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Indian Taxation and Corporate Laws
Updates on Indian Taxation and Corporate Laws Home Service Tax
datey v s.com/serv ice-tax/cenv at-credit-and-serv ice-tax/cenv at-credit-on-input-serv ices-and-goods/
dian 1/10/13 and Corporate Laws » Cenv at credit on input serv ices and goods Taxation Tax Primer Students Useful Sites About Queries? Cenvat credit on input services and goods datey v s.com/serv ice-tax/cenv at-credit-and-serv ice-tax/cenv at-credit-on-input-serv ices-and-goods/ 2/8 .
Conventionally. Tax rate is 10%. output of one manufacturer becomes input of another. C is paying tax on ` 100 on which A and B have already paid the tax. wholesaler.dian 1/10/13 and Corporate Laws » Cenv at credit on input serv ices and goods Taxation 1 Conventional Tax System In any manufacturing technology. This is termed as cascading effect. B is also paying tax on ` 10 which is tax paid by A.com/serv ice-tax/cenv at-credit-and-serv ice-tax/cenv at-credit-on-input-serv ices-and-goods/ 3/8 . Similarly. tax is charged based on selling price. The purchaser of goods gets Vat credit of tax paid by the earlier seller. This distorts the tax structure as tax burden depends on number of stages through which goods passes. goods pass through various stages like distributor. datey v s. Again even after manufacture is complete. 2 Tax credit System under VAT Tax credit system is used to avoid these defects. semi-wholesaler and retailer. Following chart indicates transaction with Vat and without Vat. Detail Purchases Value Added Sub-Total Add Tax 10% Total A 100 100 10 110 B 110 40 150 15 165 C 165 35 200 20 200 It can be seen that B is paying tax on ` 100 on which A has already paid the tax. A is selling goods to B and B selling to C. End use exemptions cannot be given since even if exemption is granted to C in aforesaid example. the product cannot become tax free as tax borne earlier on those goods cannot be known. In following chart.
Then it does not matter through how many stages the product passes. it is termed as consumption based tax. he has got credit of ` 10 (tax paid by A). he is paying tax of ` 4 only (i. ¨ One to one co-relation not required. Hence. tax is paid only on value added and not on entire transaction. Further. His value addition is same as earlier i. input services and capital goods. Thus.g. B has purchased goods from A as usual. However. Entire Cenvat of all eligible input goods. Vat works on principle of granting credit (set off) of tax paid on input goods. he gets credit (set off) of tax paid by A. Thus. if exemption is given to B. ` 40. input services and capital goods can be utilised for payment of any eligible excise duty on manufactured final product or taxable output services. effectively. total tax paid on the product is ` 14 out of which ` 10 are paid by A and ` 4 by B. ¨ Destination principle.e. Cenvat credit of excise duty paid on input goods and service tax paid on input services is available immediately on receipt of goods or services without waiting for its consumption.) Thus. ¨ Instant Credit i. Hence. since at every stage. for exports or for mass consumption goods or poor man’s needs etc.dian 1/10/13 and Corporate Laws » Cenv at credit on input serv ices and goods Taxation Transaction without VAT Transaction With VAT Details Purchases Value Added Subtotal Add Tax Total A 100 100 10 110 B 110 40 150 15 165 A 100 100 10 110 B 100 40 140 14 154 Here. 3 Highlights of Cenvat Credit ¨ Cenvat (Central Value Added Tax) Credit is available of excise duty paid on input goods and service tax paid on input services and excise duty paid on capital goods. but in Vat system. datey v s. his net purchase price becomes ` 100 only.e. He pays tax of ` 14 on ` 140. 10% of ` 40 only). ¨ Cenvat credit of excise duty paid on capital goods is available in two financial years @ 50% each. – Government really gets tax only when goods are finally consumed.com/serv ice-tax/cenv at-credit-and-serv ice-tax/cenv at-credit-on-input-serv ices-and-goods/ 4/8 .e. the product can be made entirely tax free (e.
business exhibition. ¨ Construction and works contract services for building. auditing.aspx 7 Services in inclusive part of definition ¨ ¨ ¨ These relate to procurement. All five ‘resources i. financing. ¨ ‘Relating to’ is equivalent to or synonymous with as to ‘concerning with’ and ‘pertaining to’. 8 Ineligible Input Services ¨ Input Services relating to setting up of original plant or office are not eligible. raising of finance. These are words of comprehension which might both have a direct significance as well as an indirect significance depending on the context. ¨ If you are interested in case law in respect of interpretation of these terms. advertisement or sales promotion. laying of foundation or structures for capital goods – except when used for construction or works contract service itself ¨ Renting of motor vehicle for transport of passengers is not eligible as input service except where motor vehicle is eligible as capital goods datey v s. administration. marketing. premises of provider of output service or an office relating to such factory or premises. it expands the meaning ¨ The expression ‘in relation to’ is a very broad expression. all other services should get covered. recruitment and quality control. Material.e. renovation or repairs of a factory. share registry. procurement of inputs (Continued) ¨ Accounting. M’ s – Men. human resources. security.dian 1/10/13 and Corporate Laws » Cenv at credit on input serv ices and goods Taxation ¨ Credit of excise duty and service tax inter-changeable 4 Input Service [Rule 2(i)] ¨ Definition in two parts ¨ First part – used by service provider for providing output service or by manufacturer used directly or indirectly in relation to manufacture ¨ Definition has inclusive and exclusive clauses 5 Inclusive part of Input Service ¨ Includes services used in relation to – ¨ Modernisation. Machines. credit rating. accounting.com/serv ice-tax/cenv at-credit-and-serv ice-tax/cenv at-credit-on-input-serv ices-and-goods/ 5/8 .com/servicetaxqueries.e. computer networking. storage upto the place of removal. coaching and training. Money and Minutes covered Except services specifically excluded. you may post your query on www. civil structure. legal services.taxmann. 6 Includes and In relation to ¨ If the word “include/s” is used it means that the definition is not exhaustive but it is inclusive. inward transportation of inputs or capital goods and outward transportation upto the place of removal. market research. i.
HSD and petrol (furnace oil eligible) 11 Inputs (goods) for manufacturer ¨ ¨ ¨ ¨ All goods used in factory by manufacturer having some relation with manufacture Accessories and warranty spares supplied along with main final product Power generation for captive consumption HSD. servicing. then entire credit can be taken at that place by keeping proper records. HSD and Petrol not eligible 6/8 datey v s. on basis of turnover of previous month/quarter ¨ No credit where input service exclusively for exempted goods or exempted service ¨ If only one factory or place of provision of service. HSD and petrol not eligible ¨ Goods used for generation of electricity or steam for captive use eligible except LDO. LDO and petrol not eligible 12 Ineligible Inputs (goods) ¨ LDO.dian 1/10/13 and Corporate Laws » Cenv at credit on input serv ices and goods Taxation ¨ Services of general Insurance. beauty treatment. without registering as ISD. health services. servicing. LTA – . travel benefits. health insurance. Branch Offices or Depots to factories and places where service provided. branches or depots have to register under Central Excise as Input Service Distributor (ISD). 9 Input Service Distributor – Rule 7 ¨ If an assessee has more than one manufacturing plants and/or place of provision of services. ¨ Invoice in name of HO or branch legally permissible 10 Inputs (goods) for service provider ¨ ¨ Only inputs (goods) used for providing taxable services eligible Consumable eligible. but LDO.com/serv ice-tax/cenv at-credit-and-serv ice-tax/cenv at-credit-on-input-serv ices-and-goods/ . life insurance. membership of club. ¨ They should issue monthly Invoice to distribute credit to factories and/or places of provision of service. file returns etc. repair and maintenance of motor vehicle ¨ All employee benefits such as Outdoor catering. he can transfer the Cenvat credit of input services received at Head Office. repair and maintenance of motor vehicle where motor vehicle is not eligible as capital goods ¨ Exception – Motor vehicles manufacturers of vehicles manufactured by them and insurance company of vehicles insured by them can avail Cenvat credit of input services General Insurance. ¨ The HO.used primarily for personal use or consumption of employee are not eligible.
15 Removal for job work of inputs by manufacturer ¨ Inputs on which Cenvat credit is availed can be removed for job work and brought back under Cenvat Credit Rule 4(5)(a). www. Cenvat credit on inputs (which were sent for job work) should be reversed.in datey v s. If not.xbrlpro. ¨ Removal under Own challan ¨ Goods should be returned after job work within 180 days. ¨ Not applicable when general provision made in books of account – This is permissible as per Accounting Standards 14 Inputs and Services in Negative List ¨ ¨ ¨ ¨ Building for office or factory Motor vehicle related services with few exceptions Employee benefits. if inputs partially or fully written off ¨ Cenvat credit reversal is required even if the input goods are written off fully or partially in books of account (if they are slow moving or obsolete). Input services for setting up of plant or office. ¨ Goods (and services) used for civil construction. structure not eligible except when used for works contract or construction – but not worth taking Credit ¨ Motor vehicles are not inputs – eligible as capital goods in some cases ¨ Any goods (and services) like food or other items for personal use or consumption of employee not eligible ¨ Goods having no relation with manufacture not eligible 13 Reversal of Cenvat. foundation.com/serv ice-tax/cenv at-credit-and-serv ice-tax/cenv at-credit-on-input-serv ices-and-goods/ 7/8 .dian 1/10/13 and Corporate Laws » Cenv at credit on input serv ices and goods Taxation ¨ Goods on which 1%/2% excise duty is paid are not eligible. ¨ Dutiability of scrap at job worker’s place – case law that duty liability of scrap is not of Principal Manufacturer but of job worker XBRL MCA Filing made easy.
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