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SALIENT FEATURES

1. CENVAT Credit Rules, 2004 [CCR 04]

CENVAT Credit Rules, 2004 have been notified vide Notification No. 23/2004-Central Excise (NT) dt. 10/09/2004 [Rules 1 to 16]. The same is in supersession of CENVAT Credit Rules, 2002 (CCR 02) and Service Tax Credit Rules, 2002 (STCR). CCR 04 applies to the whole of India. However, it would not apply, to the extent it relates to availment and utilization of credit to the State of Jammu & Kashmir.

2. Eligible Beneficiaries

1. A Manufacturer or Producer of Final Products (i.e., excisable goods manufactured or produced from input or using input service) [MFP]

2. A provider of taxable output service [OSP] excluding a GTA

3. Eligible Capital Goods ['CG’]

1. The following specific goods:

1. 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. (CETA)

2. pollution control equipment.

3. components, spares and accessories of the goods specified at (i) and (ii).

4. moulds and dyes, jigs and fixtures.

5. refractories and refractory materials.

6. tubes and pipes and fittings thereof; and

7. storage tank.

USED :

• in the factory of the MFP, but does not include any equipment or appliance used in an office ; or

• for providing OS ;

2. Motor Vehicle registered in the name of 'OSP’ for providing the following taxable services:

• Courier Agency

• Goods Transport Agency

• Tour Operator

• Outdoor Caterer

• Rent a Cab Scheme Operator

• Pandal or Shamiana contractor

• Cargo Handling Agency

4. Eligible Inputs

1. All goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacturer of FP whether directly or indirectly and whether contained in the FP or not and includes lubricating oil, greases, cutting oils, coolants, accessories of the FP cleared along with the FP, goods used as paint, or as packing material, or as fuel or for generation of electricity or steam used in or in relation to manufacture of FP or for any other purpose, within the factory of production;

2. All goods, except light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol and motor vehicles, used for providing any OS;

3. W.e.f. 7-7-2009, it has been specifically provided that "inputs" shall not include cement, channels, bars & other items used for construction of factory shed, building or laying of foundation or making structures to support CG.

5. Eligible “Input Services”

Means any Service –

• Used by a OSP for providing an output service; or

• Used by MFP, whether directly or indirectly, in or in relation to the manufacture of FP and clearance of FP, up to the place of removal, and includes services used in relation to:

• setting up, modernization, renovation or repairs of factory, premises of OSP or an office relating to such factory or premises

• advertisement or sales promotion

• market research

• storage up to the place of removal

• procurement of inputs

• activities relating to the business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or CG and outward transportation up to the place of removal.

6. Specified Duties & Taxes (SDT) Eligible for Credit

1. A List of duties & taxes eligible for availment of Credit are specified in Rule 3(1) of CCR 04, which includes in particular, the following:

• The duty of excise specified in the First Schedule to CETA leviable under the Central Excise Act, 1944 [CEA].

• The duty of excise specified in the Second Schedule to CETA leviable under CEA.

• The Education Cess (EC) on excisable goods

• Additional duty leviable under section 3 of Customs Tariff Act equivalent to the specified duty of excise [CVD].

• Additional duty leviable under section 3(5) of Customs Tariff Act [MFP is eligible to avail Credit of such duty. However OSP cannot avail credit of such Duty]

• The Service tax leviable under section 66 of the Finance Act, 1994 (“Act”) and.

• The EC on taxable services

• Secondary and Higher Education Cess (SHEC) on excisable goods/taxable services.

PAID ON

• any input or CG received in the factory of MFP or premises of OSP on or after the 10-9-2004; and

• any OS received by the MFP or by OSP on or after the 10.09.04.

2. CENVAT credit can be taken, equal to Central Excise duty paid on CG, at the time of debonding of a Unit.

7. Restrictions on Credit Availment

1. CENVAT credit shall not be allowed on such quantity of inputs or input services which is used in the manufacture of exempted goods or exempted services except in the manner specified. [Refer para 11 hereafter].

2. No CENVAT credit shall be allowed on CG which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the FP which are exempt under SSI Exemption Scheme.

3. Credit of whole of Service Tax paid on the following Taxable Services:

• Consulting Engineers

• Architects

• Interior Decorator

• Management Consultant

• Real Estate Agent

• Security Agency

• Scientific or Technical Consultant

• Banking & other financial (inc forex broking)

• Insurance Auxiliary

• Erection, Commission or Installation

• Technical Testing and Analysis

• Technical Inspection and Certification

• Management, Maintenance or Repair

• Construction [Commercial / Industrial]

• Intellectual Property

Shall be allowed unless such services is used exclusively in or in relation to Manufacture of exempted goods or providing exempted service.

4. CENVAT Credit on CG shall not be allowed in respect of that part of value of CG which represents the amount of SDT on such CG which the manufacturer or OSP claims as Depreciation u/s. 32 of Income-tax Act, 1961.

5. In cases where, under a Notification abatements have been claimed by specified OSP, CENVAT credit of duties paid on inputs /capital goods or Service Tax paid on Input Services cannot be availed.

6. In cases where an OSP opts for Works Contract Composition Scheme, CENVAT Credit of duties paid on inputs, cannot be availed.

8. Availment of Credit

1. CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of OSP.

2. i) The CENVAT credit in respect of CG received in a factory or in the premises of the OSP at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent of the duty paid on such CG in the same financial year. [However, CENVAT credit in respect of CG shall be allowed for the whole amount of the duty paid on such CG in the same financial year if such CG are cleared as such in the same financial year.]
   
   ii) The balance of CENVAT credit may be taken in any financial year subsequent to the financial year in which the CG were received in the factory of the manufacturer, or in the premises of OSP, if the CG are in the possession on the MFP or OSP in such subsequent year.

3. The CENVAT credit in respect of the CG shall be allowed to a manufacturer / OSP even if such CG are acquired by him on lease, hire purchase or loan agreement, from a financial company.

4. CENVAT credit in respect of 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 paid or payable as is indicated in the Invoice / Bill / Challan.

9. Utilization of Credit & Related

1. The CENVAT credit may be utilized for payment of :

1. Any duty of excise on any FP; or

2. An amount equal to CENVAT credit taken on inputs if such inputs are removed as such or after being partially processed; or

3. An amount equal to the CENVAT credit taken on CG if such CG are removed as such; or

4. An amount under sub-rule (2) of rule 16 of Central Excise Rules, 2002 (CER); or

5. Service Tax on any OS.

2. i) When inputs or CG on which CENVAT credit has been taken, are removed as such from the factory, or premises of OSP, the MFP or OSP, shall pay an amount equal to the credit availed in respect of such inputs or CG and such removal shall be made under the cover of an invoice.
   
   ii) However, such payments shall not be required to be made where any inputs CG are removed outside the premises of the OSP for providing the OS.
   
   iii) W.e.f. 13-11-2007, if the CG on which CENVAT Credit has been taken are removed after being used, the MFP or OSP shall pay an amount equal to the CENVAT Credit taken on the said CG reduced by 2.5% for each quarter of year or part thereof from the date of taking the CENVAT Credit.
   
   iv) If the Value of inputs or CG (before put to use) on which CENVAT Credit has been taken is fully written off (or such provision is made) in the books of account, the MFP or OSP shall pay an amount equal to CENVAT Credit in respect of said inputs/CG.

3. Credit of EC on excisable goods/taxable services and the SHEC on excisable goods/taxable Services can be utilized, either for payment of EC on excisable goods/SHEC on excisable goods or for payment of EC/SHEC on taxable services.

10. Refund of Cenvat Credit

1. CENVAT Credit in respect of input or input services which is used in the manufacture of FP which is cleared for export under Bond or used in Intermediate product which is cleared for export or providing OS which is exported, shall be allowed to be utilized by MFP or OSP towards payment of:
   
   i) Duty of excise on any FP cleared for home consumption or for export on payment of duty; or
   
   ii) service tax on output service,

2. Where for any reason such adjustment is not possible, the MFP or OSP shall be allowed to claim refund of such amount, subject to compliances of specified procedures,

3. No refund of credit shall be allowed if the MFP or OSP avails of drawback, or claims a rebate of duty under CER in respect of such duty.

4. “Output Service which are exported” means any OS exported in accordance with the Export of Services Rules, 2005.

11. Manufacturer of Dutiable and Exempted Goods and Provider of Taxable and Exempted Services

1. Where a manufacturer or OSP avails of CENVAT credit in respect of any inputs or input services, except inputs intended to be used as fuel, and manufactures such FP or provides such OS which are chargeable to duty or tax as well as exempted goods or services, then, the MFP or OSP shall maintain separate accounts for receipt, consumption and inventory of input and input service meant for used in the manufacture of dutiable FP or in providing OS and the quantity of input meant for used in the manufacture of exempted goods or services and take CENVAT Credit only on that quantity of input or input service which is intended for use in the manufacture of dutiable goods or in providing OS on which service tax is payable.

2. Rule 6(3) of CCR 04 has been amended w.e.f. 1-4-2008 to provide the following options as applicable to a MFP or OSP using common inputs/input services for providing taxable as well as exempted goods/taxable as well as exempted services but not maintaining separate account of receipt, consumption and inventory of inputs or input services:
   
   i) MFP shall pay an amount equal to 5% (w.e.f. 7-7-2009) of the value of exempted goods and the OSP shall pay an amount equal to 6% (w.e.f. 7-7-2009) of the value of exempted services.
   
   ii) MFP or OSP shall pay an amount equivalent to the CENVAT Credit attributable to inputs and input services used in or in relation to manufacture of exempted goods/provision of exempted services subject to compliance of detailed procedure prescribed in Rule 6(3A).
   
   The options stated above are required to be exercised for all exempted goods manufactured by a MFP or all exempted services provided by an OSP. An option once exercised cannot be withdrawn during any financial year.

3. The procedure prescribed under Rule 6(3A) of CCR 04 requires the MFP/OSP to comply with following:
   
   i) Intimate in writing to the Superintendent of Central Excise, giving the specified particulars;
   
   ii) Determine and pay provisionally every month, an amount equivalent to CENVAT Credit attributable to manufacture of exempted goods/provision of exempted services in accordance with the formula prescribed in Rule 6(3A) (b) of CCR 04;
   
   iii) Determine finally, the amount of CENVAT Credit attributable to exempted goods/exempted services for the whole financial year, in accordance with the formula prescribed in Rule 6(3A)(c) of CCR 04;
   
   iv) Determine shortfall/surplus in payment of CENVAT Credit;
   
   v) Pay the shortfall by 30th June. In case of delay, interest would be payable at the rate of 24% per annum;
   
   vi) Adjust the excess amount on their own by taking credit of such amount; and
   
   vii) Intimate in either case to the jurisdictional Superintendent of Central Excise, within 15 days from the date of payment/date of adjustment giving the specified particulars.

4. The aforesaid provisions shall not be applicable in case excisable goods removed without payment of duty are cleared to units in SEZ (or to a developer of a SEZ), 100% EOU, EHTP, STP, specified international projects, for Export under Bond etc.

12. Distribution of credit by Input Service Distributor (ISD)

1. ISD has been defined to mean an office of MFP or OSP which receives invoice issued under Rule 4A of Service Tax Rules, 1994 (STR) towards purchase of input services and issues invoice, bill or challan for distributing the credit of service tax paid on said services to such MFP or OSP.

2. ISD may distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or units providing OS, subject to the following conditions:
   
   i) The credit distributed against a document should not exceed the amount of service tax paid thereon; or
   
   ii) 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.

3. W.e.f. 16-6-2005, ISD is required to be registered, with Service Tax Dept.

13. W.e.f. 1-4-2008 a new Rule 7A is inserted under CCR 04, to prescribe a procedure to enable OSP to take credit on inputs and CG on the basis of invoice, bill or challan issued by its other offices or premises. Rules relating to Registered Dealer Mechanism under Central Excise shall apply mutatis mutandis to such offices or premises of the OSP.

14. Documents & Accounts

1. The CENVAT credit shall be taken by MFP/OSP/ISD be on the basis of specified duty / tax paid documents. [Refer Rule 9(1) of CCR 04]

2. Rule 9(2) has been amended to provide for availability of credit even though any document may not contain all the particulars specified subject to a condition that Deputy Commissioner of Central Excise is satisfied that goods or services covered by the said document have been received and accounted for in the books of account of the receiver.

3. The MFP or OSP taking CENVAT credit on input or CG or input service, or the ISD distributing CENVAT credit on input service is required to take all reasonable steps to ensure that the input or CG or input service in respect of which he has taken the CENVAT credit are goods or services on which the appropriate duty of excise or service tax as indicated in the documents accompanying the goods or relating to input service, has been paid.

4. The CENVAT Credit in respect of input or CG purchased from a first stage dealer or second stage dealer shall be allowed only if such first stage dealer or second stage dealer, as the case may be, maintains records indicating the fact that the input or CG was supplied from the stock on which duty was paid by the producer of such input or CG and only an amount of such duty on pro rata basis has been indicated in the invoice issued by him.

5. The MFP /OSP shall maintain proper records for the receipts, disposal, consumption and inventory of the input and CG in which the relevant information regarding the value, duty paid, CENVAT credit taken and utilized, the person from whom the input or CG have been procured is recorded and the burden of proof regarding the admissibility of the CENVAT credit shall lie upon the MFP / OSP taking such credit.

6. The MFP / OSP shall maintain proper records for the receipt and consumption of the input services in which the relevant information regarding the value, tax paid, CENVAT credit taken and utilized, the person from whom the input service has been procured is recorded and the burden of proof regarding the admissibility of the CENVAT Credit shall be upon the MFP / OSP taking such credit.

7. Returns required to be filed in the prescribed form are as under:
    

   Person	Periodicity	Due Date
   Manufacturer of FP	Monthly/	10 days from the close of Month
   	Quarterly (SSI)	20 days from the close of Quarter
   First stage or second stage Dealer	Quarterly	15 days from the close of Quarter
   OSP availing CENVAT Credit	Half Yearly	End of the month following the Quarter/Half year
   ISD	Half Yearly	End of the month following the half year

8. W.e.f. 1-3-2007 Rule 9 has been amended to allow an assessee to rectify mistakes and file revised return within 60 days from the due date from filing of original return.

15. Transfer of Cenvat Credit

1. If a MFP shifts his factory to another site or the factory or if a OSP shifts or transfer his business is transferred on account of change in ownership or on account of sale, merger, amalgamation, lease or transfer of the factory to joint venture with the specific provision for transfer of liabilities of such factory, then, MFP / OSP shall be allowed to transfer the CENVAT credit lying unutilized in his accounts to such transferred, sold, merged, leased or amalgamated factory.

2. The transfer of the CENVAT credit shall be allowed only if the stock of inputs as such or in process, or the CG is also transferred along with the factory or business premises to the new site or ownership and the inputs, or CG on which credit has been availed of are duly accounted for to the satisfaction of the Central Excise Authorities.

16. Transitional Provisions

Any amount of credit earned by a MFP under CCR 02 as they existed prior to the 10-9-2004 or by a OSP under the STCR, as they existed prior to the 10-9-2004, and remaining unutilized on that day shall be allowed as CENVAT credit to such MFP/OSP under these Rules, and shall be allowed to be utilized in accordance with CCR 04.

17. Recovery of Cenvat Credit wrongly taken or erroneously refunded

In cases 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 MFP or OSP and the provisions of sections 11A and 11AB of CEA or sections 73 and 75 of the Act, shall apply for effecting such recoveries.

18. Penal Provisions

1. If any person, takes CENVAT credit in respect of input or CG/in respect of Input Services wrongly or contravenes any of the provisions of these rules in respect of any input or CG then:

• all goods shall be liable to confiscation and

• such person, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention has been committed, or Rs.2,000/-, whichever is greater.

2. In cases where the CENVAT credit in respect of input or CG/in respect of input services has been taken or utilized wrongly on account of fraud, wilful misstatement, collusion or suppre-ssion of facts, or contravention of any of the provisions of CEA / CER with an intention to evade payment of duty, then, the MFP / OSP shall also be liable to pay penalty in terms of the provisions of section 11 AC of CEA/Section 78 of the Act.

3. W.e.f. 1-3-2008, Rule 15A is inserted under CCR 04, to provide for a general penalty up to Rs. 5,000 in case of contravention of any of the provisions of the Rules for which no specific penalty is provided.