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Cenvat credit rules

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Indirect Taxes is a significant area of professional practice with limited number of professionals well conversant of the law. One such Tax is Service Tax. In India it is a complicated affair and …

Indirect Taxes is a significant area of professional practice with limited number of professionals well conversant of the law. One such Tax is Service Tax. In India it is a complicated affair and shall remain so till at least GST is introduced. Negative list has brought in a new tax regime. The Cenvat Credit Rules, Place of Provision of Service Rules and the Point of Taxation Rules are important components to understand this law.

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  • 1. Cenvat Credit Rules 12/20/2013 1
  • 2. CONCEPT OF VALUE ADDED TAX STRUCTURE • Single and double entry system of accounting : Distinguish • Two Nails Theory : Match • No entity based exemptions initially, now SEZ can be billed without charging Tax. • Provision of refund for embassies and exporters.
  • 3. CONCEPT OF CREDIT • Credit is hard currency : immediately available • Credit affects bottom lines: Credit lost is money lost • Credit affects purchase decisions • Credit is a business booster • Wrong Credit : Large Penalty
  • 4. Step Towards Integration  In the budget 2004-2005 the idea to extend credit of service tax and excise duty across goods and services was mooted. Zero charge by subcontractor - credit same category - credit under different categories – present system.  The CENVAT Credit Rules, 2004 came into force from 10-9-2004, and have replaced the CENVAT Credit Rules, 2002 and Service Tax Credit Rules, 2002. 12/20/2013 4
  • 5. Who is eligible to credit  Credit is available to the “Provider of OUTPUT Service”.  Thus bare liability to pay service tax as recipient of service does not entitle one to be eligible to CENVAT credit.  But credit not available unless “input”, Capital Goods” or “Input service” has been used for provision of output service.  Tax deposited under reverse charge mechanism can be claimed as credit where applicable. 12/20/2013 5
  • 6. Who is eligible to credit effective 1-07-2012 With introduction of negative list Cenvat Credit Rules define “Output Service” as: “output service” means any service provided by a provider of service located in the taxable territory but shall not include a service,1. specified in section 66D (Negative List) of the Finance Act; or 2. where the whole of service tax is liable to be paid by the recipient of service. 12/20/2013 6
  • 7. Who is eligible to credit effective 1-07-2012 Thus credit is available only to the Output service provider and that too only if he is in taxable territory, the services provided are not in negative list and 100% reverse charge is not applicable on the respective output services. 12/20/2013 7
  • 8. What is available as credit  Basic Excise Duty (Except on Specified goods taxed @1% ad valorem)  Special and additional excise duty in specified cases  service tax  Education Cess & SHE paid on: – Inputs – Capital Goods AND – Input Services Received by the provider of output service 12/20/2013 8
  • 9. What are inputs For the purpose of an Output service provider inputs are: – All goods used for providing output service. – The definition is specific and crisp. There would be goods which are used by the service provider but use of such goods would not be specifically in providing output service. – In exclusionary clause certain goods are not eligible as inputs: 12/20/2013 9
  • 10. What are not inputs 1. LDO, HSD, Petrol, 2. any goods used for a) construction or execution of works contract of a building or a civil structure or a part thereof; or b) laying of foundation or making of structures for support of capital goods, except for the provision of service portion in the execution of a works contract or construction service as listed under clause (b) of section 66E of the Act; (Declared Services) 12/20/2013 10
  • 11. What are not inputs Thus works contract service and construction service providers would be eligible to claim credit for inputs used for rendering of service. There are nine declared services and only two are eligible for credit of inputs on construction related activity. 12/20/2013 11
  • 12. What are not inputs • Nine declared services. a) renting of immovable property; b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completioncertificate by the competent authority. c) temporary transfer or permitting the use or enjoyment of any intellectual property right; d) development, design, programming, customization, adaptation, upgradation, e nhancement, implementation of information technology software; e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; f) transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods; g) activities in relation to delivery of goods on hire purchase or any system of payment by installments; h) service portion in the execution of a works contract; i) service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity. 12/20/2013 12
  • 13. What are not inputs 3. Motor Vehicles Though credit in specified situations is available in category of capital goods. No credit shall however be available for Motor Vehicles in the category of inputs. 4. any goods, such as food items, goods used in a guesthouse, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; The term “such as” indicates the vast application of this definition. This list can be really large. 12/20/2013 13
  • 14. Capital Goods Following items are eligible for CENVAT credit as “Capital goods" if they are used for providing output service:(A)(i) all goods falling under Chapter 82 (Tools, Implements, Cutlery) , Chapter 84 (Nuclear Reactors, Boilers, Machinery etc.), Chapter 85(Electrical Mach. Sound Recorders, etc.), Chapter 90 (Optical, Photographic, Medical, Surgical apparatus etc.), heading No. 6805 grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act; (ii) pollution control equipment; 12/20/2013 14
  • 15. (iii)components, spares and accessories of the above; (irrespective of the entry they fall in. Components are revenue expense in books but are eligible in capital goods category) (Components / spares of other capital goods mentioned in iv to vii below are not eligible and there is no logical answer to exclude them. However spares in appropriate cases may be eligible as inputs) (iv) moulds and dies, jigs and fixtures; (v) refractories and refractory materials; (vi) tubes and pipes and fittings thereof; and (vii) storage tank, (viii) motor vehicles other than those falling under tariff headings 8702, 8703, 8704, 8711 and their chassis, but including dumpers and tippers 12/20/2013 15
  • 16. Tariff heading 8702 /8703 /8704 /8711 apply to all passenger cars and motor bikes. Thus motor vehicles falling in other than the stated category shall be eligible as capital goods if they are used for providing output service. Dumpers and Tippers shall be capital goods for all categories of output service providers. Motor vehicles which are excluded from capital goods as above have been separately allowed as capital goods as per following provision: 12/20/2013 16
  • 17. B. motor vehicle designed for transportation of goods including their chassis registered in the name of the service provider, when used forii. providing an output service of renting of such motor vehicle; or iii. transportation of inputs and capital goods used for providing an output service; or iv. providing an output service of courier agency C. motor vehicle designed to carry passengers including their chassis, registered in the name of the provider of service, when used for providing output service ofii. transportation of passengers; or iii. renting of such motor vehicle; or iv. imparting motor driving skills 12/20/2013 17
  • 18. Thus following conditions must cumulatively be satisfied: 1. Must satisfy definition of motor vehicle as per Motor Vehicles Act 1988. 2. Must be registered in the name of provider of output service 3. Must be used for providing specified services. Use of vehicle for any other purpose will deny eligibility. 4. Components and accessories are also treated as eligible capital goods. 12/20/2013 18
  • 19. What is input service The definition has three parts: 1. Specific 2. Inclusive 3. Prohibitive In specific part: “Input service” means any service used by provider of output service for providing an output service. In other words, service not used for providing output is not eligible for credit. Thus there would be services used by service provider but not all of them are used for providing output service. Some such services are eligible to credit in the inclusive part : 12/20/2013 19
  • 20. What is input service 1. 2. 3. 4. 5. 6. 7. 8. Inclusive Part: Services used in relation to modernization, (setting up is excluded w.e.f. 1-4-11) renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, Advertisement or sales promotion, Market Research, Procurement of inputs, Accounting, Auditing, Financing, Recruitment 12/20/2013 20
  • 21. What is input service 9. Quality control, 10. Coaching and training, 11. Computer networking 12. Credit rating, 13. Share registry 14. Security, 15. Business Exhibition 16. Legal Service 17. Inward transportation of inputs or capital goods Item 5-14 were illustrations of “activities relating to business- such as”. This phrase was replaced by specific services thereby narrowing the scope of input service. 12/20/2013 21
  • 22. What is input service 1. 2. 3. 4. 5. 6. 7. Service used for providing an output service restricts the input service to direct inputs. The list of indirect inputs as suggested in inclusive part has been narrowed down. Thus many services would apparently not form part of this list and may thus be not eligible for credit: Telecommunication Services Management Consultancy Office Maintenance / facility management Repair & Maintenance of office equipment (AMC) Hiring of equipment Insurance Event Management 12/20/2013 22
  • 23. What is NOT input service Prohibitory Part: 1. Construction related specified services when used under specified circumstances. 2. Motor Vehicle related specified services except under specified circumstances. 3. Services related to personal use or consumption by employees under all circumstances. 12/20/2013 23
  • 24. What is NOT input service Construction related specified services Service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for – a) construction or execution of works contract of a building or a civil structure or a part thereof; or b) laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services 12/20/2013 24
  • 25. What is NOT input service Motor Vehicle related specified services Services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or Service of general insurance business, servicing, repair and maintenance , in so far as they relate to a motor vehicle which is not a capital goods, except when used by – a) a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person ; or b) an insurance company in respect of a motor vehicle insured or reinsured by such person; or 12/20/2013 25
  • 26. What is NOT input service Employees personal use / consumption Such as those provided in relation to: 1. Outdoor Catering 2. Beauty Treatment 3. Health Services 4. Cosmetic & Plastic Surgery 5. membership of a club 6. Health Fitness Centre 7. Life Insurance, Health Insurance 8. Travel benefits extended to employees on vacation such as Leave or Home Travel Concession Whenever used primarily for personal use or consumption of any employee. List is not exhaustive. 12/20/2013 26
  • 27. Restrictions on Input Credit (a) CENVAT credit is not allowed on such quantity of inputs or input services which are used in the manufacture of exempted goods or provision of exempted services except in the manner specified. Utilization of CENVAT Credit on capital goods for payment of service tax under reverse charge - Demand of service tax on Intellectual Property Rights Service - Assessee discharged service tax liability by paying major portion of service tax by availing CENVAT Credit - Whether Cenvat credit can be utilized for payment of service tax on 'Intellectual Property Rights Service' received by them or not - Held that:according to Rule 3(4)(e) of Cenvat Credit Rules, 2004, Cenvat credit may be utilized for payment of service tax on any output service. 12/20/2013 27
  • 28. Restrictions on Input Credit According to provisions of Section 66A(1) of the Finance Act, 1994, for all purpose, when demand are made under Section 66A, the service received has to be treated as 'output service'. Restriction applies for availing credit of duty only in respect of excise duty paid on input or service tax paid on any input services and not capital goods. In such a situation, the appellant has made out prima facie case in their favour for correctness of payment made by them. However, it seen that payment was made after two years from the receipt of services and therefore, the appellant is liable to pay interest - Stay granted partly. MLR MOTORS LTD VERSUS CCE, HYDERABAD (2013 (11) TMI 769 - CESTAT BANGALORE) 12/20/2013 28
  • 29. Restrictions on Input Credit (b) No CENVAT credit is allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt under SSI exemption scheme under central excise. (c) No CENVAT credit is allowed on inputs/capital goods/input services to a service provider who has opted for threshold exemption scheme (Rs.10 lakhs) (d) CENVAT credit on capital goods is not allowed in respect of that part of value of capital goods which represents the amount of duties/taxes on such capital goods which the manufacturer of final products or service provider claims as depreciation under Section 32 of Income Tax Act, 1961. 12/20/2013 29
  • 30. Restrictions on Input Credit (e) In cases where deduction of value of goods sold/used is claimed by the service provider under Notification No. 12/2003, credit of excise duty paid on inputs is not allowed. However, credit of service tax paid on inputs services and excise duty paid on capital goods is allowed. (f) In cases where under Notification No. 26/2012– ST dated 20-06-2012 abatements have been claimed by specified service provider, input credit can be availed subject only to restrictions provided therein. 12/20/2013 30
  • 31. Sl. No. 1 Description of taxable service TAXABLE PERCENTAGE Services in relation to financial leasing including hire purchase (exclude principal repayment) Transport of goods by rail 10 3 Transport of passengers, with or without accompanied belongings by rail 30 4 Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises (including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises 70 2 30 Conditions Input Input Service Capital Goods Yes Yes Yes Yes Yes Yes Yes Yes Yes CENVAT of Yes any inputs eligible u/ Chap. 1 to 22 of Central Excise Tariff Act, not taken Yes
  • 32. Input 5 Transport of passengers by air, with or without accompanied belongings 6 Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes. 7 Services of goods transport agency in relation to transportation of goods. 8 Services provided in relation to chit 40 9 Renting of any motor vehicle designed to carry passengers 40 60 25 70 Input Service Capital Goods No Yes No No Yes No No No No No No No No No No
  • 33. Input 10 Transport of goods in a vessel Input Service Capital Goods No No No 25 No No No 10 No No No 40 No No No 50 11 Services by a tour operator in relation to,(i) a package tour (ii) a tour, if the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour Any service other than specified in (i) & (ii) above
  • 34. Input 12. Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority: i) For residential unit having carpet area upto 2000 sq ft. and where amount charged is less than Rs. One crore. ii) For other than (i) above No Input Service Capital Goods Yes Yes The value of land is included in the amount charged from the service receiver. 25 30
  • 35. IMPORTANCE OF A DUTY DOCUMENT Taxability of services provided to customers situated abroad: SGS India Pvt. Ltd. vs. CST, Mumbai reported in [2011 (2) TMI 54 - CESTAT MUMBAI] - The appellant is paying service tax from Mumbai main office in respect of all the branch offices and, therefore, we do not find anything wrong in taking credit just because the invoices are in the name of branch offices. The appeal on this count is allowed - in favour of assessee. • If broad requirements of law are duly complied with, reliance can be placed on the principle laid down in Mangalore Chemicals & Fertilizers Ltd vs. Dy. Commissioner (1991) 55 ELT 437 (SC) viz.: There is a distinction between the procedural condition of a technical nature and substantive condition and that non – observance of the former is condonable while that of a latter was not condonable”. 12/20/2013 35
  • 36. When can credit be taken INPUTS: When inputs are delivered to output service provider. He must maintain documentary evidence of delivery and location of inputs. Payment to supplier is not important. CAPITAL GOODS: When CG are delivered to output service provider. He must maintain documentary evidence of delivery and location. Hire Purchase / finance options do not disturb the claim. Payment to supplier is not important. INPUT SERVICE: 1. Where Reverse Charge is applicable: On or after payment is made to the supplier. 2. Where Reverse Charge is not applicable: On receipt of invoice. Payment to supplier must be made in 3 months. 12/20/2013 36
  • 37. When can credit be taken  In case of non payment the credit shall be reversed. Reversal of credit shall take place before 5th of the following month and before March 31st in case of end of financial year. [subrule (7) of Rule 4].  Prior to 1.4.2011 credit was available on payment only. The shift to system of accrual is in line with GST and is welcome. However the restriction of 3 months for payment as a condition to avail credit makes it mandatory to monitor the entire payment data. This shall be a tedious manual exercise. 12/20/2013 37
  • 38. When can credit be taken  Credit shall be available again on actual payment to the vendor.  Professionals permitted to pay tax on cash basis also eligible to follow these provisions in respect of CENVAT credit.  No specific provision covering part payment of invoices with in three months. Logically, credit proportionate to unpaid amount be reversed. 12/20/2013 38
  • 39. QUANTUM OF CREDIT AVAILABLE QUANTUM OF CREDIT FOR CAPITAL GOODS 50% in the financial year of receipt of goods. Balance 50% in any subsequent FY. Depreciation should not be claimed on the duty portion of the capital goods. Capital goods used exclusively for exempted activity do not qualify for credit. QUANTUM OF CREDIT FOR INPUTS AND INPUT SERIVCES For Inputs and Input Services full credit is available at once. 12/20/2013 39
  • 40. REMOVAL W/O OF INPUTS, CAPITAL GOODS BEFORE / DURING USE 1. Remove as such without use: Credit to be reversed. Non-use of inputs– Inputs procured and credit taken –sold as such also – CENVAT credit sought to be denied as goods not used in manufacture – Sale price higher than Purchase Price – Duty paid at clearance amounts to reversal of credit –credit availed on inputs to consider utilized - credit reversal not required [Vickers Systems International Ltd vs. CCE (2008) 10 STR 378 (Tri – Mumbai)]. 2. Write off without use: Credit to be reversed. 12/20/2013 40
  • 41. REMOVAL W/O OF INPUTS, CAPITAL GOODS BEFORE / DURING USE 3. Removal for Job Work: Is permitted without payment / credit reversal provided goods are returned back after job work with in 180 days. 4. Removal for use: Is permitted without payment / credit reversal. Inputs and capital goods can be removed for use without restriction of 180 days. 12/20/2013 41
  • 42. REMOVAL W/O OF INPUTS CAPITAL GOODS REMOVAL OR Write Off AFTER USE 1. For inputs removal as scrap after use there is no reversal provision. 2. In case of capital goods the law assumes a life of 5 years for computer & peripherals and 10 years for other capital goods. If capital goods are disposed of prior to the prescribed life period a portion of credit availed depending on the actual period of holding shall be sustained and balance of credit shall be reversed. For computers and peripherals it is 10%, 8%, 5% and 1% per quarter for I, II, III and IV&V years respectively. For other assets it is 2.5% for each quarter. 12/20/2013 42
  • 43. Outdoor Catering to provide meals to employees at subsidized rates • CCE, Mumbai-V Vs. GTC Industries Ltd. 2008 (12) STR 468 : Credit was admissible even when a part of the expenditure incurred was recovered from the employees. The tax paid formed part of expenditure towards manufacture. • The situation changes with amendments disallowing personal nature expenses. Group Medical Policy for Workmen CCE &C Aurangabad Vs. Endurance Systems (P) Ltd. , cenvat credit of service tax paid on group medical policy allowable. The situation changes with amendments disallowing personal nature expenses. 12/20/2013 43
  • 44. Mobile Phone and Landline phone at Directors’ / officials’ residence Keltech Energies Ltd. Vs. CCE, Mangalore Where the bills were paid by the company as expenditure, the same was eligible to be treated as input service. CCE Vs. Excel Crop Care Ltd. 2008(12) STR 436 (Guj) Revenue’s appeal that credit for service tax paid on telephone bill could not be allowed if the phone was not installed at the factory premises, was dismissed. Telephone Expenses no more allowable to credit unless the service has been used for providing output service. Besides, now there are specific provisions for disallowance of credit relating to personal expenses of employees. The department may find it handy to raise dispute on unavoidable personal element involved. 12/20/2013 44
  • 45. Inclusive and broad definition • The spirit of the service tax provisions adopting an inclusive and broad definition has been killed by recent amendments making exhaustive list of eligible services for credit and disallowing credit on personal expenses of employees. This shall result in cascading impact on taxes. • Credits, hitherto allowable due to interpretations by the courts in India shall now be restricted: • Repair of employees residences. • Rent a cab for ferrying employees from residence to office and back. 12/20/2013 45
  • 46. Utilization / Application of credit  Once accumulated in CENVAT account the credit becomes a common kitty and loses its identification as CG /Inputs/ Input Service. Utilization amounts to drawl from the pot.  The CENVAT credit showing on the last day of the month or quarter, as the case may be shall only be available for drawl [sub-rule (4) of Rule 3].  However for delayed payment of arrears of tax on demand raised by the department the adjustment can be made out of the balance standing on the day of adjustment.  The credit can not be used to discharge liability under reverse charge.  Refund of unused credit can be allowable to exporters. Excess credit not likely to be consumed in future be better written off. 12/20/2013
  • 47. Utilization / Application of credit Reversal / utilization of Credit The CENVAT credit may be utilized for payment of• An amount equal to CENVAT credit taken on inputs if such inputs are removed as such or • an amount equal to the CENVAT credit taken on capital goods if such capital goods are removed as such or • service tax on any output service • Amount payable when inputs / capital goods sent for job work are not received back in 180 days. 12/20/2013 47
  • 48. Credit for inputs used in exempt services Exempted Services (Rule 2(e) of CCR2004: means • • • • • 12/20/2013 Taxable services which are exempt from whole of service tax leviable thereon Services on which no service tax is leviable u/s 66B of the Finance Act Taxable services whose part value is exempted on condition that no credit for input / input services shall be taken but shall not include a service which is exported in terms of rule 6A of the Service Tax Rules, 1994 Trading being service not taxable u/s 66B shall be considered as exempt service. 48
  • 49. Common inputs: Taxable and Exempt services Credit for inputs or input services used exclusively for exempt services not allowable. Same way credit for inputs or input services used exclusively for taxable services should be allowable in full. Prior to April 1,2008 credit in respect of common inputs was restricted to 20% of output tax and balance was eligible to be carried forward indefinitely. Though the brought forward balance was eligible for credit but further availability of credit got restricted. 12/20/2013 49
  • 50. Common inputs: Maintenance of separate accounts Where a manufacturer or a service provider avails CANVAT credit in respect of inputs / input services used for both taxable as well as exempt goods / services he must maintain separate books of accounts in prescribed manner. 12/20/2013 50
  • 51. Common inputs: Maintenance of separate accounts Separate accounts shall be maintained for: (a) the receipt, consumption and inventory of inputs used(i) in or in relation to the manufacture of exempted goods; (ii) in or in relation to the manufacture of dutiable final products excluding exempted goods; (iii) for the provision of exempted services; (iv) for the provision of output services excluding exempted services; and 12/20/2013 51
  • 52. Common inputs: Maintenance of separate accounts (b) the receipt and use of input services(i) in or in relation to the manufacture of exempted goods and their clearance upto the place of removal; (ii) in or in relation to the manufacture of dutiable final products, excluding exempted goods, and their clearance upto the place of removal; (iii) for the provision of exempted services; and 12/20/2013 52
  • 53. Common inputs: Maintenance of separate accounts (iv) for the provision of output services excluding exempted services, and shall take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of clause (a) and input services under sub-clauses (ii) and (iv) of clause (b).] 12/20/2013 53
  • 54. Common inputs: Maintenance of separate accounts • Major changes in the spirit of section 6(2) incorporated effective April 1, 2011 thereby giving an option to maintain separate accounts only of inputs and claiming proportionate option in respect of input services. • The amended provisions are a wider version of earlier provisions requiring detailed accounting in respect of “receipt, consumption & inventory” of inputs and “receipts and use” of input services attributable to various taxable and exempt permutations. • The changes however fail to address treatment in respect of common expenses such as auditing, financing, interior decoration, telephone etc. while maintaining separate accounts. 12/20/2013 54
  • 55. OPTION OF NOT MAINTAINING SEPARATE ACCOUNTS 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 six per cent. of value of the exempted goods and exempted services; or (ii) Apply for proportionate option u/r 6(2) (3A); or (iii) Apply combination of “separate accounts” for inputs and “proportionate option” for input services. 12/20/2013 55
  • 56. • • • • Pay 6% of value of exempted goods / services Value of exempted goods shall be the gross amount charged. Where part value is exempt on condition that CENVAT shall not be claimed, the said exempt portion shall be the relevant portion. Different options for different exempt goods or exempt services can not be availed. Any option once exercised shall apply to the remaining part of the year. This implies that switching from separate accounts to one of the options is possible during the year. 12/20/2013 56
  • 57. Withdrawal of circular : Unjust Enrichment Possible to charge Service Tax from Client Where option to pay 6% on exempted services is exercised, the service provider can charge tax on the client, mentioning specifically “amount paid under rule 6 of the cenvat credit rules.” Provisions of unjust enrichment shall not apply. 12/20/2013 57
  • 58. Procedure to exercise proportionate option Intimate to the Superintendent the intention to exercise this option along with other details and balance of cenvat credit unused, description of dutiable and exempted goods and services. Pay provisionally, every month, the cenvat credit attributable to input services used in or in relation to manufacture of exempted goods or provision of exempted services. This shall be calculated with a formula E/F*G where G is the total of cenvat credit on input services taken during the month and E and F are calculated as under: 12/20/2013 58
  • 59. Procedure to exercise proportionate option E is the sum total of the value of exempted services provided and exempted goods manufactured and removed during the preceding financial year and F is the sum total of the value of taxable and exempted services provided and the dutiable and exempt goods manufactured and removed during the preceding financial year. Similar formula shall apply separately in respect of inputs. However CENVAT credit relating to inputs used for manufacture of exempted goods has to be excluded from the total value of CENVAT on Inputs taken during the month. Accordingly total value of exempt goods manufactured is also not considered as part of the denominator. 12/20/2013 59
  • 60. Proportionate option Trading services value shall be included in E & F for this purpose. Trading service shall be valued as the difference between the sale price and COGS (as per generally accepted accounting principles, but excluding expenses towards purchase) subject to a minimum of 10% of COGS. Similarly value of services covered by composition scheme shall also be included in E & F. The corresponding value shall be determined based on formula: Tax amount (under composition scheme) / rate of service tax (under composition scheme)* present rate (12%) 12/20/2013 60
  • 61. Proportionate option  In case of trading in securities the difference between sale and purchase price of securities traded or1% of purchase price whichever is more.  Value of service by way of extending loans, deposits where consideration is interest, shall not be included as exempt service value.  Following two services can not any of the options and shall reverse credit on adhoc basis: Banking and financial service provider shall reverse 50% of credit every month. Provider of Life Insurance / Management of ULIP shall reverse 20% of credit every month.  Service provided to SEZ – No reversal required.  Exporters who do not get full money in foreign exchange would not get covered for this purpose. 12/20/2013 61
  • 62. Proportionate option Payment amounts to debit to CENVAT credit account or otherwise on or before 5th of following month / quarter, except March where March 31st shall be the last date. The option of payment or reversal of credit can be chosen by the Assessee and shall not be thrust upon him. 12/20/2013 62
  • 63. Proportionate option On completion of year the differential between the provisional and actual figures of the whole year shall be paid (by 30th June) along with interest at 24%. Where the full year yields a lesser figure, the amount excess paid can be adjusted as part of cenvat credit under intimation to the Superintendent in 15 days. For this purpose export of service shall be treated as taxable service and shall form part of denominator. Where capital goods are used partly for taxable purpose full credit shall be allowable. 12/20/2013 63
  • 64. Input Service Distributor "input service distributor" means an office of the manufacturer or producer of final products or provider of output service, which receives invoices issued under rule 4A of the Service Tax Rules, 1994 towards purchases of input services and issues invoice, bill or, as the case may be, challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be;
  • 65. Input Service Distributor The input service distributor may distribute the CENVAT credit subject to the following conditions: a) the credit distributed against an invoice does not exceed the amount of service tax paid thereon; b) credit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed; c) credit of service tax attributable to service used wholly in a unit shall be distributed only to that unit; and d) credit of service tax attributable to service used in more than one unit shall be distributed pro rata on the basis of the turnover during the relevant period of the concerned unit to the sum total of the turnover of all the units to which the service relates during the same period.
  • 66. Input Service Distributor Explanation 3. The relevant period shall be the month previous to the month during which the CENVAT credit is distributed. a) In case if any of its unit pays tax or duty on quarterly basis then the relevant period shall be the quarter previous to the quarter during which the CENVAT credit is distributed. b) In case of an assessee who does not have any total turnover in the said period, the input service distributor shall distribute any credit only after the end of such relevant period wherein the total turnover of its units is available.
  • 67. • • • • PARTNER S REMUNERATION WHETHER TAXABLE UNDER SERVICE TAX In the negative list all services, other than services specified in the negative list would be taxed under section 66B. Service‘ means and includes - any activity - for consideration - carried out by a person for another - and includes a declared service - But does not include MAGIC Two Persons Must The phrase 'provided by one person to another' signifies that services provided by a person to self are outside the ambit of taxable service. Example of such service would include a service provided by one branch of a company to another or to its head office or vice-versa. As service is an activity involving two persons- one as service provider and other as service receiver, explanation 2 to the definition clarifies that any unincorporated association or body or persons and its members, both will be treated as distinct persons.
  • 68. PARTNER S REMUNERATION WHETHER TAXABLE UNDER SERVICE TAX • Thus, if a person who is member of body of persons or association which is not incorporated or registered, provides service to such body or association, it will be considered as a service. In an incorporated body the distinct identity of the member is already acknowledged by law. A partner is not an employee of a firm. • The remuneration paid to partners is a part of profit which is given for extra human efforts. Remuneration is given to working partners only and not to dormant partners because they provide their services to the business and in return they receive extra profit in form of remuneration. • It may be considered a case of different form of distribution of profit. It is also a transaction in money and, hence may not be covered under the definition of services, because the definition of service u/s 65B (44)clearly excludes the transaction in money from the scope of service.
  • 69. Voluntary Compliance Encouragement Scheme 12/20/2013 69
  • 70.  Tax dues means the service tax due or payable under the chapter or any other amount due u/s 73A (unjust enrichment) for the period beginning October 1, 2007 to December 31, 2012 but not paid as of March 1, 2013.  A person can declare his tax dues in respect of which no notice or order of determination of liability has been issued before March 1, 2013.  The applicant may or may not be registered. He shall however need registration before declaration.  Where a notice or order of determination has been issued before prescribed time, in respect of any period, declaration for the same issue relating to subsequent periods can not be filed. 12/20/2013 70
  • 71.  Declaration can be submitted only in respect of liability not already reflected in the service tax returns filed by the assessee.  Intending person should make an application on or before 31st December 2013 in Form No. VCES – 1.  The designated authority shall acknowledge receipt of the application in Form No. VCES – 2, within 7 working days from the date of receipt of the declaration.  50% of the declared dues must be paid before December 31, 2013 and balance before June 30, 2014 without interest. The balance may be paid till December 31, 2014 along with interest from July 1, 2014 onwards.  Upon payment of dues the declarant shall get immunity from interest and penalty or any proceedings in the Act. 12/20/2013 71
  • 72.  Any amount paid as per declaration made by him, shall not be refunded under any circumstances.  If declarant fails to pay amount declared, same shall be recovered from him as per the provisions of the Finance Act, 1994.  If Declarant has made a substantial false declaration, commissioner may initiate proceedings against him as per law. 12/20/2013 72
  • 73. THANKS 12/20/2013 73