Input Service - Cenvat Credit Rules, 2004 - Cenvat Credit - Ready Reckoner [OLD] - Cenvat Credit

Input Services - Cenvat Credit Rules, 2004 Reference: Rule - 02 - Definitions Rule - 03 - Cenvat Credit Rule - 04 - Conditions for allowing CENVAT credit FAQ www.taxmanagementindia.com Reply What is meaning and scope of the term Input Services under Cenvat Credit Rules, 2004 ? Please refer Rule 2(l) of the CCR, 2004 (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, What are the included services for the purpose of Cenvat credit? -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 up to 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 up to the place of removal; For update, please visit Rule 2(l) of the CCR, 2004 on www.taxmanagementindia.com . What are the excluded services? (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 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 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. For update, please visit Rule 2(l) of the CCR, 2004 on www.taxmanagementindia.com What is the meaning of output services? The scope of output services has been defined in Rule 2(p) of CCR, 2004 . It does not include negative services and services on which service tax is payable under reverse charge method. What is meaning of exempted services? The meaning of exempted services has been defined in Rule 2(e) of CCR, 2004 Important points emerged out from the definition of Input Service ​The definition of Input service is broadly in three parts. First is main part, second is inclusive part and third part covers exclusions. First part of the definition covers input services used for providing output service or used by manufacturer, directly or indirectly, in relation to manufacturer or clearance of final product up to the place of removal. Second part expands the scope much beyond the coverage of first part. The third part covers specific exclusions even if these would be eligible as per inclusive part of the definition. Services for personal use or consumption of employees specifically excluded This exclusion is applicable when such services as mentioned in definition part itself, are used primarily for personal use or consumption of employee. This exclusion will not apply in other cases. For example, outdoor catering for sales promotion would be eligible, even if some employees attend the programme, since it is not primarily for personal use or consumption of employees. Similarly, mobile phones to employees mainly for business purpose should be eligible even if it is also being used for personal use. Also club membership fee of a director (who is not employee) should be eligible. Corporate club membership (without naming any specific employee) should be eligible. Specific Services covered in Input service Services of Commission agent: Services of commission agent are in nature of sales promotion and hence will be eligible for Cenvat Credit. ( Birla Corporation Limited 2012 (7) TMI 820 - CESTAT NEW DELHI ) Services for gardening required as per environmental laws: Service for plantation, lawns etc. as required under permission given by Pollution Control Board is necessary for compliance with statutory provisions and hence will be eligible for Cenvat Credit. ( Hindustan Zinc 2013 (11) TMI 407 - CESTAT NEW DELHI ) What is the wasteful expenditure as per the revised definition of input pervice? As per the revised definition of input service,following is the wasteful expenditure and do not deserve any cenvat credit(department s view). Factory and office building Motor vehicle is a luxury even if used to transport employees or for business purposes. All employee benefits like transport,canteen facility,health care,insurance,welfare expenditure is a pure waste. Eligibility of cenvat credit on services provided by commission agent Following explanation has been added to rule 2(l) of cenvat credit rules w.e.f. 3.2.2016 Explanation for the purpose of this clause, sales promotion includes services by way of sale of dutiable goods on commission basis. In view of author, the explanation should have retrospective effect as it is given to clarify an issue already included in definition part.it was also held in the case Ralson (India)v.CCE (2015)51 GST224=57 taxmann.com 122=319 ELT 234(SC) An exemption notification issued to correct an obvious mistake has to be treated as corrective/clarificatory and can have retrospective effect. RULE 4 - Cenvat Credit of input service on receipt of invoice of service provider Service tax is payable on accrual basis and not on receipt basis. Hence Rule 4(7)provides that cenvat credit shall be allowed on or after the day on which the invoice, bill or challan of service provider, is received. CENVAT reversal if payment not made to service provider within three months. Reversal of cenvat credit if amount refunded or credit note issued by service provider. Cenvat credit where service tax is partially or fully payable by service receiver under reverse charge. The CENVAT credit in respect of input service shall be allowed, on or after the day on which the invoice, bill or challan is received. Credit of service tax payable by the service receiver allowed when the service tax is paid. Rule 4(7) If payment of value of input service and the service tax paid/payable not made within three months from the date of invoice/bill/challan, the manufacturer/service provider shall pay an amount equal to cenvat credit availed on such input service. However, no reversal of creditl is required in case of service tax has been under reverse charge mechanism. Further the credit has been reversed as above, assessee can take the re-credit of the same after making payment to the service provider . 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: CENVAT credit in respect of an invoice, bill or, as the case may be, challan referred to in rule 9, issued before the 1 st 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. The manufacturer or the provider of output service shall not take CENVAT credit after one year of the date of issue of any of the documents specified in sub-rule (1) of rule 9. except in case of services provided by Government, local authority or any other person, by way of assignment of right to use any natural resource CENVAT Credit of Service Tax paid in a financial year, on the one-time charges payable in full upfront or in installments, for the service of assignment of the right to use any natural resource by the Government, local authority or any other person, shall be spread evenly over a period of three years. Where the manufacturer of goods or provider of output service, as the case may be, further assigns such right assigned to him by the Government or any other person, in any financial year, to another person against consideration, such amount of balance CENVAT credit as does not exceed the service tax payable on the consideration charged by him for such further assignment, shall be allowed in the same financial year Explanation I.- The amount mentioned in this 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 19 [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.