(Notification 18/2012-C.E. (N.T.) dated 17.03.2012) 
(By CA Vikas Khandelwal) 


1.0 Prior to 01.04.2012, definition of Capital goods includes Motor Vehicles when it is registered in the name of service provider providing following services: 

(i) Courier Services 
(ii) Tour Operator’s Services 
(iii) Rent-a-Cab Scheme Operator’s Services 
(iv) Cargo Handling Services 
(v) Transport of Goods by Road Services (by a Goods Transport Agency) 
(vi) Outdoor Caterer’s Services 
(vii) Pandal or Shamiana Contractor’s Services 

1.1 Now, definition of Capital goods has been expanded to cover all Motor vehicles (other than those covered under specified tariff heading) for all categories of service providers. 

After amendment, w. e. f. 01.04.12, the eligibility of Motor vehicle as capital goods for the purpose of CENVAT credit is summarized as under: 
S. No.
Category of Service Provider
Motor  Vehicle  eligible  as
CENVAT credit
(i)Courier Services
(ii) Tour Operator’s Services
(iii)Rent-a-Cab Scheme operators
(iv)Cargo Handling Services
(v)Transport of Goods by Road
Services    (by    a    Goods Transport Agency)
(vi)Outdoor Caterer’s Services
(vii)Pandal or Shamiana
Contractor’s Services
All   Motor  Vehicles  (along with     their     components, spares and accessories).
Rest of the taxable categories of
service  providers  (i.e.  service providers other than above.)
Motor Vehicle (other than those falling under Tariff heading 8702, 8703, 8704,8711) and components,spares, accessories and their chassis.


2.1 Prior to 01/04/2012, following services, if used for Motor Vehicles, were specifically excluded from the definition of input services: 

(i) Rent a CAB Scheme Operator Services; 
(ii) Supply of Tangible goods Services; 
(iii) General Insurance Service; 
(iv) Service station services (i.e. Repair, Reconditioning or restoration of Motor vehicle); 

However, credit was available for those service providers for whom credit on Motor Vehicles was considered as capital goods as per the definition of capital goods as provided in Rule 2(a) of CENVAT Credit Rules,2004. 
2.2 With effect from 01/04/12, CENVAT Credit in respect of four above mentioned taxable categories, if used for Motor Vehicle, shall be available only in following circumstances: 

1. For “Rent a Cab Services” and “Supply of Tangible goods Services”: CENVAT Credit Credit shall be available only when motor vehicle received on rent/hiring through “Rent a Cab Services” or/and “Supply of tangible goods Services” is a capital goods for the person receiving such services. 

Whether a particular vehicle will be considered as ‘capital goods’, can be verified as per provisions as summarized in table given in Para 1.1 hereinabove. 

2. For “General Insurance Service” and “Service Station Service”: CENVAT credit shall be available: 

a) If these services are used by Manufacturer of Motor Vehicle in respect of Motor Vehicle manufactured by him (For e. g., credit shall be available to Maruti in respect of charges paid to dealers for ‘free services to customers’. Dealers provide such services after receiving free coupon from customers and are directly paid by car manufacturer). 

b) If these services are used by provider of General Insurance service in respect of Motor Vehicle insured or reinsured by him. 

Thus, now, CENVAT Credit in respect of “General Insurance Service” and “Service Station Service” shall not be available even if such services received in respect of motor vehicle which is covered by the definition of ‘capital goods’. 

2.3 It is clarified that exclusion clause is not applicable if “Supply of tangible Services”, “General Insurance Service” and “Service Station Service” are not used for motor vehicle. For example: CENVAT Credit shall be available if service provider receives insurance services for its equipment which is used for providing taxable service. 

3.0 PAYMENT ON REMOVAL OF CAPITAL GOODS AFTER BEING USED (This amendment is effective from 17.03.2012): 

3.1 Prior to 17/03/12, as per third proviso to Rule 3(5) of CENVAT Credit Rules, 2004 if the capital goods, in respect of which CENVAT Credit has been taken, are removed, after being used, the manufacturer or provider of output services shall pay an amount equal to the CENVAT Credit taken on the said capital goods reduced by the percentage points calculated by straight line method at the specified rate for each quarter of a year or part thereof from the date of taking the CENVAT Credit. 

3.2 Further, prior to 17/03/12, Rule 3(5A) of CENVAT Credit Rules, 2004 provides that if capital goods are cleared as waste and scrap, the manufacturer was required to pay an amount equal to duty leviable on 
Transaction Value. 

3.3 Thus, there was a difference in amount required to be paid on removal of capital goods when the same is removed as other than waste and scrap and the same is removed as waste and scrap. Now, such difference has been removed. Now, third proviso to Rule 3(5) has been omitted and Rule 3(5A) has been substituted to provide if the capital goods on which CENVAT credit has been taken are removed after being used whether as capital goods or scrap or waste, assessee shall be required to pay: 

(i) An amount equivalent to CENVAT credit taken reduced by percentage specified for retaining the CENVAT credit amount, OR 

(ii) An amount equivalent to duty leviable on Transaction value, 

whichever is higher. 

For the purpose of clause (i) hereinabove, the rate for retaining the CENVAT credit are as under: 

a) for computers and computer peripherals: 
  • for each quarter in the first year @10%
  • for each quarter in the second year @8%
  • for each quarter in the third year @ 5% 
  • for each quarter in the fourth and fifth year @1%
b) for capital goods, other than computers and computer peripherals 
  • @ 2.5% for each quarter. 


4.1 As per Rule 4(1) and 4(2)(a) of CENVAT Credit Rules, 2004, CENVAT credit in respect of input and capital goods respectively can be claimed after receipt of same in the premises of provider of taxable service. 

4.2 Sometimes, service provider is required to receive the inputs or/and capital goods at a place (e.g., at site in case of construction service) other than registered premises. However, as per the requirement of aforesaid sub-rules, service provider was required to receive the same at registered premises for claiming the CENVAT credit. 

4.3 To remove the undue hardship, a proviso has been inserted in both the aforesaid sub-rules to provide that the CENVAT credit in respect of inputs or/and capital goods may be taken by the provider of output service when the inputs or/and capital goods are delivered to such service provider, subject to maintenance of documentary evidence of delivery and location of the inputs and capital goods. 


5.1 Prior to 01/04/2012, refund of CENVAT credit availed in respect of input and input services used for export of taxable service was available under Rule 5 of CENVAT Credit Rules, 2004 read with Notification No. 05/2006- Central Excise (NT) dated 14.03.2006. Rule 5 of CENVAT Credit Rules, 2004 as applicable prior to 31/03/2012 provides that CENVAT credit availed in respect of input and input service used for providing export of service can be utilized for discharging service tax liability in respect of service provided in India. 

Said rule further provides that where such utilization is not possible, in such case, provider of taxable service can claim refund subject to conditions and limitations issued by Central Government vide Notification No. 05/2006 wherein it was provided that refund of CENVAT credit shall be subject to following formula: 

Maximum refund = Total CENVAT credit taken on input services during the given period × export turnover ÷ Total turnover 

Explanation: For the purposes of condition no.5,- 

1. “Export turnover” shall mean the sum total of the value of final products and output services exported during the given period in respect of which the exporter claims the facility of refund under this rule. 

2. “Total turnover” means the sum total of the value of,- 

(a) all output services and exempted services provided, including value of services exported; 

(b) all excisable and non excisable goods cleared, including the value of goods exported; 

(c) The value of bought out goods sold, during the given period. 

5.3 Now, with effect from 01/04/2012, Rule 5 has been substituted by new Rule. Department, in its circular bearing D.O.F. No.334/1/2012 TRU dated 16.03.2012, Para F.1 at page 12, has provided that the new scheme does not require the kind of correlation that is needed at present between exports and input services. However, in my view, practically, this was not a problem in earlier provisions also as a specific formula (for claiming proportionate refund of credit as reproduced hereinabove in Para 5.2 hereinabove) was given in Notification no 5/2005 CE (NT) which prescribed the detailed procedure for claiming the refund. Therefore, refund of CENVAT credit was allowed subject to formula as given above. 

5.4 In my view, real impact of this amendment are as under: 

(i) Relief to exporter of services engaged in trading also: Earlier formula for reducing the refund claim considered the trading turnover. In the absence of specific clarification, authorities used to take gross turnover of trading as denominator for the purpose of reduction of refund. Now, formula has been given in rule itself and it provides that value shall be computed as per rule 6. Now, as per CENVAT Credit Rules, 2004, trading is considered as exempted services and value shall be gross margin or 10% of cost of goods sold, whichever is higher. 

Now, it will reduce value of denominator for exporter of taxable services also engaged in trading, consequently, refund amount will increase significantly. 

(ii) Value of export turnover: Now, for the relevant period for which refund is filed, value of export turnover shall be services in respect of which following events have been completed during the relevant period: 

a. completion of provision of service; 

b. Receipt of payment. 

For example: Services provided in Jan’12 to Mar’12, but payment received in April’12 to June’12, it will be considered in April’12 to June’12. Similarly, advance received in Jan’12 to Mar’12, but services rendered in April’12 to June’12, it will be considered in April’12 to June’12. 


6.1 Prior to 01/04/2012, an Input service distributor can distribute the CENVAT credit subject to following two conditions only: 

(a) the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon; or 

(b) credit of service tax attributable to service use in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed. 

6.2 Now, the following two conditions have been added to regulate the distribution of CENVAT credit by Input service distributor: 

(c) CENVAT Credit in respect of input 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 of the concerned unit 

Explanation 1.- For the purposes of this rule, ―unit includes the premises of a provider of output service and the premises of a manufacturer including the factory, whether registered or otherwise. 

Explanation 2.- For the purposes of this rule, the total turnover shall be determined in the same manner as determined under rule 5. 

6.3 With the introduction of two new conditions, distribution of CENVAT credit by Input service distributor has become very difficult because 

1. A separate record is required to be maintained for services which are specifically used for providing a particular unit. 

2. For distribution of credit, turnover of the units is required to be considered. It is very difficult to ascertain the turnover of the units each time before distribution of CENVAT credit. 


7.1 In the case of UOI Vs. IND-SWIFT LABORATORIES LTD. 2011 (265) ELT 3 (SC), Hon’ble Supreme Court interpreted the rule 14 of CENVAT Credit Rules, 2004 to provide that interest shall be payable from the date of wrong availment of CENVAT Credit even if same is not utilised. Department was also imposing the same view and issued Circular No. 942/3/2011-CX., dated 14-3-2011 stating said proposition. 

7.2 However, now, Central Government has shown some reasonableness by amending the rule 14 of CENVAT Credit Rules, 2004. Now, interest on wrong availment of CENVAT Credit shall be levied from the date when same is utilised by assessee. In other words, no interest shall be levied on mere wrong availment. 


8.1 Rule 9 lists the documents which are required for availing CENVAT Credit. Rule 9(1)(e) of CENVAT Credit Rules, 2004 which deals with document required for availing CENVAT Credit when tax is paid by service recipient has been amended w. e. f. 01.04.2012. 

Prior to amendment: 
(e) a challan evidencing payment of service tax by the person liable to pay service tax under sub-clauses (iii), (iv), (v) and (vii) of clause (d) of sub- rule (1) of rule (2) of the Service Tax Rules, 1994; or 
After amendment: 
(e) a challan evidencing payment of service tax, by the service recipient as the person liable to pay service tax; or 
8.2 Impact of above substitution of Rule 9(1)(e) of CENVAT Credit Rules, 2004 is as under: Prior to amendment, all service recipient liable to pay service tax was covered under said rule except where service tax was payable by Mutual Fund Company in respect of services of mutual fund agent/distributor. Now, all service receivers (paying service tax under reverse charge mechanism) including Mutual Fund Company shall avail CENVAT Credit on the basis of challan through which payment of service tax has been made. 

By CA. Vikas Khandelwal, 610, GD ITL Twin Towers, B-08, Netaji Subhash Place, Ring Road, Pitampura Delhi-110034 
Website: www.vkcca.com
Ph: 011- 27356481,





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