Basic concepts for input credit

By: Ch.Kapil
Article assistant in Gella & Co
3/8/2014 1kapilchidurala93@gmail.com

Input Credit
VAT
Excise Duty and
Service Tax
Corresponding
State Vat Act
Cenvat Credit
Rules 2004
To Certify whether in accordance with Statutory Laws
In accordance
with

Where are they Defined…?
Name of the Term Karnataka Vat Act,2003 Cenvat Credit Rules,2004
Manufacturer
Not Defined
A person who is liable to pay the duty
of excise leviable on such goods under
Rule 4 of the Central Excise (No. 2)
Rules, 2001
Dealer
Any person who carries on the business of
buying, selling, supplying or distributing
goods, directly or otherwise, whether for
cash or for deferred payment, or for
commission, remuneration or other
valuable consideration
First Stage Dealer means a dealer who
purchases the goods directly from
Second Stage Dealer means a dealer who
purchases the goods from a first stage
dealer
Input
Means any goods including capital goods
purchased by a dealer in the course of his
business for re-sale or for use in the
manufacture or processing or packing or
storing of other goods or any other use in
business

Name of the Term Karnataka Vat Act,2003 Cenvat Credit Rules,2004
Input Credit Has the meaning assigned to it in Section
10.
Capital Goods
For the purposes of Section 12 means
plant, including cold storage and similar
plant, machinery, goods vehicles,
equipments, moulds, tools and jigs, and
used in the course of business other than
for sale
 All goods falling under Chapter 82, 84, 85,
90, heading No. 68.02 and sub-heading No.
6801.10 of the First Schedule to the Tariff Act
 Components, spares and accessories of
the goods specified at (i) above;
· Moulds and Dies;
 Refractories and refractory materials
 Tubes and Pipes and Fittings thereof
 Pollution Control Equipment and
 Storage Tank,
Which are used in Manufacturing process and
for office
…..Continued

Type of
Trader
Availment of Input Credit
VAT Basis Excise
Duty
Basis Service
Tax
Basis
Manufacturer Yes Tax
Invoice
Yes Bill of
Entry and
Excise
Invoice
Yes
Service
Bill or
Payment
Challan
Importer NA Yes Bill of
Entry
Yes
First Stage
Dealer
Yes Tax
Invoice
No Excise
Invoice
No
Second Stage
Dealer
Yes No Excise
Invoice
No
Availment of Input for Different Type of Traders

Input of VAT can be availed only Tax
Invoice issued in accordance of Section
29 , Chapter IV of Karnataka Vat
Act,2003
Input of Excise Duty can be availed
only on the basis of Excise Invoice
Issued in accordance with the Rule 11 of
Central Excise Rules,2002 and Bill of
Entry issued by the Customs
Department for Clearance of Imported
Goods.
Input of service tax can be availed on
the basis if service bill issued by the
service provider and on payment under
Reverse charge mechanism
Statutory References for Basis of Cenvat Input
Accounting :
Input Credit should be
accounted in separate
ledger which is
grouped under
Current Assets (AS-2,
AS-10)
Auditor’s Role:
 Amount Confirmation
 Finding Ineligible
credit

Availment of Input Credit in case of Capital Goods :
 Input Credit of VAT on capital goods can be availed
completely in the same Financial Year but the vat on the
goods purchased for the Fixed Assets under progress
should be availed under Section 11 of Karnataka Vat
Act,2003
 Input Credit of Basic Excise Duty for the capital goods
should be availed 50% in the current Financial Year and
rest in the Next Financial Year. But the Other Duty
covered under Excise like Special Excise Duty, Additional
Excise Duty, Counter Availing Duty, Education Cess,
Secondary Higher Education Cess can be availed in the
same Financial Year.
 One exception for this is the goods which can
be consumed within the same Financial Year
can be availed 100%
What IFF.??
The Amount of
excise duty
missed out for
Availment can be
availed in any
Financial Year if
not charged
depreciation under
Section 32 of
Income Tax
Act,1961 or
charged to
Expenditure in
Financials

Service Tax Input Credit
 The amount of Service tax involved in Input services for the process of
manufacturing goods or for providing services is allowed as input credit
under Cenvat Credit Rules.2004
 This include different services involved in this process like consultancy,
professional, legal, technical, supply of manpower, works contract and
import of services and services under RCM
 Amount paid under Voluntary compliance scheme can be availed as
input credit
Accounting:
Separate Ledger
selection for Cenvat
Credit and RCM
Liability
Auditor’s Role:
Check the Eligible
Credit and Ineligible
Credit and RCM
Liability

Identification of Capital Goods vis-à-vis regular material
 Excise invoice indicate the corresponding good head.
 If not quoted easily identified from tariff headings shown in cbec.gov.in
under excise reference
Cases where confusion arises in availment of cenvat credit
 service tax levied by “bank for transactions”
 service tax levied by “consultant”
 Excise duty passed on by “First stage Dealer” or second stage Dealer
 Excise duty on “ as such removal of goods”
 Excise duty of “ stock transfer invoice”
 VAT for computers used for accounting
 Excise and VAT for goods sent for “Job work”
 vat on stickers used for internal process like “Labelling, for work
orders etc 3/8/2014 9kapilchidurala93@gmail.com

Case studies for discussion……….

Recovery of cenvat credit is made as per provisions of Rule 12 of
cenvat credit rules,2004 and Section 11A and 11AB of Central Excise
Act, 1944
Penalty of wrongly availed amount or Rs.10,000/- whichever is greater
under Rule 13 of cenvat credit rules and Section 11AC of Central
Excise Act, 1944
In case of VAT Simple interest of 18% per annum under section 36 of
KVAT Act,2003

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Basic concepts for input credit

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