CHAPTER 5
CENVAT CREDIT1. Introduction1.1
CENVAT Credit Rules, 2001 (hereinafter referred to the ‘ Credit Rules’) has beennotified with effect from 1 st July, 2001 as an independent rule under the Central ExciseAct, 2001.
1.2 These rules seek to introduce simplified CENVAT provisions and procedures forallowing credit of duty paid on specified inputs and capital goods used in or in relationto the manufacture of specified final products, whether directly or indirectly and whethercontained in the final product or not (inputs) and used (capital goods) in the factory ofthe manufacture of the final product. The credit of duty so allowed can be utilized forpayment of duty leviable on the final product subject to the conditions laid down in therules.
2. Salient features2.1 Certain definitions have been incorporated in Rule 2 of the Credit Rules itself. Itmay be noted that the definition of ‘capital goods’ is comprehensive and would includecomponents, spares and accessories as also other capital goods like moulds and dies,refractories and refractory materials, etc. It has been clarified that the components,spares and accessories may fall under any Chapter but they should be components,spares and accessories of the final products. Storage tanks have been added to the listof capital goods w.e.f 1.3.2001. An explanation has been added to clarify the scope ofinputs i.e. Inputs include goods used in the manufacture of capital goods which arefurther used in the factory of the manufacturer. Among other expressions, ‘Exemptedgoods’ and ‘final products’ have also been defined.
2.2 Rule 3 of the Credit Rules provides type of duties to be taken as credit withExplanation, which clarifies to allow CENVAT credit of additional duty leviable underSection 3 of Customs Tariff Act on goods falling under 98.01 of First Schedule to CustomsTariff Act. This Rule also provides manner of utilization of CENVAT credit in a differentsituation. It also provides the manner of utilisation of credit. It also provides the mannerwhen inputs/capital goods are removed as such.
2.3 Rule 4 of the Credit Rules provides for different conditions for allowing CENVATcredit in different situations for inputs and capital goods.
2.4 Rule 5 of the Credit Rules of the Credit Rules is regarding refund of CENVAT Credit.
2.5 Rule 6 of the Credit Rules explains obligation of manufacturers of dutiable andexempted goods, especially the details of taking credit of final dutiable products andexempted products.
2.6 Rule 7 of the Credit Rules specifies documents on which CENVAT credit can betaken. An explanation to this Rule provides the meaning of “first stage dealer” and“second stage dealer”. It also provides for maintenance of accounts by first and secondstage dealer. Maintenance of records of manufacture of final products. The burden of proof regarding admissibility of CENVAT credit shall lie upon manufacturers taking suchcredit. The manufacturer of Final Product shall submit monthly return in specifiedproforma
(Annexure 10) within 5 days from the close of each month. In respect ofmanufacturers availing exemption on value or quantity based in a Financial year, heshall submit by the 5 th of the following quarter.
2.7 Under rule 8 of the Credit Rules, it has been provided that the manufacturers shallbe allowed to transfer CENVAT credit lying unutilized in his accounts to such transferred,sold, merged, leased or amalgamated factory on account of shifting his factory toanother site or factory transferred due to change in ownership on sale, merger,amalgamation, lease or transfer of a factory to joint venture with specific provision fortransfer of liabilities of such factory. This is being allowed only if stock of inputs as such orin process or capital goods is also transferred to new site and the same is duly accountedfor to the satisfaction of the Commissioner.
2.8 Transitional Provisions are specified in rule 9 of the Credit Rules. Any amount ofcredit earned by manufacturers under this Rule and remaining unutilized on that dayshall be allowed as CENVAT credit under these Rules and allowed to be utilized.However, certain restrictions are imposed in this Rule.
2.9 Provisions for special dispensation in respect of inputs manufactured in factorieslocated in specified areas of North-East region are contained in rule 10 of the CreditRules.
2.10 Power of Central Government to notify goods for availment of deemed creditare contained in rule 11 of the Credit Rules. Accordingly, certain inputs have been sonotified on which the duties of Excise or additional duties paid shall be deemed to havebeen paid at the prescribed rate and allow credit of such amount subject to certainconditions.
2.11 Recoveries of credit wrongly taken are governed by rule12 of the Credit Rules.Where CENVAT credit has been taken or utilized wrongly or on account of fraud, willfulmis-statement, collusion or suppression of facts etc., the same along with interest shall berecovered from manufacturers and the provision of Section 11-A, 11-AA and 11-AB of theCentral Excise Act, 1944 shall apply for effecting recoveries. In case of fraud etc., themanufacturers shall also be liable to pay penalty under provision of Section 11-AC.
2.12 Provisions for confiscation and penalty, for contravention of the Credit Rules arecontained in rule 13 of the Credit Rules.
3. Important clarifications3.1 Once the SSI exemption limit of Rs. 100 lakhs is crossed and assessee starts payingduty, he is eligible to take CENVAT credit in respect of inputs lying in stock, on the inputscontained in finished goods lying in stock and on the inputs in process. For this purpose, itis obligatory on the assessee to quantify the amount of admissible credit on the basis ofdocumentary evidence and records maintained for this purpose.
3.2 The CENVAT credit can be utilised for payment of duty on waste and scrap aswaste and scrap are ‘final products’ within the definition given in the Credit Rules.
3.3 Raw material used for making packing material CENVAT credit is permissible onthe ‘ raw material’ so used. This is for the reason that the packing material being andinput, the raw material used for making packing material is also to be construed as inputsused in or in relation to the manufacture of finished products.
3.4 There is no bar for a manufacturer to remove the inputs or capital goods as suchfor export under bond.
3.5 Manufacturer is entitled to take the CENVAT credit in a situation where capitalgoods were received before 1-4-2000 and also installed before that date butMODVAT/CENVAT was not taken due to some reason prior to 1-4-2000 because eventhough the modvat credit was not taken by the manufacturer, the modvat credit hadbeen “earned” by him.
3.6 CENVAT credit is required to be taken immediately on receipt of inputs in thefactory. This, however, does not mean, nor is it even intended that if the manufacturerdoes not take credit as soon as the inputs are received in the factory, he would bedenied the benefit of CENVAT credit such interpretation is not tenable.
3.7 In respect of capital goods, which are included in the project import, the CENVATcredit shall be admissible only to the extent of an amount not exceeding 50% of theAdditional Duty of Customs paid on such capital goods. However, on the othermaterials, which are not in the nature of capital goods, the CENVAT credit of theAdditional Duty paid shall be allowed to the full extent.
3.8 Air-conditioners and refrigerating equipment and computers would be eligible toCENVAT credit as capital goods. The only condition is that the manufacturers should usethem in the manufacture of final product. For example, an air-conditioner used in theoffice premises or a computer used in the office premises of the factory shall not beeligible to CENVAT credit.
3.9 CENVAT credit shall be admissible in respect of the amount of inputs contained inany of the aforesaid waste, refuse or bye product. Similarly, CENVAT should not bedenied if the inputs are used in any intermediate of the final product even if suchintermediate is exempt from payment of duty. The basic idea is that CENVAT credit isadmissible so long as the inputs are used in or in relation to the manufacture of finalproducts, and whether directly or indirectly.
3.10 If the inputs or capital goods are cleared to a job worker, they should bereceived back within 180 days. If they are not received, the manufacturer shall debit theCENVAT credit attributable to such inputs or capital goods, otherwise it will be anoffence. However, the manufacturer shall be entitled to take CENVAT credit as andwhen the goods sent to the job worker are received back. If part of the goods isreceived back within 180 days and the rest of the goods are received back after 180days, the obligation for debiting the credit shall arise only in respect of CENVAT creditattributable to that part which is not received within 180 days.
3.11 Provision has been made for permitting the CENVAT credit when the inputs orcapital goods are purchased from the first stage dealer or from the second stage dealer.These dealers should be registered under rule 9 of the Central Excise (No.2) Rules, 2001.The other procedural requirements in respect of first stage dealer and second stagedealer will continue as in the case of modvat rules.
3.12 In the case of capital goods, the CENVAT rules do not provide installation ofcapital goods as a pre-requisite for taking CENVAT credit. The credit can be taken asand when the capital goods are received in the factory. For example if such capitalgoods were received prior to 1.4.2001 but not installed up to 1.4.2001, the CENVAT creditwould be admissible. However, in respect of all capital goods whether received on orafter 1.4.2001 or those that were received prior to 1.4.2001 but not yet installed, thecondition that CENVAT credit only up to 50% of the total admissible amount would beavailable in the financial year 2001-2002 would apply. The balance of the CENVAT creditin respect of such capital goods can be taken in a financial year subsequent to 2001-2002
3.13 The documents on which CENVAT credit can be taken have been prescribed toenable verification, where needed, by the department. The admissibility of the amountof CENVAT credit should be discernible from the records of the manufacturer, includingthe payment made to the sellers of inputs and capital goods. The basic responsibility isupon manufacturer to prove that inputs or capital goods were purchased and wereused by him for the intended purpose.
Presented by eximkey.com