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A Note on CENVAT Credit Rules
2004 as applicable to Output Service Provider.
The Government has issued CENVAT Credit Rules
2004 from 10/09/2004 and has merged Service Tax Credit Rules
2002 and CENVAT Credit Rules –2002 under the Central
Excise Act. The Government has thus provided for credit of
Service Tax and Excise Duty across goods & services. Important
points to be noted are as follows:
| 1.0 |
Pattern of
bills to be issued by Service Provider |
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Details to be provided in any bill,
invoice or challan [ Rule 4A (1) ] |
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1.1 Name, address
and registration number of the issuer.
1.2 Name and address of the person
recovering taxable service.
1.3 Description, classification and
value of taxable service provided or to be provided;
and
1.4 The service tax payable thereon
1.5 The bill, invoice and challans
should be serially numbered and signed by the authorized
person. |
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| 2.0 |
For availing credit on
input services :- |
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The output service provider is
required to obtain : |
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2.1 Invoice, bill
or challans issued by input service provider.
2.2 Invoice, bill or challans issued
by input service distributor. |
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| 3.0 |
CENVAT credit on goods
& material can be obtained on the basis of following
invoices (Rule 9 (2) :- |
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| 3.01 |
invoice of manufacturer
/ registered importer from or his depot or premises
of consignment agent or invoice issued by registered
first or second stage dealer or supplementary
invoice showing following details :- |
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i. payment
of duty
ii. description of goods
iii. assessable value
iv. name and address of factory |
| 3.02 |
Certificate issued by an appraiser
of customs in respect of goods imported through
foreign post office. |
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| 4.0 |
CENVAT available as on
the last of the month can be utilized for the payment
of duty. |
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| 5.0 |
Responsibilities of output service provider
is :- |
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i) to take reasonable
steps to satisfy himself about identity and address
of manufacturer or input service provider (Rule 9 (3)
ii). maintain proper
records of inputs, capital goods and input services.
(Rule 9 (6) ).
iii) submit half yearly
return within 1 month (Rule 9 (9) ).
• Burden of proof regarding
admissibility of CENVAT credit lie on the output service
provider. (Rule 9 (5) ). |
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| 6.0 |
Distribution of input
service credit [ (Rule 4A (2) ] :- |
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It is also now possible to distribute
input credit of service tax though bills of input service
is received at H.O. or a centralized office though no
taxable service is rendered from such office. It will
also be possible to accumulate the credit available
at different regions / branches etc at such centralized
office and distribute the same to the desired regions
& branches through medium of invoices issued by
such control office termed as “input service distributor”
The invoice, bill or challan issued
by input service distributor should be serially numbered
and contain the following particulars:- |
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| 6.1 |
the name, address
& registration number of the person providing
input services and serial number and date of invoice,
bill or as the case may be, challan issued under
sub-rule(1). |
| 6.2 |
the name, address and the
registration number of the said input service
distributor; |
| 6.3 |
the name & address of
the recipient of the credit distributed; |
| 6.4 |
the amount of the credit
distributed. |
| 6.5 |
The input credit distributor
should : |
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(i) take
reasonable steps to satisfy himself about identity
and address of provider of input service
(ii) submit half yearly return
within a month from close of the half year in
prescribed form. (Rule 7):-
(iii) the credit distributed
against a document referred to in Rule 9 does
not exceed the amount of service tax paid thereon;
or
(iv) credit of service tax attributable
to service used in a unit exclusively engaged
in manufacture of exempted goods or providing
of exempted services shall not be distributed.
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| 6.6 |
Penalty for not taking reasonable
steps and availing credit of duty on input would
be the duty amount or Rs.10000/- whichever is
higher (Rule 13 (1) ). |
| 6.7 |
From the requirements if
is appearant that the input service distributor
is also required to take registration, through
there is no specific provision in law. |
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| 7.0 |
CREDIT on capital goods : |
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| 7.1 |
CENVAT
credit is also available on capital goods which
is used for provision of output service. Thus,
even if the capital goods are used for one day
in provision of output service, the same will
be eligible for CENVAT credit (Rule 2 (b) ). It
is not necessary the capital goods should be used
within the premises of service provider. However,
capital goods used exclusively for exempted services
are not eligible |
| 7.2 |
As per
Rule 2 (a) the following are capital goods:-
i. tools, hand tools, knives
etc falling in chapter 82 / machinery with chapter
84 / electrical machinery in chapter 85/ measuring
,checking and testing machines etc falling in
chapter 90 / grinding wheels in the like goods
falling the sub heading 6801.10
ii. Pollution control equipments
iii. Components, parts &
accessories of goods specified in a) & b)
above
iv. Moulds and dies
v. Refractories and refractory
material
vi. Tubes / pipes and fittings
used in factory
vii. Storage tank
viii. Parts of machinery specified
in clause a) |
| 7.3 |
It may be noted
that the classification is different from Income
tax purpose. Items like parts, spares, tools,
dies, tubes, fittings are not capitalized in accounts,
however, the same are defined as capital goods
for CENVAT purpose. |
| 7.4 |
It is to be
noted that capital goods covers equipments or
appliances used in the office of the service providers.
However, if they are used in office of a manufacturer,
the CENVAT credit will not be available. |
| 7.5 |
Capital goods
obtained on higher purchase, lease or loan are
eligible (Rule 4 (3) ) . It is advisable that
the invoice shows the name of the service provider
as consignee though it is issued in the name of
Finance Company. |
| 7.6 |
Imported goods
classifiable under chapter 98 of Customs Tariff
Act is eligible. |
| 7.7 |
CENVAT credit
on capital goods must be taken upto 50% in the
year receipt though provision of output service
is not commenced. (Rule 4 (1 & 2 a) |
| 7.8 |
The balance of
CENVAT credit may be taken in any Financial year
subsequent to F.Y. in which the capital goods
are received. (Rule 4( 2 )b) |
| 7.9 |
The service
provider may send capital goods outside his office
for repairs etc but the same should be brought
back within 180 days. |
| 7.10 |
Other conditions
for availing credit on capital goods:
a) availability
of duty paid documents (Rule 9 (1) ) i.e.
i. invoice of manufacturer /
registered importer from
ii. his depot or premises of
consignment agent.
iii. Invoice issued by registered
first or second stage dealer.
iv. Supplementary invoice
v. Certificate issued by an appraiser
of customs in respect of goods imported through
foreign post office.
vi. Invoice issued by input service
distributor
vii. Invoice, bill or challans
issued by input service distributor
b) Depreciation
should not be claimed on excise portion of capital
goods. (Rule 4 (4) ) |
| 7.11 |
Depreciation
should not be claimed on excise portion of capital
goods. (Rule 4 (4) ) |
| 7.12 |
If the service
provider has not been able to use the capital
goods on which he has availed CENVAT credit for
any reason he can clear the capital goods as such
or after processing all capital goods as such
from his premises after payment of the amount
equal to CENVAT credit enjoyed by him. |
| 7.13 |
Provider of
taxable service eligible for input credit includes
“a person liable to paying service tax”.
The phrase include a service receiver incase where
the service provider is non resident or he is
from outside India who have no office in India.
Thus such a service receiver will also be eligible
for CENVAT credit. (Rule 2 (r ) ). |
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| 8.0 |
Input service credit will
be allowed in full for services used in relation to
the followings (unless the service is used exclusively
for exempted services or goods) (Rule 2 (l) : |
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• setting up, modernization,
renovation or repairs of a factory, premises or office
of service provider or office relating to such factory,
• advertisement or sales promotion,
• market research,
• storage upto the place of removal ,
• procurement of inputs,
• activities relating to business such as accounting,
auditing , financing, recruitment and quality control,
• coaching and training,
• computer networking,
• credit rating,
• share registry,
• security,
• inward transportation of input or capital goods
• outward transportation upto the place of removal.
Some services may be relevant
in respect of above are :
• Architect’s service
• Consulting Engineer’s service
• Erection, commissioning or installation service
• Construction service
• Interior Decorator’s service
• Maintenance or Repair service
• Advertising service
• Business auxiliary service
• Business exhibition service
• Market Research Agency’s service
• Storage and warehousing service
• Chartered Accountant’s service
• Banking & Financial services
• Manpower recruitment service
• Technical Testing & Analysis service.
• Credit of duty paid
on motor vehicles will be allowed only to the following
service providers :-
• Courier service [clause 65 (105) (f)
]
• Tour operator’s service [clause 65(105)(n)]
• Rent-a-cab scheme operator’s service [clause
65(105)(o) ]
• Cargo handling agency’s service [clause
65 (105)(zr) ]
• Transport of goods by road service [clause 65
(105) (zzp) ]
• Outdoor Caterer’s service [clause 65 (105)
(zzt) ]
• Pandal or Shamiana Contractor’s service
[clause 65(105)(zzw) ] |
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| 9.0 |
Other salient features:- |
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• Credit of input services
can be availed only after the output service provider
make payment of value of input service and service tax
payable. In other words, payment of only service tax
will not do. (Rule 4 (7) )
• All kinds of duties may it
be basic excise duty, special excise duty (SED), additional
excise duty (AED) and corresponding CVD on imported
goods on inputs are eligible for credit. However, basic
custom duty is not available for credit.
• Education cess on manufactured
excisable goods and CVD and input Service Tax can be
utilized only for payment for education cess on final
product or output service as the case may be. Credit
of excise duty can be used for payment of education
cess but not a vise versa.
• If the service provider is
not able to use inputs on which he has availed CENVAT
credit for any reason, he can clear the input as such
or after processing all goods from his premises after
payment of the amount equal to CENVAT credit enjoyed
by him
• National Calimity Contingent
Duty ( NCCD) leviable under S. 136 of Finance Act 2001
can be utilized for payment of NCCD on final product
only.
• Basic excise duty, SED, service
tax on input are inter changeable.
• Input credit for services received
after 10/09/2004 will only be eligible to set off. In
other words, for service like insurance even if the
payment is made before 10/9/2004 for F.Y. 2004-05 credit
will be allowed proportionately for the period after
9/9/2004 and for the purpose of setting off on monthly
basis against output service, the credit will be computed
on month to month basis.
• Service tax paid on input services,
duty paid on capital goods and duty paid on input goods
used by service providers except light diesel oil, high
speed diesel, motor spirit commonly known as petrol
will be allowed in full if they are used for providing
taxable output service exclusively.
• Incase of deduction from invoice
or part payment of bill of the input credit provider,
credit of proportionate amount of the payment on the
basis of reverse calculation of service tax will be
allowed. (In line with S.67, explanation 2 to Finance
Act 1994.)
• CENVAT credit now available
on cellular phones also.
• It is not required that value
of the goods to be charged to the customer. In other
words, the service provider will be entitled to credit
duty paid on raw materials/ consumable used by him while
providing output service whether or not its value is
included in taxable service.
• Unutilised service tax credit
as on 10/09/2004 under Service Tax Credit Rules 2002
can be carried forward to the CENVAT Credit Account
under 2004 Rules.
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| 10.0 |
Maintenance of Records (sub Rule 5) :- |
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| 10.1 |
The output service
provider is required to maintain proper records
a) for the receipt, disposal & inventory of
the input and the capital goods with details of
value, duty paid, credit taken and utilized, the
person from whom inputs or capital goods have
been procured b) value of service, service tax
paid, CENVAT credit taken and utilized and person
from whom input credit is procured. |
| 10.2 |
Incase the service provider
is providing exempted service and also taxable
service, he is required to maintain separate records
as follows:- |
| 10.3 |
Inventory & accounts
of receipts and use of input and input services
for exempted final product / exempted output service.
In such case he can not avail CENVAT credit of
such input and input service which is used in
exempted output service [Rule 6 (2) ]. |
| 10.4 |
If the service provider does
not maintain such separate accounts he can utilize
CENVAT credit only to the extend of 20% of service
tax payable on taxable output service. (Rule 6
(3) (c) except in case of para 8.0 above. |
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| 11.0 |
Accounting Treatment :- |
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The Institute of Chartered Accountants
of India has issued Guidance Note on CENVAT credit in
year 2000. The accounts are therefore to be prepared
in accordance with the Guidance Note. |
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| 11.1 |
At the time
of booking of bill of input service, debit should
be given to CENVAT credit suspense account (service
tax) and when the amount is actually paid to the
supplier the suspense account should be transferred
to CENVAT credit receivable account - service
tax. |
| 11.2 |
Service tax on output service
will be debited to service tax payable account
against which debit of CENVAT credit receivable
account should be debited. Balance amount, if
any shall be debited to service tax paid account.
The entries in this accounts may be passed on
monthly basis. |
| 11.3 |
It should be kept in mind
that “service tax credit receivable”
account should be debited only when payment is
made to input provider and not when the service
is received or availed or booked in account |
| 11.4 |
Incase of debit balance in
CENVAT credit receivable account at the end of
every half year, the same should be tallied with
the service tax return and its annexure. Any unutilized
balance at the end of the year will be shown under
current assets in the financial statements. If
the balance can not utilized for any reason the
same should be written off. |
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