NOTE -2

New services Inserted in the list of input service

but excludes services

CA VISHAL BHATTAD PH.NO. 9890953771