Welcomes the members of

Hosur Industries Association

and other

Dignitaries28.10.2004

An insight into …An insight into …

CENVAT CREDIT RULES, 2004by

swamy associates

chennai – coimbatore – bangalore - hyderabad

Duties of excise paid on

inputs and capital goods.

Duties of excise payable on final

products.

Service tax paid on input services.

Service tax payable on output services.

Cenvat Credit Rules, 2002

Service Tax Credit Rules, 2002

YES

Duties of excise paid on

inputs and capital goods.

Duties of excise payable on final

products.

Service tax paid on input services.

Service tax payable on output services.

Cenvat Credit Rules, 2004

Let us understand certain important terms

Inputs

In case of manufacturers :

All goods, except Diesel and Petrol

used in or in relation to the manufacture of the final products

whether directly or indirectly

whether contained in the final product or not.

In case of service providers :

All goods, except Diesel and Petrol

used for providing output service.

Capital goods

(a) Goods falling under Chapters 82, 84, 85, 90, 6802 and 6801.10.(b) Pollution control equipment.(c) Components, spares and accessories of the above.(d) Moulds, dies, jigs and fixtures.(e) Refractories and refractory materials. (f) Tubes, pipes and fittings thereof.(g) Storage tank.

Used in the factory of manufacture of the final products

Or for providing output service.

Motor vehicle is declared as capital goods for certain categories of service providers.

Input service

Any service

Used by a service provider for providing output service.

Used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and their clearance from the place of removal including certain specified services ...

services used in relation to setting up, modernisation,renovation or repairs of a factory, premises of providerof output service or an office relating to such factory orpremises, advertisement or sales promotion, marketresearch, storage upto the place of removal, procurementof inputs, activities relating to business, such as accounting,auditing, financing, recruitment and quality control,coaching and training, computer networking, credit rating,share registry and security, inward transportation of inputsor capital goods and outward transportation upto the placeof removal.

Output service

Any taxable service for which a service provider is liablefor payment of service tax.

At present Service tax is liable on the following services.

Telephone Broadcasting serviceGeneral Insurance Insurance auxiliary servicesStock Brokers Banking and other financial servicesCourier Agency Port services

Pager Authorised service station for servicing of motor car and two wheeled motor vehicle

Advertising Agency Insurance auxiliary service relating to life insuranceCustom House Agents Cargo handling (only inland cargo)

Steamer Agents Storage and warehousing services (except for agricultural produce and cold storage)

Air Travel Agent Event ManagementMandap Keepers Rail travel agentsConsulting Engineers Health clubs and fitness centresManpower Recruitment Agency Beauty parloursClearing & Forwarding Agents Fashion designersRent-a-cab Operators Cable operatorsTour Operator Dry cleaning services

Architect Commercial vocational institutes, coaching centres and private tutorials

Credit Rating AgencyTechnical testing and analysis (excluding health & diagnostic testing); Technical inspection and certification service.

Chartered Accountant Maintenance and repair servicesCost Accountant Commissioning and installation services

Company SecretaryBusiness auxiliary services, namely business promotion and support services including customer care services (excluding any information technology services)

Interior Decorators Internet cafeMarket Research Agency Franchise servicesManagement Consultancy Business exhibition servicesReal estate Consultancy Airport services

Security/ Detective Agency Transport of goods by road (by a goods transport agency which issues consignment note, by whatever name called)

Underwriting Services Transport of goods by airScientific and Technical Consultancy Services Survey and exploration of mineralPhotography Service Opinion poll servicesConvention Service Intellectual property services other than copyrightLeased Circuits Forward contract servicesTelegraph Service Pandal or Shamiana servicesTelex Service Outdoor cateringFacsimile Service TV or radio programme productionOn-line information and database access and/or retrieval services

Contruction services in respect of commercial or industrial building and civil structures

Video tape production service Travel agents (other than air/rail travel agents)Sound recording service

First Stage Dealer

A dealer who purchases the goods directly from the manufacturers / manufacturers’ depot / consignment agentof the manufacturer – under the cover of an invoice.

Second Stage Dealer

A dealer who purchases the goods from a First Stage Dealer.

Input Service Distributor

Office of the manufacturer / output service provider.

Head office, Corporate office, Administrative office, etc.

- Which is receiving invoices for input services.

ISD – To distribute the service tax paid by them, to its various manufacturing premises (in case of manufacturing units) or toits various premises from where output services (in case of service providers) are rendered.

A little more peep into the ISD

No requirement of registration, as of now. Should raise invoices to its various constituents (factories or service rendering premises, as the case may be) – to

distribute the Service tax paid by it, on input services. Shall maintain adequate records. Shall file an half yearly return – regarding credit received

and distributed. The total amount distributed shall not exceed the service tax

paid by the ISD. If the service tax paid by the ISD is exclusively in relation to

manufacture of exempted goods or rendering of any exempted service, such service tax shall not be distributed.

No norms for distribution.

What are the duties / taxes, for which credit facility is available?

Cenvat Duty (Basic Excise Duty). Special Excise Duty (SED). Additional Duty of Excise (Textiles and Textile Articles)

{AED(TTA)}. Additional Duty of Excise (Goods of Special Importance)

{AED(GSI)}. National Calamity Contingent Duty (NCCD). Additional Duty of Excise on Tea and Tea Waste. Additional Duty of Customs (CVD). Education Cess on Excise Duties. Service Tax Education Cess of Service Tax.

Removal of Credit availed inputs / capital goods

When removed “as such” - credit originally availed shall be reversed. No reversal of credit, if the removal of inputs is by an output

service provider, for providing the output service. No reversal of credit, if capital goods are removed by the output service provider, for providing output service. But

they have to be brought back within 180 days or within another 180 days, subject to the permission of the AC/DC.

Can be removed to a job worker of the manufacturer, for further processing testing, repair, reconditioning or any other purpose. Should be received back within 180 days.

The restriction of 180 days is not applicable for jigs, fixtures, moulds and dies.

What if “used” capital goods are removed?

Certain conditions for availment of credit

Credit can be taken immediately on receipt of inputs. Credit of Service Tax can be taken, only after making

payment for the bill. Credit on capital goods can be taken, only to an extent not

exceeding 50 % of the duty, in any financial year. Balance can be taken in any subsequent financial year. Duty paid on capital goods, which is availed as credit, should

not be capitalised for claiming depreciation under IT. If inputs are directly delivered at job worker, credit should

be taken, after receipt of the processed goods, in the factory of the manufacturer.

Finished goods emerging at job workers’ premises, can be directly cleared, with the permission of the CCE.

No credit on capital goods, if they are exclusively used in the manufacture of exempted goods or in rendering exempted services, barring value / quantity based exemptions.

What if I manufacture, both dutiable and exempted goods

No credit on inputs/input services - used in the manufacture of exempted goods.

Maintain separate records and avail credit only in respect of the inputs / input services, used in the manufacture of dutiable goods.

If not,

Reverse proportionate credit in specified cases.

Or

Pay 8 % of the price of the exempted goods.

Fuel

What if I render , both taxable as well asexempted services.

No credit on inputs/input services - used in rendering exempted service.

Maintain separate records and avail credit only in respect of the inputs / input services, used in rendering taxable service.

If not,

Utilise the credit only to an extent of 20 % of the service tax liability.

Balance credit can be carried forward.

What if I -

manufacture dutiable goods and render any exempted service; or manufactures exempted goods and render taxable services.

Such situations are not envisaged in the Rules.

Documents

Invoice issued by a manufacturer. Invoice issued by an importer. Invoice issued by FSD / SSDs. Supplementary invoice for payment of differential duty (if

such payment is not on account of fraud, etc.) Bill of Entry. Certificate issued by an Appraiser of Customs for imports

through FPO. Challan for payment of Service tax, is such Service tax is

payable by recipients of service. Invoice / Bill / Challan issued by an input service provider. Invoice / Bill / Challan issued by an ISD.

Certain practical issues

I am a manufacturer. I have a bill for annual maintenance contract, covering the period April 2004 to March 2005, indicating service tax payment. The bill was issued on 01.04.2004. Can I take credit of the service tax indicated thereon?

No. As the document has been issued prior to 10.09.2004

What if the bill was issued after 10.09.2004, for the above case?

Credit can be taken on proportionate basis, for the service pertaining to the period after 10.09.2004.

Which copy of the invoice has to be used for availing credit?

In case of invoices issued by the manufacturers - original / duplicate / triplicate copy of the invoices.

In case of invoices issued by service providers, nothing has been envisaged in the rules.

Whether credit of Service tax paid on mobile phone bills can be availed?

Why not?

There are no restrictions other than the one contained in a Board’s Circular. If it otherwise satisfies the condition of input service, availment of credit on mobile phone bills, cannot be legally questioned.

Whether credit of service tax paid on transportation services can be availed?

The levy of service tax on goods transport agency, is yet to take effect. Transport of goods by air is already subjected to Service tax.

Credit of service tax paid on transportation can be availed, to the extent such transportation pertain to the inward movement of inputs and capital goods and outward movement of finished goods, upto the place of removal.

Computers and office equipments used in office are not eligible for Cenvat credit as capital goods. Whether the service tax paid on their maintenance can be availed as credit?

The fact that they are not eligible capital goods, cannot influence the availment of credit of service tax paid on their maintenance. If such maintenance service satisfies the definition of input service, credit can be taken.

I am a manufacturer. I have to pay service tax on behalf of our foreign collaborator, as the agreement between us, for transfer of technology, is construed as “consulting engineering services”. Can I take credit of the service tax thus paid by me, on behalf of the foreign collaborator?

YES

It is stated that the “job workers” are liable for payment of service tax. Being a manufacturer, I engage several job workers. Am I entitled to take credit of such service tax paid by my job workers?

YES .

Are all job workers liable for Payment of Service Tax?

THANKS

s. jaikumar - g. natarajan - m. karthikeyan

swamy associates

chennai - coimbatore - bangalore - hyderabad

mail@swamyassociates.com

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