1. Important Budgetary changes in
CENVAT Credit Rules 2004 &
some other amendments
Presentation by:
Indirect Taxation Group
Created by: 152162 Date: 21-03-2011
Doc. Classification: General

2. AGENDA
 Definition of Inputs, Capital Goods and Input Services.
Impact of Budget due to change in definition under Cenvat Credit
Rules 2004.
Proposed counter measures.
Other important amendments impacting the company.
2

3. CAPITAL GOODS (Rule- 2a)
Upto 31.03.2011 w.e.f 01.04.2011
“Capital goods” means:- (A) the “Capital goods” means:- (A) the following goods namely:-
following goods namely:-
(ii) all goods falling under Chapter 82,Chapter 84,Chapter
(ii) all goods falling under Chapter 85,Chapter-90,Heading-6805,Heading-6804of the First Schedule to the
82,Chapter 84,Chapter Excise Tariff Act;
85,Chapter-90,Heading-6805,Headi
ng-6804of the First Schedule to the (iii)pollution control equipments
Excise Tariff Act; (iv)components, spares and accessories of goods specified at (i) and (ii);
(iii)pollution control equipments (v) moulds and dies, jigs and fixtures;
(iv)components, spares and (vi)refractories and refractory materials
accessories of goods specified at (i) (vii)tubes and pipes and fittings thereof
and (ii);
(viii)storage tank,
(v) moulds and dies, jigs and fixtures;
used-
(vi)refractories and refractory
materials (1)in the factory but does not include any equipment or appliances used
in an office; or
(vii)tubes and pipes and fittings
thereof (1A) outside the factory of the manufacturer of the final products for
generation of electricity for captive use within the factory ; or
(viii)storage tank, used-
(2)for providing output service;
(1)in the factory but does not
include any equipment or (B) Motor vehicle registered in the name of output service provider for
appliances used in an office; or providing taxable service as specified in sub clauses (f), (n), (o), (zr),
(2)for providing output service; (zzp), (zzt), (zzw) of clause (105) of section 65 of the finance Act;
(B) Motor vehicle registered in the (C) Dumpers or tippers, falling under chapter 87, registered in the name of
name of output service output service provider for providing output service taxable as
provider for providing taxable specified in sub clauses (zzza) and (zzzy) of clause (105) of section 65
service as specified in sub
clauses (f), (n), (o), (zr), (zzp), of the said finance Act;
(zzt),(zzw) of clause (105) of (D) components, spares and accessories of motor vehicles, dumpers or 3
section 65 of the finance Act; tippers used to provide taxable services as specified in (B) and (C);

4. INPUT (Rule- 2k)
Upto 31.03.2011 w.e.f 01.04.2011
“Input” means- (i)All goods ,except light “Input” means-(i) all goods used in the factory by the manufacturer of
diesel oil, high speed diesel oil or motor the final product; or
spirit, commonly known as petrol, used in
or in relation to the manufacture of final (ii) any goods including accessories, cleared along with the final
product whether directly or indirectly product, the value of which is included in the value of the final
and whether contained in the final product and goods used for providing free warranty for final
product or not and includes lubricating products; or
oils, greases, cutting oils, coolants,
accessories of final products cleared (iii) all goods used for generation of electricity or steam for captive
along with final product goods, goods use; or
used as paints, or as packing material or (iv) all goods used for providing any output service; but excludes-
as fuel, or for generation of electricity or (A) light diesel oil, high speed diesel oil or motor spirit, commonly
steam used in or in relation to
manufacture of final products or for any known as petrol;
other purpose, within factory of (B) any goods used for-
production; (a) construction of a building or a civil structure or a part thereof; or
(ii) All goods, except light diesel oil, high (b) laying of foundation or making of structures for support of capital
speed diesel oil or motor spirit, goods, except for the provision of any taxable service specified in
commonly known as petrol and motor sub-clauses (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause
vehicles, used for providing any output (105) of section 65 of the Finance Act;
services;
(C) capital goods except when used as parts or components in the
Explanation : manufacture of a final product;
Inputs includes goods used in (D) motor vehicles;
manufacture of capital goods, which are
further used in the factory of the (E) any goods, such as food items, goods used in a guesthouse,
manufacturer but shall not include residential colony, club or a recreation facility and clinical
cement, angles, channels, CTD, TMT and establishment, when such goods are used primarily for personal use
other items for construction of factory or consumption of any employee; and
shed, building or laying of foundation
or making structure for support of (F) any goods which have no relationship whatsoever with the 4
capital goods. manufacture of a final product.

5. INPUT SERVICE (Rule- 2 I)
Upto 31.03.2011 w.e.f 01.04.2011
““Input service” means any service, - ““Input service” means any service, -
(i) used by a provider of taxable (i) used by a provider of taxable service for providing an output service; or
service for providing an output (ii) used by a manufacturer, whether directly or indirectly, in or in relation to
service; or the manufacture of final products and clearance of final products upto the
(ii) used by a manufacturer, place of removal, and includes services used in relation to modernization,
whether directly or indirectly, in or renovation or repairs of a factory, premises of provider of output service or an
in relation to the manufacture of office relating to such factory or premises, advertisement or sales promotion,
final products and clearance of final market research, storage upto the place of removal, procurement of inputs,
products upto the place of removal, accounting, auditing, financing, recruitment and quality control, coaching and
and includes service used in relation training, computer networking, credit rating, share registry, security, business
to setting up, modernization, exhibition, legal services, inward transportation of inputs or capital goods and
renovation or repair of a factory, outward transportation upto the place of removal; but excludes services,-
premises of output service provider (A) specified in sub-clauses (p), (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of
or an office relating to such factory clause (105) of section 65 of the Finance Act (hereinafter referred as specified
or premises, advertisement, sales services), in so far as they are used for-
promotion, market research, storage (a) construction of a building or a civil structure or a part thereof; or
upto place of removal, procurement (b) laying of foundation or making of structures for support of capital goods,
of inputs, activities relating to except for the provision of one or more of the specified services; or
business, such as accounting, (B) specified in sub-clauses (d), (o), (zo) and (zzzzj) of clause (105) of section
auditing, financing, recruitment and 65 of the Finance Act, in so far as they relate to a motor vehicle except when
quality control, coaching and used for the provision of taxable services for which the credit on motor vehicle
training, computer networking, is available as capital goods; or
credit rating, share registry, and (C) such as those provided in relation to outdoor catering, beauty treatment,
security, inward transportation of health services, cosmetic and plastic surgery, membership of a club, health and
inputs or capital goods and outward fitness centre, life insurance, health insurance and travel benefits extended to
transportation upto the place of employees on vacation such as Leave or Home Travel Concession, when such 5
removal. services are used primarily for personal use or consumption of any employee.

6. Services :Cenvatable Input services
Services used by a provider of taxable service for providing an output service
Services used by a manufacturer, whether directly or indirectly, in or in
relation to the manufacture of final products and clearance of final products
upto the place of removal
Services used in relation to modernization, renovation or repairs of a factory,
premises of provider of output service or an office relating to such factory or
premises.
Specific services in relation to advertisement or sales promotion, market
research, storage upto the place of removal, procurement of inputs, accounting,
auditing, financing, recruitment and quality control, coaching and training,
computer networking, credit rating, share registry, security, business
exhibition, legal services, inward transportation of inputs or capital goods and
outward transportation upto the place of removal;
6

7. Services: Non- Cenvatable services
 Services provided by architect, port, airport ,commercial or industrial
construction services, construction of complex service and works contract
service
When they are used for-
•construction 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,
General insurance service, rent-a-cab service, authorized service station
and supply of tangible goods services ,
when they relates to a motor vehicle
 services such as those provided in relation to outdoor catering, beauty
treatment, health services, cosmetic and plastic surgery, membership of a club,
health and fitness centre, life insurance, health insurance and travel benefits
extended to employees on vacation such as Leave or Home Travel
Concession, when such services are used primarily for personal use or
consumption of any employee.
7

8. Summary of Changes
Sl No Before Budget After budget
1 Services in relation to setting up of the Services in relation to setting up of the
factory is an input services factory is not an input services
2 Any Services in relation to business This has been withdrawn
activity is an input services.
3 commercial or industrial construction These are not qualified as input
services and works contract service in service
relation to civil structure, laying of
foundation and Support of capital
goods is an input services
4 Rent a cab is an input service Rent a cab is not an input service
5 Services in relation to employee These are not qualified as input
consumption and benefits in relation service
to production is an input service
8

9. Annual Impact of Excluded Services:
Sl No Excluded Services Service Tax Credit (Approx)
1 WCT Contract in respect to Civil Job 13.69 Crs
2 Construction Services 2.73Crs
3 Rent – a – Cab 0.03 Crs
4 Employee Related services 0.01 crs
• Outdoor Catering
• Shabashi expenses
9

10. Proposed Action Plan:
Sl No Activity Sub - Activity Responsibility Target
1 To optimize Communication to vendors to submit Project
the the bill for the job done till date. engineering
availment of
cenvat credit Certification of the bill Project 27th
of excluded engineering March,2011
services
before 31st
March’2011 Payment of those bill and providing the Bills Section 30th
hard copy of those bill to Indirect Tax March,2011
section
Availment of cenvat Credit Indirect Tax 31st
Section March,2011
2 To amend Identification of the live order with Procurement 25th
the tax code respect to the excluded services Division March,2011
of the live Change the Tax Code suitably as non Procurement 30th
work order. Cenvatable tax code Division March,2011
10

11. Inputs :Cenvatable inputs
All goods used in the factory by the manufacturer of the final product; or
any goods including accessories, cleared along with the final product, the
value of which is included in the value of the final product and goods used for
providing free warranty for final products; or
all goods used for generation of electricity or steam for captive use; or
all goods used for providing any output service;
11

12. Input: Non- Cenvatable
light diesel oil, high speed diesel oil or motor spirit, commonly known as
petrol;
any goods used for-
•construction 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,
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;
and
 any goods which have no relationship whatsoever with the
manufacture of a final product.
12

13. Summary of Changes
Sl No Before Budget After budget
1 Goods should be used in or in relation
to the manufacture of final products Goods used in the factory by the
whether directly or indirectly and manufacturer of the final product
whether contained in the final product
2 Not specifically included goods which specifically included goods which are
are used for generation of electricity or used for generation of electricity or
steam for captive use steam for captive use
3 Goods which are used for construction of These are excluded clearly in the
shed and structure for support of capital definition.
goods are excluded through explanation.
4 Overall it was very stringent by It gives little relaxation by excluding
definition only the goods which have no
relationship whatsoever with the
manufacture of a final product.
13

14. Annual Impact of Included inputs– TSL Works:
Sl. No Included Inputs Cenvat Credit (approx)
1 Items which are clearly cenvatable 0.20 Crs
2 Items which are cenvatable but needs clarification 14.46Crs
from the department
14

15. Proposed Action Plan:
Sl No Activity Responsibility Target
1 To identify the non- Indirect taxation group
Cenvatable materials
2 Examine the Procurement Division
cenvatability of those
material with reference
to their use and input
definition.
3 Amendment of tax code Procurement Division
in the purchase order
15

16. New Service Proposed :
1. Services provided by air-conditioned restaurants having license to
serve alcoholic beverages in relation to service of food and/or
beverages. The effective burden will be 3 % of taxable value as they
will enjoy a rebate of 7 % on the amount charged.
4. Services provided for accommodation by a hotel, inn, club or amp site,
or any other similar establishment for a continuous period of less than
three months in excess of declared tariff of Rs.1000/- per day with an
abatement of 50% so that the effective rate is only 5 % of the amount
charged.
(Effective from the date to be notified, after the enactment of finance Bill,
2011).
16

17. Expansion of Scope of services
Health Check up and treatment service :
 Currently, the levy covers health services provided in relation to health
checkups or preventive care to an employee of a business entity.
 Following are also included in the above category :-
Service provided by hospitals, maternity/ nursing homes, dispensary,
clinic, etc with central air-conditioning and more than 25 beds.
Diagnostic services with the aid of a laboratory or medical equipment.
Services provided by doctors from the premises of such hospitals,
maternity/nursing homes , dispensaries, clinics, etc, who are not
employees of such establishments.
(Effective from the date to be notified, after the enactment of finance Bill,
2011).
17

18. 18