No CENVAT Credit of Capital Goods in 1% Excise Notification 1/2011
Service
Tax Cenvat Clarification
[CBEC Circular No. 943 dated 29th April
2011]
Sub: Clarification on issues relating to CENVAT
Credit Rules 2004.
The CENVAT Credit Rules
2004 were amended along with the Budget 2011 announcements vide Notification
3/2011-CE (NT) dt 1.3.2011.
A few changes were further effected vide Notification 13/2011-CE (NT) dt 31.3.2011. On a few issues
trade has requested for clarity. Accordingly the following clarifications are
presented issue wise in a tabular format.
|
S.No. |
Issue |
Clarification |
|
1 |
Can credit of capital goods be availed of when used in manufacture of
dutiable goods on which benefit under Notification 1/2011- CE is availed or
in provision of a service whose part of value is exempted on the
condition that no credit of inputs and input services is taken? |
As per Rule 6(4) no credit can be availed on
capital goods used exclusively in manufacture of exempted goods or in
providing exempted service. Goods in respect of which the benefit of an
exemption under notification No. 1/2011-CE, dated the 1st March, 2011 is
availed are exempted goods [Rule 2(d)]. 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, are
exempted services [Rule 2(e)]. Hence credit of capital goods used exclusively
in manufacture of such goods or in providing such service is not allowed. |
|
2 |
Is the credit of only specified goods and services listed in the
definition of inputs and input services not allowed such as goods used in a
club, outdoor catering etc, or is the list only illustrative? |
The list is only illustrative. The principle is that cenvat credit is not allowed when any goods and services
are used primarily for personal use or consumption of employees. |
|
3 |
How is the “no relationship whatsoever with the
manufacture of a final product” to be determined? |
Credit of all goods used in the factory is
allowed except in so far as it is specifically denied. The expression “no relationship
whatsoever with the manufacture of a final product” must be interpreted and
applied strictly and not loosely. The expression does not include any goods
used in or in relation to the manufacture of final products whether directly
or indirectly and whether contained in the final product or not. Only credit
of goods used in the factory but having absolutely no relationship with the
manufacture of final product is not allowed. Goods such as furniture and
stationary used in an office within the factory are goods used in the factory
and are used in relation to the manufacturing business and hence the credit
of same is allowed. |
|
4 |
Is the credit of input services used for repair or renovation of
factory or office available? |
Credit of input services used for repair or renovation of factory or
office is allowed. Services used in relation to renovation or repairs of a
factory, premises of provider of output service or an office relating to such
factory or premises, are specifically provided for in the inclusive part of
the definition of input services. |
|
5 |
Is the credit of Business Auxiliary Service (BAS) on account of sales
commission now disallowed after the deletion of expression “activities
related to business”? |
The definition of input services allows all credit on services used
for clearance of final products upto the place of
removal. Moreover activity of sale promotion is specifically allowed and on
many occasions the remuneration for same is linked to actual sale. Reading
the provisions harmoniously it is clarified that credit is admissible on the
services of sale of dutiable goods on commission basis. |
|
6 |
Can the credit of input or input services used exclusively in trading,
be availed? |
Trading is an exempted service. Hence the credit of any inputs or
input services used exclusively in trading cannot be availed. |
|
7 |
What shall be the treatment of credit of input and input services used
in trading before 1.4.2008? |
Trading is an exempted service. Hence credit of any inputs or input
services used exclusively in trading cannot be availed. Credit of common
inputs and input services could be availed subject to restriction of
utilization of credit up to 20% of the total duty liability as provided for
in extant Rules. |
|
8 |
While calculating the value of trading what principle to follow- FIFO,
LIFO or one to one correlation? |
The method normally followed by the concern for its accounting purpose
as per generally accepted accounting principles should be used. |
|
9 |
Are the taxes and year end discounts to be included in the sale price
and cost of goods sold while calculating the value of trading? |
Generally accepted accounting principles need to be followed in this
regard. All taxes for which set off or credit is available or are refundable/
refunded may not be included. Discounts are to be included. |
|
10 |
Does the expression “in or in relation” used in Rule 6 override the
definition of “input” under Rule 2(k) for determining the eligibility of Cenvat credit? |
The definition of “input” is given in Rule 2(k) and Rule 6 only
intends to segregate the credits of inputs used towards dutiable goods and
exempted goods. While applying Rule 6, the expression “in or in relation” must
be read harmoniously with the definition of “inputs”. |
|
11 |
Sub-rules 3B and 3C of rule 6 apply to whole entity or independently
in respect of each registration? |
The sub-rules 6(3B) and 6(3C) impose obligation on the entities
providing banking and financial services (in case of a bank and a financial
institution including a non-banking financial company) or life insurance
services or management of investment under ULIP service. The obligation is
applicable independently in respect of each registration. When such a concern
is exclusively rendering any other service from a registered
premises, the said rules do not apply. In addition to BoFS and life insurance services if any other service is
rendered from the same registered premises, the said rules will apply and due
reversals need to be done. |
|
12 |
Is the credit available on services received before 1.4.11 on which
credit is not allowed now? e.g. rent-a-cab service |
The credit on such service shall be available if its provision had
been completed before 1.4.2011. |
2. Trade and Industry as well as field formations
may be suitably informed.
F.No.354/73/2011-TRU