BUDGET 2014-15 – AMENDMENT IN CENVAT CREDIT RULES, 2004

[Mr. M. GOVINDARAJAN]

The Honorable Finance Minister submitted the budget for the 2014-15 today in the Parliament.   Various changes and new concepts have been introduced in indirect taxes.  In this article the amendment brought out in the CENVAT Credit Rules, 2004 is discussed.

Vide Notification No. 21/2014-Central Excise (NT), dated 11.07.2014 the Central Government made the rules to amend the CENVAT Credit Rules, 2004 by virtue of powers under Section 37 of Central Excise Act, 1944 and Section 94 of Finance Act, 1994.

New Definition

The amendment brings a new definition for the terms ‘place of removal’.  Vide Rule 2(qa) the terms ‘place of removal’ have been defined.  According to this Rule, the ‘place of removal’ means-

• A factory or any other place or premises of production or manufacture of the excisable goods;
• A warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty;
• A depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearances from the factory,

from which such goods are removed.

This new definition will be helpful in interpretation of Rule 2(l) – ‘input service’ in which it is defined that ‘input service’ means any service used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal.  This Rule came into effect from 11.07.2014.

Conditions for allowing CENVAT credit

Amendment to Rule 4(1)

Rule 4 provides the conditions for availing CENVAT credit.  Rule 4(1) provides that the CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service.  The first proviso to this Rule provides that in respect of final products, namely, articles of jewellery or other articles of precious metals falling under heading 7113 or 7114 as the case may be of the First Schedule to the Excise Tariff Act, the CENVAT credit of duty paid on inputs may be taken immediately on receipt of such inputs in the registered premises of the person who get such final products manufactured on his behalf, on job work basis, subject to the condition that the inputs are used in the manufacture of such final product by the job worker.  The second proviso to this Rule provides that the CENVAT credit in respect of inputs may be taken by the provider of output service when the inputs are delivered to such provider, subject to maintenance of documentary evidence of delivery and location of the inputs.

Rule 3(a) of Amendment Rules inserted proviso after the second proviso to Rule 4(1) of CENVAT Credit Rules, 2004.  The new proviso provides that the manufacturer or the provider of output serviced shall not take CENVAT credit after six months of the date of issue of any of the documents specified in Rule 9(1).

The following are the documents specified under Rule 9(1):

• Invoice issued by a manufacturer, importer, first stage dealer;
• Supplementary invoice;
• Bill of entry;
• a certificate issued by an appraiser of customs in respect of goods imported through a Foreign Post Office; 
• a challan evidencing payment of service tax, by the service recipient as the person liable to pay service tax;
• an invoice, a bill or challan issued by a provider of input service on or after the 10th day of, September, 2004;
• an invoice, bill or challan issued by an input service distributor under rule 4A of the Service Tax Rules, 1994.

This amendment will be come to effect from 01.09.2014.

Amendment to Rule 4(7)

Rule 3(b) brought amendment to Rule 4(7).  The amendment substituted the first and second proviso by means of new provisos.

Rule 4(7) provides that 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.

The first proviso to Rule 4(7) provides 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.  This proviso is substituted by the new proviso which provides that in respect of input service where the whole of the service tax is liable to be paid by the recipient of service, credit shall be allowed after the service tax is paid.

The second proviso to Rule 4(7) provides 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. 

The second proviso is substituted by the new amendment.  The second proviso provides that in respect of an input service, where the service recipient is liable to pay a part of service tax and the service provider is liable to pay the remaining part, the CENVAT credit in respect of such input service shall be allowed on or after the day on which the payment is made on 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 new proviso brings a new change in availing CENVAT credit on the payment made to service provider in Reverse Charge Mechanism scheme. In the earlier period CENVAT credit may be availed immediately, even the service tax is not paid to the service provider subject to the condition that the said service tax is to be paid within three months otherwise equal tax is payable. The new proviso puts a condition that credit could be availed only after making the entire payment to the service provider.

The new amendment further provides (third proviso) 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, except in respect of input service where the whole of the service tax is liable to be paid by the recipient of service, is not made within 3 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.

Rule 3(b)(ii) of Amendment Rules inserted another proviso after the fifty proviso which provides that the manufacturer or the provider of output service shall not take CENVAT credit after six months of the date of issue of any of the documents specified in Rule 9(1).

This amendment will be effected from 01.09.2014.

Amendment to Rule 6(8)

Rule 4 of Amendment Rule inserted a proviso after Rule 6(8)(b) which provides that if such payment is received after the specified or extended period allowed by the Reserve Bank of India but within one year from such period, the service provider shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier in terms of sub-rule (3) to the extent it relates to such payment, on the basis of documentary evidence of the payment so received.

Amendment to Rule 12A

Rule 5 of Amendment Rule brings amendment to Rule 12A.  Rule 12A provides the procedure and facilities for large tax payer.  Rule 12A(4) provides that a large taxpayer may transfer, CENVAT credit available with one of his registered manufacturing premises or premises providing taxable service to his other such registered premises by,-

(i) making an entry for such transfer in the record maintained under rule 9;

(ii) issuing a transfer challan containing registration number, name and address of the registered premises transferring the credit as well as receiving such credit, the amount of credit transferred and the particulars of such entry as mentioned in clause (i).

The amendment substituted the words ‘available with one of his registered manufacturing premises’ ‘taken, on or before the 10^th July 2014 by one of his registered manufacturing premises’.

Discussions to this article

[ranjit kunar]

Is there any amendment made in Cenvat Credit Rule 6

[MARIAPPAN GOVINDARAJAN]

Dear Sir,

Rule 6(8) of CENVAT Credit Rules, 2004 has been amended vide Notification No.21/2014-CE (NT), dated 11.07.2014 which has found place in the article.

Regards,

Dr. M. Govindarajan

[kamal mall]

Dear Sir,

Thanks for this article.

Please clearfy that;

a. Earilier there was 6 month Limit of payment under RCM, whether the same is converted in 3 month requirement?

b. In case of Partial reverse charge when will we take input of;

i. Service Tax porton of Service Provider

ii. Service tax portion of Service receiver

and Whether the payment of Service is pre requisuit for availing CENVAT.