1. What is CENVAT Credit Scheme with reference to Service Tax assessees?
The CENVAT Credit Rules, 2004, introduced with effect from 10.9.2004, provides for availment of the credit of the Service Tax paid on the input services/Central Excise duties paid on inputs/capital goods/Additional Customs duty leviable under section 3 of the Customs Tariff Act, equivalent to the duties of excise. Such credit amount can be utilized towards payment of Service Tax by an assessee on their output services. (Refer to Rule 3 of CENVAT Credit Rules, 2004). 28 Such credit availed by a manufacturer can also be utilized for discharging their liability towards Service Tax and / or Central Excise duties [Refer Rule 3 of CENVAT Credit Rules, 2004 read with Notfn,.No.27/2007- CE(NT) dated 12.05.2007].
2. What are the duties / taxes that can be availed as credit?
As mentioned at para 1, Duties paid on the inputs and capital goods, and the Service Tax paid on the input? services can be taken as credit. Education Cess paid on the Excise duty and Service Tax can also be taken as credit. However, the credit of such Education Cess availed can be utilized only for payment of Education Cess relating to output service.
The interest and penalty amounts cannot be taken as credit.
3. What is meant by “input”, ‘input service’ and ‘capital goods’ for a service provider?
These terms have been defined in the CENVAT Credit Rules, 2004. (Refer Rule 2).
4. Is it compulsory that the inputs / capital goods are to be purchased only from the manufacturers for the purpose of availment of credit?
No. The inputs/capital goods can be procured from the First stage and Second stage dealers also. Those dealers should have registered themselves with the Central Excise Department. The invoices issued by them should contain proper details about the payment of duty on those goods. (Refer Rule 9 of CENVAT Credit Rules, 2004.)
5. What are the documents prescribed for availment of the CENVAT Credit?
The documents on which CENVAT credit can be availed are as follows:-
(i) Invoice issued by the manufacturers and his depot/ consignment agents
(ii) Invoice issued by the Importer and his depot/consignment agents
(iii) First stage and Second stage dealer registered with the Central Excise Department
(iv) Bill of Entry
(v) Invoice/Bill/Challan issued by the provider of input Services
(vi) Invoice/Bill/Challan issued by the Input Service distributor.
(vii) Certificate issued by the Appraiser of Customs in respect of the goods Imported through Foreign Post Office.
(viii) A Challan evidencing payment of service tax by a person liable to pay service tax in the service category of auxiliary insurance, goods transport, recipient of service from a foreign country and sponsorship.
6. Whether it is necessary to avail credit only after making payment against the bill /invoice/challan in respect of input services?
Yes. Credit of Service Tax on the input services can be availed, only after making payment of the amount indicated in the invoice / bill/challans. This is necessary because, the input service provider will be paying the Service Tax to the Govt. only after he realizes the payment, as the payment of Service Tax is only upon realization. [Rule 4(7) of the CENVAT Credit Rules, 2004]. 29 The above requirement is not applicable in respect of credit of duties paid on inputs and capital goods.
7. Who is an ‘Input Service Distributor’?
An office of the manufacturer or provider of output service who receives invoices for the procurement of input services and issues invoices for the purpose of distributing the credit of Service Tax paid to such manufacturer or provider of output service is an “Input Service Distributor”. [Refr Rule 2(m) of CENVAT Credit 2004].
The credit of the tax amount so distributed to various places shall not exceed the total Service Tax amount contained in the original invoice / bill. [Refer rule 7(a) of CENVAT Credit Rules, 2004].
8. What is the format of the invoice / bill / challan to be issued by the input service distributor?
No specific format has been prescribed. However, the same should contain the following information:-
(i) Name, address and Registration No. of the service provider.
(ii) Sl. No and date.
(iii) Name and address of the input service distributor.
(iv) The name and address of the recipient to whom the Service Tax credit is distributed.
(v) The amount of credit being distributed.
9. Whether the input service distributors should get themselves registered with the Department? Whether they have to file any returns with the Department?
Yes. They have to register themselves as per the provisions under Service Tax (Registration of Special Category of Persons) Rules, 2005. They have to file half yearly returns by the end of the month following the half year. [Refer rule 3 of Service Tax (Registration of Special Category of Persons) Rules, 2005].
10. What are the records to be maintained by the persons availing credit?
There is no specific format of records to be maintained. However, they have to maintain adequate records showing the details such as receipt, disposal, consumption and inventory of inputs and capital goods, the amount of credit taken and utilized etc. (Refer rule 9(5) of CENVAT Credit Rules, 2004).
11. What should be done, if an assessee is rendering both taxable services as well as exempted services, but the inputs and input services are common?
11.1 Separate accounts are to be maintained for the receipt, consumption and inventory of input and input service meant for providing taxable output service and for use 30 in the exempted services. Credit should be taken only on that quantity of input /input services which are used for the service on which Service Tax is payable. (Ref. Rule 6 of Cenvat Credit Rules, 2004).
11.2 If separate accounts are not maintained, the provider of output service shall pay an amount equal to 6% percent of value of exempted services or pay an amount equivalent to the CENVAT credit attributable to input/input services used in, or in relation to provision of exempted services subject to the conditions specified in sub-rule (3A) ibid. (Ref. Rule 6(3 & 3A) of Cenvat Credit Rules, 2004 read with Not.No.16/2009 CE (NT) dt. 07.07.2009).
However, in terms of Rule 6(5) of Cenvat Credit Rules 2004, even though no separate accounts are maintained in respect of services listed in Appendix 5, CENVAT credit shall be allowed unless such services are exclusively used in or in relation to the manufacture of exempted goods or providing exempted services.
12. Whether Cenvat credit is admissible on capital goods which are exclusively used in providing exempted goods?
13. Is unutilized CENVAT credit refundable?
Refund of accumulated credit is admissible only in case of exports of finished goods or output service. Where any input or input service is used in providing output service or manufacture of goods which are exported, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilized towards payment of service tax on any other output service or excise duty on other excisable goods. If such adjustment is not possible due to any reason, it will be allowed as refund subject to the safeguards, conditions and limitations specified by the Central Government.