Government of India
Ministry of Finance
Department of Revenue
Tax Research Unit
Circular No.943/04/2011-CX
New Delhi, 29th April 2011
To
The Chief Commissioners of Central Excise and Service Tax (All),
The Director General (All),
The Commissioners of Service Tax (All),
The Commissioners of Central Excise and Service Tax (All).
Madam/Sir,
Sub: Clarification on issues relating to CENVAT Credit Rules 2004– Regarding.
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. |
- Trade and Industry as well as field formations may be suitably informed.
- Receipt of this Circular may kindly be acknowledged.
- Hindi version will follow.
Yours faithfully,
(Shobhit Jain)
OSD, TRU
F.No.354/73/2011 -TRU