CENVAT Credit explained in relation to recent cases and CCR 04

1. CENVAT CREDIT
By
Rishub Kapoor
Amity Law School NOIDA

2. INTRODUCTION
Cenvat Credit is a scheme where the manufacturers or the output service providers
are allowed a set off of the taxes paid on the inputs or the input services that are
used while manufacturing the final products or providing the output service. A
manufacturer or service provider is expected to pay certain basic duties in the
execution of his/her work, with a number of steps involved in each stage of
manufacture.
CENVAT ensures that there is a smooth flow of duties, with no additional drain on
any one segment, be it a manufacturer or a customer, eliminating double taxation
and keeping the entire chain simple and clean
Credit is not allowed if the final products are exempted or the output service is
exempted.(Nil rate of duty applicable)
For example : -
In the manufacture of product X, if raw material A and raw material B are used,
the manufacturer is allowed to take credit of the Central Excise duty paid on the
raw materials A and B used in the manufacture of the final product X. He is allowed
to use this credit while paying duty on the final product, X

3. Cenvat Credit Rules, 2004
• CENVAT Credit Rules 2004 (CCR) was introduced wef 10th Sept.2004
vide notification No.23 /2004 – Central Excise (N.T) date 10th Sept.
2004.
• The same is in supersession of CENVAT Credit Rules, 2002 (CCR 02)
and Service Tax Credit Rules, 2002 (STCR). CENVAT Credit Rules 2004
applies to the whole of India. However, it would not apply, to the
extent it relates to availment and utilization of credit to the State of
Jammu & Kashmir.
• Common for Excise & Service Tax - Input Credit Mechanism under
both legislation is governed by these rules.

4. Basic objectives of Cenvat Credit Mechanism
A manufacturer or service provider is expected to pay certain basic duties in the execution
of his/her work, with a number of steps involved in each stage of manufacture. CENVAT
ensures that there is a smooth flow of duties, with no additional drain on any one
segment, be it a manufacturer or a customer.
• To avoid the cascading effects of indirect taxes.
• To minimize tax incidence on ultimate consumer of goods / services.
• To ensure levy of tax on value addition by respective assesse.
• To eliminate or minimize the possibility of double taxation.
• The basic philosophy underlying cenvat scheme is that of a mutual trust. The revenue
authorities normally rely on the records of the assesse, hence it is necessary for the
assesse to be very cautious and conservative while availing cenvat benefit.

5. Rule 3 – Eligible Duties for availing Cenvat Credit
• Basic Excise Duty (BED) levied on Excisable Goods, and
Additional Duty equivalent to BED levied on imported goods.
• Special Excise Duty (SED) levied on Excisable Goods and
additional Duty equal to SED levied on imported goods.
• Additional duty of Excise levied on goods of special
importance like Sugar and Tobacco.
• National Calamity Contingent Duty (NCCD) on certain
excisable goods and imported goods
• Education Cess levied on Excisable and Imported Goods

6. CONTD.
• Education Cess leviable on Taxable Services Section 91/95 of Finance
• Additional Duty Leviable on specified goods Section 3 of Customs
Tariff Act
• Secondary and Higher Education Cess leviable on Excisable Goods
Sections 136 / 138 of Finance Act, 2007
• Additional Duty of Excise on Pan Masala & Certain tobacco products
• Service Tax leviable on Taxable Services

7. Rule 4 – Conditions for allowing CENVAT CREDIT
• The cenvat credit in respect of inputs may be taken immediately on the
date of receipt of inputs. CENVAT Credit can be taken any time- even after
three four years- (SAIL vs. CCE 2000RLT CEGAT), (Super Cassette vs. CCE
2004 ELT 280 ( CESTAT))
• The cenvat credit in respect of capital goods to be availed within a period
of 2 years i.e.
a) 50% immediately when capital goods are received and
b) balance 50% in the next financial year.
• Credit allowed to a manufacturer even if capital goods are acquired by him
on lease, hire purchase or loan agreement.
• Credit is allowed even if any inputs or capital goods are sent to job worker
place for further processing, but goods must be received back within 180
days. ( Fiat India v. CCE 2006ELT 439[ CESTAT ])

8. CONTD.
• Cenvat credit is allowed even in respect of jigs, fixtures, moulds and
dies. (Pricol Ltd vs. CCE [2010] 251 ELT 289[ CESTAT])
• Cenvat credit is not allowed on the goods used for office use.
• Cenvat credit will not be allowed on that part of capital goods that
represents depreciation.
• CENVAT can be availed when the goods were directly delivered to job
worker (Diamond Cables V. CCE) and (Bharat Heavy Electrical v. CCE)
• The CENVAT credit in respect of input service shall be allowed, on or
after the day which payment is made of the value of input service and
the service tax paid or payable as is indicated in invoice, bill or, as the
case may be, challan referred to in rule 9.( Time limit extended from
1 year to 6 months for availment of credit with effect Notification
no. 21/2014- Central Excise dated 11.07.2014 )

9. Rule 9 -Documents required for taking credit
Documents and Accounts The Cenvat Credit shall be taken on the basis
of any of following duty paying documents.
1. Invoice issued by
a) A manufacturer
b) By an importer
c) A first stage dealer
d) A consignment agent
2. A supplementary invoice issued by a manufacturer or importer
3. A bill of entry
4. A certificate issued by an appraiser of custom
5. A Challan evidencing the payment of service tax
6. An invoice, bill or Challan issued by a provider of input service.

10. CENVAT Availment Procedure
Main procedure for CENVAT availment is as follows :
1. Maintaining proper records of input and capital goods.
2. Maintaining records of credit received and utilized.
3. Submit proper returns in forms ER-1 to ER 8.
4. Returns by Dealers / Service Provider / Input Service Providers.
5. All to be filed online at the Icegate platform Of CBEC
Records of Input Services / Capital Goods : Records should contain
information regarding Value, duty paid, CENVAT credit taken & utilized,
person from whom input or capital goods are procured. Here, burden of
proof regarding admissibility of CENVAT Credit is on manufacturer or
provider of output service taking credit. [ Rule 9(5) of CENVAT Credit Rules]

11. CONTD.
• Records of Input Services : Records should contain information
regarding Value of input services, Tax Paid, CENVAT Credit taken and
utilised, person from whom input services are procured. The burden
of proof regarding admissibility of CENVAT credit lies with the
person taking credit [ Rule 9(6) of CENVAT Credit Rules]
• CENVAT Credit Record : This is just an account of Cenvat credit
received, credit utilised and credit balance. This gives details of credit
availed against each input / capital goods, Credit utilised against each
clearances of final products or removal of input as such or after
processing or removal of capital goods as such and the Balance Credit
available

12. Rule 14 - Recovery of CENVAT credit wrongly taken
or erroneously refunded
Where the CENVAT credit has been taken or utilized wrongly or has
been erroneously refunded, the same along with interest shall be
recovered from the manufacturer or the provider of the output service
• the provisions of sections 11A and 11AB of the Central Excise Act
1944 or
• sections 73 and 75 of the Finance Act 1994 (service tax)
shall apply mutatis mutandis for effecting such recoveries.
Along with Penalty under Rule 15 of Cenvat Credit Rules 2004, and
section 11AC of Central Excise Act 1944

13. CASES
M/s BHARTI AIRTEL LTD. V CCE, PUNE (2014 (3) ECS 25)
• All capital goods are not eligible for credit and only those relatable to the output
services would be eligible for credit. The towers are immovable property and
non-excisable and hence can neither be regarded as 'capital goods' nor can be
categorized as 'inputs.
M/s. CEMENT MANUFACTURING COMPANY LIMITED Vs. CCE & ST,
SHILLONG (2014 (1) ECS (178))
• The Assesse availed Cenvat credit on invoices issued by head office which was not
registered as an input service distributor. Hence, such invoices not valid/ correct
documents for availing Cenvat credit.

14. CASES
UPPER GANGES SUGAR & INDUSTRIES LTD. Vs CCE, MEERUT (2014 (1)
ECS (27) ALLAHABAD HIGH COURT)
• Items used neither for production nor for processing of any goods or bringing
about any change in any substance for manufacture of final products are not
capital goods.
M/s Castrol India Ltd Versus CCE, Vapi (2013 (2) ECS 52)
• Definition of input service in Rule 2 (1) of Cenvat Credit Rules, 1994 is quite
comprehensive. However, every assesse taking cenvat credit of input service has
to establish that such services are utilized in relation to manufacturing activity.

15. Highlights of Cenvat Scheme
 Cenvat Credit on receipt of inputs
 Credit of duty on receipt of invoice in case of input services provided payment
is made within 90 days from date of invoice. There is no time limit prescribed.
But it is advisable to take credit in a reasonable time which was held to be
one year by CESTAT in a recent case.
 Cenvat Credit shall not be allowed after six months of the date of document
(Invoice Date / Challan Date (w.e.f. 01.09.2014)
 Where entire service tax is payable by service recipient, Cenvat Credit can be
availed after the service tax is paid.
 Where service recipient is liable to pay part service tax, Cenvat Credit can be
taken on/ after payment is made of the value of input service and the service
tax paid or payable as indicated in invoice,