Taxes

Direct taxes Indirect taxesService Tax

VAT

ExciseDuty Customs Duty

Income Tax

Indirect Taxes

Burden can be shifted

Regressive in nature

Inflate the cost of the

Goods/ Services

Levied on Goods/ Services

Indirect Tax

Process

Calculate Output

tax Liability

CENVAT Adjustments

Net Payment

ANALYTICALAREA

Calculate Output tax Liability

Easy process

Calculated at fixed rate on (billing amount + amount received in advance)

Formula Prevailing Rate

(billing amount +amount received in advance)

Payment of Net tax Liability

OUTPUT TAX LIABILITY

CENVAT ADJUSTMENT

COST MINIMIZATION BY SAVING TAX

STRONG COMPETITION IN MARKET

THUS LEADS TO “SURVIVAL OF THE FITTEST”

SATISFIED CUSTOMERS

AVOIDS CASCADING EFFECTS

Benefit of Availing CENVAT

Transformati on Of MODVAT Into CENVAT

MODVAT

CENVAT

INTRODUCED IN 2004 WITH CCR 2004

AVAILMENT OF DUTY/TAX CREDIT IN R/O EXCISABLE GOODS , CAPITAL GOODS & TAXABLE SERVICES

AVAILMENT OF TAX CREDIT ON EXCISABLE GOODS

W.E.F. 1ST MARCH 1986

CENVAT

An assessee should be INNOVATIVE while AVAILING & UTILIZING CENVAT as it results in minimization of cost and consequent increase of profit and market share of the assessee.

Therefore the assessee should consider all relevant Notifications and Circulars while availing & utilizing the benefit of the CENVAT.

WHAT IS CENVAT?

HOW TO CALCULATE IT?

LET US CONSIDER ONE EXAMPLE

SERVICE SERVICE

Sub- Contractor

ContractorService

Recipient

Invoice Issued Rs. 50,000/-

+ Rs. 5150(S.T.)

Invoice Issued Rs. 100,000/-

+ Rs. 10,300(S.T.)

NET S.T. PAYABLE BY CONTRACTOR TO

DEPTT..

5150.00/- (10300-5150)

OUTPUT TAX LIABILITY(–)

CREDIT FOR INPUT SERVICES

Rs. 100,000/-+

Rs. 5,000/-(Excise duty)

Rs. 50,000/-+

Rs. 2,000/-(Excise duty)

Rs. 100,000/-+

Rs. 5,000/-(Service Tax)

MANUFACTURER

The amount of excise duty/service tax paid by the manufacturer on inputs, capital goods[upto 50% in a financial year] & input services used by him for the production of final goods can be utilized by him for

the payment of output tax liability

Output Tax Liability= Rs. 17,000/-

Output Tax Paid in Cash= Rs. 7,500/-

(17,000-9,500)

CENVT CREDIT RULES, 2004RULE 2

Input

For manufacturer

INCLUDES - A

Capital goods except when used as parts or components in the manufacture of a final product

Motor Vehicles

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

Any Goods Which Have No Relationship Whatsoever With The Manufacture Of A Final Product.

Specific Exclusions - B

Includes - A

All goods used in the factory by the manufacturer of the final product;

Any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products

All goods used for generation of electricity or steam for captive use

EXPLANATION. – FOR THE PURPOSE OF THIS CLAUSE, “FREE WARRANTY” MEANS A WARRANTY PROVIDED BY THE MANUFACTURER, THE VALUE OF WHICH IS INCLUDED IN THE PRICE OF THE FINAL PRODUCT AND IS NOT CHARGED SEPARATELY FROM THE CUSTOMER.

Excludes - B

Light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol

Any goods used for

Construction Of A Building Or A Civil Structure Or A Part Thereof

Laying of foundation or making of structures for support of capital goods

Except for the provision of any of following taxable services i.e. Port Services, Other Port Services, Airport Services, Commercial or Industrial Construction Services, Complex Construction Services, Services in Execution of Works Contract.

Input

ForProvider of

Taxable Services

All goods used for providing any output service

Specific Exclusions (Same as for Manufacturer)

Motor vehicles

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

EXPLANATION. – FOR THE PURPOSE OF THIS CLAUSE, “FREE WARRANTY” MEANS A WARRANTY PROVIDED BY THE MANUFACTURER, THE VALUE OF WHICH IS INCLUDED IN THE PRICE OF THE FINAL PRODUCT AND IS NOT CHARGED SEPARATELY FROM THE CUSTOMER.

Input Service(Manufacturer Of Final Product)

It means any services used by a manufacturer , whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal.

Specifi c Inclusions

Service used in relation to modernization, renovation or repair of a factory or an office relating to such factory

Advertisement or sales promotion

Market Research

Storage upto the place of removal

Procurement of Input

Accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal

Input Service(Provider of Taxable Services)

It means any services used by a provider of taxable services , for providing an output service.

Specifi c Inclusions

Service used in relation to modernization, renovation or repair of a factory or an office relating to such factory

Advertisement or sales promotion

Market Research

Accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal

Specifi c Exclusions

Any of specified Services i.e. Architect ‘s Services, Port Services, Other Port Services, Airport Services, Commercial or Industrial Construction Services, Complex Construction Services, Works Contract General Services if used for either of following purposes

General Insurance Services Rent-a-cab Scheme Operator’s Services, Authorised Service Station Services, Supply of Tangible Goods in so far as they relate to a motor vehicle except when used for the provision of taxable services for which the credit on motor vehicle is available as capital goods

Services such as those provided in relation to 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, when such services are used primarily for personal use or consumption of any employee.

a) construction of a building or a civil structure or a part thereof

b) laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services

Relevant Sub-Heading Provisions w.e.f. 01.04.2011Expansion in the definition of Capital Goods

"capital goods" means:-(A) the following goods, namely:- (i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, [heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804] of the First Schedule to the Excise Tariff Act;(ii)pollution control equipment;(iii)components, spares and accessories of the goods specified at (i) and (ii);(iv) moulds and dies, jigs and fixtures;(v)refractories and refractory materials;(vi)tubes and pipes and fittings thereof; and(vii)storage tank,

Capital goods

Capital goodsRelevant Sub-Heading Proposed New Provisions

used-(1)in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office.(1A) outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory.

Consequential amendment in Rule 4(2)(a) for the manufacturer of final products

The CENVAT credit in respect of capital goods received in a factory or outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory at any point of time in a given financial year shall be taken only for an amount not exceeding 50%of the duty paid on such capital goods in the same financial year

EXEMPTED GOODS

These are those excisable goods which are exempt from the whole of the duty of excise leviable thereon , and includes goods which are chargeable to "Nil" rate of duty

Goods in respect of which the benefit of an exemption under Notification No. 1/2011-CE, dated the 1st march, 2011 is availed.

Abovementioned notification No. 1/2011-CE provides exemption to 130 excisable goods w.e.f. 01.03.2011 in excess of one per cent of ad valorem excise duty. Consequently, previously referred 130 excisable goods shall be treated as exempted goods for the purpose of CCR, 2004.Further, no CENVAT Credit will be admissible to a manufacturer in r/o excise duty paid on said 130 excisable goods by virtue of insertion of proviso to Rule 3(1)(i) of CCR, 2004.

EXEMPTED SERVICE

These are those taxable services which are exempt from the whole of the service tax leviable thereon, and includes services on which no service tax is leviable under section 66 of the Finance Act

Taxable services whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken.

As a result of above amendment, the abated value of relevant taxable services provided by the service provider will be considered as exempted services. Further, balance taxable value of relevant taxable services will be added to the value of taxable services for the purpose of determining CENVAT Credit available with a service provider.

CENVT CREDIT RULES, 2004RULE 3

27

Eligible Duties/Taxes(A) Following duties paid on inputs/capital goods1. Basic Excise Duty (CENVAT) i.e. excise duty specified in First

Schedule & Second Schedule to Central Excise Tariff Act, 19852. Special Excise Duty (SED)3. Additional Duty of Excise under AED (Textile & Textile Articles)

Act4. Additional Duty of Excise under AED (Goods of special

importance) Act5. National Calamity Contingent Duty (NCCD)6. Education Cess on Excise Duty7. Additional Duty of Customs (CVD)8. Additional Duty of Excise on Tea & Tea Waste (B) Service Tax9. Service Tax paid on input services10. Education Cess on Service Tax

Provided CENVAT credit not be allowed in excess of 85% the additional duty of customs paid under sub section (1) of section 3 of Customs Tariff Act.

CENVT CREDIT RULES, 2004RULE 4

CONDITIONS FOR AVAILING CENVAT CREDIT

Sr. No. Respect with Condition

1. Input Immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service.

2. (a) Capital Goods

Received in a factory or in the premises of the provider of output service at any point of time in a given financial year shall be taken only for an amount exceeding 50% of the duty paid on such goods in the same F.Y. .

2. (b) Provided that “the capital goods are other than components, spares and accessories, refractories and the refractory materials, moulds and dies and other goods falling under the First Schedule to the excise tariff act, are in the possession of the manufacturer of final product or provider of output services in such subsequent year”, the balance of CENVAT credit may be taken in any F.Y. subsequent to the F.Y. in which the capital goods were received in the factory or in the premises.

Sr. No. Respect with Condition3. Capital goods Even if the capital goods are acquired by

the manufacturer or provider of output services on lease, hire purchase or loan agreement from a financing company then also he will be allowed the CENVAT credit of the paid duty.

4. Capital Goods The CENVAT credit will not be allowed in respect of that part of the value of Capital Goods which represents the amount of duty paid in respect of the Capital goods, which the manufacturer or provider of output services claim as depreciation under Section 32 of the Income Tax Act, 1961.

Rule 4(7)CENVAT shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan is received.

Provided

In case of reverse charge payment is made as indicated in invoice

In case the payment is not made within 3 months of the date of invoice , the manufacturer or service provider shall pay the amount equal to CENVAT credit availed on such goods or service.

In case payment towards input service is refunded or credit note is issued to manufacturer or service provider, then he shall pay an amount equal to the CENVAT credit availed.

In case of invoice issued before 1st April 2011, CENVAT credit shall be allowed on or after the date of payment.

CENVT CREDIT RULES, 2004RULE 5

Refund of CENVAT CreditWhere any input or input service is used in the manufacture of final product which is cleared for export under bond or letter of undertaking, or used in the intermediate product cleared for export, or used in providing output service which is cleared for export, the CENVAT credit in respect of the input or input services shall be allowed towards the payment of :(i) Excise Duty on any final product cleared for home

consumption or for export on payment of duty; OT(ii) Service Tax on output serviceAnd where for any reason such adjustment is not possible,

the manufacturer/service provider shall be given refund of such amount. The applicant has to file Refund Application in Form A which has been prescribed under Notification No. 5/2006-C.E.(N.T.) dated 14.03.2006.

CENVT CREDIT RULES, 2004RULE 6

Rule 6(2)

Receipt, Consumption & Inventory of Inputs

Receipt & Use of input Services

Maintenance of Separate Accounts in R/O

CENVT CREDIT RULES, 2004RULE 6(3)

In case separate records can not be maintained

Follow any of the following three

(i) Pay 5% of the value of exempted goods or services.

(ii) Reverse the CENVAT proportionately utilized for exempted or non taxable goods or services

(iii) Reverse proportionate CENVAT on input services & maintain separate records for input.

If a taxable service has been exempted on the condition that no CENVAT Credit shall be taken to provide that service then the amount specified in clause (i) shall be 5 % of the exempted value

Presumptive SchemeRule Service Provider Amount to be PaidRule 6(3B)

A Banking company & a financial Institution including a non- banking financial company[N.B.F.C.]

50% of the CENVAT credit availed on inputs and input services in that month.

Rule 6(3C)

A provider of Life Insurance Business Services & Management of Investment under ULIP Services

20% of CENVAT credit availed on inputs and input services in that month

Erstwhile Rule 6(5) used to enable a service provider who was engaged in providing taxable as well as exempted service to avail credit of whole services despite the fact that the 16 specified services had been partially used in exempted services.

But now w.e.f. 01.04.2011 Rule 6(5) has been omitted i.e credit of whole service tax will not be available in respect of 16 specified services[for instance Consulting Engr’s Services, Architect’s Services, Interior Decorator’s Services]

Abolition of Rule 6(5)

BEFOREN/N 1/2011 DT.

01.03.2011CONTRACTOR SUBCONTRACTOR

AVAILING COMPOSITION

SCHEME

NOT AVAILING COMPOSITION

SCHEME

PAYING SERVICE TAX 10.3%

PAYING SERVICE TAX @ 4.12%

ALSO AVAILING 100% CENVAT

ON INPUT SERVICES

AVAILING 100% CENVAT ON

INPUT SERVICES

INCONSISTENCY IN OUTPUT TAX RATE (40%) AND INPUT TAX CREDIT RATE (100%)

AFTERN/N 1/2011 DT.

01.03.2011

AVAILING COMPOSITION

SCHEME

PAYING SERVICE TAX @ 4.12%

ALSO AVAILING 40% CENVAT

NOT AVAILING COMPOSITION

SCHEME

PAYING SERVICE TAX 10.3%

AVAILING 100% CENVAT ON

INPUT

CONTRACTOR SUBCONTRACTOR

RESTRICTION ON AVAILMENT OF CENVAT TO 40 % IN R/O ABOVE TAXABLE SERVICES

TAXABLE SERVICES:1)ERECTION COMMISSIONING & INSTALLATION SERVICES2)COMMERCIAL OR INDUSRTIAL CONSTRUCTION SERVICES3)COMPLEX CONSTRUCTION SERVICES

LANDMARK CASE LAWS

•RAAJ KHOSLA & CO. PVT. LTD. V/s COMMISSIONER OF SERVICE TAX, DELHI 2008 (12) S.T.R. 627 (Tri. - Del.)

•SACHDEVA ROADLINES (P) LTD. V/s COMMR. OF SERVICE TAX, DELHI 2008 (11) S.T.R. 519 (Tri. - Del.)

•MARUTI SUZUKI LTD. V/s COMMISSIONER OF CENTRAL EXCISE, DELHI-III 2009 (240) E.L.T. 641 (S.C.)

Room Is Open For Queries

44

THANKS FOR GIVING A PATIENT HEARING