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Changes in Cenvat Credit Rules, 2004 (“the Credit Rules”) vide Notification No. 13/2016-Central Excise (N.T) dated March 1, 2016

Relevant Rule Particulars
Rule 2(a) Definition of ‘capital goods’:

  • 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;
  • 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.
Rule 2(e) Definition of ‘exempted service’:

  • 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 domestic shipping lines to take credit on inputs and input services used in providing the said services.
Rule 2(k) Definition of ‘inputs’

  • All capital goods having value up to ₹ 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.
Rule 4
  • 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;
  • Rule 4(6): The validity of 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 extended from a financial year to 3 financial years;
  • Rule 4(7):Cenvat credit of Service tax paid on amount charged for assignment by Government or any other person of a natural resource such as radio-frequency spectrum, mines etc. shall be spread over the period of time for which the rights have been assigned.
Rule 6 Revamp changes in Rule 6 of Credit Rules providing for reversal of Cenvat credit in respect of inputs and input services used in manufacture of exempted goods or for provision of exempted services, on following broad principles :

  • Option 1 – The assessee can pay an amount equal to 6% of value of the exempted goods and 7% of value of the exempted services. This amount will be capped at a maximum of the total credit taken with the assessee at the end of the period to which the payment relates;
  • Option 2 – Pay an amount as determined under Rule 6(3A) Formula. Cenvat credit on common inputs/input services is to be identified and the same is to be apportioned based on the exempted/dutiable turnover as only proportionate Cenvat credit on common inputs/input services will be allowed;
  1. No Cenvat credit will be allowed on inputs/input services used exclusively in the manufacture of exempted goods / services;
  2. Full credit is allowed on the inputs/input services used exclusively in the manufacture of dutiable goods / taxable service;
  3. 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;
  4. Final reconciliation and adjustments are provided for after close of financial year by 30th June of the succeeding financial year, as provided in the existing Credit Rules
  • No Cenvat credit on capital goods used for the manufacture of exempted goods or provision of exempted service for 2 years from the date of commencement of commercial production/date of installation or provision of service.
  • Explanation 3 to substituted Rule 6(1) of the Credit Rules provides that for the purpose of Rule 6of the Credit Rules, ‘exempted services’ asdefined in Rule 2(e) of the Credit Rules shall include an activity, which is not a ‘service’ as defined in Section 65B(44) of the Finance Act.
Rule 7 Distribution of Cenvat credit by Input Service Distributor (“ISD”)

  • Credit can be distributed to outsourced manufacturing unit – Outsourced manufacturing unit means job-worker paying duty under 10A of Central Excise Valuation (Determination of Price Of Excisable Goods) Rules, 2000 or contract manufacturer paying under Section 4A of the Central Excise Act, 1944;
  • Credit common to more than one unit to be distributed to respective unit;
  • Credit common to all units to be distributed to all the units;
  • Credit on services with ISD upto March 31, 2016 not to be distributed to outsourced manufacturing unit
Rule 9(a)(i) Invoice issued by a service provider for clearance of inputs or capitals goods shall also be a valid document for availing Cenvat credit
Rule 9A Annual return by a manufacturer of final products or provider of output services for each financial year to be filed by the 30th day of November of the succeeding year in the form as specified by a notification by the Board
Rule 14(2) FIFO method for determining whether a particular credit has been utilized 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.

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