What is CENVAT Credit?
Cenvat Credit is a scheme where the manufacturers or the output service providers are allowed a set off of the taxes paid on the inputs or the input services that are used while manufacturing the final products or providing the output service.
How does it work?
In the manufacture of product X, if raw material A and raw material B are used, the manufacturer is allowed to take credit of the Central Excise duty paid on the raw materials A and B used in the manufacture of the final product X. He is allowed to use this credit while paying duty on the final product, X
Can the Cenvat Credit be availed on capital goods also?
Yes. Cenvat Credit can be availed on capital goods also. But the credit should be taken in installments. 50% of the credit in the Financial year in which the goods are received and the remaining 50% in the next financial year or subsequent years. For Capital goods received in March, 50% credit can be taken in March and the balance 50% can be taken in April as they fall under two financial years.
For taking the credit on the inputs or capital goods, is it mandatory that the goods should be directly purchased from the manufacturer?
Not always. The goods can also be procured from the dealers who are registered with the Central Excise department as first stage or second stage dealers.
What are the inputs eligible for taking the credit?
All goods, except light diesel oil, high speed diesel oil and motor spirit (petrol) which are used in or in relation to the manufacture of final products are eligible for credit.
What are the capital goods eligible for credit?
The list of eligible capital goods has been provided in the Cenvat Credit rules 2004( for e.g., goods falling under chapter headings 82,84,85 and 90 etc of the schedule to the Central Excise Tariff Act).
If these capital goods are used in the factory of the manufacturer, the credit can be availed.
Can the service tax paid also be availed as credit?
Yes. From 10.9.2004, Cenvat Credit has been extended across goods and services. This means a manufacturer of final products can avail the credit of excise duty paid on the inputs, and he can also avail the service tax paid on various services like insurance, telephone etc for payment of central excise duty on final products. Similarly, a service provider can also avail the credit of central excise duty paid on the inputs/capital goods /input services used for providing the out put service.
How do I know if a particular service is eligible for credit or not?
Like inputs, input services are also defined under the Cenvat Credit Rules 2004. If the service satisfies the definition of the input service, the credit can be availed.
Can input credit be taken if the final products/ out put service is exempted?
No. Credit is not allowed if the final products are exempted or the output service is exempted.
What if I manufacture both dutiable and exempted goods?
If both exempted and dutiable products are manufactured, the assessee has two options. First one, he needs to maintain separate accounts for the receipt, consumption and inventory of the inputs used for exempted goods and dutiable goods and take credit only on the inputs used in the dutiable goods. Under the second option, if separate accounts are not maintained, the assessee can take full credit on all the inputs, but has to pay 10% on the price of the exempted goods to neutralize the credit component of the inputs used in exempted goods. There are certain exceptions to this rule which can be seen in Rule 6 of the Cenvat Credit Rules 2004
Does the same ratio apply to service providers also?
Yes. If a service provider is engaged in providing both taxable and non taxable (or exempted) services, he can maintain separate accounts and take credit only on those inputs/input services which are used in taxable services. Or alternatively if separate accounts are not maintained, he is allowed to use only 20% of the credit for payment of service tax on taxable service. In other words, if the tax liability is Rs 100, only Rs. 20 can be paid from the Cenvat Credit account and the remaining Rs 80 has to be paid in cash.
Any such restriction in case of capital goods?
No. If the capital goods are used for both dutiable and exempted goods, full credit is allowed. Same is the case with service providers. However credit is not allowed on capital goods used exclusively in exempted products or exempted services.
Any special provisions relating to credit on capital goods?
Yes. While availing credit on capital goods, the manufacturer shall not avail the depreciation on that part which represents the Cenvat credit. If the value of goods is Rs 1,00,000 and duty paid at 16% is Rs 16,000, the manufacturer shall claim depreciation only on base value of Rs 1,00,000. If depreciation is claimed on the full value, of Rs 1,16,000/-, no cenvat credit is allowed.
I am manufacturer. I pay the freight for outward transport and also pay the service tax under GTA as receiver of the service. Can I take credit of the service tax paid on GTA?
Yes. Transportation of goods up to the place of removal is defined as input service in the Cenvat Credit rules 2004 and therefore the Service Tax paid on outward transportation is eligible for credit.
I am a small scale assessee availing exemption. I pay duty only after crossing Rs one crore. Am I eligible for credit?
Credit is not allowed upto the value of Rs one crore turnover. Only on crossing Rs one crore turn over, credit is admissible. Credit is also allowed on the inputs lying in stock, contained in work in process and contained in finished goods lying in stock as on the date of crossing Rs one crore turn over. The reverse process applies when the assessee goes into fresh exemption from 1st April of the next year. That means he should pay back the credit on the inputs lying in stock, contained in WIP and Finished goods when he starts clearing the goods under exemption.
Can service tax paid at the head office be transferred to the manufacturing locations?
Yes. The head office has to be registered as "Input Service Distributor" and can transfer the service tax paid to any manufacturing location.
Is there any time limit for taking the credit?
No. There is no time limit prescribed. But it is advisable to take credit in a reasonable time which was held to be one year by CESTAT in a recent case.
What are the documents prescribed for taking credit?
The list of prescribed documents is given at Rule 9 of the Cenvat Credit Rules 2004.
Any statutory records are prescribed under the Cenvat Scheme?
No statutory records are prescribed, but the assessee has to maintain records containing the information of receipt, disposal, consumption and inventory of the input and capital goods in which the relevant information regarding the value, duty paid, CENVAT credit taken and utilized, the person from whom the input or capital goods have been procured is recorded. Same is the case with the input services.
Can the credit be availed on Education Cess also?
Yes. Credit can be availed on Education cess also, but the credit can be used only for payment of education cess on the final products or the out put service.
Can the input or capital goods on which credit was already availed be cleared from the factory?
Yes. The inputs or capital goods can be cleared from the factory on payment of an amount equal to the Cenvat Credit availed on them.
Is the same logic applied if the capital goods are removed temporarily for repairs etc?
If the capital goods or inputs as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning or for the manufacture of intermediate goods necessary for the manufacture of final products or any other purpose there is no need to reverse any credit. Only condition is that all such goods are to be received back in the factory within 180 days from the date of removal.
Can the inputs on which Cenvat credit is availed be stored outside the factory?
Yes. With the permission of the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise.
I have availed credit of first installment of 50% on capital goods. But I want to clear the capital good as such in the first year itself. Can I do so?
Yes. As special case, in such instances, the full 100% credit can be taken on the capital goods in the first year itself.
What precautions a manufacturer taking CENVAT credit is required to take?
A manufacturer is required to take all reasonable steps like he being satisfied himself about the identity and address of the manufacturer or supplier , as the case may be, either-
(a) from his personal knowledge; or
(b) on the strength of a certificate given by a person with whose handwriting or signature he is familiar; or
(c) on the strength of a certificate issued to the manufacturer or the supplier , as the case may be, by the Superintendent of Central Excise within whose jurisdiction such manufacturer has his factory or the supplier has his place of business.
What are the returns prescribed to be filed with the department?
Monthly return by 10th of the subsequent month ( Quarterly for SSI units)Registered dealer
Quarterly return within 15 days of the closure of the quarter Service provider
Half yearly return – not later than the last day of the month following the half year Input service distributor - Half yearly return not later than the last day of the month following the half year period.All the above returns are to be filed with the Jurisdictional Range Superintendent of Central Excise.