CENVAT CREDIT RULES, 2017 – PART I

[DR.MARIAPPAN GOVINDARAJAN]

Introduction

Since GST was implemented with effect from 01.07.2017, the Central Government, in supersession of CENVAT Credit Rules, 2004 made CENVAT Credit Rules, 2017 with effect from 01.01.2017.  These Rules are applicable to the whole of India.  Many changes have been brought in these rules than the erstwhile CENVAT Credit Rules, 2017.  The definitions of the term ‘input service’, ‘capital goods’ are not found in the new rules.  This credit is allowable to the manufacturer or producer of final products.

Eligible credits

Rule 3(1) provides that a manufacturer or producer of final products shall be allowed to take credit of-

• the duty of excise specified in the Fourth Schedule to the Excise Act, as leviable under the said Act;
• the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001;
• the additional duty leviable under section 3of the Customs Tariff Act, equivalent to the duty of excise as specified under clauses (a) and (b);
• the additional duty leviable under section 3(5) of the Customs Tariff Act;
• the additional duty of excise leviable under Section 85 of Finance Act, 2005

paid on any input received in the factory of manufacture of final product on or after 01.07.2017 including the said duties paid on any inputs used in the manufacture of intermediate products, by a job worker availing the benefit of exemption specified in the Notification No.214/86, dated 25.03.1986 and received by the manufacturer for use in, or in relation to, the manufacture of final product, on or after 01.07.2017.

What is ‘input’?

The definition of the term ‘input’ is entirely different from that of the erstwhile Rules.  Rule 2(g) defines the term ‘input’ as excisable goods used in the factory by the manufacturer of final product but excludes high speed diesel oil or motor spirit, commonly known as petrol.

Credit on stock

Rule 3(2) provides that the manufacturer or producer of final products shall be allowed to take CENVAT credit of the duty paid on inputs lying in stock or in process or inputs contained in the final products lying in stock on the date on which any goods manufactured by the said manufacturer or producer cease to be exempted goods or any goods becomes excisable.

Utilization of credit

Rule 3(4) provides that the CENVAT credit may be utilized for payment of-

• any duty of excise on any final product; or
• an amount equal to CENVAT credit taken on inputs if such inputs are removed as such or after being partially processes; or
• an amount under Rule 15(2) of Central Excise Rules, 2017.

The credit shall be utilized only to the extent  such credit is available on the last day of the month or quarter, as the case may be, for payment of duty relating to that month or the quarter, as the case may be.

The credit of any duty specified in Rule 3(1), except the National Calamity Contingent duty shall not be utilized for payment of National Calamity duty leviable under section 136 of Finance Act, 2001.

Likewise the credit of any duty mentioned in Rule 3(1), other than the credit of additional duty of excise leviable under section 85 of Finance Act, 2005 shall not be utilized for payment of said additional duty of excise on final products.

Rule 3(4) provides that the credit in respect of-

• the National Calamity Contingent duty leviable under section 136 of Finance Act, 2001;
• the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified above;
• the additional duty of excise leviable under section 85 of Finance Act, 2005

shall be utilized towards payment of-

• excise duty under the said National Calamity Contingent duty leviable under section 136 of Finance Act, 2001; or
• the additional duty of excise leviable under section 85 of Finance Act, 2005

respectively on any final products manufactured by the manufacturer or for payment of such duty on inputs themselves, if such inputs are removed as such or after being partially processed.

Conditions for allowing CENVAT credit

Rule 6 provides the conditions for allowing credit as detailed below-

• the credit may be taken immediately on receipt of inputs in the factory of the manufacturer or in the premises of the job works, in case of goods are sent directly to the job worker on the direction of the manufacturer;
• the manufacturer shall not take credit after one year of the date of issue of any of the documents specified in Rule 11(1);
• the credit on inputs shall be allowed even if any inputs as such or after being partially processed are sent to job worker and from there subsequently, sent to another job worker and likewise, for further process, necessary for the manufacture of final productsand such inputs or the products produced there from are received back within 180 days of their being sent from the factory;
• the credit shall be allowed even if any inputs are directly sent to a ob worker without their being first brought to the premises of the manufacturer and in such a case the period of 180 days shall be counted from the date of receipt of the inputs by the job worker;
• if the inputs or products are not received within 180 days th4 credit shall be reversed; the manufacturer may taken credit again when the inputs are received back in the factory;
• if the inputs are sent to a job worker by an order of theDy. Commissioner/Assistant Commissioner of Central Excise, having jurisdiction, by an order, the period shall be valid for three financial years in respect of removal of such input or partially processed input and subject to such conditions as he may imposed in the interest of revenue.

Documents for availing credit

Rule 11(1) provides that the credit shall be taken by the manufacturer on the basis of any of the following documents-

• an invoice issued by-

• a manufacturer for clearance of-

• inputs received from his factory or depot or from the premises of the consignment agent of the said manufacturer or from any other premises from where the goods are sold by or on behalf of the said manufacturer;
• inputs as such;

• an importer;
• an importer from his depot or from the premises of the consignment agent of the said importer if the said depot or the premises is registered under central excise rules;

• a supplementary invoice issued by a manufacturer or importer of inputs from his factory or depot or from the premises of the consignment agent of the said manufacturer or importer or from any other premises from wherethe goods are sold by, or on behalf of, the said manufacturer or importer, in case additional amount of excise duties or additional duty are leviable under section 3 of Customs Tariff Act, has been paid, except where the additional amount of duty became recoverable from the manufacturer or importer of inputs on account of any non levy or short levy by reason of fraud, collusion or any willful misstatement or suppression of facts or contravention of any provisions of the Excise Act or the Customs Tariff Act or the rules made there under with intent to evade payment of duty;
• a bill of entry;
• a certificate issued by an appraiser of customs in respect of goods imported through a foreign post office or an authorized Courier, registered with the Principal Commissioner of Customs or the Commissioner of Customs in charge of the Customs Airport, as the case may be;

The credit of additional duty of customs levied shall not be allowed if the invoice or supplementary invoice bears an indication to the effect that no credit of the said additional duty shall be admissible.

Contents of document

Rule 11(2) provides that no credit shall be taken unless all the particulars as prescribed under the Central Excise Rules, 2017 are contained in the said document.  If the said document does not contain all the particulars but contains the details of-

• duty payable;
• description of goods;
• assessable value;
• central excise registration number of the person issuing invoice;
• name and address of the factory or warehouse or premises of first or second stage dealers

and if the Deputy/Assistant Commissioner of Central Excise, is satisfied that the goods covered by the said document have been received and accounted for in the books of the account of the receiver he may allow the credit.

Records

Rule 11(3) provides that the credit in respect of input purchased from a first stage dealer or second stage dealer shall be allowed only if such first stage dealer or the second stage dealer has maintained records indicating the facts that the input was supplied from the stock on which duty was paid by the producer of such input and only an amount of such duty on pro rata basis has been indicated on the invoice issued by him. 

Rule 11(4) provides that the manufacturer of final products shall maintain proper records for the receipt, disposal, consumption and inventory of the input in which the relevant information regarding the value, duty paid, credit taken and utilized, the person from whom the input has been procured is recorded and the burden of proof regarding the admissibility of credit shall be upon the manufacturer taking such credit.

Reversal of credit

Rule 4 provides that when an inputs on which credit has been taken, are removed from the factory, the manufacturer of the final products the credit shall be reversed. The amount paid shall be eligible as credit as if, it was a duty paid by the person who removed such goods.

If any value is written off fully or partially or where any provision to write off fully or partially has been made in the books of account then the manufacturer shall reverse the credit taken in respect of the said input.  If the said input is subsequently used in the manufacture of final products, then the credit may be taken.

Where on any goods manufactured or produced by an assessee, the payment of duty is ordered to be remitted then the credit taken shall be reversed.

CENVAT credit in exempted cases

Rule 5 provides that where the provisions of any other rule or notification provide for grant of whole or part exemption of non availability of credit of duty paid on any input, if the credit of duty paid on input is availed, the reversal of such credit after clearance of the goods shall render the manufacturer eligible for the exemption.

Distribution of credit

Rule 9 provides that a manufacturer having one or more factories, shall be allowed to take credit on inputs received under the cover of an invoice issued by a warehouse of the said manufacturer, who receives inputs under cover of documents towards the purchase of such inputs. 

Storage of input outside the factory

Rule 10 provides that the Deputy/Assistant Commissioner of Central Excise, having jurisdiction, may in exceptional circumstances having regard to the nature of the goods and shortage of storage space at the premises of such manufacturer, by an order, permit such manufacturer to store the input in respect of which credit has been taken, outside such factory, subject to such limitations and conditions as he may specify.

If such input is not used in the manner specified in these rules for any reason, whatsoever, the manufacturer of the final product shall pay an amount equal to the credit availed in respect of such input.

Refund of credit

Rule 7 provides that a manufacturer who clears a final product or an intermediate product for export without payment of duty under bond or letter of undertaking, shall be allowed refund of credit as determined by the following formula, subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette-

Refund amount = (Export turnover of goods) x Net CENVAT credit

Total turnover

Where-

• ‘Refund amount’ means the maximum refund that is admissible;
• ‘Net CENVAT Credit’ means total CENVAT credit availed on inputs by the manufacturer reduced by the amount reversed in terms of Rule 4(3) during the relevant period;
• ‘Export turnover of goods’ means the value of final products and intermediate products cleared during the relevant period and exported without payment of Central Excise duty under bond or letter of undertaking;
• ‘Total turnover’ means sum total of the value of-

• all excisable goods cleared during the relevant period including exempted goods, dutiable goods and excisable goods exported;
• all inputs removed as such against an invoice, during the period for which the claim is filed.

No refund shall be allowed if the manufacturers avails the drawback allowed under the Customs and Central Excise Duties and Service Tax Drawback Rules 1995, or claims rebate of duty under the Central Excise Rules, 2002 or the Central Excise Rules, 2017 in respect of such duty.

Discussions to this article

[HimansuSekhar Sha]

Sir,

In the fourth schedule petroleum products & tobacco are liable for duty on excise

The inputs will be taxed GST.

They will not take credit.

Regards

Himansu

[A K Reddy and CO]

Hello sir,

I think its one year for inputs and 3 years for capital goods to be brought back from the job worker premises?

[Ramakrishnan Ananthakrishnan]

Hello Sir, A manufacturer availing 50% duty credit for the capital goods during April 2017 and balance to be taken only in April 2018. Since GST implemented whether the manufacturer can take balance 50% in July 2017, thus availing full duty credit for capital goods during financial year 2017 18. Whether any provision made for this? Please clarify.

R.Ananthakrishnan

[MARIAPPAN GOVINDARAJAN]

Usually the balance 50% of duty in respect of capital goods would be utilized in the month of April month itself. In my view the balance 50% if it is not utilized it can be utilized in GST provided it is eligible in GST regime. However for specific provision I shall refer and revert.

[Ramakrishnan Ananthakrishnan]

Dear Mr Govindarajan

Thanks for your prompt response. My query is whether the manufacturer can avail the balance 50% of duty credit of capital goods in 30th June 2017 by making credit in Cenvat Account and filing revised return of ER 1 for June 2017. Once the credit is taken it can be transferred to GST Account resulting utilization of credit under GST.

 

 

[KASTURI SETHI]

Sh.M.Govindarajan Ji,

Your article on latest Cenvat Credit facility is a mirror.

[Bijay Shrestha]

Sir, this new rule CCR 2017 came into effect after 1.7.2017 and also GST. After GST many erstwhile acts were repealed. Now my query is:

1. To what extent this CCR 2017 is applicable ?

2. If after July-2017 excise duty is not applicable, then how can one take credit under CCR 2017?

Please kindly suggest.