In this article Author has discussed changes in Cenvat Credit Rules, 2004 by Union Budget 2016-17 in Tabular presentation in which he has discussed nature of amendment , Related Rules, Position before the amendment and after amendment and lastly he discussed about the impact of changes. Article will surely help you understand the changes in a simple manner.
S. No. |
Nature of amendment |
Rule Reference |
Earlier Version |
New Version |
Remarks |
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1. |
Inclusion of Sub-heading 860692 in definition of Capital Goods |
Rule 2(a)(A)(i) |
‘grinding wheels and the like, and parts thereof falling under heading 6804’ |
‘grinding wheels and the like, and parts thereof falling under [1][heading 6804 and wagons of sub-heading 860692’] |
Wagons under sub heading 860692 shall now be treated as Capital Goods |
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2. |
Omission of Equipment used in Office from exclusion criteria |
Rule 2(a)(A)(1) |
‘in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office’ |
[2][‘in the factory of the manufacturer of the final products’] |
Equipment or Appliance used in an office shall now be treated as Capital Goods under CCR. |
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3. |
Increase in the ambit of use of Goods for treatment as Capital Goods |
Rule 2(a)(A)(1A) |
‘manufacturer of the final products for generation of electricity’ |
‘manufacturer of the final products for generation of electricity [3][or for pumping of water’] |
Capital Goods now include Capital Goods used “for pumping of water” outside the factory of manufacturer of goods. |
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4. |
Reduction in scope of Exempted Services |
Rule 2(e)(3) |
‘but shall not include a service –a) which is exported in terms of ……. |
[‘but shall not include a service –a) which is exported in terms of ….b) by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India][4] |
Exclusion of service “by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India” from the definition of “Exempted Service” |
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5. |
Increase in the ambit of use of Goods for treatment as Inputs |
Rule 2(k)(iii) |
‘all goods used for generation of electricity or steam for captive use’ |
‘all goods used for generation of electricity or steam [5][or pumping of water] for captive use’ |
Goods used for “pumping of water” for Captive Use will be treated as “Input” |
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6. |
Low value Capital Goods to be treated as ‘Inputs’. Capital Goods upto a value of Rs. 10,000 per piece shall be treated as input. |
Addition of sub-clause (v) to clause (k) of Rule 2 of CCR, 2004[6][Addition in Exclusion item (C) of sub-clause (k).] |
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“Input” means –[7][(v) all capital goods which have a value upto ten thousand rupees per piece] |
1. Credit of Capital Goods of value upto Rs. 10,000 can be taken in the same year as they are received.2. They will be treated as exception to exclusion item (C) of Input deifinition |
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7. |
Inclusion of Outsourced Manufacturing Unit for distribution of CENVAT by ISD |
Rule 2(m) |
‘to such manufacturer or producer or provider, as the case may be’ |
‘to such manufacturer or producer or provider [8][or an outsourced manufacturing unit], as the case may be’ |
“Input Service Distributor” can now distribute CENVAT Credit to “an outsourced manufacturing unit”. |
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8. |
No payment of National Calamity Contingent duty u/s 136 from CENVAT Credit |
Rule 3(4) |
‘shall not be utilized for payment of the said National Calamity Contingent duty on goods falling under tariff items 8517 12 10 and 8517 12 90 respectively of the First Schedule of the Central Excise Tariff |
‘shall not be utilized for payment of the [9][National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001’] |
CENVAT Credit cannot be utilized for payment of National Calamity Contingent Duty u/s 136 of the Finance Act, 2001. |
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9. |
Increase in restriction of use of CENVAT Credit for payment of Infrastruture Cess. |
Addition of Proviso IX to Rule 3(4) |
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[10][Provided also that CENVAT credit shall not be utilised for payment of Infrastructure Cess leviable …..] |
CENVAT Credit cannot be utilized for payment of “Infrastructure Cess” as introduced from Finance Bill, 2016 vide Not. 1/2016 dt. 29.02.2016. |
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10. |
Allowance of CENVAT Credit on Capital Goods in the same year for articles of jewellery |
Explanation to Rule 4(2)(a) |
―Explanation. – For the removal of doubts, it is hereby clarified that an assessee, shall be eligible, if his aggregatevalue of clearances of all excisable goods for home consumption in ….. |
[11][―Explanation. – For the removal of doubts, it is hereby clarified that- (i) an assessee engaged in the manufacture of articles of jewellery, otherthan articles of silver jewellery but inclusive of articles of silverjewellery studded with diamond, ruby, emerald or sapphire..] |
100% Credit of Capital Goods is allowed in case of an assessee manufacturing jewellery, other than articles of silver jewellery but inclusive of articles of silver jewellery studded with diamond, ruby, emerald or sapphire, falling under chapter heading 7113 of the First Schedule of the Excise Tariff Act, if the value of clearance of all excisable goods is below Rs. 12 Crore |
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11. |
Restriction of ambit of “jigs, fixtures, moulds and dies” sent outside the factory premise for manufacturing. |
Rule 4(5)(b) |
‘(b) The CENVAT credit shall also be allowed in respect of jigs, fixtures, moulds and dies sent by a manufacturer of final products to,-‘ |
[12][‘(b) The CENVAT credit shall also be allowed to a manufacturer of final products in respect of jigs, fixtures, moulds and dies or tools falling under Chapter 82 of the First Schedule to the Excise Tariff Act, sent by such manufacturer to, ‘] |
1. Now, CENVAT Credit shall be allowed to a manufacturer only in respect of jigs, fixtures, moulds and dies or tools falling under Chapter 82 of the First Schedule to the Excise Tariff Act.2. Credit shall be allowed even if goods are directly sent outside without bringing these to his own premises. |
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12. |
Increase in the period of validity for order passed by Deputy / Assistant Commissioner of Central Excise for clearance of goods from premise of Job-Workers |
Rule 4(6) |
‘by an order, which shall be valid for a financial year, in respect of removal of such input’ |
‘by an order, which shall be [13][valid for three financial years], in respect of removal of such input’ |
Validity of order passed by Department for clearance of goods directly from premises of the Job-Worker increased to 3 Years. |
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13. |
Proportionment of CENVAT Credit of Service Tax paid for service provided by way of assignment, by the Government or any other person, of the right to use any natural resource . |
Addition of Proviso VI to Rule 4(7) |
‘…….. Amount of CENVAT Credit that shall be taken in a financial year = Service Tax paid on the charges payable for the assignment of the right to use / No. of Years for which the rights have been assigned…..’ |
[14][Provided also that CENVAT Credit of Service Tax paid in a financial year, on the one-time charges payable in full upfront or in instalments, for the service of assignment of the right to use any natural resource by the Government, local authority or any other person, shall be spread evenly over a period of three years:] |
CENVAT shall be allowed on proportion basis.1. The Credit shall be spread evenly over a period of three years.2. [15][CENVAT of monthly or annual user charges payable for rights shall be allowed in same financial year.] |
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14. |
Manufacturer or the provider of output service shall take CENVAT credit after one year in case of services provided by Government, local authority or any other person, by way of assignment of right to use any natural resource. |
Substitution of Proviso V to Rule 4(7). |
Provided that the manufacturer or the provider of output service shall not take CENVAT credit after one year of the date of issue of any of the documents specified in sub-rule (1) of rule 9 . |
……[16][except in case of services provided by Government, local authority or any other person, by way of assignment of right to use any natural resource] |
The manufacturer or the provider of output service shall take CENVAT credit evenly over a period of three years. |
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15. |
Procedure for calculation of Credit not allowed shall be as per sub-rule 2 and sub-rule 3. |
Rule 6(1) |
‘manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services except in the circumstances mentioned in sub-rule (2)’ |
[17][‘the credit not allowed shall be calculated and paid by the manufacturer or the provider of output service in terms of the provisions of sub-rule (2) or sub-rule (3)’] |
No credit shall be allowed on Inputs & Input Services used in relation to manufacture of exempted goods or exempted service.Credit not allowed shall be paid as provided on sub-rule (2) & (3) for different situations. |
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16. |
Explanation and valuation of exempted service for Rule 6 |
Explanation 3 & 4 to Rule 6(1) |
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[18][‘Explanation 3. – For the purposes of this rule, exempted services as defined in clause (e) of rule 2 shall include an activity, which is not a ‘service‘…Explanation 4. – Value of such an activity as specified above in Explanation 3…] |
Exempted Services have been defined for the purpose of Rule 6 by also including what is not a ‘service’ u/s 65B(44).Valuation method has also been prescribed. |
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17. |
No CENVAT Credit to Manufacturer or Service Provider who exclusively manufacture or provide exempted goods or service. |
Rule 6(2) |
‘(2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services and manufactures such final products or provides such output service which are chargeable to duty or tax…….. ‘ |
[[19]‘(2) A manufacturer who exclusively manufactures exempted goods for their clearance upto the place of removal or a service provider who exclusively provides exempted services shall pay the whole amount of credit of input ……..’] |
Sub-Rule (2) has been amended to exclusively deal with manufacturer of totally exempted goods and service provider of completely exempted services. |
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18. |
Only 2 options for reversal of CENVAT Credit specified.“Non-exempted goods removed”, “exempted goods removed” and “non-exempted services” defined for the purpose of reversal of credit under sub-rule 3 and 3A |
Rule 6(3) |
(3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow any one of the following options, as applicable to him, namely:- (i) pay an amount equal to six per cent. of value…..] |
[20][(3) (a) A manufacturer who manufactures two classes of goods, namely :- (i) non-exempted goods removed; (ii) exempted goods removed; or (b) a provider of output service who provides two classes of services, namely:- (i) non-exempted services…] |
Where a manufacturer deals in manufacturing of exempted goods as well as non-exempted goods, for clearance upto the place of removal or a provider of output service provides both exempted and non-exempted Services, then the assessee has option to pay (Reverse Credit) duty under two options:i. Pay an amount equal to six per cent of value of the exempted goods and seven per cent of value of the exempted services, available in the account of the assessee at the end of the period to which the payment relates, orii. pay an amount as determined under sub-rule (3A)If any duty of Excise is paid on the exempted goods, the assesse shall get the credit of the same under sub-clause (i) above.If any part of Taxable service is exempted on condition of non-allowance of CENVAT Credit of Inputs or Input Services, then also an amount equal to Seven Percent of the exempted value shall be paid under sub-clause (i).The rate specified under sub-clause (i) shall be reduced to Two Percent of the value of exempted services in the case of transportation of goods or passengers by railOnce any option is availed under this sub-rule, the assessee shall have to follow the same option during the year. |
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19. |
Central Excise Officer to decide procedure where the manufacturer or provider of output service has failed to opt any option under sub-rule 3 of Rule 6. |
Insertion of new Rule 6(3AA) |
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[Where a manufacturer or a provider of output service has failed to exercise the option under sub-rule (3) and follow the procedure provided under sub-rule (3A), the Central Excise Officer competent to adjudicate a case based on amount of CENVAT credit involved, may allow such manufacturer or provider of output service to follow the procedure and pay the amount referred to in clause (ii) of sub-rule (3), calculated for each of the months, mutatis-mutandis in terms of clause (c)…] |
If the assessee fails to opt for any one option under sub-clause (i) or (ii) of Rule 6(3), then a a Central Excise officer, competent to adjudicate such case may allow manufacturer or service provider to follow the procedure and pay the amount along with interest @ 15% till the date of payment.The Central Excise shall do valuation in accordance with sub-rule 3A. |
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20. |
Transitional Provision for assessee – existing Rule 6 shall continue to be in effect upto 30th June, 2016 to discharge their liability for F.Y. 2015-16. |
Insertion of Rule 6(3AB) |
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[3AB) Assessee who has opted to pay an amount under clause (ii) or clause (iii) ….] |
An assessee who has opted to pay amount under sub-rule (3) in the financial year 2015-16, shall pay duty along with interest or avail credit till 30th June 2016 in terms of clauses (c), (d), (e), (f), (g), (h) or (i) of Rule 6(3A). |
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21. |
Substitution of Clause (i) of sub rule 3 of rule 6 |
Rule 6(3)(i) |
pay an amount equal to six per cent. of value of the exempted goods and seven per cent. of value of the exempted services subject to a maximum of the total credit available in the account of the assessee at the end of the period to which the payment relates; or “ |
[21][pay an amount equal to six per cent. of value of the exempted goods and seven per cent. of value of the exempted services subject to a maximum of the sum total of opening balance of the credit of input and input services available at the beginning of the period to which the payment relates and the credit of input and input services taken during that period; or”] |
Imposition of a condition that it should be subject to maximum of the sum total of opening balance of the credit of input and input services at the beginning of the period. |
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22. |
Substitution in Rule 7B (1) |
Rule 7B(1) |
“invoices, issued in terms of the provisions of the Central Excise Rules, 2002,” |
[22][documents specified under rule 9,] |
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Amendment in Rule 6(3A):
Procedure for reversal payment of duty (CENVAT Reversal) under sub-clause (ii) of Rule 6(3):
a. No CENVAT is allowed for Inputs & Inputs Services used exclusively or in relation to the manufacture of exempted goods removed or for provision of exempted services. This credit is called ‘Ineligible Credit’. The whole amount of CENVAT paid on Input has to be paid / reversed. This is denoted by “A”.
b. 100% of CENVAT Credit shall be allowed for Inputs & Inputs Services used exclusively in or in relation to the manufacture of non-exempted goods removed or for the provision of non-exempted services. This credit is called ‘Eligible Credit’. This is denoted by “B”. No payment or reversal in this case.
c. Credit left after reducing ‘A’ & ‘B’ from the Total Credit (denoted by “T”) shall be the “Common Credit” denoted by “C”.
C = T – (A + B)
d. Common Credit (C) shall be attributed towards exempted goods and exempted services by multiplying the common credit with the ratio of value of exempted goods manufactured or exempted services provided to the total value of exempted and non- exempted goods and exempted and non-exempted services in the preceding financial year.
D = (E/F) * C
Where, D = Ineligible Common Credit
E = sum total of value of exempted goods manufactured or exempted services provided
F = sum total of value of exempted and non- exempted goods and exempted and non-exempted services
A deemed rate of 50% shall be taken as “D” if there were no final products manufactured or no output service was provided during the previous Financial Year.
e. The remaining Common Credit (Eligible Common Credit, denoted by “G”) shall be computed in following manner:
G = C – D
The above-mentioned calculation shall be done on monthly provisional basis on turnover of previous year and subsequently shall be calculated on actual basis on or before 30th June of subsequent year. The differential amount, if any is to be paid along with Interest.
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About the Author:
CA Ankit Gulgulia
Author is Practicing Chartered Accountant in New Delhi/NCR and specialising in Indirect Taxes, Corporate Laws and Transfer Pricing. He can be reached at [email protected] or at +91-9811653975
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[1] Substituted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st day of April, 2016, before it was read as, “heading 6804”.
[2] Omitted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st day of April, 2016, before it was read as, “but does not include any equipment or appliance used in an office”
[3] Inserted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st day of April, 2016
[4] Substituted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st March, 2016, before it was read as, “but shall not include a service which is exported in terms of rule 6A of the Service Tax Rules, 1994”.
[5] Inserted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st day of April, 2016.
[6] Substituted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st day of April, 2016, before it was read as, “(C) capital goods except when used as parts or components in the manufacture of a final product;”
[7] Inserted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st day of April, 2016.
[8] Inserted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st day of April, 2016.
[9] Substituted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st March, 2016, before it was read as, “said National Calamity Contingent duty on goods falling under tariff items 8517 12 10 and 8517 12 90 respectively of the First Schedule of the Central Excise Tariff”.
[10] Inserted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st March, 2016
[11] Substituted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st March, 2016, before it was read as, “Explanation.- For the removal of doubts, it is hereby clarified that an assessee shall be “eligible” if his aggregate value of clearances of all excisable goods for home consumption in the preceding financial year computed in the manner specified in the said notification did not exceed rupees four hundred lakhs.”
[12] Substituted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st April, 2016.
[13] Substituted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st April, 2016, before it was read as, ‘valid for a financial year”.
[14] Substituted vide Not. 24/2016 – Dated 13-4-2016.
[15] Inserted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st April, 2016.
[16] Inserted vide Not. 24/2016 – Dated 13-4-2016.
[17] Substituted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st April, 2016.
[18] Substituted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st April, 2016.
[19] Substituted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st April, 2016.
[20] Substituted vide Not. 13/2016 – Dated 1-3-2016, w.e.f. 1st April, 2016.
[21] Substituted vide Not. 23/2016 – Dated 1-4-2016,
[22] Substituted vide Not. 23/2016 – Dated 1-4-2016, before it was read as “invoices, issued in terms of the provisions of the Central Excise Rules, 2002,”
Author Bio
WHETHER CENVAT CREDIT IS ALLOWED IN THE CAPITAL GOODS WHERE IS VALUE MORE THAN TEN THOUSAND AND DEPRECIATION ALSO CLAIMING ON THE VALUE OF GOODS UNDER INCOME TAX ACT.