Problem 3. Whether ownership is necessary for taking credit on capital goods?
Solution. Rule 4(3) The CENVAT credit in respect of the capital goods shall be allowed even if the capital goods are acquired on lease, hire purchase or loan agreement.
Problem 4. Whether on excise duty both depreciation and credit can be claimed?
Solution. Rule 4(4) if deprecation u/s 32 of Income-tax Act is claimed on the amount of duty on capital goods then credit in respect of such capital goods shall not be allowed.
Explanation 9 to Section 43(1) of Income Tax Act
Ö for calculating depreciation the actual cost of asset shall be reduced
Ö by the amount of excise duty or additional duty of customs
Ö in respect of which credit has been claimed.
Problem 5. When the credit of duty paid on input services can be taken?
Solution. Rule 4(7) Credit on input service
The CENVAT credit in respect of input service shall be allowed on or after the day on which payment is made for the value of input service and the service tax.
Q.27 Mr. A has a unit in 100% EOU. He manufactured and sold 100 units in DTA to Mr. B for Rs.10,000. The rate mentioned in CETA on these goods is 50%, in CTA 10% (BCD). Ignore education cess.
(i) How much duty payable by Mr. A?
(ii) Whether Mr. B can avail the credit of this duty or not? If yes then how much?
RULE 4
Q.1. Explain the conditions for allowing CENVAT credit. [Dec 2003 (CS)] (6 marks)
Ans. Conditions for allowing CENVAT credit (RULE 4).
(1) The CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service. [Rule 4(1)]
(2) (a) The CENVAT credit in respect of capital goods shall be allowed to the extent of 50% in the financial year in which the capital goods are received in the factory.
However credit to the extent of 100% shall be allowed immediately on receipt of the capital goods in the factory of manufacturer.
(b) The balance of CENVAT credit may be taken in any financial year subsequent to the financial year in which the capital goods were received provided the capital goods are still in the possession of the manufacturer of final products in such subsequent years.
(3) But the balance credit of components, spares and accessories, refractories and refractory materials, mould and dies & goods falling u/h 6804 & 6805 will be allowed even if they are not in possession. [Rule 4(2)]
(4) The capital goods acquired on lease, hire purchase or loan agreement, from a financing company shall also be eligible for credit. [Rule 4(3)]
(5) The CENVAT credit in respect of capital goods shall not be allowed on that part of the duty on capital goods on which depreciation has been claimed. [Rule 4(4)]
(6) The CENVAT credit in respect of input service shall be allowed only when the payment is made of the value of input service and the service tax. [Rule 4(7)]
Q.2. Examine the validity of the following statements: (Nov 2007) (2x2=4 Marks)
(i) A purchased a plant for Rs. 1,16,320 cum-duty price on 12.12.2007 and received the plant in the factory on 5.4.2008. Excise duty rate is 16.48%. Cenvat allowed will be only Rs. 8,229 for the year ended on 31.3.2008.
(ii) An assessee purchased inputs weighing 400 tons. The duty paid on inputs was Rs. 4,000. During transit, 20 tons of the inputs were destroyed. The destroyed quantity of inputs does not qualify to be ‘inputs’ within the meaning of Cenvat Credit Rules, 2004.
Ans. (i) False,
As per Rule 4(2) of the CENVAT Credit Rules, 2004, Credit in respect of capital goods can be taken only on receipt of capital goods in factory of manufacturer.
In the given case, goods are recived on 5.4.2008, hence credit cannot be taken in F/Y 2007-08. It shall be allowed in F/Y 2008-09.
(ii) True,
As per Rule 2 of the CENVAT Credit Rules, 2004
Inputs should be used in or in relation to manufacturer of final products. In the given case, 20 tons of inputs are destroyed in transit and thus could not be used in or in relation to manufacture of final product. Hence, they do not qualify to be input within the meaning of CCR, 2004.
Q.3. M/s Smart Ltd. Manufacture certain excisable goods that are exempt from duty in terms of a notification provided Cenvat credit of duty paid on inputs is not taken by the manufacturer. M/s Smart Ltd. Had taken the credit of duty paid on inputs, but reserved the same before its utilization. The department denied the benefit of the exemption on the ground that once the credit is taken it is immaterial whether the same is reversed before or after utilization of such credit. State briefly whether the action of the department is correct under the Central Excise Act and Rules made there under with reference to decided case law if any. (May 2008) (5 marks)
Ans. No, the contention raised by the department is not correct.
Availment and utilization of credit are two different stages and the two cannot be interchanged. In the given case the assessee, although availed the credit but he reversed it before its utilization.
Thus reversal of credit amounts to not taking credit.
In the given case the assessee has reversed the credit so taken before utilizing it. Therefore, the assessee was entitled to the exemption.
A similar view was taken by the supreme court in the case of Bombay Dyeing & Mfg. Co. Ltd. Where it was held that the act of reversal of credit by the assessee before utilization thereof amounts to non-availment of Cenvat Credit.
Q.4. Decide the following problems with help of case law, if any-
M/s SK enterprise manufacture Aluminium doors and windows which were considered by them to be exempted from payment of Central Excise duty. After two years of their commencing production and clearance of goods Central Excise officers made a case against them holding that the products manufactured by them are chargeable to Central excise duty. The manufacturer then claims the modvat/cenvat credit of the duty paid on the inputs which have gone into the manufacture of doors and windows. The department denies the same on the grounds that neither any modvat/cenvat declaration was filed and two years have elapsed since the goods were received. (Nov 2002) (5 marks)
Ans. No, the stand of the department is not valid and the assessee can claim credit of duty on inputs.
This is because
(i) scheme of cenvat does not stipulate any condition of filing declaration of inputs for availing credit.
(ii) no time limit has been prescribed for availing the credit.
Rule 4 of Cenvat Credit Rules, 2004 only provides that
The CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or provider of output service.
Therefore the contentions that two years have lapsed and the declaration was not filed are not tenable and credit can not be denied on the grounds that the claim was not made at the time of its manufacture if the final product is held dutiable later on. But the manufacturer will have to produce duty paying documents.
Moreover, Rule 3(2) of Cenvat Credit Rule, 2004 provides that
(i) The manufacturer or producer of final products
(ii) shall be allowed to take CENVAT credit of the duty paid on
a) inputs lying in stock or
b) inputs contained in the final products lying in stock
c) in process.
(iii) if final products was exempt at the time of receipt of inputs but become later on. On the basis of above discussion it can be said that M/s S.K. Enterprises can avail the credit of duty paid inputs used in the doors and windows for which duty is demanded.
DEFINITIONS
Q.1. State whether following are eligible as inputs for Cenvat-
(i) Safety appliances used by workmen;
(ii) Light Diesel Oil (LDO) used in manufacture;
(iii) Dies;
(iv) Parts used to manufacture capital goods within the factory. [June 2004 (CWA)] (2 Marks)
Ans. (i) Yes, Safety appliances used by workmen are inputs as they are used in or in relation to manufacture of final products.
(ii) No, LDO is not an eligible input as it is specifically excluded from the definition of Input under Rule 2.
(iii) No, Dies shall not be eligible as input as they are specifically covered by the definition of capital goods. But being covered by definition of capital goods credit shall be available.
(iv) Yes, parts used to manufacture capital goods within the factory are inputs. Explanation 2 to the definition of input clearly provides that inputs include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer. Thus, they are eligible input. However, credit of CTD, angles etc. used in the factory building, construction of support structures etc. shall not be allowed.
Q.2. Discuss whether CENVAT credit will be available in the cases stated below. [June 1998 (CWA)] (2x4 = 8 Marks)
(i) Inputs are used in trial runs.
(ii) Detergent used for washing glass bottles, before filling aerated water, by soft drink manufacturer in his bottling plant.
(iii) Cement and paints used for maintaining factory building. (Also in May 2006)
(iv) Packing materials are lost or destroyed in store room of the factory.
Ans. (i) Yes, Inputs used in trial runs during the commission of plant and machinery are eligible for Cenvat credit as inputs, as they have been used in or in relation to manufacture of final product.
(ii) Yes, Detergents used for washing glass bottles for filling aerated waters are eligible, as it is a process incidental ancillary to completion of the manufactured product to make it marketable.
(iii) No, Cement and paints are not inputs used in or in relation to manufacture of final products and hence are not eligible for CENVAT Credit.
(iv) No, Inputs/goods lost/destroyed in store room cannot be said to have been used in or in relation to manufacture. Hence CENVAT credit is not allowable on such inputs which are lost or destroyed and credit, if already taken should be reversed.
Q.3. Briefly explain the following with reference to the provisions of the CENVAT Credit Rules, 2004: (Nov 2007) (2x2=4 Marks)
(i) Principal Inputs
(ii) Deemed Cenvat Credit
Ans. (i) Refer Rule 9A of the CENVAT Credit Rules, 2004
(ii) Refer Rule 13 of the CENVAT Credit Rules, 2004
Q.4. Is CENVAT credit on “moulds and dies” admissible ? Discuss. [Dec 1996(CWA)] (2 marks)
Ans. Yes, cenvat credit is available on mould and dies.
The definition of capital goods as given in Rule 2 of CCR includes mould and dies.
Thus CENVAT credit is available on them.
CENVAT credit to the extent of 50% will be allowed in the year of receipt and the balance credit can be availed in any subsequent year for availment of balance credit for modules and dies.
Q.5. Briefly explain following with reference to the provisions of Cenvat Credit Rules, 2004:
(i) Exempted goods
(ii) Final products (May 2007) (May 2005) (Compulsory) (4 marks)
Ans. Refer Provisions.
Rule 3
Q.1. M/s AJ imported some inputs and paid Basic Customs Duty Rs 5 lakhs, surcharge on customs duty Rs. 50,000 and CVD Rs 1 lakhs. Calculate the amount that he can claim as Cenvat Credit. Would it make any difference, if the assessee is not a manufacturer, but a service provider ? (May 2006) (3 marks)
Ans. M/s AJ can take credit of Rs. 1,00,000 i.e. of additional duty of customs (CVD). Rule 3(1) of CCR allows credit of additional duty of customs imposed under Section 3 of CTA. The credit of other two duties i.e. BCD and surcharge on customs duty is not allowed.
It will not make any difference if the assessee is a service provider as credit of additional duty of customs (CVD) can be availed both by manufacturer and the service providers alike but credit of CVD u/s 3(5) will not be available to a service provider.
Q.2. Briefly discuss with the reasons whether in the following case Cenvat Credit is available to an assessee and, if yes to what extent?
An assessee purchased inputs weighing 1,000 kgs. The duty paid on inputs was Rs. 10,000. During transit, 500 Kgs inputs were destroyed. (Nov 2002) (3 marks)
Ans. Assessee can take credit only of Rs. 5,000 i.e. duty paid on 500 Kg . As 500 Kg . were destroyed during transit and were not received in the factory.
As per Rule 4 of Cenvat Credit Rules, 2004
The CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or provider of output service.
Rule 2 of CCR, 2004 provides that any goods used in or in relation to manufacture are eligible as inputs and inputs are neither received nor they can be used in or in relation to manufacture of final product or for providing output service.
Therefore credit cannot be taken of the duty paid on those inputs.
Q.3. How are goods manufactured in a 100% EOU but sold in the DTA subjected to levy of excise. (May 1997) (Nov 1998) (4 Marks)
Ans. If goods are manufactured in 100% EOU then excise
duty has to be calculated in special manner prescribed under the proviso of Section 3.
According to which if excisable goods are produced or manufactured in a 100% EOU and brought to any other place in India
Excise duty = Aggregate of duties of customs
® excise duty shall be equal to aggregate of the duties of customs
® which would be leviable under the Customs Act or any other law for the time being in force.
® in like goods produced or manufactured outside India India
However, goods manufactured by a 100% EOU and sold to DTA are exempt from 50% of BCD.
Q.4. What is the restriction imposed on the Cenvat credit in respect of inputs manufactured by 100% EOU and used by a manufacturer in domestic traffic area under the Cenvat credit Rule, 2004 (Nov 2004) (4 marks)
Ans. As per Proviso to Section 3 of Central Excise Act, 1944 at the time of removal of goods from 100% EOU to DTA excise duty is equal to duties of custom leviable on the like article if imported into India. But as per Rule 3 Cenvat Credit Rules, 2004
Cenvat credit of inputs and capital goods, manufactured in 100% EOU and used in manufacture of final product in DTA shall be:
AV multiplied by [(1+BCD/200) multiplied by (CVD/100]
Therefore, if the goods are removed from 100% EOU to DTA credit can be taken only of CVD and not of other duties.
Q.5. From the following data, determine the CENVAT allowable if the goods are produced or manufactured in a 100% EOU and used in other place in India
Assessable value Rs. 770 per unit
Quantity cleared 77,770 units
BCD 30%
CVD 14% [June 2003(CWA)] (4 marks)
Ans. As per Rule 3 Cenvat Credit Rules, 2004
CENVAT credit of inputs and capital goods, manufactured in 100% EOU and used in manufacture of final product in DTA shall be:
AV multiplied by[(1+BCD/200) multiplied by (CVD/100]
= 770 x 77,770 x [(1 + 30/200) x (14/100]
= 5,98,82,900 x [1.15 x .14]
= 5,98,82,900 x .161
= 96,41,147
Cenvat credit available = 96,41,147 Rs.
(CVD is inclusive of education cess @ 3%)
Q.6. Based on the following particulars arrive at the Cenvat credit available on clearance of goods to Domestic Tariff Area (DTA) from Export Oriented Unit (EOU):- (May 2008) (6 marks)
Assessable Value Rs. 20 lacs
Basic Customs Duty 10%
Excise Duty 14%
Educational Cess 2%
Secondary & Higher Education Cess 1%
Ans. As per Rule 3 Cenvat Credit Rules, 2004
CENVAT credit of inputs and capital goods, manufactured in 100% EOU and used in manufacture of final product in DTA shall be:
AV multiplied by[(1+BCD/200) multiplied by (CVD/100]
Credit available = 20,00,000 x [1+ (10/200)] x [14.42/100]
= 20,00,000 x 1.05 x 0.1442
= 3,02,820.
Credit of BCD will not be available.
Q.7. A small Scale Industrial Unit (SSI) is required to pay the following Central Excise duties by January 15, 2006 for clearance effected from its factory in respect of final products manufactured during the month of December, 2005:
Basic Excise Duty (B.E.D.): Rs. 36,000
Special Excise Duty (S.E.D.): Rs. 18,000
National Calamity Contingent Duty (N.C.C.D.): Rs. 1,000
Education Cess (E.C.): 3% of B.E.D + S.E.D. + N.C.C.D.
Balance available as credit at the beginning of December, 2005 were as follows:
B.E.D. Rs. 24,000; N.C.C.D. Rs. 2,000 E.C. Rs. 600.
No inputs were received during the month. However, certain inputs were received on January 1, 2006 on which total duty paid by the suppliers of input was as follows:
B.E.D. Rs. 16,000; E.C. Rs. 480
Excise duty paid on Capital goods received during the month was as follows:
B.E.D. Rs. 40,000; E.C. Rs. 1,200
For the month of December, 2005 you are required to determine:
(i) the credit available for utilization;
(ii) the permissible extent to which such credit available may be utilized against payment of B.E.D.; S.E.D.; N.C.C.D. and E.C.; and
(iii) the B.E.D.; S.E.D. and E.C. payable through account current (P.L.A.). (Nov 2006) (8 marks)
Ans. (i) CENVAT Credit available for December, 2005 is as follows:
Particulars | B.E.D. (Rs.) | N.C.C.D. (Rs) | E.C. (Rs) |
Opening Balances | 24,000 | 2,000 | 600 |
Capital Goods received during Dec, 2005 (50%) | 20,000 | ---- | 600 |
Credit available | 44,000 | 2,000 | 1,200 |
(ii) * Credit of B.E.D Rs. 44,000 may be utilized for B.E.D & S.E.D.
* Credit of N.C.C.D & E.C. can be utilized for N.C.C.D & E.C. respectively.
(iii) Duty payable through PLA:
* B.E.D. & S.E.D
Credit available Rs. 44,000
(-) B.E.D. + S.E.D (36,000+18,000) Rs. 54,000
Payable through PLA Rs. 10,000
* E.C
E.C payable on final products manufactured during Dec, 2005:
3% of B.E.D + S.E.D + N.C.C.D
= 3% (36,000+18,000+1,000)
= Rs. 1,650
Credit available Rs. 1,200
(-) E.C payable Rs. 1,650
Payable through PLA Rs. 450
* N.C.C.D
Credit available Rs. 2,000
(-) N.C.C.D. payable Rs. 1,000
Credit available Rs. 1,000
Such Credit can be utilized subsequently for payment of N.C.C.D only on final product.
NOTES:
1. CENVAT Credit on capital goods is available @ 50% in the year 2005-06 and the balance will be available in the subsequent financial year.
2. CENVAT Credit on inputs received upto 31.12.2005 only can be used for paying excise duty on final products manufactured during the month of Dec, 2005 even if duty is payable by 15.01.2006.
REMOVAL
Q.1. State briefly the provisions of the CENVAT Credit Rules, 2004 in respect of removal of inputs and capital goods on which CENVAT credit has been availed in the following cases:
(i) Capital goods removed in good condition after being put to use for a period of two years in respect of which period depreciation under the Income-Tax Act, 1961 was claimed.
(ii) An input becomes a waste and is sold as scrap; (May 1997) (Nov 2004) (Compulsory) (2x2=4 marks)
Ans. (i) In the given case the assessee will be required to pay the entire amount of CENVAT credit availed by him.
As per Rule 3(5) of Cenvat Credit Rules, 2004.
When a capital goods on which credit has been taken are removed then the assessee is required to pay an amount equal to Cenvat credit availed and such removal shall be made under the cover of an invoice referred to in Rule 11 of CER.
Therefore, the manufacturer will have to pay the entire amount of credit which was availed at the time of receipt of capital goods.
Provided that if the capital goods
* on which Cenvat Credit has been taken
* are removed after being used
* the manufacturer or provider of output service shall pay an amount equal to the CENVAT Credit taken on the said capital goods reduced by 2.5% for each quarter of a year or part thereof from the date of taking the Cenvat Credit
(ii) Applicability of Rule 3(5) of CCR
Rule 3(5) of CCR is not applicable as inputs have been removed as scrap and not as such.
As per Rule 2 input must be used in or in relation to manufacture of final products. If it has become waste during processing- no reversal of credit already taken on receipt of input.0
Q.2. Explain briefly with reference to Rule 21 of the Cenvat Excise Rules, 2002 relating to remission of duty the following:- (May 2008) (2x2=4 marks)
(a) Can remission of duty be granted on goods cleared from the factory after payment of duty, but which were destroyed by fire in transit.
(b) Upon grant of remission of duty the CENVAT credit on inputs used in final product has to be reversed.
Ans. (a) No, Remission can not be claimed.
As per Rule 21 of Central Excise Rules, 2002,
Where it is shown to the satisfaction of the proper officer that
® goods have been lost or destroyed by natural causes or by unavaoidable accident or
® are claimed by the manufacturer as unfit for consumption or for marketing,
® at any time before removal,
He may remit the duty payable on such goods, subject to such conditions as imposed by him writing.
In the given case, goods were destroyed after removal in transit, therefore remission shall not be granted
(b) Yes, as per Rule 3(5C ) of CCR, 2004
® Where on any goods manufactured or produced by an assessee.
® the payment of duty is ordered to be remiCER, 2002,
® the CENVAT credit taken on the inputs used in manufacture or production of said goods shall be reversed.
Q.3. With reference to the CENVAT Credit Rules, 2004, discuss briefly whether the following statements are correct or not: (Nov 2007) (2x3=6 marks)
(i) CENVAT Credit cannot be taken on the inputs lying in stock on the date when the final product becomes dutiable because the said product was initially exempt.
(ii) CENVAT Credit of duties of excise on inputs can be availed on the basis of an invoice, while credit of service tax paid on input services can be availed only upon payment of the full invoice value including service tax.
(iii) In case of transfer of ownership of the factory by way of sale along with inputs and capital goods, the unutilized input credit shall lapse.
Ans.
(i) False,
As per Rule 3(2) of CENVAT Credit Rules, 2004,
The manufacturer of the final products shall be
allowed to take CENVAT Credit of the duty paid on
® inputs lying in stock or
® inputs in process or
® inputs contained in the final products lying in stock
On the date on which any goods manufactured initially exempted becomes dutiable.
(ii) True,
As per Rule 4(7) of CENVAT Credit Rules, 2004,
CENVAT Credit in respect of input service shall be
allowed on or after the day on which payment is made for the value of input service and the service tax as shown in the invoice.
However, as per Rule 4(1) of CENVAT Credit Rules, 2004, CENVAT Credit in respect of inputs is available as soon as the goods are received in the factory.
The reason for such different treatment is that
- the input supplier can clear the inputs from his factory only after paying the applicable duty irrespective of the time at which he receives the payment against the invoice,
- whereas the input service provider pays the service tax only after he realizes the payment for taxable services as the service tax is due upon realization only.
(iii) False,
As per rule 10 of CENVAT Credit Rules, 2004,
If
® There is a specific provision for transfer of liabilities
of such factory
® the stock of inputs as such or in process, or the capital goods is also transferred along with the factory or business to the new site or ownership and
® the inputs, or capital goods, on which credit has been availed of are duly accounted for to the satisfaction of the Assistant Commissioner or Deputy Commissioner.
Q.4. H. Ltd. Purchased a Boring-Drilling machine at a cum duty price of Rs. 31,80,583. The Excise duty rate charged on the said machine was @ 14%. The machine was purchased on 01.04.2005 and disposed of on 30.09.2007 for a price of 12 lakhs. The company was claiming depreciation @ 25% following Straight Line Method. Using the said information answer the following questions:
(i) What is the Excise duty paid on the machine ?
(ii) What is the Cenvat credit allowable under Cenvat Rules ?
(iii) What is the amount of Cenvat Credit reversible or duty payable at the time of clearance of the said machinery ? [Dec 2002 (CWA)] (8 Marks)
Ans.
(i) Computation of excise duty
(In Rs.)
Cum duty price = 31,80,583
Less – excise duty @ 16.48% (31,80,583 x 14.42/114.42) = 4,00,840
Assessable Value = 27,79,744
Excise duty paid is Rs. 4,00,840
(ii) Cenvat allowable in year 2005-06 = Rs. 2,00,420
In year 2006-07 = Rs. 2,00,420
As per Rule 4(2) of CCR,
50% Cenvat Credit can be availed in Current financial year and balance 50% of Cenvat is allowable only in following financial year, if goods are in possession.
Since the capital goods were in use during the year 2006-07, cenvat of balance 50% is allowable.
(iii) Amount of cenvat credit reversible at the time of clearance of such machinery is Rs. [2,00,420 – 25% of 2,00,420] + [2,00,420 – 15% of 2,00,420] = Rs. 3,20,672
As per Rule 3 (5) of Cenvat Credit Rules, 2004.
When capital goods or inputs on which credit has been taken are removed then the assessee is required to pay an amount equal to cenvat credit availed and such removal shall be made under the cover of an invoice referred to in Rule 11.
Provided that if the capital goods
® on which Cenvat credit has been taken
® are removed after being used
® the manufacturer or provider of output service shall pay an amount equal to the CENVAT Credit taken on the said capital goods reduced by 2.5 per cent for each quarter of a year or part thereof from the date of taking the Cenvat Credit.
Q.5. Discuss the validity or otherwise of the following statement, with reasons:
Inputs cleared as such to a job worker on 1.10.2007 were not returned in 180 days (assessable value being Rs. 20,000, excise duty @ 14.42%). 50% of the inputs were received on 1.4.2008. In this situation, no Cenvat will be allowed in the year ending on 31.3.2008. (May 2007) (3 marks)
Ans. True,
Rule 4(5) of CENVAT Credit Rules, 2004 inetr alia provides that CENVAT credit shall be allowed on inputs or capital goods as such sent to the job worker for further processing, testing etc. if the same are received back in factory of manufacturer within 180 days of their being sent.
Reversal of Credit:
If the inputs or capital goods are not received back within 180 days, manufacturer has to pay an amount equal to the CENVAT credit attributable to such inputs or capital goods.
Re-availment of Credit:
However, the manufacturer can take CENVAT Credit again (which was debited when the said goods were not received) when the inputs or capital goods are received back in the factory or premises.
In the given case, the inputs are received back on 01.04.2008 viz., after the of Rs. 2884 (Rs. 20,000 x 14.42%) allowed earlier will have to be reversed. However, credit of Rs. 1,442 (50% of Rs. 2,884) can be taken again on 01.04.08 since 50% of the inputs sent to the job worker are received back on 01.04.08, though the same cannot be shown in the CENVAT records made for the financial year 2007-2008.
RULE 6
Q.1. XYZ Co. Ltd. Avails CENVAT credit on inputs used in the manufacture of their final product viz. Insulated wires and cables. On 30th January, 1999 , 10,000 meters duly packed and lying in Bonded Store Room inside the factory were destroyed by fire. Excise duty involved on the above is Rs. 22,000. Discuss the following propositions giving reasons.
(i) The company can avoid payment of excise duty liability of Rs. 22,000 on the quantity of wires and cables lost in fire.
(ii) would be required to reverse CENVAT credit available on the inputs contained in the above final product.
Ans. (i) Yes, Co. can avoid payment of excise duty liability on the quantity of wires & cables lost in fire by application of Rule 21 of Central Excise Rules 2002.
It stipulates that –
Where it is shown to satisfaction of proper officer that
(a) goods have been lost or destroyed by natural causes or by unavoidable accident or
(b) are claimed by manufacturer as unfit for consumption or for marketing.
At any time before removal he may remit the duty payable on such goods, subject to such conditions as may be imposed by him by order in writing.
So in given case, company can avoid payment by giving an application along with proof to the proper officer & the proper officer after his satisfaction in accordance with the Rule can exempt the duty liability of company.
(ii) As per new Rule 3(5C ) of CCR, 2004, Reversal of CENVAT credit
> Where on any goods manufactured or produced by an assessee,
> the payment of duty is ordered to be remitted under Rule 21 of the Central Excise Rules,2002,
> the CENVAT credit taken on the inputs used in the manufacture or production of said goods shall be reversed.
Q.2. With reference to Cenvat Credit Rules, 2004, discuss giving reason wether the following statement is true or false:
Credit of duties of excise on inputs will not be available if inputs are used in intermediate product, which is exempt from duty; even though the final product is dutiable.
Ans. False, credit shall be allowed.
As per Rule 6(1) of Cenvat Credit Rules, 2004
CENVAT credit shall not be allowed on quantity of inputs which is used in manufacture of exempted final product. CBEC has clarified that CENVAT credit shall not be denied if the inputs are used in any intermediate product of a dutiable of a dutiable final product, even if such intermediate is exempt from payment of duty.
The basic idea is that Cenvat credit is admissible so long as the inputs are used in or in relation to the manufacture of final products, and whether directly or indirectly.
Q.3. Discuss the provision of the Central Excise Law govering the levy of duties of excise on “captiveconsumption”. You may take the assistance of decided cases. (Nov 1996)(9 Marks)
Similar question asked in May 1996 for 3 marks
Duty is not chargeable on “intermediaries used in manufacture of a final product. Examine the given statement with the help of decided case laws
Ans. Captive consumption
Captive consumption means that goods which are manufactured or produced in a factory are used in further process or for the production of other goods in same factory.
Following are important points in this regard:-
Goods Captively used are chargeable to duty of excise
(1) Duty of excise is to levied on all the goods manufactured or produced in India
Goods which are capable of being sold & known as distinctive commodity are only relevant.
End use of goods whether actually sold/ captively consumed or not does not matter.
A similar decision was given in the case of Amba Lal Sarabhai (SC)
where it was held that test of marketability is also applicable to intermediate product because nothing can be chareable unless commodity falls within the purview of goods and to be goods it is necessary that they are capable of being brought & sold in market.
So goods which are captively consumed are chargeable to duty of excise if are excisable & capable of being sold in market (Moti Laminates).
In view of above reasons it could be said intermediate goods are chargeable to duty of excise
However benefit under Notification No. 67/95
Can be availed by manufacturer which states that intermediate goods are exempted from duty of excise if duty is being charge on final goods in which these are used.
Date of removal
(2) According to Rule 4 of Central Excise Rules, 2002 duty on intermediate goods shall be paid at the time of removal of goods from the factory or warehouse
The date of removal for intermediate goods is the date of issued for further process or for the manufacture of other goods.
Rate of Duty
(3) The rate of duty and tariff valuation shall be of the date on which goods are removed from the factory or warehouse (Rule 5 of Central Excise Rules, 2002).
If any excisable goods are used within the factory for captive consumption, the date of removal of such goods shall mean the date on which the goods are issued for such use (Explanation to Rule 5).
Valuation of goods captively consumed
(4) Also Rule 8 of Central Excise Valuation Rules, 2000 provide for the valuation of intermediate goods i.e, 110% of cost of production.
Conclusion :- The goods used for captive consumption are chargeable to duty of excise if- The goods are marketable & final product is not chargeable to duty.
[ Comments- Meaning of “ Captive Consumption” was not known to many candidates.]
RULE 5
Q.1. Answer briefly in the context of refund of CENVAT credit under Rule 5 of the CENVAT Credit Rules, 2004, the following:
(i) Under what circumstances will the benefit under the Rule be available for inputs or input services?
(ii) How is the manufacturer or provider of the output service allowed to utilize the CENVAT credit in respect of the inputs or input services?
Ans. (i) The benefit under Rule 5 of the CENVAT Credit Rules, 2004 for inputs or input services would be available when the same are used:
(a) in the manufacture of final product which is cleared for export under Bond or Letter of Undertaking, or
(b) in providing output service which is exported.
(ii) The CENVAT Credit in respect of the input or input services shall be allowed to be utilized by the manufacturer or provider of the output service towards payment of:
(a) duty of excise on any final products or
(b) service tax on output service.
Refund og Credit:
□ Where for any reason such adjustment is not possible,
□ the manufacturer or provider of output service shall be allowed refund of such amount.
Q.2. M/s Tips and Toes Ltd, manufactures three types of “Nail Polishes” namely- Sweety, Pretty, Beauty. The company has availed CENVAT credit of Rs. 3,00,000 on the common inputs used in the manufacture of ’Nail Polishes”. During the financial year 1999-2000 the company manufactured 1500 liters of each type of ‘Nail polishes’ The CENVAT availed input was used in equal proportion in all the three types of the product. Calculate the CENVAT credit amount not available or amount payable under CENVAT Rules, using the following additional data:
Product Nature of sale Sale
Sales Tax & Other local taxes
Sweety Sale
Consumption bottle
Pretty Sold to a100% Rs. 40 per 20 ml
EOU bottle
Beauty Fully exported Rs. 50 per 20 ml
Bottle
[June 2001 (CWA)] (6 marks)
RULE 9
Q.1. With reference to CENVAT credit rules, 2004 discuss giving reason whether the following statement are true or false: (May 2005) (Compulsory)(2 x 4 = 8 marks)
(i) Credit of duties of excise on inputs can be availed irrespective of whether payments is made or not against the invoice, whereas credit of service tax on input services can be availed only after making payment of the invoice.
(ii) An input service distributor is comparable to dealers under the CENVAT Scheme of inputs and capital goods.
(iii) The manufacturer shall not be allowed to transfer unutilized input credit in case of transfer of ownership of the factory by way of sale along with the inputs and capital goods.
Ans. (i) True,
As per Rule 4(7) of Cenvat Credit Rules, 2004 credit of service tax can be taken only when payment of input service and the service tax has been paid while as per Rule 4(1) of the said Rules credit on inputs can be taken immediately on receipt of inputs, the payments being irrelevant.
(ii) True,
As dealers can distribute the credit, similarly input service distributor can distribute the credit. Credit can be taken on the basis of invoice issued by both of them.
(iii) False,
Rule 10 of Cenvat Credit Rules, 2004 Specifically allows transfer in such case if the conditions specified in the Rule are satisfied.
Q.2. What are the various documents on the strength of which Cenvat Credit can be taken under CCR, 2004? (Nov 2002)(Nov 1998)(May 2001)(Nov 2000) (Nov 2002)(5 marks)
Ans. Refer Rule 9 of CCR, 2004
Q.3. Outline the procedure to be followed by a manufacturer, who intends to take cenvat credit on duty paid inputs, under the Cenvat Credit Rules, 2004. (May 1996)(5 marks)
Ans. The following procedure is to be followed for the availment of CENVAT credit in respect of inputs and capital goods.
[1] Registration
The manufacturer has to get himself registered with the excise authorities.
[2] Time of availment of duty
The CENVAT credit in respect of eligible inputs can be taken immediately on receipt of inputs. The CENVAT credit in respect of capital goods at any point of time can not exceed 50% of duty in the year of receipt & balance can be taken in any subsequent year.
[3] Document
The credit can be taken on basis of document specified under Rule 9 of CCR.
[4] Maintenance of Records
The manufacturer shall maintain proper CENVAT Credit Register for the receipt, disposal, consumption and inventory of inputs and capital goods in which relevant information of the value, the duty paid by the person from the input or capital goods have been purchased is recorded.
[5] Obligation of Manufacturer
The manufacturer taking CENVAT credit on inputs or capital good shall take steps to ensure that or capital goods in respect of which he has taken credit are goods on which appropriate duty as indicated in documents has been paid
Explanation – The manufacturer or producer or producer taking CENVAT credit on inputs or capital goods received by him shall be deemed to have taken reasonable steps if he satisfies himself about the identity and address af the manufacturer or supplier.
[6] Monthly Return
The manufacturer of final products shall submit with in 10 day from the end of each month to the superintendent of central excise, a monthly return as specified.
[7] Burden of proof
The burden of proof for admissibility of CENVAT credit is on the manufacturer.
Q.4. State whether each of the following statements is correct or wrong with reference to the Excise Act/ CENVAT. [Dec 1998(CWA)(9 marks)
(i) There must be ‘one to one’ correlation between input and output in order to avail CENVAT
(ii) CENVAT is not available on manufactured tobacco products
(iii) Rule 4 deals with removal of input for job Work
(iv) List of capital goods eligible for CENVAT have been specified under Rule 2
(v) Moulds and dies are eligible for CENVAT under Rule 2
(vi) Invoice shall be in quadruplicate and credit shall be available on duplicate copy.
(vii) Credit can be availed in respect of additional duty (CVD) paid on imported inputs.
(viii) Special audit of CENVAT credit can be ordered by Chief CCE under Section 14AA.
Ans.
(i) Wrong, no one to one correlation is required to avail cenvat.
(ii) Wrong, Cenvat is available on manufactured tobacco product.
(iii) Correct, Rule 4(5) contains provisions for allowance of credit on goods sent for job work.
(iv) Correct, list of capital goods is specified under Rule2.
(v) Correct, moulds and dies are eligible for cenvat as they are covered by definition of capital goods.
(vi) Wrong, invoice should be in triplicate and credit can be taken on any copy of invoice.
(vii) Correct Cenvat can be availed of CVD paid on imported inputs under Rule 3.
(viii) Correct special audit u/s 14 AA can be ordered by chief CCE.
