RECENT AMENDMENTS IN CENVAT CREDIT PROVISIONS - PART-I

[Dr. Sanjiv Agarwal]

Recently, Cenvat Credit Rules have been amended by way of various Notifications from different dates. This write-up explains these changes briefly.

Rule 3

Utilization of education cesses for payment of basic excise duty (Amendments w.e.f. 1.4.2015)

Vide Notification No. 12/2015-CE (NT) dated 30.04.2015, Rule 3(7) (b) of the Cenvat Credit Rules, 2004 has been amended by inserting proviso to the said sub-rule. Accordingly, Rule 3(7)(b) of the CCR, 2004 has been amended so as to allow utilisation of credit of Education Cess and Secondary & Higher Education Cess for payment of basic excise duty in the following situations:

1. Education Cess and Secondary & Higher Education Cess on inputs or capital goods received in the factory of manufacture of final product on or after the 1st day of March, 2015;
2. Balance 50% Education Cess and Secondary & Higher Education Cess on capital goods received in the factory of manufacture of final product in the financial year 2014-15; and
3. Education Cess and Secondary & Higher Education Cess on input services received by the manufacturer of final product on or after the 1st day of March, 2015.

Rule 4

• Amendments w.e.f. 1.3.2015

Vide Notification No. 6/2015-CE(NT) dated 1.3.2015, amendments have been made w.e.f. 1.3.2015 in Rule 4 by way of amendments in sub-rules (1), (2), (5) and (7).

These have the following effect –

1. increase in time limit for taking Cenvat Credit on inputs and input services from the present six months to one year
2. increase in time limit for return of capital goods from the job worker from present 180 days (six months) to two years.
3. provides for Cenvat credit in respect of receipt of inputs/ capital goods directly by job worker when such goods are sent directly on direction of manufacturer or the provider of output service.
4. rule 4(5) (a) has been amended to provide for Cenvat credit on inputs even if inputs are directly sent to job worker. The goods sent to job worker can be moved to another job worker as well. However, it shall be ensure that the goods are received back by the manufacturer within 180 days from the date of sending such goods. In case the goods are sent to job worker premises without first receiving into factory by manufacturer, then 180 days shall be counted from date of receipt of goods by job worker.

• Amendment w.e.f. 1^st March, 2015

W.e.f. 1^st March 2015, time limit for availment of Cenvat Credit has been extended to one year from the date of invoice. This implies that Cenvat credit on inputs and input services which could be earlier (as provided for w.e.f. 01.09.2014) availed within the period of six months from the date of invoice can now (w.e.f. 1.3.2015) be availed within a period of one year from the date of invoice .

The amendment has been made vide Notification No. 6/2015-CE(NT) dated 1.3.2015 w.e.f. 1.3.2015 wherein the words 'six months' have been substituted by words 'one year' in third proviso of Rule 4(1) of Cenvat Credit Rules, 2004.

The amendment w.e.f. 1.3.2015 of allowing time limit of one year instead of six months shall make the amendment made w.e.f. 1.9.2014 redundant because it would cover period of March to September 2014 also. Further, those who could not claim Cenvat credit of invoices issued prior to September, 2014 can now do so as the time limit has been raised from one month to one year. Thus, on all eligible invoices of last one year cenvat credit be availed.

There are many instances where assessees receive input services but do not taken any registration as they are not engaged in providing any taxable service during that period. In such cases, it may be advisable that the assessee must take registration and file periodical returns wherein credit must be duly availed.

• Amendment w.e.f. 1.4.2015

Vide Notification No. 6/2015-CE(NT) dated 1.3.2015, in rule 4(7), first, second and third provisos have been substituted w.e.f. 1.4.2015 by the following –

“Provided that in respect of input service where whole or part of the service tax is liable to be paid by the recipient of service, credit of service tax payable by the service recipient shall be allowed after such service tax is paid:”

“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, except an amount equal to the CENVAT credit of the tax that is paid by the manufacturer or the service provider as recipient of 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”

Thus, w.e.f. 1.4.2015, Cenvat Credit of Service Tax paid under partial reverse charge by the service receiver will be allowed without linking it to the payment to the service receiver. Prior to 01.04.2015, Cenvat credit to service receiver under partial reverse charge was allowed only if payment of provision of service had been made to the service provider.

Where Service Tax is required to be paid under reverse charge by service recipient, its credit can be taken on payment of tax itself without making the payment of invoice value. Credit will also not be required to be reversed after 1.3.2015 if payment of invoice is not made within three months as was earlier prescribed.

Rule 5

Exports Goods defined (Amendment w.e.f. 1.3.2015)

Vide Notification No. 6/2015-CE(NT) dated 1.3.2015, clause (1A) has been inserted in Explanation-I to Rule 5 to define 'export goods'. Accordingly 'export goods' means any goods which are to be taken out of India to a place outside India for the purpose of claiming of refund under Rule 5 of Cenvat Credit Rules, 2004.

It may be noted that this definition, is different from the definition of 'export' under Rule 18 of Central Excise Rules which has also been amended from 1.3.2015 vide Notification No. 8/2015-CE (NT) dated 1.3.2015. For that purpose, export means taking goods out of India to a place outside India and includes shipment of goods as provision or stores for use on board a ship proceeding to a foreign port or supplied to a foreign going aircraft.

For Rule 5, for goods to be exported, following two conditions need to be satisfied w.e.f. 1.3.2015 –

1. goods must be one which are to be taken out of India
2. goods must be taken to a place outside India

India has been defined under section 65B(27) of the Finance Act, 1994.

There may be dispute in related to treatment of goods supplied to Special Economic Zones (SEZs) as export goods in view of the language used in the definition.

Rule 6

Amendments w.e.f. 1.3.2015

Vide Notification No. 6/2015-CE(NT) dated 1.3.2015, following two explanations have been added in Rule 6(1) -

“Explanation 1. – For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of rule 2 shall include non-excisable goods cleared for a consideration from the factory.

Explanation 2. – Value of non-excisable goods for the purposes of this rule, shall be the invoice value and where such invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made thereunder.”

Rule 6 has been amended to provide that the exempted goods shall include even nonexcisable goods and the value of invoice shall be considered for ascertaining the eligible / ineligible Cenvat credit. Provisions relating to reversal for Cenvat Credit in Rule 6 presently applicable to exempt goods and services, shall also be applicable to non-excisable goods which implies that non excisable goods shall be treated as exempted goods.

'Exempted goods' are defined in Rule 2(d) and 'final products' are defined in Rule 2(h) of Cenvat Credit Rules, 2004. For the purpose of Rule (6), according to Explanation – 1, both, exempted goods and final products shall include non-excisable goods cleared for a consideration from the factory. It may be note that 'excisable goods' means goods specified in the Schedule to the Central Excise Tariff Act, 1985 as being subjected to a duty of excise and includes salt.

According to Explanation-2 inserted in Rule 6(1) w.e.f. 1.3.2015, since non-excisable goods cleared from the factory for a consideration shall be included in exempted goods or final product, value of such non-excisable goods shall be either of the following –

1. invoices value, if there is one
2. where invoice value in not available, such value which could be determined by using reasonable means consistent with valuation principles in Central Excise Act, 1944 and rules made thereunder.

Rule 9

W.e.f. 1.3.2015, vide Notification No. 6/2015-CE(NT) dated 1.3.2015, provisions of Rule 9(4) have been made applicable to importer dealers. Accordingly, sub-rule(4) of rule 9 shall now (w.e.f. 1.3.2015) apply mutatis mutandis to an importer who issues an invoice on which Cenvat credit can be taken.

(To be continued………….)

Discussions to this article

[RAJESH MANGAL AGRAWAL]

Very Nice Compilation Sir. Thanks.