Exam Capsule Indirect Taxes

Volume 2 Topics Covered

Volume 1 - Case Laws

Volume 2 - Cenvat Credit

Excise Valuation

Custom Valuation

VAT

Amendments (Please bring RTP)

CONCEPTS IN CENVAT CREDIT

Duties for which credit is available Rule 3(1)

Central ExciseCustomsService Tax

Basic Excise Duty

Note - Credit is not available for the duty paid on goods covered under Notification No. 1/2011 and at entry No. 67 and 128 of notification No. 12/2012.Additional Custom duty under section 3(1) of the CTA

Note If a vessel is brought to India for breaking than Credit is available only for 85% of the duty.Service Tax

Special Excise Duty Special Additional custom Duty under section 3(5) of the CTA

(Note If the assessee is a service provider, he cannot avail credit for this duty)

Special Excise Duty on Goods of Special Importance

Special Excise Duty on Textile and Textile Articles

National Calamity Contingency Duty

Addl. Excise duty u/s 157 of Finance Act 93

Addl. Excise Duty u/s 85 of Finance Act 95

Education cessNot allowedEducation Cess

SHESNot allowedSHES

Notes-

1. The assessee can avail cenvat credit only when he is having possession of the goods. (Rule 4)

2. Rule 9 provides that the assessee can avail cenvat credit only on the basis of specified documents and documents should be in his possession. (Refer Rule 9 for details)3. Credit can always be availed for the amount shown of duty/tax shown in the document on the basis of which credit is being taken irrespective of the fact that payment has not been made or only part payment is made or part payment itself is made as full and final payment.

4. If the quantity of goods actually received is less than the quantity referred in the documents then credit shall be availed for proportionately less amount but where quantity is more than mentioned in the documents, credit cannot availed for excess quantity.

Example 1

Quantity mentioned 1000 Liters and Duty Rs. 10,000

Quantity received 990 liters

Cenvat Credit shall be taken only for Rs. 9900/-

Example 2

Quantity mentioned 1000 Liters and Duty Rs. 10,000March 2014

Quantity received 1010 liters

Cenvat Credit shall be taken only for Rs. 10,000/-

5. Combined reading of Rule 4 and 9 provides that the credit cannot be availed unless goods and documents, both are in possession of the assessee. Therefore, where goods and documents are received by the assessee on different dates then credit cannot availed earlier than later date.

Example

Date of purchase 20th January 2014

Date of receiving the goods 28th February 2014

Documents received on 3rd March 2014

In this case credit cannot be availed before 3rd March 2014

6. The assessee is required to maintain a CENVAT credit register. This register is not considered as Books of Account and there is no prescribed format for this register.

7. When assessee makes a credit entry in the register, it is referred as Credit taken or availed and when a debit entry is made, it means credit is utilized or reversed, as the case may be.

Question - M/s. RC imported some inputs and paid Basic Customs Duty Rs 5 lakhs, surcharge on customs duty Rs. 50,000 and CVD Rs 1 lakh. Calculate the amount that he can claim as CENVAT credit. Would it make any difference, if the assessee is not a manufacture, but a service provider?

Answer - M/s RC can take credit of Rs. 1,00,000 i.e. of additional duty of customs (CVD). Rule 3(1) of CCR allows credit of additional duty of customs imposed under section 3 of CTA. The credit of other two duties i.e. BCD and surcharge on custom duty is not allowed.

It will not make any difference if the assessee is a service provider as credit of additional duty of customs (CVD) can be availed both by manufacturers and the service providers alike but credit of CVD u/s 3(5) will not available to a service provider.

How CENVAT Credit can be used?

Rule 3(4)

Subject to these restrictions, CENVAT credit can be utilised for

a. Payment of excise duty and service tax

b. Reversal of credit on removal of capital goods and inputs under Rule 3(5), 3(5A), 3(5B) and 3(5C) of the CCR

c. Reversal of credit under 16 of CER

Credit can be utilised for discharging liability of central excise duty and service tax but other than payment of interest and penalty. Custom duty cannot be paid through credit.

Credit can be utilised only upto the extent it is actually available at the end of the month or quarter for which duty is payable. (Credit availed in the current month or quarter cannot be utilised for discharging earlier liability)

Credit for EC and SHES can be utilised for discharging respective liability and not for any other purpose. However, EC and SHEC can be paid out of credit of EC and SHEC respectively or out of other credits excluding credit of NCCR or in csh.

NCCD can be paid either through credit of NCCD or in cash and credit of NCCD cannot be utilised for any other purpose.

Credit of SACD u/s 3(5) of CTA cannot be utilised for paying service tax.

Clean Energy Cess cannot be paid out of CENVAT credit.

Excess credit is allowed to be carried forward without any time limit but is not refundable in cash except under Rule 5, 5A and 5B.

Question: Whether service tax credit availed on input service during the period 01.01.2013 to 04.01.13 can be utilized to pay service tax on the output service for the month/quarter ending 31st December 2012 which is due for payment on 05.01.2013?

Answer: Cenvat Credit can be utilised only upto the extent it is actually available at the end of the month or quarter for which duty is payable. (Credit availed in the current month or quarter cannot be utilised for discharging earlier liability). Therefore, in the given case, credit availed on input service during the month of January 2013 cannot utilized to pay service tax payable on the output services for the month or quarter ending 31st March 2012.

Question: In case of arrears of duty related to a past period, demanded under section 11A of the Central Excise Act, 1944, whether the manufacturer can utilize cenvat credit for payment of such arrears, even if such credit accrued to him after the related period?

Answer: As per Cenvat Credit Rules, 2004 Cenvat Credit can be utilised only upto the extent it is actually available at the end of the month or quarter for which duty is payable. (Credit availed in the current month or quarter cannot be utilised for discharging earlier liability). This duty represents amount of duty assessed by the assessee himself and paid under Rule 8 of the Central Excise Rules, 2002. Amount of duty demanded under section 11A of the Central Excise Act, 1944 is not the same duty as payable under section 11A of the Central Excise Act, 1944. Therefore, the manufacturer can utilize cenvat credit for payment of such arrears, even if such credit accrued to him after the related period. (Circular No. 962/05/2012 CX Dt. 28.03.2012)CENVAT credit on capital goods Rule 4(2) - 4(4)Rule 2(a)"capital goods" means:-

(A) the following goods, namely:-

(i) 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;

(ii) pollution control equipment;

(iii) components, spares and accessories of the goods specified at (i) and (ii);

(iv) moulds and dies, jigs and fixtures;

(v) refractories and refractory materials;

(vi) tubes and pipes and fittings thereof; (vii) storage tank and

(viii) motor vehicles other than those falling under tariff headings 8702, 8703, 8704, 8711 and their chassis, but including dumpers and tippers used-

(1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or

(1A) outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory; or

(2) for providing output service;

(B)motor vehicle designed for transportation of goods including their chassis registered in the name of the service provider, when used for-

(i) providing an output service of renting of such motor vehicle; or

(ii)transportation of inputs and capital goods used for providing an output service; or

(iii) providing an output service of courier agency

(C) motor vehicle designed to carry passengers including their chassis, registered in the name of the provider of service, when used for providing output service of-

(i) transportation of passengers; or

(ii) renting of such motor vehicle; or

(iii) imparting motor driving skills (D) components, spares and accessories of motor vehicles which are capital goods for the assesse.

Question: Define the term Capital Goods within the meaning of the CENVAT Credit Rules, 2004.

Availing the Credit Rule 4(2), 4(3) and 4(4)

A manufacturer/service provider can avail cenvat credit on capital goods provided the capital goods are not going to be used exclusively for manufacture of exempted goods or providing exempted services. It means full credit is allowed even where capital goods are used partly for exempted goods/Services and partly for taxable services/dutiable goods.

A manufacturer can avail credit on capital goods only when goods have been received in the factory.

If the capital goods relate to generation of electricity then credit is available even if goods are not received in the factory.

In case of a service provide, it is sufficient that the goods are received by him at any place but the receipt of such goods shall be supported through documentary evidence regarding place and time of delivery of goods.

Credit can be availed only when goods as well as the documents on the basis of which credit can be availed, both are available. Therefore, if these two are received on different dates, then credit can be availed not before the later date.

During the first financial year in which capital goods are received

a. an assessee availing SSI exemption is entitled to avail full credit for all the duties immediately

b. for any other assessee, credit is restricted to 50%. (0% to 50%)

Balance credit (50% to 100%) can be availed in any of the subsequent financial years provided the goods are in possession of the assessee. However, certain capital goods, if consumed within the factory or at the place of the job-worker are always deemed to be in possession for the purpose of CENVAT credit.

It is also to be noted that the credit for Special Additional Custom Duty chargeable under section 3(5) of the Custom Tariff Act is available to the extent of 100% during first year itself.

Note If capital goods are removed during the first financial year in which those are received than instead of 50%, the assessee is authorised to avail 100% CENVAT credit during first financial year itself.

Credit on capital goods can be availed even if those are acquired on lease or hire-purchase basis from a finance company. For availing credit, possession is more important than ownership

In case of service provider, this will not be applicable for motor vehicles because, on motor vehicles, a service provider can avail CENVAT credit only if the vehicle is registered in the name of service provider.

Credit can be availed for that part of duty which has not been capitalized i.e.it is not depreciated.

Assessee can avail cenvat credit even if he has not paid for capital goods or he has paid only partly or he has made part payment as full payment.

Question:. India Cements Limited is engaged in the business of manufacturing cement. For this purpose, limestone is excavated from a mine which is situated at a distance of few kilometers from the plant where the cement is manufactured. The mine is connected to the main plant through a ropeway. Explosive are used for blasting the mine to excavate limestone. Can CENVAT credit be taken on such explosives?

Or

ABC Limited is a cement manufacturer. The company used ropeway system for bringing crushed lime stone from the mines located 4-5 kilometers away from the factory. A part of the ropeway system was installed in the factory.

ABC Limited availed cenvat credit on the ground that ropeway is used for transporting raw material from the mines to the factory and cannot be considered as Material Handling System within the factory premises. Examine with the help of decided case law, whether the stand taken by the Department is correct.

Answer: The facts in the given case are similar to the case of Malabar Cements Limited (2008) [Ker]. In this case, the High Court decided that the ropeway connecting the factory with the mines is to be considered as a part of factory. Therefore, in the given case, the assessee is entitled to avail cenvat credit on the parts used in ropeway system.

M/s Solid Cement Ltd is engaged in the manufacture of cement. Explosive are used for blasting the mines in order to excavate limestone, which is used in the manufacture of Cement/clinkers in the factory situated at some distance away from the mines. Cenvat credit on explosives has been denied by the excise department of the ground that the explosives are not used as inputs within the factory of production. You are required to advise with reference to CENVAT Credit Rules 2004 whether the stand taken by the department is correct.

Question: Tanco Products Ltd. was using plastic crates as a material handling device within their factory premises. Such plastic crates were used for internal transportation of 'the raw material from stores to the processing machine, semi-finished goods from one machine to other machine and finished goods to their storage area. The appellant contended that the plastic crates were eligible capital goods for the purposes of CENVAT credit and alternatively as input. Department rejected the assessee's claim of CENVAT credit in respect of the duty paid on such plastics crates. Explain with the help of a decided case law, if any , whether the stand taken by the department is sustainable in law.

Removal of capital goods on which credit has been availed

Removal as such Rule 3(5)

Where capital goods, on which CENVAT credit has been availed are removed as such than the entire credit available on such goods shall be reversed immediately. However, if the assessee has not availed full credit, he is authorised to avail balance credit before making reversal.

This requirement will not be applicable where capital goods are removed for providing service outside.

Question - H. Ltd. Purchased a Boring-Drilling machine at a cum duty price of Rs. 32,14,476. The Excise duty rate charged on the said machine was @ 16%. The machine was purchased on depreciation @ 25% following Straight Line Method. Using the said information answer the following question:

(i) What is the Excise duty paid on the machine?

(ii) What is the Cenvat credit allowable under Cenvat Rules?

(iii) What is the amount of cenvat credit reversible or duty payable at the time of clearance of the said machinery, If removed as such?

Answer

Computation of duty, assessable value and CENVAT credit

Cum-duty Price3214476

Excise Duty @ 16.48% (3212476 X 16.48 / 116.48)454795

Assessable value2759681

CENVAT Credit allowable during first Financial year 50%227397

Balance credit allowable in any subsequent financial year 50%227398

Credit Reversible 100%454795

Working notes 1. As per Rule 4(2) of CCR, CENVAT credit is limited to the extent of 50% during the financial year in which capital goods are received and balance can be availed in any of the subsequent financial years , if the capital goods are in possession.

2. As per Rule 3(5), if capital goods are removed as such, 100% of the credit available shall be reversed and as per Rule 4(2), in case of such reversal, the assessee is authorised to avail balance credit also in the first financial year itself.Removal after use - Rule 3(5A)

In case of removal of capital goods after partial use, the assessee is authorised to retain prescribed amount of cenvat credit and balance credit shall be reversed.

For the purpose of this rule, capital goods have been divided into two categories i.e. computer and peripheral and all other capital goods.

Percentage of Credit that can be retained by the assessee

Computer and peripheralsOther capital goods

1st year for every three months or part10%For every 3 months or part thereof2.5 %

2nd year for every three months or part8%

3rd year for every three months or part5%

4th and 5th year - for every three months or part1%

The period of three months is to be counted from the date on which credit is availed.

Note: If amount of duty payable on transaction value is higher than the amount of CENVAT credit reversible, as calculated above, then such higher amount of duty shall be payable.

Removal of capital goods as Waste and Scrap Rule 3(5A)

If capital goods are removed as waste and scrap, then duty is payable on transaction value.

Question 1: ABC Limited purchased a pollution control equipment for Rs. 15,14,240 which is inclusive of excise duty @ 16% plus education cess and secondary and Higher Education Cess. The equipment was purchased on 01.09.2010 and disposed off as second hand equipment on 10.10.12 at a price of Rs. 12,00,000. Rate of excise duty on the date of disposal is 12% + EC + SHEC.

You are required to compute the amount of cenvat credit available during the financial year 2010-11 and during 2011-12.

What is the amount of duty payable or cenvat credit reversible at the time of removal of those goods.

Answer:

2010-20112011-12

CENVAT credit availed on 1.09.10 (50%)1,07,120Cenvat Credit availed on 01.04.20111,07,120

Date of removal10.10.2012Date of removal10.10.2012

Period since availing the credit2 years 1 month and 10 days = 9 quartersPeriod since availing the credit1 year 6 months and 10 days = 7 quarters

Credit allowed to be retained @ 2.5% for every 3 months or part (9 X 2.5 =22.5)22.5%Credit allowed to be retained @ 2.5% for every 3 months or part (7 X 2.5 =17.5)17.5%

Amount of Cenvat credit to be retained 24,102Amount of Cenvat credit to be retained18,746

Amount of cenvat credit to be reversed83,018Amount of cenvat credit to be reversed88,374

Total reversals required as per rates prescribed (83,018 + 88,374)1,71,392

Amount of duty on Rs. 12,00,000 @ 12.36%1,48,320

Since amount of cenvat credit required to be reversed as per prescribed rates is more than the amount of duty computed on transaction value @ 12%, higher of the two is payable/reversible i.e. Rs. 1,71,392

Question 2:

H Ltd. purchased a Boring-brilling machine at a cum-duty price of Rs. 32,14,476. The Excise duty rate charged on the said machine was @ 16% +EC+SHEC. The machine was purchased on 01.04.2011 and disposed of on 30.09.2012 for a price of Rs. 12 lakhs. The company was claiming depreciation @ 25% following Straight Line Method. Using the said information, answer the following questions:

(i) what is the Excise duty paid on the machine?

(ii) What is the Cenvat credit allowable under Cenvat Rules?

(iii) What is the amount of Cenvat credit reversible or duty payable at the time of clearance of the said machinery

Answer:

1. According to Rule 4(4), the assessee can either claim depreciation on the amount of duty or CENVAT credit.

2. The assessee is always authorised to claim depreciation for the value of goods excluding amount of duty for which CENVAT credit is claimed. This depreciation on the value of goods does not affect right of the assessee to claim CENVAT credit for the amount of duty paid on machine.

3. According to Rule 4(2), CENVAT credit on capital goods is limited to 50% during first financial year in which goods are received and balance credit can be availed in any of the subsequent financial years.

4. According to Rule 3(5A), if goods are removed after partial use, the assessee is entitled to retain 2.5% of the total credit for every three months or part thereof and balance credit shall be reversed.

Calculation of Excise duty, CENVAT credit and reversal

Cum duty price 32,14,476

Assessable Value 3214476 x 100/116.48 27,59,681

Excise duty including EC and SHEC 3% of duty4,54,795

Availability of Cenvat credit

During first year -50% of Rs. 454795 2,27,398

During subsequent year remaining 50% Of Rs. 454795 2,27,397

Credit of EC available only on payment of EC

Cenvat credit reversible at the time of clearance

Cenvat Credit availed in year 11-12 Rs. 2,27,398

Less: 2.5% per quarter for 6 quarters-15% 34410 1,93,288

Cenvat Credit availed in year 12-13 2,27,397

Less : 2.5% per quarter for 2 quarters 11371 2,16,027

Total amount of CENVAT credit reversible / payable at the time of clearance 4,09,315

Question: Solidmec Limited purchased 25 computer systems, eligible for capital goods under the Cenvat Credit Rules, 2004 on 01.07.2010 by paying a duty of Rs. 2400/- on each computer system. However, since these systems became outdated, it sold 20 computer systems out of 25 on 30.06.2012 at a residual value of Rs. 2000 each. Determine the amount of cenvat credit required to be reversed during the financial year 2012-13.

Answer: Since only 20 systems are disposed off by the assessee, the computation of cenvat credit will be only in relation to those 20 systems.

2010-20112011-12

CENVAT credit availed on 1.07.10 on 20 computer systems (50%)24,000Cenvat Credit availed on 01.04.2011 on 20 computer systems (50%)24,000

Date of removal30.06.2012Date of removal30.06.2012

Period since availing the credit Period since availing the credit

Credit allowed to be retained @ 2.5% for every 3 months or part (9 X 2.5 =22.5) Credit allowed to be retained @ 2.5% for every 3 months or part (7 X 2.5 =17.5)

Amount of Cenvat credit to be retained Amount of Cenvat credit to be retained

Amount of cenvat credit to be reversed Amount of cenvat credit to be reversed

Total reversals required as per rates prescribed

Amount of duty on Rs. 12,00,000 @ 12.36%

Problem for Practice

1. An assessee had procured machinery in April 2011 for Rs 10 lakhs by paying duty of Rs 1,60,000. It was commissioned in June 2011. Assessee had availed 50% Cenvat credit of Rs 80,000 in 20011-12, and Rs 80,000 (balance 50% credit) in 2012-13. He sold the capital goods after use, on 10th April 2103 as second hand goods for Rs 3,00,000. How much excise duty or amount is payable while clearing the machinery?

2. Machinotech Ltd. purchased a lathe machine at a price of Rs. 1,00,000 on which 16% Excise duty was paid and the company availed of the Cenvat credit on the said capital goods. The lathe machine was purchased on 27-01-2010 and it was disposed of on 29-04-2011. How much CENVAT credit and when it can be availed by the assessee. Is it necessary to reverse the cenvat credit on disposal of the machine? If your answer is yes, quantify the amount.Goods written off in the books of account Rule 3(5B)

Where any capital goods are written off, partially or fully or a provisions is made for the same, in the books of account prior to being put to use, then entire credit availed thereon shall be reversed and if such goods are utilised again at any time in future, then credit can be availed once again.

Sending out for repairs, maintenance etc. Rule 4(5)

If capital goods on which credit has been availed are required to be sent outside for getting those repaired, it requires prior approval of AC/DC and the approval is given subject to the condition that the goods shall be received back within 180 days otherwise the assessee shall reverse the credit and he can avail the credit once again on goods being received back.

Sending out for providing service

There is no provision to regulate the time within which capital goods sent outside for providing service shall be received back.Credit on InputsRule 2(k) input means (i) all goods used in the factory by the manufacturer of the final product; or

(ii) any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products; or

(iii) all goods used for generation of electricity or steam for captive use; or

(iv) all goods used for providing any output service; but excludes-

(A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol;

(B) any goods used for -

(a) construction or execution of works contract of a building or a civil structure or a part thereof; or

(b) laying of foundation or making of structures for support of capital goods,

except for the provision of service portion in the execution of a works contract or construction service as listed under clause (b) of section 66E of the Act;

(C) capital goods except when used as parts or components in the manufacture of a final product;

(D) motor vehicles;

(E) any goods, such as food items, goods used in a guesthouse, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; and

(F) any goods which have no relationship whatsoever with the manufacture of a final product.

Explanation.For the purpose of this clause, free warranty means a warranty provided by the manufacturer, the value of which is included in the price of the final product and is not charged separately from the customer;

Question: SC Ltd is a manufacturer of caustic soda, cement etc. It uses LSHS (Low sulphur heavy stock) as fuel for generating electricity which in turn is captively consumed for the manufacture of final products. It has been claimed CENVAT Credit on the reasoning that this is used in relation to manufacture of final products and hence this is input. However the department did not allow the credit as LSHS has been used to generate electricity which is not excisable and hence cannot be considered as input used as fuel.

State with reason whether the action taken by the department is covered by the CENVAT Credit Rules 2004.

Availing credit on inputs Rule 4(1)

A manufacturer can avail full cenvat credit on inputs as soon as goods are received by him in the factory. However, if the inputs are related to generation of electricity then cenvat credit is available even when such goods are received by the assessee outside the factory.

Rule 8 of CCR Depending on nature of goods or shortage of space in the factory, on such terms and conditions as the Commissioner deems fit, he may authorise storage of inputs outside the factory in a warehouse and to avail credit thereon in the factory. The place where inputs are allowed to stored outside the factory shall be treated as a factory for the purpose of CENVAT credit.A service provider can avail full cenvat credit on inputs as soon as inputs are received by him at any place. The receipt of inputs shall be supported by documentary evidence regarding time and place of delivery of goods.

Cenvat credit shall be availed only for the quantity actually received.

(a) If the quantity actually received is more than the quantity referred in the documents on the basis of which credit is to be availed then the credit is to be availed for the quantity referred in the documents.

(b) If the quantity actually received is less than the quantity referred in the documents on the basis of which credit is to be availed then the credit is to be availed for the quantity actually received.

(c) If any quantity of input is stolen or pilfered or wasted before being put to use then cenvat credit availed on such quantity shall be reversed.

A manufacturer/service provider can avail cenvat credit on inputs provided the inputs are not going to be used exclusively for manufacture of exempted goods or providing exempted output services.

Assessee can avail cenvat credit even if he has not paid for inputs goods or he has paid only partly or he has made part payment as full payment.

Question: The assessee is engaged in the manufacture of various types of packaging machines known as F & S machines. The machines are made to order according to the specifications of individual customer and such machines, before dispatch, are to be tested for customers satisfaction. On being satisfied by the customer, the makes entre in the RG-1 register (DSA) declaring the machined is manufactured and ready for clearance. For the proper testing, assessee procures flexible laminated plastic fill in roll form and poly paper (termed as inputs) which are excisable, and were used for testing, turning and adjusting carious parts of F & S Machine. Assessee filed a declaration and availed the benefit of Cenvat Credit for the duty paid on the said inputs. Department contended that the said material was used only for testing and as such, they cannot considered as inputs for manufacturing final product. Further, the Department opined that testing takes place only after manufacturing final product and any goods used in the process after manufacturing cannot be treated as inputs under rule 2(k) of the Cenvat Credit Rules, 2004. Assessees contention is that the manufacturing process would be completed only after the testing and as such inputs are used in or in relation to the manufacturing and that the input need not be present in the final product and, therefore, they have a right to claim the cenvat credit.

Answer: Facts In the case of Flex Engg. Ltd. Vs. CCEx., 2012 (SC) the Assessee claimed credit for the material used during testing of machine manufactured by it. Manufacture of machine is complete only after testing.

Dispute Credit cannot be claimed for the material used during testing of machine because it is used after manufacture.

Decision As per submissions by the assessee the court accepted that the machine is marketable only after it has been tested and made fit as per customers requirement. It means manufacture is not complete until testing. Therefore, material used during testing is eligible for credit.

Question: Rokasa Limited was engaged in the manufacture of a pharmaceutical product viz., Rovamox Pediatric Drops. Rokasa Limited contended that the plastic droppers cupplied with the bottle containing the drops were inputs used in or in relation to manufacture of the final product and so, claimed cenvat credit of the duty paid on the Droppers. However, the Revenue argued that Cenvat credit was not admissible as these droppers were kept separately in the cartons along with the sealed bottles of the pediatric drops and were neither used in manufacture of the pediatric drops nor used in relation to its manufacture. Briefly discuss whether the stand taken by the Department is correct or not.

Answer: Facts in the given case are similar to the case of Okasa Limited, 2009 (Bom).

As per the directions given by the Controller of Drugs, such droppers are mandatory for the sale of drugs. Therefore, such droppers will be treated as packing material.

As per the definition of the inputs, all the goods which are removed with the finished goods are to be treated as inputs provided the value of such goods has been included in the value of finished goods.

Keeping in mind, all the facts given in the question, it can be concluded the droppers are eligible to be treated as inputs and, thus, the assessee is entitled to avail cenvat credit.

Question: Based on the following information, determine the CENVAT Credit available for use in the current year under the CENVAT Credit Rules, 2004

Amount after each item indicates Central Excise duty paid at the time of Purchase of goods. EC and SHEC is in addition to the amount of duty

(Rs.)

(a) Pollution control equipments -

Rs 25,000

(b) Spares for pollution control equipments -

Rs 5,000

(c) Equipments used in office -

Rs 12,000

(d) Storage Tank -

Rs 10,000

(e) Paints used for painting machinery used -

Rs 6,000

(f) Packing material -

Rs 4,000

(g) Lubricating oils -

Rs 8,000

(h) High Speed diesel oil -

Rs 7,000

Question: Discuss about the eligibility of CENVAT Credit in each of the following situations

(i) 1000 kgs of raw materials were purchased on which duty of Rs. 16,000 was paid. Whilst in the production yard those goods were destroyed by accidental fire.

(ii) 1000 kgs of raw materials on which duty paid was Rs. 10,000 was used in manufacture of a final product for which the duty payable is Rs. 8000

(iii) The original invoice for 1,000 units of inputs purchased were missing; however duplicate for transport copy of invoice is available, which shows that duty of Rs. 10,000 had been paid on inputs

Question: ABC Co. Limited procured the following inputs during the month of January. Determine the amount of cenvat credit available with necessary explanation for the treatment of the various items

Items

Duty paid

(a) Raw material

52,000

(b) Manufacturing machine

1,00,000

(c) Light diesel oil

40,000

(d) Greases

10,000

(e) Office Equipment

20,000

(f) Paints

5,000

Note: ABC CO. Limited is not eligible to avail exemption under notification No. 8/2003.

Answer:

ItemAmount of CreditReason

Raw Material 52,000Being input, it is eligible for 100% Credit

Manufacturing machine50,000Being capital goods, Cenvat credit is limited to 50%

Light diesel oil-Excluded from the definition of inputs. Therefore, no cenvat credit

Greases10,000Being input, it is eligible for 100% Credit

Office Equipment Not treated as capital Goods. Therefore, no cenvat credit

Paints5,000Assumed that used in relation to finished goods. Therefore, treates as inputs

Question: XYZ Co. is engaged in manufacture of water pipes. From the following details for the month of May compute the available cenvat credit under the Cenvat Credit Rules, 2004. Cenvat paid on the purchases as detailed below

Items

Duty amounts

(a) Raw Material

Rs. 22,000

(b) Water pipe making machine

Rs. 18,000

(c) Spare parts of the above machine

Rs. 7,500

(d) Grease and oil

Rs. 2,800

(e) Office Equipment

Rs. 20,000

(f) Diesel

Rs. 12,000

(g) Pollution control Equipment

Rs. 22,000

Answer: Since the question does not indicate that the assessee is availing SSI exemption under Notification No. 8/2003, for the purpose of cenvat credit it is presumed that the assessee is not availing this exemption.

ItemsAmount of Cenvat Credit in Rs.Reason

Raw Material22,000Raw material is an input and eligible for 100% cenvat credit

Water pipe making machine9,000Being capital goods, it is eligible for 50% cenvat credit

Spare parts3,750Being capital goods, it is eligible for 50% cenvat credit

Grease and Oil2,800Being inputs, it is eligible for 100% cenvat credit

Office Equipment-Office equipments are not regarded as capital goods. Therefore, no cenvat credit.

Diesel-Diesel is excluded from the category of inputs. Therefore, no cenvat credit.

Pollution Control equipments11,000Being capital goods, it is eligible for 50% cenvat credit in the first financial year

Total Credit48,550

Question: Hero automobiles is engaged in the manufacture of motor cars. Compute the amount of cenvat credit admissible from the following particulars where required

Goods purchased

Duty paid at the time of purchase of goods

Raw Steel

5,00,000

Batteries

2,00,000

Cutting oil

70,000

Electric lamps for lighting manufacturing area80,000

Answer: Assuming that the assessee is not availing SSI exemption under Notification No. 8/2003,

ArticleAmount of cenvat creditReason

Raw Steel5,00,000Raw steel is an input and eligible for 100% cenvat credit

Batteries2,00,000Batteries are the inputs for motor car manufacturer and it is eligible for 100% cenvat credit

Cutting oil70,000

Electric lamps40,000Being capital goods, it is eligible for 50% cenvat credit in the first financial year

Total Credit8,10,000

Question: R & Co. Limited have cleared their manufactured final product during April and the duty payable is Rs. 2,40,000 + EC and SHEC. Given below are the details of the excise duty paid by the assessee during the month at the time of purchase of goods:

ItemDuty amount in Rs. (Excluding EC and SHEC)

(i) On inputs (RM)1,00,000 (invoice for excise duty of Rs. 20,000 was received on 4th May)

(ii) On input service20,000

(iii) On welding electrodes used for repairs of capital goods5,000

(iv) Fuel (Excluding HSD/Petrol)6,000

(v) Storage Tank8,000

(vi) Tubes and Pipes used in factory14,000

(vii) Air-conditioner for office of the factory manager12,000

Compute the amount of duty payable in cash.

Answer:

Duty Payable

Excise DutyEducation CessSHECTotal

2,40,0004,8002,4002,47,200

Amount of cenvat credit

ItemCredit of EDCredit of ECCredit of SHECTotalReason

(i) On inputs (RM)80,0001,60080082,400100% Cenvat credit is available on inputs

(ii) On input service20,00040020020,600100% Cenvat credit is available on input service

(iii) On welding electrodes used for repairs of capital goods5,000100505,150100% Cenvat credit is available on inputs

(iv) Fuel (Excluding HSD/Petrol)6,000120606,180100% Cenvat credit is available on inputs

(v) Storage Tank4,00080404,120On capital goods, cenvat credit is limited to 50% in the first Financial Year

(vi) Tubes and Pipes used in factory7,00070357,105On capital goods, cenvat credit is limited to 50% in the first Financial Year

(vii) Air-conditioner for office of the factory manager----Since used in office, no cenvat credit is allowed

Total Credit1,25,555

Duty payableRs. 2,47,200

Cenvat creditRs. 1,25,555

Duty payable in cashRs. 1,21,645

Removal of inputs on which credit has been availed

Removal as such Rule 3(5) - As Such means unused

Where inputs, on which cenvat credit has been availed are removed as such than the entire credit available on such goods shall be reversed immediately.

Any such reversal is not required where inputs are required to be removed as such for providing service related to guarantee/warrantee offered along with the goods and the value of which is already included in the value of finished goods.

Goods written off in the books of account Rule 3(5B)

Where any inputs are written off in the books of account, partially or fully or even if a provisions if made for the same, prior to being put to use, then entire credit availed thereon shall be reversed and if such goods are utilised again at any time in future, then credit can be availed once again.

Goods destroyed Rule 3(5C)

Where any of the finished goods are destroyed before removal and remission of duty is allowed under Rule 21 of the Central Excise Rules, 2002, the assessee shall reverse the credit taken for inputs used in manufacture of such goods.

Rule 21 of Central Excise Rules, 2002: Remission of duty

Where finished goods are destroyed or lost or those become non-marketable otherwise, before removal from the factory due to any reason, then on an application of the assessee, the Central Excise officer may allow remission (waiver) of duty on such goods, within the limit prescribed.

OfficerAmount of duty upto which remission can be allowed by him

Superintendent

Rs. 10,000

Asst./Dy. CommissionerExceeding Rs. 10,000 but not exceeding Rs. 1,00,000

Jt. CommissionerExceeding Rs. 1,00,000 but not exceeding Rs. 5,00,000

CommissionerExceeding Rs. 5,00,000

Inputs sent for job work Rule 4(5) and 4(6)

Where any of the inputs or semi-finished goods are required to be sent outside for job-work without reversal of credit or without payment of duty, as the case may be, the assessee is authorized to remove the goods provided those are received back within 180 days failing which he shall reverse the credit and if goods are received back subsequently, credit can be taken again.

Under Rule 4(6), the AC/DC may give a special permission to the assessee to remove the finished goods from the premises of the Job-worker. Any such permission is valid for the financial year during which it is given

If permission is obtained under Rule 4(6), then condition of bringing back the goods within 180 days, as given under Rule 4(5) will not be applicable.

Question - Briefly discuss with the reasons whether in the following case Cenvat Credit is available to an assessee and, if yes to what extent?

An assessee purchased inputs weighing 1,000 Kgs. The duty paid on inputs was Rs. 10,000 but during transit, 500Kgs inputs were destroyed.

Answer Since the assessee has received only 500 Kgs inputs in the factory, he can avail credit only to the extent of Rs. 5000 because as per rule 4(1) of CENVAT Credit Rules, 2004 the CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or provider of output service.

Rule 2 of CCR, 2004 provides that any goods used in the factory where finished goods are manufactured are eligible as inputs. Therefore, the goods which are not even received in the factory cannot considered to be inputs.

Recovery of CENVAT credit

Vide notification No. 3/2013, an explanation has been inserted after Rule 3(5B) which states that If the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rules (5), (5A), and (5B), it shall be recovered, in the manner as provided inrule 14, for recovery of CENVAT credit wrongly taken.

Input Service

Rule 2(l) input service means any service, -

(i) used by a provider of output service for providing an output service; or

(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,

and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; but excludes,-

(A) service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for -

(a) construction or execution of works contract of a thereof; orbuilding or a civil structure or a part

(b)laying of foundation or making of structures for support of capital goods,

except for the provision of one or more of the specified services; or

(B) services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or

(BA) service of general insurance business, servicing, repair and maintenance , in so far as they relate to a motor vehicle which is not a capital goods, except when used by -

(a) a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person ; or

(b) an insurance company in respect of a motor vehicle insured or reinsured by such person; or

(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee;

Availing CENVAT credit on input services Rule 4(7)

The CENVAT credit in respect of input service shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan referred to in rule 9 is received:

Provided that in case of an input service where the service tax is paid on reverse charge by the recipient of the service, the CENVAT credit in respect of such 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 indicated in invoice, bill or, as the case may be, challan referred to in rule 9:Provided further that in case the payment of the value of input service and the service tax paid or payable as indicated in the invoice, bill or, as the case may be, challan referred to in rule 9, is not made within three months of the date of the invoice, bill or, as the case may be, challan, the manufacturer or the service provider who has taken credit on such input service, shall pay an amount equal to the CENVAT credit availed on such input service and in case the said payment is made, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these rules:

Provided also that if any payment or part thereof, made towards an input service is refunded or a credit note is received by the manufacturer or the service provider who has taken credit on such input service, he shall pay an amount equal to the CENVAT credit availed in respect of the amount so refunded or credited:

Provided also that CENVAT credit in respect of an invoice, bill or, as the case may be, challan referred to in rule 9, issued before the 1st day of April, 2011 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 indicated in invoice, bill or, as the case may be, challan referred to in rule 9.Explanation I.- The amount mentioned in this sub-rule, unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, when such payment shall be made on or before the 31st day of the month of March.

Explanation II. - If the manufacturer of goods or the provider of output service fails to pay the amount payable under this sub-rule, it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken.

Explanation III.- In case of a manufacturer who avails the exemption under a notification based on the value of clearances in a financial year and a service provider who is an individual or proprietary firm or partnership firm, the expressions, following month and month of March occurring in sub-rule (7) shall be read respectively as following quarter and quarter ending with the month of March.

Question: M/s Ojha Cements Limited (OCL) was engaged in the business of manufacturing and selling of cement and had been duly paying the excise duty in respect of cement produced by it. OCL supplied cement to its customers "FOR destination" and bore the freight up to the door steps of the customer i.e. the destination point. The assessee (OCL) had taken the CENVAT credit of the service tax paid on the aforementioned freight by it. The Department contended that the payment of service tax on the freight incurred by the assessee was not input service as per rule 2(l) of the CENVAT Credit Rules, 2004 and hence the CENVAT credit was not admissible on it under the said rules. Explain whether the stand taken by Department is tenable in law.

Question: Answer with reference to the CENVAT Credit Rules 2004 whether a manufacturer of excisable goods who has paid Service tax on freight can himself take credit of Service Tax paid , if such transportation service in relation to the manufacture and clearance of his final products?

CENVAT credit on goods procured from 100% EOU or a unit in STP/HTP etc. Rule 3(7)

The CENVAT credit in respect of inputs and capital goods cleared from an export-oriented undertaking or by a unit in Electronic Hardware Technology Park or in a Software Technology Park, as the case may be, on which such undertaking or unit has paid -

(A) excise duty leviable under section 3 of the Excise Act (Excise duty shall be the aggregate of Additional Custom Duty under section 3(1) of the Custom Tariff Act and Special Additional custom Duty under section 3(5) of the Custom Tariff Act)

(B) the Education Cess leviable under section 91 read with section 93 of the Finance (No. 2) Act, 2004 and

(C) the Secondary and Higher Education Cess leviable under section 136 read with section 138 of the Finance Act, 2007, on the excise duty referred to in (A)

Explanation.- Where the provisions of any other rule or notification provide for grant of whole or part exemption on condition of non-availability of credit of duty paid on any input or capital goods, or of service tax paid on input service, the provisions of such other rule or notification shall prevail over the provisions of these rules.

Note BCD is 50% exempt in case of removal of goods by Notification No. 1005 EOU to DTA [Notification NO. 23/2003]

Question: Based on the following particulars determine the amount for which cenvat credit will be available when goods are removed by 100% EOU to DTA.

Assessable value Rs. 20.00 lacs, Rate of Basic Custom Duty 10%, Additional custom duty @ 15%, Spl ACD @ 4%

Answer: Computation of amount of cenvat credit

AmountCenvat Credit

Assessable Value20,00,000

BCD @ 5%1,00,000Not available

ACD @ 16%3,36,000Available

EC on ACD6,720Available

SHEC on ACD3,360Available

Total amount of cenvat Credit3,46,080

Question: From the following determine the amount for which cenvat credit will be available if the goods are manufactured in 100% EOUu and brought to DTA for being used in manufacture of dutiable goods

No. of units 1,000

Assessable value Rs. 750/- per unit

Rate of Basic Custom Duty 12%

Rate of ACD 15%

AmountCenvat Credit

Assessable Value (1000 X 750)7,50,000

BCD @ 6%45,000Not available

ACD @ 16%1,27,200 Available

EC on ACD2,544 Available

SHEC on ACD1,272Available

Total amount of cenvat Credit1,31,016

Availability of CENVAT credit under various situations

SituationSolution

a.The inputs are procured from a registered First stage dealer under the cover of invoice in which amount of duty shown is Rs. 13,200/-. The Invoice was marked ORIGINAL FOR BUYER. As per Rule 9, CENVAT credit can be availed on the basis of invoice issued by registered First Stage Dealer, for the amount of duty shown therein. In the given case Cenvat credit is available for Rs. 13,200.

b.Machinery falling under chapter heading 84 received along with invoice marked DUPLICATE FOR TRANSPORT indicating the amount of duty Rs. 7,600. [assume that the amount shown includes EC as well as SHEC]According to Rule 2(a) Machinery falling under chapter 84 are the Capital Goods. As per Rule 4(2), CC on capital goods can be availed upto 50% of the amount of duty during the first Financial year in which goods are received and balance can be availed in any of the subsequent financial years. Therefore, in the given case amount of credit during the first financial year cannot exceed Rs. 3,800 (50%) and balance can be availed in any subsequent financial year.

c.Some inputs were directly sent on 1st of the month for job work to the factory of job worker, from place of the input supplier, without bringing them in factory. As per the invoice of supplier of inputs, duty paid on inputs was Rs. 5,000. Out of these inputs, 80% were received in the factory on 14th of the month, after carrying out job work.

According to Rule 4(1), CENVAT credit on inputs can be received only when inputs are received in the factory, for the quantity actually received. In the given case, the assessee can avail the credit for Rs. 4000 (80%) when inputs are received in the factory along with documents, referred under rule 9, showing amount of duty.

d.Some spare parts of machinery falling under chapter 84 received with invoice indicating amount of duty Rs. 1,600/-. The Invoice was marked DUPLICATE FOR TRANSPORT.

According to Rule 2(a), spare parts of Machinery falling under chapter 84 are the Capital Goods. As per Rule 4(2), CC on capital goods can be availed upto 50% of the amount of duty during the first Financial year in which goods are received and balance can be availed in any of the subsequent financial years. Therefore, in the given case amount of credit during the first financial year cannot exceed Rs. 800 (50%) and balance can be availed in any subsequent financial year.

e.Some Inputs received under the cover of invoice indicating amount of duty Rs. 4,500/-. The Invoice was marked DUPLICATE FOR TRANSPORT and it did not contain time of removal from the factory.

According to Rule 9(2) of the CCR, if there is any defect in invoice, Cenvat credit can be availed only with permission of AC/DC.

In the given case, failure to mention time of removal on the invoice is a defect. Therefore, CC cannot be availed except with the prior approval of AC/DC.

If such approval is obtained then CC will be available for Rs. 4500/-

f.Assessee received some inputs are the cover of an invoice. The invoice is not in the name of assessee.

According to Rule 9(1), CENVAT credit can be availed on the basis of certain specified documents. The rule does not require that the invoice should be in the name of the assessee. Therefore, assessee can avail the CC on the basis of invoice even though it is not in his name provided goods are in his possession.

g.An consignment of imported inputs was received vide Bill of Entry showing payment of following duties BCD - Rs. 1,000, CVD - Rs. 1,760, Special CVD Rs. 515 and applicable EC+SHEC. According to Rule 3(1) of CCR, CC is not available for BCD but it is available for --

1. CVD - Rs. 1,760

2. Spl CVD Rs. 515

h.A consignment of 1,000 Kg of inputs was received. The excise duty paid was per invoice was Rs. 10,000. While the inputs were being unloaded, 50 Kgs were damaged and it was found that these were not usable.

According to Rule 2(k), Inputs are the goods which are used in the factory. If the material is received but it cannot be used, then it cannot termed as Input and CC cannot availed on unusable material.

In the given case, 50 Kgs of inputs are not usable. Therefore, credit can be availed for 950 Kgs only i.e. Rs. 9,500.

i.Some inputs were received along with photo copy of the Invoice. The original or duplicate copy of Invoice was not traceable.

Cenvat credit cannot be taken on basis of photo copy. If assessee can procure triplicate copy (available with supplier), then he can avail Cenvat credit.

j.500 pieces of inputs were received. duty paid on these goods was Rs. 2,500. These were issued to production. While on production line, a fire broke out and 200 pieces of inputs lying on shop floor were destroyed.

CENVAT credit is available for all the inputs used in the factory even if those are destroyed during the process of manufacture. In the given case reversal of credit is not required for inputs destroyed during the process of manufacture.

k.1000 litres of inputs were received on which duty paid was Rs. 10,000. Out of these, 950 litres of final products were manufactured. 50 litres of inputs were lost during the process of manufacture

Same as above

l.Some inputs were received on which duty paid was Rs. 20,000. Assessee used 60% of the inputs but balance 40% could not be used due to change in design. He made provision for obsolete goods written off in his books of account. However, the inputs were still in his store room.

According to rule 3(5B) if inputs are written off in the books of account or a provision is made to write off, before inputs are put to use, then the CC availed on the inputs shall be reversed.

Therefore, in the given case, the assessee is required to reverse Rs. 8,000 (40% of the total credit on inputs).

The rule further provides that if such inputs are used again then assessee can avail CC again.

m.Cenvat credit of Rs. 10,000 was taken on some inputs. These were never used and later sold as scrap for Rs. 15,000. Excise duty payable on scrap is 16.48%. In this case, the assessee will have to reverse Cenvat credit of Rs. 10,000. [Rule 3(5)]

Practical Problems on CENVAT Credit

Note: In many question education cess has and SHEC has not been mentioned. You should assume that EC and SHEC is also paid in addition to the amount of duty.

Problem No 1

An assessee was availing SSI exemption from 1-4-2012. He crossed turnover Rs. 150 lakhs on 15-11- 2012 and started payment of excise duty. He had received machinery on 10-11-2012 one which excise duty paid was Rs. 3,20,000. He intends to avail Cenvat credit of this duty. Can he do so?

Solution According to Rule 4(2), an assessee availing SSI exemption is entitled to availed 100% CENVAT credit on capital goods during the financial year in which those goods are received. CENVAT credit is available on capital goods irrespective of the fact that the assessee is availing SSI exemption. This credit can be used by the assessee only after his exemption limit is exhausted.

In the given case, Capital goods are received during exemption period. Therefore, the assessee can avail 100% CENVAT credit during the same financial year.

Problem No 2

(1) The assessee received 500 pieces of inputs on which duty of Rs. 2500/- has been paid. While on production line, a fire broke out and 200 pieces of inputs lying on the shop floor were destroyed.

(2) 1000 litres of oil, an input, was received on which duty of Rs. 18,000 has been paid. 60 liters of oil has been lost during the process of manufacture.

Discuss availability of CENVAT credit in both of these cases.

Solution (1) Material destroyed before being used does not qualify to be input. Therefore, CENVAT credit availed on 500 units destroyed due to file shall be reversed/paid back by the assessee.

(2) All the material used in the factory is said to be input. 60 liters of oil lost during the process of manufacture is said to have been used. Therefore, CENVAT credit is admissible for entire 1000 liters.

Problem No. 3

Examine the validity of the following statements:

(i) Purchased a plant for Rs. 1,16,480 cum-duty price. Excise duty rate 16.48% on 12.12.2011 and received the plant into the factory on 5.4.2012. Cenvat allowed will be only Rs. 8,240 for the year ended on 3 1.3.2012.

(ii) An assessee purchased inputs weighting 400 tons. The duty paid on inputs was Rs. 40,000. During transit, 20 tons of the inputs were destroyed. The destroyed quantity of inputs does not qualify to be inputs within the meaning of Cenvat Credit Rules, 2004.

Answer

(1) As per Rule 4(2), CC on capital goods can be availed on being received in the factory and not on the date of purchase. In the given case, the goods are purchased on 12.12.2011 but those are received on 05.02.2012. Therefore credit cannot be availed before 5.04.2012. In other words, no CENVAT credit is admissible during the financial year 2011-12.

During financial year 2012-13 also CENVAT credit is limited to 50% i.e. Rs. 8240 and balance credit can be availed during any of the subsequent financial years.

(2) The statement is correct. It is to be noted that the material destroyed before being put to use in the factory does not qualify to be input and, thus, CC is not admissible on the quantity so lost.Problem No 4

A manufacturer procures certain inputs for Rs. 1,00,000 and duty Rs. 16,000 +EC+SHEC. As soon as he receives the inputs, he availed CENVAT credit.

Since he does not require these inputs any more, he sells those for Rs. 1,30,000 (lump sum). Examine the amount of duty payable by the assessee if

(a) On the date of clearance, duty rate on inputs was 20%

(b) On the date of clearance, duty rate on inputs was 10%.

Solution:

According to Rule 3(5) of the CENVAT Credit when inputs are removed as such, the assessee is required to reverse or pay back the amount of CENVAT credit taken by the assessee. Therefore, in the given case, the assessee need not pay any duty but he shall reverse the CENVAT credit taken by him on inputs.

It is to be noted that while making reversal, change in value as well as in rate of duty becomes immaterial.

It is also relevant to note that the reversal is required to be made immediately on removal of goods. In case of reversal facility of making payment of duty on monthly or quarterly basis does not apply.

Similar sum for practice

An assessee had procured some inputs in May 2012 for Rs. 20 lakhs and paid duty of Rs. 3,20,000 ( @ 16%) plus education cess of Rs. 6,400. He was unable to use the inputs in view of change in market conditions. He sold the inputs in March 2013 for Rs. 16,00,000. How much duty or amount is payable while clearing the inputs?

Problem No. 5

M/s ALM imported some inputs and paid Basic Customs duty Rs. 5 lakhs, surcharge on customs duty Rs. 50,000 and ACD Rs. 1 lakh. Calculate the amount that he can claim as Cenvat credit. Would it make any difference, if the assessee is not a manufacturer, but a service provider (CA Final May 2006)

Answer As per Rule 3(1) of the Cenvat Credit Rules, 2004, CENVAT credit is not available for Basic Custom Duty as well as for any Surcharge thereon. It is available only for Additional Custom duty paid under section 3(1) of the Custom Tariff Act.

A service provider can avail credit only if the imported goods are used by him as input for providing output service.

Problem No. 6

Based on the following information, determine the CENVAT Credit available for use in the current year under the CENVAT Credit Rules, 2004

[Amount after each item indicates Central Excise duty paid at the time of Purchase of goods. EC and SHEC is in addition to the amount of duty]

(Rs.)

(a) Pollution control equipments -

Rs 25,000

(b) Spares for pollution control equipments -

Rs 5,000

(c) Equipments used in office -

Rs 12,000

(d) Storage Tank -

Rs 10,000

(e) Paints used for painting machinery used -

Rs 6,000

(f) Packing material -

Rs 4,000

(g) Lubricating oils -

Rs 8,000

(h) High Speed diesel oil -

Rs 7,000

Answer:

Particulars of goods Nature of Goods Duty paid Education Cess Cenvat Credit Eligible in Current year Reason Remarks

Pollution Control Equipments Capital goods 25000 750 12500 375 CENVAT credit is limited to 50%

Spares for Pollution control Equipment Capital goods 5000 150 2500 75 CENVAT credit is limited to 50%

Equipment used in office Not a Capital goods 12000 360 Nil Nil Credit is not available for the goods used in office.

Storage Tank Capital goods 10000 300 5000 150 CENVAT credit is limited to 50%

Paints used for painting Machinery Inputs 6000 180 6000 180 100% Credit is available on Inputs

Packing Material Inputs 4000 120 4000 120 100% Credit is available on Inputs

Lubricating Oils Inputs 8000 240 8000 240 100% Credit is available on Inputs

High speed diesel Not a Input 7000 210 nil No CENVAT Credit.

Total Credit available in Current year380001140

Problem No. 7 Discuss about the eligibility of CENVAT Credit in each of the following situations

(ii) 1000 kgs of raw materials were purchased on which duty of Rs. 16,000 was paid. Whilst in the production yard those goods were destroyed by accidental fire.

(iii) 1000 kgs of raw materials on which duty paid was Rs. 10,000 was used in manufacture of a final product for which the duty payable is Rs. 8000

(iv) The original invoice for 1,000 units of inputs purchased were missing; however duplicate for transport copy of invoice is available, which shows that duty of Rs. 10,000 had been paid on inputs

Answer

(i) Credit is available on inputs only when used in manufacture. If inputs are destroyed before being used in the process of manufacture, CENVAT credit already availed shall be reversed or paid back. In other words, in the given case, CENVAT credit is not available.

(ii) If finished goods are dutiable then full CENVAT credit is available on inputs. It is immaterial that the amount of duty paid on input is higher than the duty payable on the finished goods. Therefore, in the given case, credit is available for Rs. 10,000 out of which Rs. 8,000 shall be utilized to pay duty on finished goods and balance Rs. 2,000 shall be carried forward.

(iii) As per rule 9 of the CCR, CENVAT credit can be availed on the basis of certain specified documents only. Rule 9 does not require only original copy for availing the credit. As long as all the particulars are available on the transporters copy, credit can be availed.

Problem No. 9

H Ltd. purchased a Boring-brilling machine at a cum-duty price of Rs. 32,14,476. The Excise duty rate charged on the said machine was @ 16% +EC+SHEC. The machine was purchased on 01.04.2011 and disposed of on 30.09.2012 for a price of Rs. 12 lakhs. The company was claiming depreciation @ 25% following Straight Line Method. Using the said information, answer the following questions:

(i) what is the Excise duty paid on the machine?

(ii) What is the Cenvat credit allowable under Cenvat Rules?

(iii) What is the amount of Cenvat credit reversible or duty payable at the time of clearance of the said machinery

Solution

1. According to Rule 4(4), the assessee can either claim depreciation on the amount of duty or CENVAT credit.

2. The assessee is always authorised to claim depreciation for the value of goods excluding amount of duty for which CENVAT credit is claimed. This depreciation on the value of goods does not affect right of the assessee to claim CENVAT credit for the amount of duty paid on machine.

3. According to Rule 4(2), CENVAT credit on capital goods is limited to 50% during first financial year in which goods are received and balance credit can be availed in any of the subsequent financial years.

4. According to Rule 3(5A), if goods are removed after partial use, the assessee is entitled to retain 2.5% of the total credit for every three months or part thereof and balance credit shall be reversed.

Calculation of Excise duty, CENVAT credit and reversal

Cum duty price 32,14,476

Assessable Value 3214476 x 100/116.48 27,59,681

Excise duty including EC and SHEC 3% of duty4,54,795

Availability of Cenvat credit

During first year -50% of Rs. 454795 2,27,398

During subsequent year remaining 50% Of Rs. 454795 2,27,397

Credit of EC available only on payment of EC

Cenvat credit reversible at the time of clearance

Cenvat Credit availed in year 11-12 Rs. 2,27,398

Less: 2.5% per quarter for 6 quarters-15% 34410 1,93,288

Cenvat Credit availed in year 12-13 2,27,397

Less : 2.5% per quarter for 2 quarters 11371 2,16,027

Total amount of CENVAT credit reversible / payable at the time of clearance 4,09,315

Problem for Practice

1. An assessee had procured machinery in April 2011 for Rs 10 lakhs by paying duty of Rs 1,60,000. It was commissioned in June 2011. Assessee had availed 50% Cenvat credit of Rs 80,000 in 20011-12, and Rs 80,000 (balance 50% credit) in 2012-13. He sold the capital goods after use, on 10th April 2103 as second hand goods for Rs 3,00,000. How much excise duty or amount is payable while clearing the machinery?

2. Machinotech Ltd. purchased a lathe machine at a price of Rs. 1,00,000 on which 16% Excise duty was paid and the company availed of the Cenvat credit on the said capital goods. The lathe machine was purchased on 27-01-2010 and it was disposed of on 29-04-2011. How much CENVAT credit and when it can be availed by the assessee. Is it necessary to reverse the cenvat credit on disposal of the machine? If your answer is yes, quantify the amount.Problem No. 10

UTV Limited manufactures 10,000 units of Product A having assessable value of Rs. 400/- per unit attracting duty of Rs. 16/- per unit (all inclusive). UTV Limited has paid duty of Rs. 3,00,000 on inputs. Out of 10,000 units manufactured by UTV Limited, 2,000 units are sold in India and remaining 8,000 are exported. Based on these fact, answer the following questions

(i) What is CENVAT credit available?

(ii) What is the duty payable through personal ledger account (PLA)?

(iii) Can UTV Ltd. get any refund of CENVAT credit?

Answer:

(i) CENVAT credit is available for the inputs used in manufacture of dutiable goods. Export goods are also dutiable if sold in India but particular transaction of export is exempt. Export goods cannot be referred as exempted goods. Therefore, credit is available even for the inputs used in manufacture of export goods.

In the given credit the assessee is entitled to get credit of Rs. 3,00,000 i.e. duty paid on inputs.

(ii) Duty is payable only on the goods removed within India. The assessee is required to pay duty on 2000 units @ Rs. 16/- per unit i.e. Rs. 32,000. The assessee is having sufficient credit balance, therefore nothing is payable through PLA (cash).

(iii) Yes, the assessee is entitled for refund. According to Rule 5 of CCR, the assessee is entitled to get refund of CENVAT credit availed on inputs used in manufacture of export goods in accordance with the prescribed formula.

Apply your understanding

A manufacturer manufactures 1,000 units of product P having a, Assessable Value of which is Rs. 2,000 per piece. Duty payable is 20%.

Duty paid on raw materials is Rs. 2,00,000+EC+SHEC. The manufacturer sells 700 pieces in India and 300 pieces are exported. What is CENVAT available and what is the duty payable through PLA?

Problem No. 11

MIs Tips and Toes Ld., manufactures four types of Nail Polishes, namely Sweety, Pretty, Beauty, Tweety. The company has availed CENVAT credit of Rs. 4,00,000 on the common inputs used in the manufacture of Nail Polishes during the financial year 2011-12 the company manufactured 1000 litres of each type of Nail Polishes. The CENVAT availed input was used in equal proportion in all the four types of the products. Examine the availability of Cenvat Credit and duty payable

Product Nature of Sale Sale Price excluding Sales Tax & other local taxes

Sweety Sale to Home Consumption Rs. 30 per 20 ml bottle

Pretty Sold to a 100% EOU Rs. 40 per 20 ml bottle

Beauty Fully exported Rs. 50 per 20 ml bottle

Tweety Supplied to defence Canteen under exemption Rs. 60 per 20 ml bottle

Solution The assessee is authorised to avail full CENVAT credit for the inputs used in manufacture of the goods which are removed for

1. Home consumption

2. Export

3. Supplied to 100% EOU

In respect of goods supplied to defence canteen, the assessee is having following options

1. If assessee is maintaining separate record for use of inputs used in manufacture of various articles, then CENVAT credit cannot be availed on the inputs used in manufacture of goods supplied to defence canteen or

2. On removal of goods to defence canteen duty can be paid @ 6% or

3. CENVAT credit availed on inputs used in manufacture of goods supplied to defence can be reversed in accordance with the formula prescribed under rule 6(3A).

Problem No 12

An assessee cleared his manufactured final Product during the month of January 2013. The duty payable on the final product for the month is

Basic excise duty Rs. 48,000,

NCCD Rs.2000 and applicable education cess.

During the month he has received various inputs total duty paid on the inputs was as follows.

Basic Excise duty Rs. 40000,

Special excise duty 4000,

Service tax paid on input services Rs. 8000.

Applicable education cess and SHEC was also paid. How much duty is payable through account current

Solution

BEDSEDNCCDService Tax EC and SHECTotal

Credit available40,0004,00080001,60053,600

Duty payable48,0002000150051500

BED can be paid out of credit of BED, SED as well as ST. There is surplus credit of Rs. 4,000.NCCD is payable only in cash or out of NCCD credit. Since there is no credit for NCCD, then it is payable in cash onlyThis credit can be used to pay BED, SED, EC, SHECCredit exceeds the liability. Therefore, excess credit can be carried forward

Problem for Practice

An assessee cleared his manufactured final Product during the month of March 2013. The duty payable on the final product for the month is

Basic excise duty Rs. 200000,

Special excise duty Rs. 1,00,000 and applicable education cess.

During the month he has received various inputs total duty paid on the inputs was as follows --

Basic Excise duty Rs. 50000,

Special Excise duty is Rs. 5000.

Excise duty paid on capital goods received during the month was Rs. 12000

Service tax paid on inputs Rs. 1000,

Applicable EC and SHEC was also paid. How much duty is payable through account current

Problem No 13

X availed Cenvat credit of Rs. 42,000 for manufacture of an item chargeable to duty. These goods were lying in his factory till 29-02-2013. From 1.3.2013 the final product was made exempt from duty. What is the responsibility of assessee in respect of CENVAT credit.

Solution

According to Rule 11 of CCR, if finished goods become exempt, the assessee shall reverse CC for all the inputs lying in stock as well as inputs contained in the finished goods in stock.

In the given case, all the finished goods are in stock when dutiable goods become exempt. Therefore, the assessee is required to make reversal of CENVAT credit of Rs. 42,000.

Problem No 14

A manufacturer received certain inputs. The cost of inputs was Rs. 2,00,000 and duty paid @ 16% was Rs. 32,000. After receipt of the inputs, the cenvat credit was availed of by the manufacturer. He further carried out some processes on the inputs. The cost of processing was Rs. 50,000. The semi-processed material was sent to a small-scale unit for a job work. -Is there any duty payable at the time of removal of inputs for the job work? The material sent was not returned by the small- scale unit after the job work within 180 days. What will be the duty payable on such goods not returned after being sent out for the job work?

Solution

According to Rule 4(6) of the CCR, if inputs or semi-finished goods are sent for job work without paying duty and if those are not returned within 180 days, the assessee is required to make reversal of the CENVAT credit on the inputs/inputs used in semi finished goods for the job-work.

In the given case, if goods are not returned within 180 days since removal for job-work, the assessee is required to make reversal of the credit availed. However, special permission can also be obtained for removal of finished goods from the premises of job-worker and in that case, duty will be payable on assessable value of finished goods.

Problem No 15

A Small Scale Industrial unit (SSI) is required to pay the following central excise duties by January 10, 2013 for clearances effected from its factory in respect of final products manufactured during the month of December, 2012:

Basic Excise Duty (B.E.D.):

Rs.36,000

Special Excise Duty (S.E.D.):

Rs.18,000

National Calamity Contingency Duty (N.C.C.D.): Rs.1,000

EC and SHEC as applicable

Balances available as credit at the beginning of the month i.e. December, 2012 were as follows:

BED

Rs. 24,000

N.C.C.D.

Rs. 2,000

E.C.

Rs. 780

No inputs were received during the month. However, certain inputs were received on January 1, 2013 on which total duty paid by the suppliers of inputs was as follows:

B.E.D

Rs.16000,

E.C. and S.H.E.C

Rs.480

Excise duty paid on capital goods received during the month was as follows:

B.E.D.

Rs.40,000,

E.C. and SHEC

Rs.1200

For the month of December, 2012 you are required to determine:

(i) the credit available for utilization;

(ii) the permissible extent to which such available credit may be utilised against payment of B.E.D.,S.E.D., N.C.C.D., and E.C.; and

(iii) The B.E.D., S.E.D., and E.C. payable through account current (P.L.A.).

Solution

CENVAT credit available for utilization

ExciseSEDNCCDECSHECTotal

Opening balance24,000-2,00052026026,780

Inputs received in December 2103------

Capital Goods received in December 201220,00040020020,600

Total44,000-2,00092046047,380

ExciseSEDNCCDECSHECTotal

Duty payable 36,00018,000 1,000 1100 550 56,650

Credit available 44,000 2,000 920 460

Through CC 36,000 8,0001,000 920

By cash- 10,000- 18090 10,270

Surplus carried forward --1,000--1,000

Problem No 16

An assessee cleared various manufactured final products during January 2013. The duty payable for January 2013 on his final products was as follows - Basic - Rs. 2,00,000 EC and SHEC - as applicable.

During the month, he received various inputs on which total duty paid by suppliers of inputs was as follows

Basic duty - Rs. 50,000,

Education Cess - Rs. 1,000,

SHEC - Rs. 500.

Excise duty paid on capital goods received during the month was as follows

Basic duty - Rs. 12,000.

Education Cess - Rs. 240.

SHEC - Rs. 120.

Service tax paid on input services was as follows - Service Tax - Rs. 10,000. Education cess - Rs. 200 SAH Education Cess - Rs. 100.

How much duty the assessee will be required to pay by GAR-7 challan for the month of January 2013, if assessee had no opening balance in his PLA account2 What is last date for payment?

Answer

CENVAT credit available for January 2013

Excise Duty/ST ECSHECTotal

Inputs50,0001,00050051,500

Capital Goods6,000120606,180

Input Service10,00020010010,300

Total66,0001,32066067,980

Payment of duty through CC and through GAR 7

Duty AmountPayment through CCPayment through GAR 7

Excise 2,00,00066,0001,34,000

EC4,0001,3202,680

SHEC2,0006601,340

According to Rule 8 of CER, the duty shall be paid within 5 days after the end of the month but where e-payment is made, instead of 5 days, 6 days are allowed. It is also to be noted that e-payment is compulsory for the assessee who has paid duty of Rs. 10.00 lacs or more during the preceding financial year.Valuation of Excisable Goods

Under Central Excise Act, excise duty may be specific or ad-valorem. Specific duty is quantity based while ad-valorem duty is value based. This chapter is relevant only where duty is ad-valorem.

Types of Duties under the Central Excise

This chapter deals with determination of assessable value on the basis of which duty may be charged. It is to be noted that price and value are not synonymous terms for the purpose of excise. The assessable value for the purpose of duty may be -

(a) Tariff Value fixed by Central Government under Section 3(2) of Central Excise Act, 1944; or

(b) On the basis of valuation under Section 4 of Central Excise Act, 1944:

(i) Transaction Value

(ii) Valuation as per Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, or

(c) On the basis of Retail Sale Price Valuation under Section 4A of Central Excise Act, 1944.

Valuation under Section 3(2) of Central Excise Act, 1944 i.e., Tariff Value

The Central Government may, by notification in the Official Gazette, fix, for the purpose of levying CENVAT or Special Excise Duty on any articles chargeable with duty ad valorem, the Central Government may, by notification in the Official Gazette ,

Fix the tariff value of any article enumerated in First/Second Schedule

Alter any tariff values for the time being in force.

Under Section 3(3), the Central Government may fix different tariff values for

(a) Different classes or descriptions of the same excisable goods; or

(b) Excisable goods of the same class or description

(i) Produced or manufactured by different classes of producers or manufacturers; or (ii) sold to different classes of buyers:

Provided that in fixing different tariff values, regard shall be had to the sale prices charged by the different classes of producers or manufacturers, or the normal practice of the wholesale trade in such goods.

Century Manufacturing Company Limited V. UOI Section 4 is subject to section 3(2) i.e. when tariff value is fixed, provision of section 4 will not be applicable. Section 3(2) over rides section 4. Section 3(2) and section 4A are mutually exclusive.

Valuation under Section 4A or RSP based Valuation (1) The Central Government may, by notification in the Official Gazette, specify any goods, in relation to which it is required, under the provisions of the Legal Metrology Act, 2002 or the rules made thereunder or under any other law for the time being in force, to declare on the package thereof the retail sale price of such goods, to which the provisions of sub-section (2) shall apply.

(2) Where the goods specified under sub-section (1) are excisable goods and are chargeable to duty of excise with reference to value, then, notwithstanding anything contained in section 4, such value shall be deemed to be the retail sale price declared on such goods less such amount of abatement, if any, from such retail sale price as the Central Government may allow by notification in the Official Gazette.

(3) The Central Government may, for the purpose of allowing any abatement, take into account the amount of duty of excise, sales tax and other taxes, if any, payable on such goods.

(4) Where any goods specified under sub-section (1) are excisable goods and the manufacturer-

(a) removes such goods form the place of manufacture without declaring the retail sale price of such goods on the packages or declares a retail sale price which is not the retail sale price as required to be declared under the provisions of the Act, Rules or other law as referred to in sub-section (1) ; or

(b) tampers with, obliterates or alters the retail sale price declared on the packages of such goods after their removal from place of manufacture,

then, such goods shall be liable to confiscation and the Central Government shall ascertain in the prescribed manner the retail sale price of such goods and the retail sale price so ascertained shall be deemed to be the retail sale price for the purposes of this section.

Explanation 1: "Retail sale price" means the maximum price at which the excisable goods in packaged form may be sold to the ultimate consumer and includes all taxes local or otherwise, freight, transport charges, commission payable to dealers, and all charges towards advertisement, delivery, packing, forwarding and the like, as the case may be, and the price is the sole consideration for such sale.

Provided that in case the provisions of the Act, Rules or other law as referred to in sub-section (1) required to declare on the package, the retail sale price excluding any taxes, local or otherwise, the retail sale price shall be construed accordingly. [Nov. 05]

Explanation 2:

(a) Where on the packages of any excisable goods more than one retail sale price is declared, the maximum of such retail sale price shall be deemed to be the retail sale price;

(b) Where the retail price declared on the package of any excisable goods at the time of its clearance from the place of manufacture, is altered to increase the retail sale price, such altered retail sale price shall be deemed to be the retail sale price.

(c) Where different retail sale prices declared on different packages for the sale of any excisable goods in packaged form in different areas, each such retail price shall be the retail sale price for the purposes of valuation of the excisable goods intended to be sold in the area to which the retail sale price relates.

Applicability

Provisions of section 4A are applicable if all the following requirements are satisfied

a) The goods are satisfied goods

b) The goods are already covered under the Legal Metrology Act, 2002, and

c) The goods have been notified by the central government under sub-section (1) of this section.

However, in following cases, provision of section 4A will not be applicable even if all the aforesaid requirements are satisfied --

a) The weight is less than 10 grams

b) Liquid contents are less than 10 ML

c) The goods covered under section 4A are not being removed in consumer pack

d) The goods covered under section 4A are being offered as free along with the goods covered under section 4.

Assessable value

The assessable value of the goods covered under section 4A shall be the RSP declared on the goods reduced by the rate of abatement prescribed by the Central Government i.e.

AV = RSP declared (-) Prescribed rate of abatementRate of abatement

The rate of abatement is fixed the Central Government after taking into account all the expenses incurred by the assessee, any brokerage or commission, his prodit margin as well as all applicable taxes. It means except the prescribed rate of abatement no other deduction shall be admissible.

Few examples of rate of abatement prescribed by Central Government: (list illustrative and not exhaustive): Government has notified 99 categories of goods under section 4A. Few of them are as under

Description

Abatement as a % of RSP

Condensed Milk

35%

Chocolates

35%

Toothpaste

35%

Footwear

40%

Electric Fans

40%

Aerated Waters

45%

Ice Cream

45%

The procedure of valuation of calculation of central excise duty may be understood with the following example:

MRP is affixed on product X, including sales tax @ 3%, is Rs. 100/-. Rate of Rebate is 40% in terms of notification no. 2/2006. Rate of Excise Duty is 16% and Cess 3% (2% + 1%). Wholesale price of the product is Rs. 45 with duties of excise and local taxes.

Now for the purpose of Excise duty the following steps should be taken:

1MRPRs. 100

2Less Rebate @ 40%Rs. 40

3Value on which excise duty is to be paidRs. 60

4Amount of duties Rs. 9.888

a. Basic Excise Duty @ 16% = Rs. 9.6

b. Education Cess @ 2% = Rs. 0.192

c.SH Education Cess @ 1% = Rs. 0.096

5For the purpose of calculation of excise duty actual sale price shall be ignored.

6Local taxes like sales tax shall be ignored

7Any discount whether quantity discount / volume discount or performance discount sh