Circular No.943/04/2011-CX
New Delhi, 29
th
April 2011
F.No.354/73/2011 -TRU
Government of India
Ministry of Finance
Department of Revenue
Tax Research Unit
To
The Chief Commissioners of Central Excise and Service Tax (All),
The Director General (All),
The Commissioners of Service Tax (All),
The Commissioners of Central Excise and Service Tax (All).
Madam/Sir,
Sub: Clarification on issues relating to CENVAT Credit Rules 2004- Regarding.
The CENVAT Credit Rules 2004 were amended along with the Budget 2011 announcements vide Notification 3/2011-CE (NT)
dt 1.3.2011. A few changes were further effected vide Notification 13/2011-CE (NT) dt 31.3.2011. On a few issues trade has
requested for clarity. Accordingly the following clarifications are presented issue wise in a tabular format.
S.No. Issue Clarification
1
Can credit of capital goods be
availed of when used in
manufacture of dutiable goods
on which benefit under
Notification 1/2011- CE is
availed or in provision of a
service whose part of value is
exempted on the condition that
no credit of inputs and input
services is taken?
As per Rule 6(4) no credit can be availed on capital goods used exclusively in
manufacture of exempted goods or in providing exempted service. Goods in respect of
which the benefit of an exemption under notification No. 1/2011-CE, dated the 1st
March, 2011 is availed are exempted goods [Rule 2(d)]. Taxable services whose part of
value is exempted on the condition that no credit of inputs and input services, used for
providing such taxable service, shall be taken, are exempted services [Rule 2(e)].
Hence credit of capital goods used exclusively in manufacture of such goods or in
providing such service is not allowed.
2
Is the credit of only specified
goods and services listed in the
definition of inputs and input
services not allowed such as
goods used in a club, outdoor
catering etc, or is the list only
illustrative?
The list is only illustrative. The principle is that cenvat credit is not allowed when any
goods and services are used primarily for personal use or consumption of employees.
3
How is the "no relationship
whatsoever with the
manufacture of a final product"
to be determined?
Credit of all goods used in the factory is allowed except in so far as it is specifically
denied. The expression "no relationship whatsoever with the manufacture of a final
product" must be interpreted and applied strictly and not loosely. The expression does
not include any goods used in or in relation to the manufacture of final products whether
directly or indirectly and whether contained in the final product or not. Only credit of
goods used in the factory but having absolutely no relationship with the manufacture of
final product is not allowed. Goods such as furniture and stationary used in an office
within the factory are goods used in the factory and are used in relation to the
manufacturing business and hence the credit of same is allowed.
4
Is the credit of input services
used for repair or renovation of
factory or office available?
Credit of input services used for repair or renovation of factory or office is allowed.
Services used in relation to renovation or repairs of a factory, premises of provider of
output service or an office relating to such factory or premises, are specifically provided
for in the inclusive part of the definition of input services.
5
Is the credit of Business
Auxiliary Service (BAS) on
account of sales commission
now disallowed after the
deletion of expression
"activities related to business"?
The definition of input services allows all credit on services used for clearance of final
products upto the place of removal. Moreover activity of sale promotion is specifically
allowed and on many occasions the remuneration for same is linked to actual sale.
Reading the provisions harmoniously it is clarified that credit is admissible on the
services of sale of dutiable goods on commission basis.
6
Can the credit of input or input
services used exclusively in
trading, be availed?
Trading is an exempted service. Hence the credit of any inputs or input services used
exclusively in trading cannot be availed.
7
What shall be the treatment of
credit of input and input
services used in trading before
1.4.2008?
Trading is an exempted service. Hence credit of any inputs or input services used
exclusively in trading cannot be availed. Credit of common inputs and input services
could be availed subject to restriction of utilization of credit up to 20% of the total duty
liability as provided for in extant Rules.
8
While calculating the value of
trading what principle to follow-
FIFO, LIFO or one to one
correlation?
The method normally followed by the concern for its accounting purpose as per generally
accepted accounting principles should be used.
9
Are the taxes and year end
discounts to be included in the
sale price and cost of goods
sold while calculating the value
of trading?
Generally accepted accounting principles need to be followed in this regard. All taxes
for which set off or credit is available or are refundable/ refunded may not be included.
Discounts are to be included.
10
Does the expression "in or in
relation" used in Rule 6 override
the definition of "input" under
Rule 2(k) for determining the
eligibility of Cenvat credit?
The definition of "input" is given in Rule 2(k) and Rule 6 only intends to segregate the
credits of inputs used towards dutiable goods and exempted goods. While applying
Rule 6, the expression "in or in relation" must be read harmoniously with the definition of
"inputs".
11
Sub-rules 3B and 3C of rule 6
apply to whole entity or
independently in respect of
each registration?
The sub-rules 6(3B) and 6(3C) impose obligation on the entities providing banking and
financial services (in case of a bank and a financial institution including a non-banking
financial company) or life insurance services or management of investment under ULIP
service. The obligation is applicable independently in respect of each registration.
When such a concern is exclusively rendering any other service from a registered
premises, the said rules do not apply. In addition to BoFS and life insurance services if
any other service is rendered from the same registered premises, the said rules will
apply and due reversals need to be done.
12
Is the credit available on
services received before 1.4.11
on which credit is not allowed
now? e.g. rent-a-cab service
The credit on such service shall be available if its provision had been completed before
1.4.2011.
2. Trade and Industry as well as field formations may be suitably informed.
3. Receipt of this Circular may kindly be acknowledged.
4. Hindi version will follow.
Yours faithfully,
(Shobhit Jain)
OSD, TRU
