Amendment in the Cenvat Credit Rules, 2004 (“the Credit Rules”) vide Notification No. 13/2016-Central Excise (N.T) dated 01.03.2016 (Applicable w.e.f. 01.04.2016 unless otherwise stated):
· Changes in Rule 2(a) of the Credit Rules – Definition of ‘capital goods’:
Ø Wagons of sub heading 8606 92 of the CETA and equipment and appliance used in an office located within a factory are being included in the definition of Capital goods so as to allow Cenvat credit on the same;
Ø Cenvat credit on inputs and capital goods used for pumping of water, for captive use in the factory, is being allowed even where such capital goods are installed outside the factory.
· Changes in Rule 2(e) of the Credit Rules – Definition of ‘exempted service’:
Ø Service by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India is being excluded from the definition of “exempted service”. This would allow shipping lines to take credit on inputs and input services used in providing the said services.
· Changes in Rule 2(k) of the Credit Rules – Definition of ‘inputs’:
Ø All capital goods having value up to Rs. 10,000 per piece are being included in the definition of inputs. This would allow an assessee to take whole credit on such capital goods in the same year in which they are received.
· Changes in Rule 3(4) of the Credit Rules w.e.f 01.03.2016:
Ø The 5thproviso to Rule 3(4) of the Credit Rules is being amended so as to provide that Cenvat credit of any duty specified in sub-rule (1) except NCCD cannot be utilized for payment of NCCD leviable under Section 136 of the Finance Act, 2001 on any product (Presently, the 5thproviso to Rule 3(4) provides that Cenvat credit of any duty except NCCD cannot be utilized for payment of NCCD on goods falling under tariff items 8517 12 10 and 8517 12 90 [mobile phones]);
Ø The Credit Rules are being amended to provide that Cenvat credit cannot be utilised for payment of Infrastructure Cess leviable under sub-clause (1) of clause 159 of the Finance Bill, 2016. Further, no credit of this Cess would be available under the Credit Rules.
· Changes in Rule 4 of the Credit Rules:
Ø Rule 4(5)(b):Manufacturer of final products is being allowed to take Cenvat credit on tools of Chapter 82 of the CETA in addition to credit on jigs, fixtures, moulds & dies, when intended to be used in the premises of job-worker or another manufacturer, who manufactures the goods as per specification of manufacturer of final products. It is also being provided that a manufacturer can send these goods directly to such other manufacturer or job-worker without bringing the same to his premises;
Ø Rule 4(6):Presently, the permission given by an Assistant Commissioner or Deputy Commissioner to a manufacturer of the final products for sending inputs or partially processed inputs outside his factory to a job-worker and clearance there from on payment of duty is valid for a financial year. It is being provided that the same would be valid for 3 financial years;
· Changes in Rule 6 of the Credit Rules:
Ø Rule 6(1): is being amended to first state the existing principle that Cenvat credit shall not be allowed on such quantity of input and input services as is used in or in relation to manufacture of exempted goods and exempted service. The rule then directs that the procedure for calculation of credit not allowed is provided in sub-rules (2) and (3), for two different situations;
Ø Rule 6(2): is being amended to provide that a manufacturer who exclusively manufactures exempted goods for their clearance up to the place of removal or a service provider who exclusively provides exempted services shall pay (i.e. reverse) the entire credit and effectively not be eligible for credit of any inputs and input services used;
Ø Rule 6(3):is being amended to provide that when a manufacturer manufactures two classes of goods for clearance upto the place of removal, namely, exempted goods and final products excluding exempted goods or when a provider of output services provides two classes of services, namely exempted services and output services excluding exempted services, then the manufacturer or the provider of the output service shall exercise one of the two options, namely, (a) pay an amount equal to 6% of value of the exempted goods and 7% of value of the exempted services, subject to a maximum of the total credit taken or (b) pay an amount as determined under sub-rule (3A);
Ø The maximum limit prescribed in the first option would ensure that the amount to be paid does not exceed the total credit taken. The purpose of the rule is to deny credit of such part of the total credit taken, as is attributable to the exempted goods or exempted services and under no circumstances this part can be greater than the whole credit;
Ø Rule 6(3A): is being amended to provide the procedure and conditions for calculation of credit allowed &credit not allowed and directs that such credit not allowed shall be paid, provisionally for each month. The four key steps for calculating the credit required to be paid are :-
(a) No credit of inputs or input services used exclusively in manufacture of exempted goods or for provision of exempted services shall be available;
(b) Full credit of input or input services used exclusively in final products excluding exempted goods or output services excluding exempted services shall be available;
(c) Credit left thereafter is common credit and shall be attributed towards exempted goods and exempted services by multiplying the common credit with the ratio of value of exempted goods manufactured or exempted services provided to the total turnover of exempted and non- exempted goods and exempted and non-exempted services in the previous financial year;
(d) Final reconciliation and adjustments are provided for after close of financial year by 30thJune of the succeeding financial year, as provided in the existing rule;
Ø New sub-rule (3AA) is being inserted to provide that a manufacturer or a provider of output service who has failed to follow the procedure of giving prior intimation, may be allowed by a Central Excise officer, competent to adjudicate such case, to follow the procedure and pay the amount prescribed subject to payment of interest calculated at the rate of 15% per annum;
Ø New sub-rule (3AB) is being inserted as transitional provision to provide that the existing Rule 6 of the Credit Rules would continue to be in operation upto 30.06.2016, for the units who are required to discharge the obligation in respect of financial year 2015-16;
Ø Rule 6(3B): is being amended so as to allow banks and other financial institutions to reverse credit in respect of exempted services on actual basis in addition to the option of 50% reversal;
Ø Explanations 3 and 4 are being inserted in Rule 6(1) so as provide for reversal of Cenvat credit on inputs/input services which have been commonly used in providing taxable output service and an activity which is not a “service” under the Finance Act;
Ø Sub-rule (4) is being amended to provide that where the capital goods are used for the manufacture of exempted goods or provision of exempted service for two years from the date of commencement of commercial production or provision of service, no Cenvat credit shall be allowed on such capital goods. Similar provision is being made for capital goods installed after the date of commencement of commercial production or provision of service;
· Changes in Rule 7 of the Credit Rules:
Ø Rule 7 of the Credit Rules dealing with distribution of credit on input services by an Input Service Distributor is being completely rewritten to allow an Input Service Distributer to distribute the input service credit to an outsourced manufacturing unit also in addition to its own manufacturing units;
Ø Presently, Rule 7 provides that credit of Service tax attributable to service used by more than one unit shall be distributed pro rata, based on turnover, to all the units. It is now being provided that an Input Service Distributor shall distribute Cenvat credit in respect of Service tax paid on the input services to its manufacturing units or units providing output service or to outsourced manufacturing units subject to the conditions specified therein;
· Insertion of Rule 7B in the Credit Rules:
Ø Rule 7B is being inserted in Credit Rules, so as to enable manufacturers with multiple manufacturing units to maintain a common warehouse for inputs and distribute inputs with credits to the individual manufacturing units. It is also being provided that a manufacturer having one or more factories shall be allowed to take credit on inputs received under the cover of an invoice issued by a warehouse of the said manufacturer, which receives inputs under cover of an invoice towards the purchase of such inputs. Procedure applicable to a first stage dealer or a second stage dealer would apply, mutatis mutandis, to such a warehouse of the manufacturer.
· Changes in Rule 9 of the Credit Rules:
Ø Presently, an invoice issued by a manufacturer for clearance of inputs or capitals goods is a valid document for availing Cenvat credit. It is being provided that an invoice issued by a service provider for clearance of inputs or capital goods shall also be a valid document for availing Cenvat credit;
· Changes in Rule 9A of the Credit Rules:
Ø Rule 9A of the Credit Rules is being amended to provide for filing of an annual return by a manufacturer of final products or provider of output services for each financial year, by the 30thday of November of the succeeding year in the form as specified by a notification by the Board;
· Changes in Rule 14 of the Credit Rules:
The existing sub- rule (2) of Rule 14 prescribes a procedure based on FIFO method for determining whether a particular credit has been utilized. The said sub-rule is being omitted. Now, whether a particular credit has been utilised or not shall be ascertained by examining whether during the period under consideration, the minimum balance of credit in the account of the assessee was equal to or more than the disputed amount of credit.