workshop on service tax session xiv cenvat credit s. vasudevan, advocate
TRANSCRIPT
Workshop on Service Tax
Session XIV
CENVAT CREDIT
S. Vasudevan, Advocate
CoverageCoverage
Concept of Cenvat Credit
Scope: Capital Goods, Inputs & Input Services
Rule 4(7): When credit can be availed?
Rule 6(3) and (3A): Taxable and Exempted
Services
Input Service Distributor
Basic ConceptsBasic Concepts
Tax on Value Addition
Aim To reduce cascading effect of tax/duty Step towards integration of goods and
service tax
Manufacturer & Service provider
•
CENVAT CREDIT RULES, 2004CENVAT CREDIT RULES, 2004
Single rule to cover both central excise and service tax
Notified on 10.9.2004 Credit available for
Inputs Capital goods Input service
For manufacturer and provider of output service
Capital Goods-ICapital Goods-I
Specified Goods Chapter 82, 84, 85, 90, etc. Pollution Control Equipments Components, spares and accessories of the
above goods Moulds and dies, jigs and fixtures Refractories and refractory materials Tubes and pipes and fittings thereof Storage Tank
Used for providing output service
Capital Goods-IICapital Goods-II
Motor Vehicles Registered in the name of output service
provider Used for specified output services
Courier Tour Operator Rent-a-Cab Operator Cargo Handling GTA Outdoor Caterer Pandal Shamiana
Capital Goods-IIICapital Goods-III
Dumpers or Tippers (Chapter 87) Registered in the name of output service
provider Used for specified output services
Site formation and Clearance Mining
New Definition: Inputs
Inputs : MeansInputs : Means
All goods used for providing output
service
Inputs : ExcludesInputs : Excludes
LSD, HSD or motor spirit (petrol)
Goods used for construction (discussed in detail later)
Capital goods except when used as parts or components
Motor Vehicles
Inputs : ExcludesInputs : Excludes
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
Includes goods
Condition Status under old Rule Result
Used in Factory To have relationship (whatsoever) with manufacture
Used in or in relation to
Scope expanded -some nexus is
sufficient
Any goods including accessories cleared alongwith final product
Value included in final product
Only included accessories
Credit not restricted to accessories
Summary: Inputs-New vs. Old
Summary: Inputs-New vs. Old
Includes goods
Condition Status under old Rule Result
Cleared for providing free warranty
Value to be included in the price of final product and not to be charged separately: Rule 3(5) amended
Credit to be reversed No credit to be
reversed
Summary: Inputs-New vs. Old
Summary: Inputs-New vs. Old
Excludes To be treated as
input
Status under old Rule Result
LSD, HSD, motor spirit (petrol)
Status Quo No Change
Capital Goods When used as parts or components
No such exclusion
No credit on goods
specifically covered under capital goods
Summary: Inputs-New vs. Old
Summary: Inputs-New vs. Old
Exclusions
ExclusionsExcludes Status under
old Rule Change
Motor VehiclesNo such
exclusion No credit on motor vehicles
Goods used primarily for personal use or consumption of any employee
No such exclusion but
credit not available
No Change
Inputs: New vs. OldInputs: New vs. Old
New Definition: Input Services
Credit on following services relating to motor vehicle
Taxable output service of courier agency, tour operator, rent-a –cab, cargo handling, goods transport agency outdoor catering and pandal or shamiana contractor
Rest (manufacturer or other service provider)
•General Insurance
•Rent-a- Cab
•Authorized Service Station
•Supply of tangible goods
AvailableNot available
Input Services- Specific exclusions
Input Services- Specific exclusions
Input Services- Specific Exclusions
Input Services- Specific Exclusions
Credit not available on service used primarily for personal use or consumption of employees
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
Input Services : Expression Deleted
Input Services : Expression Deleted
Expression deleted “activities relating to business”
excluded to overcome High Court judgments in case of Coca-Cola and Ultra Tech Cement
Input ServicesInput Services
Test of commercial expediency Credit of the following services?
Telephone Courier of documents Photocopier Services Lease of office equipments Repair and Maintenance of office
equipments
Input ServicesInput Services
Credit of the following services? Audit
Tax consultancy
Certification by Cost Accountant Insurance of office equipments Travel agents IT support
Input ServicesInput Services
Now specifically includes
Business exhibition
Legal services
Services specifically excluded but received before
01.04.2011
Outdoor caterer service for period upto 31.3.2011
Construction: Inputs and Input
Services
Credit on goods used for Taxable output service of
•Port service,
•Other port
• Airport service,
• Commercial or industrial construction,
• Construction of commercial complex
• Works contract service
Rest (manufacturer or other service provider)
•Construction of a building or a civil structure or a part thereof; or
•Laying of foundation or making of structures for support of capital goods
AvailableNot available
Inputs: ConstructionInputs: Construction
IssueIssue
Renting of immovable property- Credit on cement and steel?
Credit on tower/shelter??
Credit on-•Architect Service•Port service•Other port•Airport service •Industrial or commercial construction•Construction for commercial complex•Works contract
Taxable output service of
•Architect Service•Port service•Other port•Airport service•Industrial or commercial construction•Construction for commercial complex•Works contract
Rest (manufacturer or other service provider)
•Construction of a building or a civil structure or a part thereof; or
•Laying of foundation or making of structures for support of capital goods
AvailableNot available
Input Services: Construction
Input Services: Construction
Input Services : ConstructionInput Services : Construction
Expression deleted: Services used in relation to setting up of a factory, premises of provider of output service or an office relating to such factory or premises
Still includes renovation/ modernization/ repair
Issues
Can renovation / modernization/ repair result in construction of building?
Constructing another building in existing factory?
Rule 4(7) : When credit can be availed?
Rule 4(7) : When credit can be availed?
Input Service
Invoices raised on or after 1.4.2011 On or after the day on which invoice is received
Invoices raised before 1.4.2011 On or after the day on which payment is made
Synchronized with Point of Taxation Rules
Rule 4(7) : When credit can be availed?
Rule 4(7) : When credit can be availed?
If payment not made within 3 months of invoice Amount equal to Cenvat credit to be paid
Credit can be taken again once payment is made
Refund or Credit note Amount equal to Cenvat credit to be paid
Reverse Charge Date on which payment is made of the value and
service tax
Implications under Rule 6
Rule 6 Rule 6
Definition of “Exempted Services” Services exempt from whole of service tax
Services on which no service tax is leviable
Services whose part of value is exempt subject to non-availment of credit on inputs and input services
Trading
New Rule Old Rule
Pay 5% Pay 5% on exempted goods/ Pay 6% on exempted services
Proportionate Credit reversal under Rule 6(3A)
Proportionate Credit reversal under Rule 6(3A)
Maintain separate accounts for inputs & pro-rata credit reversal on input services under Rule 6(3A)
Maintain separate accounts for inputs and input services
Change in optionChange in option
Trading is exempted service now
Trading is exempted service now
Orion Appliances (Tri-Ahd) – Trading is not exempted service: Rule 6 not applicable
Credit scheme for manufacturer & service provider, trader was not covered earlier also
Options available:-• Pay 5% on profit margin
• Maintain separate accounts for inputs & pro-rata credit reversal on input services under Rule 6(3A)
ExampleExample
Turnover Value
Taxable Goods 5,00,000 5,00,000
Exempted Goods 3,00,000 3,00,000
Exempted Services 2,50,000 2,50,000
Taxable Services 1,50,000 1,50,000
Trading (Purchase)
(purchase price = Rs. 20,000) 50,000 30,000
Trading (Job-work)
(RM cost = Rs. 50,000
Conversion charges = Rs. 30,000) 1,00,000 20,000
13,50,000 12,50,000
Input Service Credit = Rs. 1,00,000
Reversal under Rule 6(3A) = 1,00,000 * 3,00,000+2,50,000+30,000+20,000
12,50,000
= Rs. 48,000
Rule 6(5) : No moreRule 6(5) : No more
Rule 6(5) Omitted : 17 services of capital nature were granted full credit even if partially used for exempted goods
Rule 6(5) was similar to Rule 6(4) for capital
goods – Rule 6(4) still exists
Services of enduring nature
Rule 6(6A) : Service to SEZ
Rule 6(6A) : Service to SEZ
Rule 6 not applicable to services provided to a Unit in a SEZ or to a Developer of a SEZ
Full credit on inputs, inputs services and capital goods
Services exempt subject to non-availment of credit
Services exempt subject to non-availment of credit
If part of value of service exempted subject to non-availment of Cenvat
5% of value of exempted portion; or
Proportionate reversal
Services exempt subject to non-availment of credit
Services exempt subject to non-availment of credit
If service tax paid at reduced rate under Rule 6(7), Rule 6(7B) or 6(7C) or under composition scheme for WCT,
Value = Service tax paid under the option
Rate of service tax under Section 66
Eg : Service tax paid under WCT =
Rs. 10,00,000 (gross amount) x 4% = Rs. 40,000
Value for the purpose of Rule 6 =
Rs. 40,000/10% = Rs. 4,00,000
Specific Service ProvidersSpecific Service Providers
Provider of banking & other financial services –
pay 50% of credit availed on inputs & input services.
Provider of life insurance services –
pay 20% of credit availed on inputs & input services.
INPUT SERVICE DISTRIBUTOR
INPUT SERVICE DISTRIBUTOR
RECEIVES
INVOICES
TOWARDS
PURCHASES
OF INPUT
SERVICES
AN OFFICE OF THE MANUFACTURER OR PRODUCER OF FINAL PRODUCTS OR PROVIDER OF OUTPUT SERVICE
ISSUES INVOICE/BILL/ CHALLAN FOR THE PURPOSES OF DISTRIBUTING THE CREDIT OF SERVICE TAX PAID
TO SUCH MANUFACTURER OR PRODUCER OR PROVIDER
ISD - CREDIT DISTRIBUTION ISD - CREDIT DISTRIBUTION
CREDIT DISTRIBUTION
TO ITS MANUFACTURING UNITS OR UNITS
PROVIDING OUTPUT SERVICE
CREDIT DISTRIBUTED NOT TO EXCEED THE
TOTAL SERVICE TAX PAID ON AN INVOICE
NOT TO DISTRIBUTE
• ATTRIBUTABLE TO SERVICE USED IN AN UNIT
EXCLUSIVELY ENGAGED IN MANUFACTURE OF
EXEMPTED GOODS OR PROVIDING OF EXEMPTED
SERVICES
ISD…ISD…
PROCEDURAL
REQUIREMENTS
REGISTRATION
ISSUE OF INVOICE / BILL / CHALLAN
FILING RETURNS
MAINTENANCE OF RECORDS
DISTRIBUTION OF CREDIT OF INPUTS DISTRIBUTION OF
CREDIT OF INPUTS
Rule 7A
Service provider
First stage dealer/Second stage dealer
New DelhiB-6/10, Safdarjung EnclaveNew Delhi – 110 029, IndiaPh: +91-11-26192243, 5129 9800Fax: +91-11-26197578, 5129 9899E-mail: [email protected]
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Bangalore505-508, 5th Floor, Brigade Plaza (North Block) No.71/1, Subedar Chatram Road, Anand Rao Circle, Banglaore-560009Ph:: +91(80)4171 7777Fax: +91(80) 2237 1759E-mail: [email protected]
Thank You
Our contacts
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