Ca final Exam Capsule Practical Questions May 14

5/24/2018 Ca final Exam Capsule Practical Questions May 14

1/98

Exam Capsule

Indirect

TaxesVolume 2Topics Covered

Volume 1 - Case LawsVolume 2 - Cenvat Credit

Excise Valuation

Custom Valuation

VAT

Amendments (Please bring RTP)


2/98

CONCEPTS IN CENVAT CREDIT

Duties for which credit is available Rule 3(1)Central Excise Customs Service Tax

Basic Excise DutyNote - Credit is notavailable for the dutypaid on goods coveredunder Notification No.1/2011 and at entryNo. 67 and 128 ofnotification No.12/2012.

Additional Custom duty undersection 3(1) of the CTANote If a vessel is brought to Indiafor breaking than Credit is availableonly for 85% of the duty.

Service Tax

Special Excise Duty Special Additional custom Dutyunder section 3(5) of the CTA

(Note If the assessee is a serviceprovider, he cannot avail credit forthis duty)

Special Excise Duty onGoods of SpecialImportance

Special Excise Duty onTextile and TextileArticles

National CalamityContingency Duty

Addl. Excise duty u/s157 of Finance Act 93

Addl. Excise Duty u/s85 of Finance Act 95

Education cess Not allowed Education Cess

SHES Not allowed SHESNotes-

1. The assessee can avail cenvat credit only when he is having possession ofthe goods. (Rule 4)

2. Rule 9 provides that the assessee can avail cenvat credit only on the basis ofspecified documents and documents should be in his possession. (Refer Rule9 for details)

3. Credit can always be availed for the amount shown of duty/tax shown in thedocument on the basis of which credit is being taken irrespective of the factthat payment has not been made or only part payment is made or partpayment itself is made as full and final payment.

4. If the quantity of goods actually received is less than the quantity referred inthe documents then credit shall be availed for proportionately less amountbut where quantity is more than mentioned in the documents, credit cannotavailed for excess quantity.Example 1 Quantity mentioned 1000 Liters and Duty Rs. 10,000Quantity received 990 liters

Cenvat Credit shall be taken only for Rs. 9900/-Example 2 Quantity mentioned 1000 Liters and Duty Rs. 10,000March 2014Quantity received 1010 liters


3/98

Cenvat Credit shall be taken only for Rs. 10,000/-

5. Combined reading of Rule 4 and 9 provides that the credit cannot be availedunless goods and documents, both are in possession of the assessee.

Therefore, where goods and documents are received by the assessee ondifferent dates then credit cannot availed earlier than later date.

Example Date of purchase 20thJanuary 2014Date of receiving the goods 28th February 2014Documents received on 3rd March 2014In this case credit cannot be availed before 3rd March 2014

6. The assessee is required to maintain a CENVAT credit register. This registeris not considered as Books of Account and there is no prescribed format forthis register.

7. When assessee makes a credit entry in the register, it is referred as Credittaken or availed and when a debit entry is made, it means credit is utilized

or reversed, as the case may be.

Question - M/s. RC imported some inputs and paid Basic Customs Duty Rs5 lakhs, surcharge on customs duty Rs. 50,000 and CVD Rs 1 lakh.Calculate the amount that he can claim as CENVAT credit. Would it makeany difference, if the assessee is not a manufacture, but a service provider?Answer - M/s RC can take credit of Rs. 1,00,000 i.e. of additional duty ofcustoms (CVD). Rule 3(1) of CCR allows credit of additional duty of customsimposed under section 3 of CTA. The credit of other two duties i.e. BCD and

surcharge on custom duty is not allowed.

It will not make any difference if the assessee is a service provider as credit ofadditional duty of customs (CVD) can be availed both by manufacturers and theservice providers alike but credit of CVD u/s 3(5) will not available to a serviceprovider.

How CENVAT Credit can be used?

Rule 3(4) Subject to these restrictions, CENVAT credit can be utilised for

a. Payment of excise duty and service tax

b. Reversal of credit on removal of capital goods and inputs under Rule 3(5),

3(5A), 3(5B) and 3(5C) of the CCR

c. Reversal of credit under 16 of CER

Credit can be utilised for discharging liability of central excise duty and service

tax but other than payment of interest and penalty. Custom duty cannot be paid

through credit.

Credit can be utilised only upto the extent it is actually available at the end of themonth or quarter for which duty is payable. (Credit availed in the current month

or quarter cannot be utilised for discharging earlier liability)


4/98

Credit for EC and SHES can be utilised for discharging respective liability and not

for any other purpose. However, EC and SHEC can be paid out of credit of EC and

SHEC respectively or out of other credits excluding credit of NCCR or in csh.

NCCD can be paid either through credit of NCCD or in cash and credit of NCCD

cannot be utilised for any other purpose.

Credit of SACD u/s 3(5) of CTA cannot be utilised for paying service tax.

Clean Energy Cess cannot be paid out ofCENVAT credit.

Excess credit is allowed to be carried forward without any time limit but is not

refundable in cash except under Rule 5, 5A and 5B.

Question: Whether service tax credit availed on input service during the period 01.01.2013to 04.01.13 can be utilized to pay service tax on the output service for the month/quarterending 31st December 2012 which is due for payment on 05.01.2013?

Answer: Cenvat Credit can be utilised only upto the extent it is actually available at the end of

the month or quarter for which duty is payable. (Credit availed in the current month or quarter

cannot be utilised for discharging earlier liability). Therefore, in the given case, credit availed on

input service during the month of January 2013 cannot utilized to pay service tax payable on the

output services for the month or quarter ending 31st March 2012.

Question: In case of arrears of duty related to a past period, demanded under section 11Aof the Central Excise Act, 1944, whether the manufacturer can utilize cenvat credit forpayment of such arrears, even if such credit accrued to him after the related period?

Answer: As per Cenvat Credit Rules, 2004 Cenvat Credit can be utilised only upto the extent it isactually available at the end of the month or quarter for which duty is payable. (Credit availed inthe current month or quarter cannot be utilised for discharging earlier liability). This duty

represents amount of duty assessed by the assessee himself and paid under Rule 8 of the CentralExcise Rules, 2002. Amount of duty demanded under section 11A of the Central Excise Act, 1944is not the same duty as payable under section 11A of the Central Excise Act, 1944. Therefore, themanufacturer can utilize cenvat credit for payment of such arrears, even if such credit accrued tohim after the related period. (Circular No. 962/05/2012 CX Dt. 28.03.2012)


5/98

CENVAT credit on capital goods Rule 4(2) - 4(4)

Rule 2(a)"capital goods" means:-

(A) the following goods, namely:-

(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90,

heading 6805, grinding wheels and the like, and parts thereof falling

under heading 6804 of the First Schedule to the Excise Tariff Act;

(ii) pollution control equipment;

(iii) components, spares and accessories of the goods specified at (i) and (ii);

(iv) moulds and dies, jigs and fixtures;

(v) refractories and refractory materials;

(vi) tubes and pipes and fittings thereof;(vii) storage tank and

(viii) motor vehicles other than those falling under tariff headings 8702,

8703, 8704, 8711 and their chassis, but including dumpers and tippers

used-

(1) in the factory of the manufacturer of the final products, but does not include

any equipment or appliance used in an office; or

(1A) outside the factory of the manufacturer of the final products for generation of

electricity for captive use within the factory; or(2) for providing output service;

(B) motor vehicle designed for transportation of goods including their chassis registered

in the name of the service provider, when used for-

(i) providing an output service of renting of such motor vehicle; or

(ii) transportation of inputs and capital goods used for providing an output

service; or

(iii) providing an output service of courier agency

(C) motor vehicle designed to carry passengers including their chassis, registered in the

name of the provider of service, when used for providing output service of-

(i) transportation of passengers; or(ii) renting of such motor vehicle; or

(iii) imparting motor driving skills

(D) components, spares and accessories of motor vehicles which are capital goods for the

assesse.

Question: Define the term Capital Goods within the meaning of the CENVAT Credit

Rules, 2004.


6/98

Availing the Credit Rule 4(2), 4(3) and 4(4) A manufacturer/service provider can avail cenvat credit on capital goods provided the capital

goods are not going to be used exclusively for manufacture of exempted goods or providingexempted services. It means full credit is allowed even where capital goods are used partly forexempted goods/Services and partly for taxable services/dutiable goods.

A manufacturer can avail credit on capital goods only when goods have been received in thefactory.

If the capital goods relate to generation of electricity then credit is available even if goods arenot received in the factory.

In case of a service provide, it is sufficient that the goods are received by him at any place butthe receipt of such goods shall be supported through documentary evidence regarding placeand time of delivery of goods.

Credit can be availed only when goods as well as the documents on the basis of which creditcan be availed, both are available. Therefore, if these two are received on different dates, thencredit can be availed not before the later date.

During the first financial year in which capital goods are received

a. an assessee availing SSI exemption is entitled to avail full credit for all the dutiesimmediately

b. for any other assessee, credit is restricted to 50%. (0% to 50%)

Balance credit (50% to 100%) can be availed in any of the subsequent financial yearsprovided the goods are in possession of the assessee. However, certain capital goods, ifconsumed within the factory or at the place of the job-worker are always deemed to be inpossession for the purpose of CENVAT credit.

It is also to be noted that the credit for Special Additional Custom Duty chargeable undersection 3(5) of the Custom Tariff Act is available to the extent of 100% during first yearitself.

Note If capital goods are removed during the first financial year in which those arereceived than instead of 50%, the assessee is authorised to avail 100% CENVAT creditduring first financial year itself.

Credit on capital goods can be availed even if those are acquired on lease or hire-purchasebasis from a finance company. For availing credit, possession is more important thanownership

In case of service provider, this will not be applicable for motor vehicles because, on motorvehicles, a service provider can avail CENVAT credit only if the vehicle is registered in thename of service provider.

Credit can be availed for that part of duty which has not been capitalized i.e.it is notdepreciated.

Assessee can avail cenvat credit even if he has not paid for capital goods or he has paid onlypartly or he has made part payment as full payment.

Question:. India Cements Limited is engaged in the business of manufacturing cement.For this purpose, limestone is excavated from a mine which is situated at a distance offew kilometers from the plant where the cement is manufactured. The mine is connectedto the main plant through a ropeway. Explosive are used for blasting the mine toexcavate limestone. Can CENVAT credit be taken on such explosives?

OrABC Limited is a cement manufacturer. The company used ropeway system for bringingcrushed lime stone from the mines located 4-5 kilometers away from the factory. A partof the ropeway system was installed in the factory.


7/98

ABC Limited availed cenvat credit on the ground that ropeway is used for transportingraw material from the mines to the factory and cannot be considered as MaterialHandling System within the factory premises. Examine with the help of decided case law,whether the stand taken by the Department is correct.Answer:The facts in the given case are similar to the case of Malabar Cements Limited(2008) [Ker]. In this case, the High Court decided that the ropeway connecting the

factory with the mines is to be considered as a part of factory. Therefore, in the givencase, the assessee is entitled to avail cenvat credit on the parts used in ropeway system.

M/s Solid Cement Ltd is engaged in the manufacture of cement. Explosive are used forblasting the mines in order to excavate limestone, which is used in the manufacture ofCement/clinkers in the factory situated at some distance away from the mines. Cenvatcredit on explosives has been denied by the excise department of the ground that theexplosives are not used as inputs within the factory of production. You are required toadvise with reference to CENVAT Credit Rules 2004 whether the stand taken by thedepartment is correct.

Question:Tanco Products Ltd. was using plastic crates as a material handling devicewithin their factory premises. Such plastic crates were used for internal transportationof 'the raw material from stores to the processing machine, semi-finished goods fromone machine to other machine and finished goods to their storage area. The appellantcontended that the plastic crates were eligible capital goods for the purposes ofCENVAT credit and alternatively as input. Department rejected the assessee's claim ofCENVAT credit in respect of the duty paid on such plastics crates. Explain with thehelp of a decided case law, if any , whether the stand taken by the department issustainable in law.

Removal of capital goods on which credit has been availed

Removal as such Rule 3(5)

Where capital goods, on which CENVAT credit has been availed are removed as suchthan the entire credit available on such goods shall be reversed immediately. However, ifthe assessee has not availed full credit, he is authorised to avail balance credit beforemaking reversal.

This requirement will not be applicable where capital goods are removed for providing

service outside.

Question - H. Ltd. Purchased a Boring-Drilling machine at a cum duty price of Rs.32,14,476. The Excise duty rate charged on the said machine was @ 16%. Themachine was purchased on depreciation @ 25% following Straight Line Method.Using the said information answer the following question:

(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 ofclearance of the said machinery, If removed as such?

Answer Computation of duty, assessable value and CENVAT credit


8/98

Cum-duty Price 3214476

Excise Duty @ 16.48% (3212476 X 16.48 / 116.48) 454795

Assessable value 2759681

CENVAT Credit allowable during first Financial year 50% 227397

Balance credit allowable in any subsequent financial year 50% 227398

Credit Reversible 100% 454795

Working notes

1. As per Rule 4(2) of CCR, CENVAT credit is limited to the extent of 50% during thefinancial year in which capital goods are received and balance can be availed in any ofthe subsequent financial years , if the capital goods are in possession.

2. As per Rule 3(5), if capital goods are removed as such, 100% of the credit availableshall be reversed and as per Rule 4(2), in case of such reversal, the assessee is

authorised to avail balance credit also in the first financial year itself.

Removal after use - Rule 3(5A)In case of removal of capital goods after partial use, the assessee is authorised to retainprescribed amount of cenvat credit and balance credit shall be reversed.

For the purpose of this rule, capital goods have been divided into two categories i.e.computer and peripheral and all other capital goods.

Percentage of Credit that can be retained by the assessee

Computer and peripherals Other capital goods

1st year for every threemonths or part

10%

For every 3months or partthereof

2.5 %2nd year for every threemonths or part

8%

3rd year for every threemonths or part

5%

4th and 5th year - for everythree months or part

1%

The period of three months is to be counted from the date on which credit is availed.

Note: If amount of duty payable on transaction value is higher than the amount ofCENVAT credit reversible, as calculated above, then such higher amount of duty shall bepayable.

Removal of capital goods as Waste and Scrap Rule 3(5A)

If capital goods are removed as waste and scrap, then duty is payable on transactionvalue.

Question 1: ABC Limited purchased a pollution control equipment for Rs.15,14,240 which is inclusive of excise duty @ 16% plus education cess andsecondary and Higher Education Cess. The equipment was purchased on


9/98

01.09.2010 and disposed off as second hand equipment on 10.10.12 at a price ofRs. 12,00,000. Rate of excise duty on the date of disposal is 12% + EC + SHEC.

You are required to compute the amount of cenvat credit available during thefinancial year 2010-11 and during 2011-12.

What is the amount of duty payable or cenvat credit reversible at the time ofremoval of those goods.

Answer:

2010-2011 2011-12

CENVAT creditavailed on 1.09.10(50%)

1,07,120 Cenvat Creditavailed on01.04.2011

1,07,120

Date of removal 10.10.2012 Date of removal 10.10.2012

Period since availing

the credit

2 years 1 month

and 10 days = 9quarters

Period since availing

the credit

1 year 6 months

and 10 days = 7quarters

Credit allowed to beretained @ 2.5% forevery 3 months orpart (9 X 2.5 =22.5)

22.5% Credit allowed to beretained @ 2.5% forevery 3 months orpart (7 X 2.5 =17.5)

17.5%

Amount of Cenvatcredit to be retained

24,102 Amount of Cenvatcredit to be retained

18,746

Amount of cenvatcredit to be reversed

83,018 Amount of cenvatcredit to be reversed

88,374

Total reversals required as per ratesprescribed (83,018 + 88,374)

1,71,392

Amount of duty on Rs. 12,00,000 @12.36%

1,48,320

Since amount of cenvat credit required to be reversed as per prescribed rates is morethan the amount of duty computed on transaction value @ 12%, higher of the two ispayable/reversible i.e. Rs. 1,71,392

Question 2:

H Ltd. purchased a Boring-brilling machine at a cum-duty price of Rs. 32,14,476.The Excise duty rate charged on the said machine was @ 16% +EC+SHEC. Themachine was purchased on 01.04.2011 and disposed of on 30.09.2012 for a priceof Rs. 12 lakhs. The company was claiming depreciation @ 25% following StraightLine 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 ofclearance of the said machinery

Answer:

1. According to Rule 4(4), the assessee can either claim depreciation on the amount ofduty or CENVAT credit.


10/98

2. The assessee is always authorised to claim depreciation for the value of goodsexcluding amount of duty for which CENVAT credit is claimed. This depreciation onthe value of goods does not affect right of the assessee to claim CENVAT credit for theamount of duty paid on machine.

3. According to Rule 4(2), CENVAT credit on capital goods is limited to 50% during firstfinancial year in which goods are received and balance credit can be availed in any of

the subsequent financial years.

4. According to Rule 3(5A), if goods are removed after partial use, the assessee isentitled to retain 2.5% of the total credit for every three months or part thereof andbalance credit shall be reversed.

Calculation of Excise duty, CENVAT credit and reversal

Cum duty price 32,14,476

Assessable Value 3214476 x 100/116.48 27,59,681

Excise duty including EC and SHEC 3% of duty 4,54,795

Availability of Cenvat creditDuring first year -50% of Rs. 454795 2,27,398

During subsequent year remaining 50% Of Rs. 454795 2,27,397

Credit ofECavailable only on payment of EC

Cenvat credit reversible at the time of clearance

Cenvat Credit availed in year 11-12 Rs. 2,27,398

Less: 2.5% per quarter for 6 quarters-15% 34410 1,93,288

Cenvat Credit availed in year 12-13 2,27,397

Less : 2.5% per quarter for 2 quarters 11371 2,16,027

Total amount of CENVAT credit reversible / payable at the time of clearance 4,09,315

Question: Solidmec Limited purchased 25 computer systems, eligible for capitalgoods under the Cenvat Credit Rules, 2004 on 01.07.2010 by paying a duty of Rs.2400/- on each computer system. However, since these systems became outdated,it sold 20 computer systems out of 25 on 30.06.2012 at a residual value of Rs.2000 each. Determine the amount of cenvat credit required to be reversed duringthe financial year 2012-13.

Answer: Since only 20 systems are disposed off by the assessee, the computation ofcenvat credit will be only in relation to those 20 systems.

2010-2011 2011-12

CENVAT creditavailed on 1.07.10on 20 computersystems (50%)

24,000 Cenvat Creditavailed on01.04.2011 on 20computer systems(50%)

24,000

Date of removal 30.06.2012 Date of removal 30.06.2012

Period since availingthe credit

Period since availingthe credit

Credit allowed to be Credit allowed to be


11/98

retained @ 2.5% forevery 3 months orpart (9 X 2.5 =22.5)

retained @ 2.5% forevery 3 months orpart (7 X 2.5 =17.5)



Amount of cenvatcredit to be reversed Amount of cenvatcredit to be reversed

Total reversals required as per ratesprescribed

Amount of duty on Rs. 12,00,000 @12.36%

Problem for Practice

1. An assessee had procured machinery in April 2011 for Rs 10 lakhs by paying duty ofRs 1,60,000. It was commissioned in June 2011. Assessee had availed 50% Cenvatcredit of Rs 80,000 in 20011-12, and Rs 80,000 (balance 50% credit) in 2012-13. Hesold the capital goods after use, on 10th April 2103 as second hand goods for Rs3,00,000. How much excise duty or amount is payable while clearing the machinery?

2. Machinotech Ltd. purchased a lathe machine at a price ofRs. 1,00,000 on which 16%Excise duty was paid and the company availed of the Cenvat credit on the said capitalgoods. The lathe machine was purchased on 27-01-2010 and it was disposed of on 29-04-2011. How much CENVAT credit and when it can be availed by the assessee. Is itnecessary to reverse the cenvat credit on disposal of the machine? If your answer is yes,quantify the amount.

Goods written off in the books of account Rule 3(5B)

Where any capital goods are written off, partially or fully or a provisions is made for thesame, in the books of account prior to being put to use, then entire credit availedthereon shall be reversed and if such goods are utilised again at any time in future, thencredit can be availed once again.

Sending out for repairs, maintenance etc. Rule 4(5)

If capital goods on which credit has been availed are required to be sent outside forgetting those repaired, it requires prior approval of AC/DC and the approval is givensubject to the condition that the goods shall be received back within 180 days otherwisethe assessee shall reverse the credit and he can avail the credit once again on goodsbeing received back.


12/98

Sending out for providing service

There is no provision to regulate the time within which capital goods sent outside forproviding service shall be received back.


13/98

Credit on Inputs

Rule 2(k) input means

(i) all goods used in the factory by the manufacturer of the final product; or

(ii) any goods including accessories, cleared along with the final product, the value

of which is included in the value of the final product and goods used for

providing free warranty for final products; or

(iii) all goods used for generation of electricity or steam for captive use; or

(iv) all goods used for providing any output service; but excludes-

(A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol;

(B) any goods used for -

(a) construction or execution of works contract of a building or a civil

structure or a part thereof; or

(b) laying of foundation or making of structures for support of capital goods,

except for the provision of service portion in the execution of a works contract or

construction service as listed under clause (b) of section 66E of the Act;

(C) capital goods except when used as parts or components in the manufacture of a

final product;

(D) motor vehicles;

(E) any goods, such as food items, goods used in a guesthouse, residential colony,

club or a recreation facility and clinical establishment, when such goods are usedprimarily for personal use or consumption of any employee; and

(F) any goods which have no relationship whatsoever with the manufacture of a final

product.

Explanation. For the purpose of this clause, free warranty means a warranty

provided by the manufacturer, the value of which is included in the price of the final

product and is not charged separately from the customer;


14/98

Question: SC Ltd is a manufacturer of caustic soda, cement etc. It uses LSHS (Lowsulphur heavy stock) as fuel for generating electricity which in turn is captivelyconsumed for the manufacture of final products. It has been claimed CENVAT Credit onthe reasoning that this is used in relation to manufacture of final products and hencethis is input. However the department did not allow the credit as LSHS has been used togenerate electricity which is not excisable and hence cannot be considered as input used

as fuel.State with reason whether the action taken by the department is covered by the CENVATCredit Rules 2004.

Availing credit on inputs Rule 4(1)

A manufacturer can avail full cenvat credit on inputs as soonas goods are received by him in the factory. However, if theinputs are related to generation of electricity then cenvat creditis available even when such goods are received by the assesseeoutside the factory.

Rule 8 of CCR Depending on nature of goods or shortage ofspace in the factory, on such terms and conditions as theCommissioner deems fit, he may authorise storage of inputsoutside the factory in a warehouse and to avail credit thereonin the factory. The place where inputs are allowed to storedoutside the factory shall be treated as a factory for the purposeof CENVAT credit.

A service provider can avail

full cenvat credit on inputsas soon as inputs arereceived by him at any place.The receipt of inputs shall besupported by documentaryevidence regarding time andplace of delivery of goods.

Cenvat credit shall be availed only for the quantity actually received.(a) If the quantity actually received is more than the quantity referred in the documents on

the basis of which credit is to be availed then the credit is to be availed for the quantityreferred in the documents.

(b) If the quantity actually received is less than the quantity referred in the documents on thebasis of which credit is to be availed then the credit is to be availed for the quantityactually received.

(c) If any quantity of input is stolen or pilfered or wasted before being put to use then cenvat

credit availed on such quantity shall be reversed.

A manufacturer/service provider can avail cenvat credit on inputs provided the inputs are notgoing to be used exclusively for manufacture of exempted goods or providing exempted output

services.

Assessee can avail cenvat credit even if he has not paid for inputs goods or he has paid onlypartly or he has made part payment as full payment.

Question: The assessee is engaged in the manufacture of various types of packagingmachines known as F & S machines. The machines are made to order according to thespecifications of individual customer and such machines, before dispatch, are to be testedfor customers satisfaction. On being satisfied by the customer, the makes entre in theRG-1 register (DSA) declaring the machined is manufactured and ready for clearance. Forthe proper testing, assessee procures flexible laminated plastic fill in roll form and polypaper (termed as inputs) which are excisable, and were used for testing, turning andadjusting carious parts of F & S Machine. Assessee filed a declaration and availed thebenefit of Cenvat Credit for the duty paid on the said inputs. Department contended that


15/98

the said material was used only for testing and as such, they cannot considered as inputsfor manufacturing final product. Further, the Department opined that testing takes placeonly after manufacturing final product and any goods used in the process aftermanufacturing cannot be treated as inputs under rule 2(k) of the Cenvat Credit Rules,2004. Assessees contention is that the manufacturing process would be completed onlyafter the testing and as such inputs are used in or in relation to the manufacturing andthat the input need not be present in the final product and, therefore, they have a right to

claim the cenvat credit.Answer:

Facts In the case of Flex Engg. Ltd. Vs. CCEx., 2012 (SC) the Assessee claimed credit for the

material used during testing of machine manufactured by it. Manufacture of machine is complete

only after testing.

Dispute Credit cannot be claimed for the material used during testing of machine because it is

used after manufacture.

Decision As per submissions by the assessee the court accepted that the machine is

marketable only after it has been tested and made fit as per customers requirement. It meansmanufacture is not complete until testing. Therefore, material used during testing is eligible for

credit.

Question: Rokasa Limited was engaged in the manufacture of a pharmaceutical productviz., Rovamox Pediatric Drops. Rokasa Limited contended that the plastic dropperscupplied with the bottle containing the drops were inputs used in or in relation tomanufacture of the final product and so, claimed cenvat credit of the duty paid on theDroppers. However, the Revenue argued that Cenvat credit was not admissible as thesedroppers were kept separately in the cartons along with the sealed bottles of the pediatricdrops and were neither used in manufacture of the pediatric drops nor used in relation to

its manufacture. Briefly discuss whether the stand taken by the Department is correct ornot.

Answer: Facts in the given case are similar to the case of Okasa Limited, 2009 (Bom).

As per the directions given by the Controller of Drugs, such droppers are mandatory for the saleof drugs. Therefore, such droppers will be treated as packing material.

As per the definition of the inputs, all the goods which are removed with the finished goods areto be treated as inputs provided the value of such goods has been included in the value offinished goods.

Keeping in mind, all the facts given in the question, it can be concluded the droppers are eligibleto be treated as inputs and, thus, the assessee is entitled to avail cenvat credit.

Question: Based on the following information, determine the CENVAT Credit available foruse in the current year under the CENVAT Credit Rules, 2004

Amount after each item indicates Central Excise duty paid at the time of Purchase ofgoods. EC and SHEC is in addition to the amount of duty

(Rs.)

(a) Pollution control equipments - Rs 25,000(b) Spares for pollution control equipments - Rs 5,000(c) Equipments used in office - Rs 12,000(d) Storage Tank - Rs 10,000(e) Paints used for painting machinery used - Rs 6,000(f) Packing material - Rs 4,000

(g) Lubricating oils - Rs 8,000(h) High Speed diesel oil - Rs 7,000


16/98

Question: Discuss about the eligibility of CENVAT Credit in each of the following situations

(i) 1000 kgs of raw materials were purchased on which duty of Rs. 16,000 was paid.Whilst in the production yard those goods were destroyed by accidental fire.

(ii) 1000 kgs of raw materials on which duty paid was Rs. 10,000 was used inmanufacture of a final product for which the duty payable is Rs. 8000

(iii) The original invoice for 1,000 units of inputs purchased were missing; howeverduplicate for transport copy of invoice is available, which shows that duty ofRs.10,000 had been paid on inputs

Question: ABC Co. Limited procured the following inputs during the month of January.Determine the amount of cenvat credit available with necessary explanation for thetreatment of the various items

Items Duty paid

(a) Raw material 52,000

(b) Manufacturing machine 1,00,000

(c) Light diesel oil 40,000

(d) Greases 10,000

(e) Office Equipment 20,000

(f) Paints 5,000

Note: ABC CO. Limited is not eligible to avail exemption under notification No. 8/2003.

Answer:

Item Amount of Credit

Reason

Raw Material 52,000 Being input, it is eligible for 100% Credit

Manufacturing machine 50,000 Being capital goods, Cenvat credit is limited to 50%

Light diesel oil - Excluded from the definition of inputs. Therefore, nocenvat credit

Greases 10,000 Being input, it is eligible for 100% Credit

Office Equipment - Not treated as capital Goods. Therefore, no cenvatcredit

Paints 5,000 Assumed that used in relation to finished goods.Therefore, treates as inputs

Question: XYZ Co. is engaged in manufacture of water pipes. From the following details forthe month of May compute the available cenvat credit under the Cenvat Credit Rules,2004. Cenvat paid on the purchases as detailed below

Items Duty amounts

(a) Raw Material Rs. 22,000

(b) Water pipe making machine Rs. 18,000

(c) Spare parts of the above machine Rs. 7,500

(d) Grease and oil Rs. 2,800


17/98

(e) Office Equipment Rs. 20,000

(f) Diesel Rs. 12,000

(g) Pollution control Equipment Rs. 22,000

Answer: Since the question does not indicate that the assessee is availing SSI exemption underNotification No. 8/2003, for the purpose of cenvat credit it is presumed that the assessee is notavailing this exemption.

Items Amount of CenvatCredit in Rs.

Reason

Raw Material 22,000 Raw material is an input and eligible for 100% cenvatcredit

Water pipemaking machine

9,000 Being capital goods, it is eligible for 50% cenvat credit

Spare parts 3,750 Being capital goods, it is eligible for 50% cenvat credit

Grease and Oil 2,800 Being inputs, it is eligible for 100% cenvat credit

Office

Equipment

- Office equipments are not regarded as capital goods.

Therefore, no cenvat credit.

Diesel - Diesel is excluded from the category of inputs.Therefore, no cenvat credit.

Pollution Controlequipments

11,000 Being capital goods, it is eligible for 50% cenvat creditin the first financial year

Total Credit 48,550

Question: Hero automobiles is engaged in the manufacture of motor cars. Compute theamount of cenvat credit admissible from the following particulars where required

Goods purchased Duty paid at the time of purchase of goods

Raw Steel 5,00,000

Batteries 2,00,000

Cutting oil 70,000

Electric lamps for lighting manufacturing area 80,000

Answer: Assuming that the assessee is not availing SSI exemption under Notification No. 8/2003,

Article Amount of

cenvat credit

Reason

Raw Steel 5,00,000 Raw steel is an input and eligible for 100% cenvatcredit

Batteries 2,00,000 Batteries are the inputs for motor car manufacturerand it is eligible for 100% cenvat credit

Cutting oil 70,000

Electric lamps 40,000 Being capital goods, it is eligible for 50% cenvat creditin the first financial year

Total Credit 8,10,000


18/98

Question: R & Co. Limited have cleared their manufactured final product during April andthe duty payable is Rs. 2,40,000 + EC and SHEC. Given below are the details of the exciseduty paid by the assessee during the month at the time of purchase of goods:

Item Duty amount in Rs. (Excluding EC andSHEC)

(i) On inputs (RM) 1,00,000 (invoice for excise duty of Rs.20,000 was received on 4th May)

(ii) On input service 20,000

(iii) On welding electrodes used for repairs ofcapital goods

5,000

(iv) Fuel (Excluding HSD/Petrol) 6,000

(v) Storage Tank 8,000

(vi) Tubes and Pipes used in factory 14,000

(vii) Air-conditioner for office of the factory

manager

12,000

Compute the amount of duty payable in cash.

Answer:

Duty Payable

Excise Duty Education Cess SHEC Total

2,40,000 4,800 2,400 2,47,200

Amount of cenvat credit

Item Creditof ED

Creditof EC

Creditof

SHEC

Total Reason

(i) On inputs(RM)

80,000 1,600 800 82,400 100% Cenvat credit is available oninputs

(ii) On inputservice

20,000 400 200 20,600 100% Cenvat credit is available oninput service

(iii) On weldingelectrodes used

for repairs of

capital goods

5,000 100 50 5,150 100% Cenvat credit is available oninputs

(iv) Fuel(ExcludingHSD/Petrol)

6,000 120 60 6,180 100% Cenvat credit is available oninputs

(v) Storage Tank 4,000 80 40 4,120 On capital goods, cenvat credit islimited to 50% in the first FinancialYear

(vi) Tubes andPipes used infactory

7,000 70 35 7,105 On capital goods, cenvat credit islimited to 50% in the first FinancialYear

(vii) Air-conditioner foroffice of thefactory manager

- - - -Since used in office, no cenvat creditis allowed


19/98

Total Credit 1,25,555

Duty payable Rs. 2,47,200

Cenvat credit Rs. 1,25,555

Duty payable in cash Rs. 1,21,645

Removal of inputs on which credit has been availed

Removal as such Rule 3(5) - As Such means unused

Where inputs, on which cenvat credit has been availed are removed as such than theentire credit available on such goods shall be reversed immediately.

Any such reversal is not required where inputs are required to be removed as such forproviding service related to guarantee/warrantee offered along with the goods and thevalue of which is already included in the value of finished goods.

Goods written off in the books of account Rule 3(5B)

Where any inputs are written off in the books of account, partially or fully or even if aprovisions if made for the same, prior to being put to use, then entire credit availedthereon shall be reversed and if such goods are utilised again at any time in future, thencredit can be availed once again.

Goods destroyed Rule 3(5C)

Where any of the finished goods are destroyed before removal and remission of duty isallowed under Rule 21 of the Central Excise Rules, 2002, the assessee shall reverse thecredit taken for inputs used in manufacture of such goods.

Rule 21 of Central Excise Rules, 2002: Remission of duty

Where finished goods are destroyed or lost or those become non-marketable

otherwise, before removal from the factory due to any reason, then on an applicationof the assessee, the Central Excise officer may allow remission (waiver) of duty onsuch goods, within the limit prescribed.

Officer Amount of duty upto which remission can be allowed by him

Superintendent Rs. 10,000

Asst./Dy. Commissioner Exceeding Rs. 10,000 but not exceeding Rs. 1,00,000

Jt. Commissioner Exceeding Rs. 1,00,000 but not exceeding Rs. 5,00,000

Commissioner Exceeding Rs. 5,00,000


20/98

Inputs sent for job work Rule 4(5) and 4(6)

Where any of the inputs or semi-finished goods are required to be sent outside for job-work without reversal of credit or without payment of duty, as the case may be, theassessee is authorized to remove the goods provided those are received back within 180days failing which he shall reverse the credit and if goods are received backsubsequently, credit can be taken again.

Under Rule 4(6), the AC/DC may give a special permission to the assessee to remove thefinished goods from the premises of the Job-worker. Any such permission is valid for thefinancial year during which it is given

If permission is obtained under Rule 4(6), then condition of bringing back the goodswithin 180 days, as given under Rule 4(5) will not be applicable.

Question - Briefly discuss with the reasons whether in the following case CenvatCredit 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 but during transit, 500Kgs inputs were destroyed.

Answer Since the assessee has received only 500 Kgs inputs in the factory, he canavail credit only to the extent of Rs. 5000 because as per rule 4(1) of CENVAT CreditRules, 2004 the CENVAT credit in respect of inputs may be taken immediately on receiptof the inputs in the factory of the manufacturer or provider of output service.

Rule 2 of CCR, 2004 provides that any goods used in the factory where finished goodsare manufactured are eligible as inputs. Therefore, the goods which are not evenreceived in the factory cannot considered to be inputs.

Recovery of CENVAT credit

Vide notification No. 3/2013, an explanation has been inserted after Rule 3(5B) which states that If the manufacturer of goods or the provider of output service fails to pay the amount payableunder sub-rules (5), (5A), and (5B), it shall be recovered, in the manner as provided in rule 14, forrecovery of CENVAT credit wrongly taken.1

1 Inserted vide Notification No. 3/2013-Central Excise (N.T.), Dated 1/03 2013.


21/98

Input ServiceRule 2(l) input service means any service, -

(i) used by a provider of output service for providing an output service; or

(ii) used by a manufacturer, whether directly or indirectly, in or in relation to

the manufacture of final products and clearance of final products upto the

place of removal,

and includes services used in relation to modernisation, renovation or repairs of a

factory, premises of provider of output service or an office relating to such factory or

premises, advertisement or sales promotion, market research, storage upto the place of

removal, procurement of inputs, accounting, auditing, financing, recruitment and

quality control, coaching and training, computer networking, credit rating, shareregistry, security, business exhibition, legal services, inward transportation of inputs or

capital goods and outward transportation upto the place of removal; but excludes,-

(A) service portion in the execution of a works contract and construction services

including service listed under clause (b) of section 66E of the Finance Act (hereinafter

referred as specified services) in so far as they are used for -

(a) construction or execution of works contract of a thereof; or building or a

civil structure or a part

(b) laying of foundation or making of structures for support of capital goods,

except for the provision of one or more of the specified services; or

(B) services provided by way of renting of a motor vehicle, in so far as they relate

to a motor vehicle which is not a capital goods; or

(BA) service of general insurance business, servicing, repair and maintenance ,

in so far as they relate to a motor vehicle which is not a capital goods, except when

used by -

(a) a manufacturer of a motor vehicle in respect of a motor vehicle

manufactured by such person ; or

(b) an insurance company in respect of a motor vehicle insured or

reinsured by such person; or

(C) such as those provided in relation to outdoor catering, beauty treatment,

health services, cosmetic and plastic surgery, membership of a club, health and

fitness centre, life insurance, health insurance and travel benefits extended toemployees on vacation such as Leave or Home Travel Concession, when such services

are used primarily for personal use or consumption of any employee;


22/98

Availing CENVAT credit on input services Rule 4(7)

The CENVAT credit in respect of input service shall be allowed, on or after the day onwhich the invoice, bill or, as the case may be, challan referred to in rule 9 is received:

Provided that in case of an input service where the service tax is paid on reverse charge

by the recipient of the service, the CENVAT credit in respect of such input service shallbe allowed on or after the day on which payment is made of the value of input serviceand the service tax paid or payable as indicated in invoice, bill or, as the case may be,challan referred to in rule 9:

Provided further that in case the payment of the value of input service and the servicetax paid or payable as indicated in the invoice, bill or, as the case may be, challanreferred to in rule 9, is not made within three months of the date of the invoice, bill or,as the case may be, challan, the manufacturer or the service provider who has takencredit on such input service, shall pay an amount equal to the CENVAT credit availed onsuch input service and in case the said payment is made, the manufacturer or outputservice provider, as the case may be, shall be entitled to take the credit of the amount

equivalent to the CENVAT credit paid earlier subject to the other provisions of theserules:

Provided also that if any payment or part thereof, made towards an input service isrefunded or a credit note is received by the manufacturer or the service provider who hastaken credit on such input service, he shall pay an amount equal to the CENVAT creditavailed in respect of the amount so refunded or credited:

Provided also that CENVAT credit in respect of an invoice, bill or, as the case may be,challan referred to in rule 9, issued before the 1st day of April, 2011 shall be allowed, onor after the day on which payment is made of the value of input service and the servicetax paid or payable as indicated in invoice, bill or, as the case may be, challan referred to

in rule 9.Explanation I.-The amount mentioned in this sub-rule, unless specified otherwise,shall be paid by the manufacturer of goods or the provider of output service by debitingthe CENVAT credit or otherwise on or before the 5th day of the following month exceptfor the month of March, when such payment shall be made on or before the 31st day ofthe month of March.

Explanation II. -If the manufacturer of goods or the provider of output service fails topay the amount payable under this sub-rule, it shall be recovered, in the manner asprovided in rule 14, for recovery of CENVAT credit wrongly taken.

Explanation III.- In case of a manufacturer who avails the exemption under a

notification based on the value of clearances in a financial year and a service providerwho is an individual or proprietary firm or partnership firm, the expressions, followingmonth and month of March occurring in sub-rule (7) shall be read respectively asfollowing quarter and quarter ending with the month of March.

Question: M/s Ojha Cements Limited (OCL) was engaged in the business ofmanufacturing and selling of cement and had been duly paying the excise duty inrespect of cement produced by it. OCL supplied cement to its customers "FORdestination" and bore the freight up to the door steps of the customer i.e. thedestination point. The assessee (OCL) had taken the CENVAT credit of the service taxpaid on the aforementioned freight by it. The Department contended that the payment ofservice tax on the freight incurred by the assessee was not input service as per rule 2(l)

of the CENVAT Credit Rules, 2004 and hence the CENVAT credit was not admissible onit under the said rules. Explain whether the stand taken by Department is tenable inlaw.


23/98

Question: Answer with reference to the CENVAT Credit Rules 2004 whether amanufacturer of excisable goods who has paid Service tax on freight can himself takecredit of Service Tax paid , if such transportation service in relation to the manufactureand clearance of his final products?

CENVAT credit on goods procured from 100% EOU or a unit in STP/HTPetc. Rule 3(7)The CENVAT credit in respect of inputs and capital goods cleared from anexport-oriented undertaking or by a unit in Electronic Hardware Technology Parkor in a Software Technology Park, as the case may be, on which suchundertaking or unit has paid -(A) excise duty leviable under section 3 of the Excise Act (Excise duty shall bethe aggregate of Additional Custom Duty under section 3(1) of the Custom TariffAct and Special Additional custom Duty under section 3(5) of the Custom TariffAct)

(B) the Education Cess leviable under section 91 read with section 93 of theFinance (No. 2) Act, 2004 and

(C) the Secondary and Higher Education Cess leviable under section 136 readwith section 138 of the Finance Act, 2007, on the excise duty referred to in (A)

Explanation.- Where the provisions of any other rule or notification provide forgrant of whole or part exemption on condition of non-availability of credit of dutypaid on any input or capital goods, or of service tax paid on input service, theprovisions of such other rule or notification shall prevail over the provisions ofthese rules.

Note BCD is 50% exempt in case of removal of goods by Notification No. 1005 EOU to

DTA [Notification NO. 23/2003]

Question: Based on the following particulars determine the amount for which cenvat creditwill be available when goods are removed by 100% EOU to DTA.

Assessable value Rs. 20.00 lacs, Rate of Basic Custom Duty 10%, Additional custom duty@ 15%, Spl ACD @ 4%

Answer: Computation of amount of cenvat credit

Amount Cenvat Credit

Assessable Value 20,00,000

BCD @ 5% 1,00,000 Not available

ACD @ 16% 3,36,000 Available

EC on ACD 6,720 Available

SHEC on ACD 3,360 Available

Total amount of cenvat Credit 3,46,080

Question: From the following determine the amount for which cenvat credit will beavailable if the goods are manufactured in 100% EOUu and brought to DTA for being usedin manufacture of dutiable goods

No. of units 1,000

Assessable value Rs. 750/- per unit


24/98

Rate of Basic Custom Duty 12%

Rate of ACD 15%

Amount Cenvat Credit

Assessable Value (1000 X 750) 7,50,000

BCD @ 6% 45,000 Not available

ACD @ 16% 1,27,200 Available

EC on ACD 2,544 Available

SHEC on ACD 1,272 Available

Total amount of cenvat Credit 1,31,016

Availability of CENVAT credit under various situations

Situation Solution

a. The inputs are procured from aregistered First stage dealer under thecover of invoice in which amount ofduty shown is Rs. 13,200/-. TheInvoice was marked ORIGINAL FORBUYER.

As per Rule 9, CENVAT credit can beavailed on the basis of invoice issuedby registered First Stage Dealer, forthe amount of duty shown therein. Inthe given case Cenvat credit isavailable for Rs. 13,200.

b. Machinery falling under chapterheading 84 received along with invoicemarked DUPLICATE FOR TRANSPORT

indicating the amount of duty Rs.7,600. [assume that the amount shownincludes EC as well as SHEC]

According to Rule 2(a) Machineryfalling under chapter 84 are theCapital Goods. As per Rule 4(2), CC

on capital goods can be availed upto50% of the amount of duty during thefirst Financial year in which goodsare received and balance can beavailed in any of the subsequentfinancial years. Therefore, in thegiven case amount of credit duringthe first financial year cannot exceedRs. 3,800 (50%) and balance can beavailed in any subsequent financial

year.

c. Some inputs were directly sent on 1stof the month for job work to the factoryof job worker, from place of the inputsupplier, without bringing them infactory. As per the invoice of supplier ofinputs, duty paid on inputs was Rs.5,000. Out of these inputs, 80% werereceived in the factory on 14th of themonth, after carrying out job work.

According to Rule 4(1), CENVATcredit on inputs can be received onlywhen inputs are received in thefactory, for the quantity actuallyreceived. In the given case, theassessee can avail the credit for Rs.4000 (80%) when inputs are receivedin the factory along with documents,referred under rule 9, showingamount of duty.

d. Some spare parts of machinery falling

under chapter 84 received with invoiceindicating amount of duty Rs. 1,600/-.

The Invoice was marked DUPLICATE

According to Rule 2(a), spare parts of

Machinery falling under chapter 84are the Capital Goods. As per Rule4(2), CC on capital goods can be


25/98

FOR TRANSPORT. availed upto 50% of the amount of duty during the first Financial year inwhich goods are received and balancecan be availed in any of thesubsequent financial years.

Therefore, in the given case amount

of credit during the first financial yearcannot exceed Rs. 800 (50%) andbalance can be availed in anysubsequent financial year.

e. Some Inputs received under the coverof invoice indicating amount of dutyRs. 4,500/-. The Invoice was markedDUPLICATE FOR TRANSPORT and itdid not contain time of removal fromthe factory.

According to Rule 9(2) of the CCR, ifthere is any defect in invoice, Cenvatcredit can be availed only withpermission of AC/DC.

In the given case, failure to mentiontime of removal on the invoice is adefect. Therefore, CC cannot be

availed except with the prior approvalof AC/DC.

If such approval is obtained then CCwill be available for Rs. 4500/-

f. Assessee received some inputs are thecover of an invoice. The invoice is notin the name of assessee.

According to Rule 9(1), CENVATcredit can be availed on the basis ofcertain specified documents. Therule does not require that the invoiceshould be in the name of theassessee. Therefore, assessee can

avail the CC on the basis of invoiceeven though it is not in his nameprovided goods are in his possession.

g. An consignment of imported inputswas received vide Bill of Entry showingpayment of following duties BCD - Rs.1,000, CVD - Rs. 1,760, Special CVDRs. 515 and applicable EC+SHEC.

According to Rule 3(1) of CCR, CC isnot available for BCD but it isavailable for --

1. CVD - Rs. 1,760

2. Spl CVD Rs. 515

h. A consignment of 1,000 Kg of inputswas received. The excise duty paid wasper invoice was Rs. 10,000. While theinputs were being unloaded, 50 Kgswere damaged and it was found thatthese were not usable.

According to Rule 2(k), Inputs are thegoods which are used in the factory.If the material is received but itcannot be used, then it cannottermed as Input and CC cannotavailed on unusable material.

In the given case, 50 Kgs of inputsare not usable. Therefore, credit canbe availed for 950 Kgs only i.e. Rs.9,500.

i. Some inputs were received along with

photo copy of the Invoice. The originalor duplicate copy of Invoice was nottraceable.

Cenvat credit cannot be taken on

basis of photo copy. If assessee canprocure triplicate copy (available withsupplier), then he can avail Cenvat


26/98

credit.

j. 500 pieces of inputs were received.duty paid on these goods was Rs.2,500. These were issued toproduction. While on production line, afire broke out and 200 pieces of inputs

lying on shop floor were destroyed.

CENVAT credit is available for all theinputs used in the factory even ifthose are destroyed during theprocess of manufacture. In the givencase reversal of credit is not required

for inputs destroyed during theprocess of manufacture.

k. 1000 litres of inputs were received onwhich duty paid was Rs. 10,000. Out ofthese, 950 litres of final products weremanufactured. 50 litres of inputs werelost during the process of manufacture

Same as above

l. Some inputs were received on whichduty paid was Rs. 20,000. Assesseeused 60% of the inputs but balance40% could not be used due to changein design. He made provision forobsolete goods written off in his booksof account. However, the inputs werestill in his store room.

According to rule 3(5B) if inputs arewritten off in the books of account ora provision is made to write off, beforeinputs are put to use, then the CCavailed on the inputs shall bereversed.

Therefore, in the given case, theassessee is required to reverse Rs.8,000 (40% of the total credit oninputs).

The rule further provides that if suchinputs are used again then assessee

can avail CC again.

m. Cenvat credit of Rs. 10,000 was takenon some inputs. These were never usedand later sold as scrap for Rs. 15,000.Excise duty payable on scrap is16.48%.

In this case, the assessee will have toreverse Cenvat credit of Rs. 10,000.[Rule 3(5)]

Practical Problems on CENVAT Credit

Note: In many question education cess has and SHEC has not been mentioned. Youshould assume that EC and SHEC is also paid in addition to the amount of duty.

Problem No 1

An assessee was availing SSI exemption from 1-4-2012. He crossed turnover Rs. 150lakhs on 15-11- 2012 and started payment of excise duty. He had received machinery on10-11-2012 one which excise duty paid was Rs. 3,20,000. He intends to avail Cenvatcredit of this duty. Can he do so?

SolutionAccording to Rule 4(2), an assessee availing SSI exemption is entitled to availed 100%CENVAT credit on capital goods during the financial year in which those goods arereceived. CENVAT credit is available on capital goods irrespective of the fact that the


27/98

assessee is availing SSI exemption. This credit can be used by the assessee only after hisexemption limit is exhausted.

In the given case, Capital goods are received during exemption period. Therefore, theassessee can avail 100% CENVAT credit during the same financial year.

Problem No 2

(1) The assessee received 500 pieces of inputs on which duty of Rs. 2500/- has beenpaid. While on production line, a fire broke out and 200 pieces of inputs lying on theshop floor were destroyed.

(2) 1000 litres of oil, an input, was received on which duty of Rs. 18,000 has been paid.60 liters of oil has been lost during the process of manufacture.

Discuss availability of CENVAT credit in both of these cases.

Solution(1) Material destroyed before being used does not qualify to be input. Therefore, CENVAT

credit availed on 500 units destroyed due to file shall be reversed/paid back by theassessee.

(2) All the material used in the factory is said to be input. 60 liters of oil lost during theprocess of manufacture is said to have been used. Therefore, CENVAT credit isadmissible for entire 1000 liters.

Problem No. 3

Examine the validity of the following statements:

(i) Purchased a plant for Rs. 1,16,480 cum-duty price. Excise duty rate 16.48%

on 12.12.2011 and received the plant into the factory on 5.4.2012. Cenvatallowed will be only Rs. 8,240 for the year ended on 3 1.3.2012.

(ii) An assessee purchased inputs weighting 400 tons. The duty paid on inputswas Rs. 40,000. During transit, 20 tons of the inputs were destroyed. Thedestroyed quantity of inputs does not qualify to be inputs within the meaningof Cenvat Credit Rules, 2004.

Answer

(1) As per Rule 4(2), CC on capital goods can be availed on being received in the factoryand not on the date of purchase. In the given case, the goods are purchased on12.12.2011 but those are received on 05.02.2012. Therefore credit cannot be availed

before 5.04.2012. In other words, no CENVAT credit is admissible during the financialyear 2011-12.

During financial year 2012-13 also CENVAT credit is limited to 50% i.e. Rs. 8240 andbalance credit can be availed during any of the subsequent financial years.

(2) The statement is correct. It is to be noted that the material destroyed before being putto use in the factory does not qualify to be input and, thus, CC is not admissible on thequantity so lost.

Problem No 4

A manufacturer procures certain inputs for Rs. 1,00,000 and duty Rs. 16,000+EC+SHEC. As soon as he receives the inputs, he availed CENVAT credit.


28/98

Since he does not require these inputs any more, he sells those for Rs. 1,30,000 (lumpsum). Examine the amount of duty payable by the assessee if

(a) On the date of clearance, duty rate on inputs was 20%

(b) On the date of clearance, duty rate on inputs was 10%.

Solution:

According to Rule 3(5) of the CENVAT Credit when inputs are removed as such, theassessee is required to reverse or pay back the amount of CENVAT credit taken by theassessee. Therefore, in the given case, the assessee need not pay any duty but he shallreverse the CENVAT credit taken by him on inputs.

It is to be noted that while making reversal, change in value as well as in rate of dutybecomes immaterial.

It is also relevant to note that the reversal is required to be made immediately onremoval of goods. In case of reversal facility of making payment of duty on monthly orquarterly basis does not apply.

Similar sum for practice

An assessee had procured some inputs in May 2012 for Rs. 20 lakhs and paid duty ofRs. 3,20,000 ( @ 16%) plus education cess of Rs. 6,400. He was unable to use the inputsin view of change in market conditions. He sold the inputs in March 2013 for Rs.16,00,000. How much duty or amount is payable while clearing the inputs?

Problem No. 5

M/s ALM imported some inputs and paid Basic Customs dutyRs. 5 lakhs, surcharge on

customs duty Rs. 50,000 and ACD Rs. 1 lakh. Calculate the amount that he can claimas Cenvat credit. Would it make any difference, if the assessee is not a manufacturer,but a service provider (CAFinal May 2006)

AnswerAs per Rule 3(1) of the Cenvat Credit Rules, 2004, CENVAT credit is not available forBasic Custom Duty as well as for any Surcharge thereon. It is available only forAdditional Custom duty paid under section 3(1) of the Custom Tariff Act.

A service provider can avail credit only if the imported goods are used by him as inputfor providing output service.

Problem No. 6Based on the following information, determine the CENVAT Credit available for use inthe current year under the CENVAT Credit Rules, 2004

[Amount after each item indicates Central Excise duty paid at the time of Purchase ofgoods. EC and SHEC is in addition to the amount of duty]

(Rs.)

(a) Pollution control equipments - Rs 25,000(b) Spares for pollution control equipments - Rs 5,000(c) Equipments used in office - Rs 12,000(d) Storage Tank - Rs 10,000

(e) Paints used for painting machinery used - Rs 6,000(f) Packing material - Rs 4,000(g) Lubricating oils - Rs 8,000


29/98

(h) High Speed diesel oil - Rs 7,000Answer:

Particularsofgoods

NatureofGoods

Dutypaid

EducationCess

CenvatCreditEligible inCurrent year

Reason Remarks

PollutionControlEquipments

Capitalgoods

25000 750 12500 375CENVAT credit is limited to50%

Spares forPollutioncontrolEquipment

Capitalgoods


Equipmentused inoffice

Not aCapitalgoods

12000 360 Nil NilCredit is not available for thegoods used in office.

StorageTank

Capitalgoods


Paints usedfor paintingMachinery

Inputs 6000 180 6000 180100% Credit is available onInputs

PackingMaterial


LubricatingOils


High speeddiesel

Not aInput

7000 210 nil No CENVAT Credit.

Total Credit available in Current year 38000 1140

Problem No. 7

Discuss about the eligibility of CENVAT Credit in each of the following situations

(ii) 1000 kgs of raw materials were purchased on which duty of Rs. 16,000 was paid.Whilst in the production yard those goods were destroyed by accidental fire.

(iii) 1000 kgs of raw materials on which duty paid was Rs. 10,000 was used inmanufacture of a final product for which the duty payable is Rs. 8000

(iv) The original invoice for 1,000 units of inputs purchased were missing; howeverduplicate for transport copy of invoice is available, which shows that duty ofRs.10,000 had been paid on inputs

Answer

(i) Credit is available on inputs only when used in manufacture. If inputs aredestroyed before being used in the process of manufacture, CENVAT creditalready availed shall be reversed or paid back. In other words, in the given case,CENVAT credit is not available.

(ii) If finished goods are dutiable then full CENVAT credit is available on inputs. It isimmaterial that the amount of duty paid on input is higher than the duty payableon the finished goods. Therefore, in the given case, credit is available for Rs.


30/98

10,000 out of which Rs. 8,000 shall be utilized to pay duty on finished goods andbalance Rs. 2,000 shall be carried forward.

(iii) As per rule 9 of the CCR, CENVAT credit can be availed on the basis of certainspecified documents only. Rule 9 does not require only original copy for availingthe credit. As long as all the particulars are available on the transporters copy,credit can be availed.

Problem No. 9

H Ltd. purchased a Boring-brilling machine at a cum-duty price of Rs. 32,14,476. TheExcise duty rate charged on the said machine was @ 16% +EC+SHEC. The machine waspurchased on 01.04.2011 and disposed of on 30.09.2012 for a price of Rs. 12 lakhs. Thecompany was claiming depreciation @ 25% following Straight Line Method. Using thesaid 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 ofclearance of the said machinery

Solution

1. According to Rule 4(4), the assessee can either claim depreciation on the amount ofduty or CENVAT credit.

2. The assessee is always authorised to claim depreciation for the value of goodsexcluding amount of duty for which CENVAT credit is claimed. This depreciation onthe value of goods does not affect right of the assessee to claim CENVAT credit for theamount of duty paid on machine.

3. According to Rule 4(2), CENVAT credit on capital goods is limited to 50% during firstfinancial year in which goods are received and balance credit can be availed in any ofthe subsequent financial years.

4. According to Rule 3(5A), if goods are removed after partial use, the assessee isentitled to retain 2.5% of the total credit for every three months or part thereof andbalance credit shall be reversed.

Calculation of Excise duty, CENVAT credit and reversal

Cum duty price 32,14,476

Assessable Value 3214476 x 100/116.48 27,59,681

Excise duty including EC and SHEC 3% of duty 4,54,795

Availability of Cenvat credit

During first year -50% of Rs. 454795 2,27,398

During subsequent year remaining 50% Of Rs. 454795 2,27,397

Credit ofECavailable only on payment of EC

Cenvat credit reversible at the time of clearance

Cenvat Credit availed in year 11-12 Rs. 2,27,398

Less: 2.5% per quarter for 6 quarters-15% 34410 1,93,288


31/98

Cenvat Credit availed in year 12-13 2,27,397

Less : 2.5% per quarter for 2 quarters 11371 2,16,027

Total amount of CENVAT credit reversible / payable at the time of clearance 4,09,315

Problem for Practice1. An assessee had procured machinery in April 2011 for Rs 10 lakhs by paying duty ofRs 1,60,000. It was commissioned in June 2011. Assessee had availed 50% Cenvatcredit of Rs 80,000 in 20011-12, and Rs 80,000 (balance 50% credit) in 2012-13. Hesold the capital goods after use, on 10th April 2103 as second hand goods for Rs3,00,000. How much excise duty or amount is payable while clearing the machinery?

2. Machinotech Ltd. purchased a lathe machine at a price ofRs. 1,00,000 on which 16%Excise duty was paid and the company availed of the Cenvat credit on the said capitalgoods. The lathe machine was purchased on 27-01-2010 and it was disposed of on 29-

04-2011. How much CENVAT credit and when it can be availed by the assessee. Is itnecessary to reverse the cenvat credit on disposal of the machine? If your answer is yes,quantify the amount.

Problem No. 10

UTV Limited manufactures 10,000 units of Product A having assessable value of Rs.400/- per unit attracting duty of Rs. 16/- per unit (all inclusive). UTV Limited has paidduty of Rs. 3,00,000 on inputs. Out of 10,000 units manufactured by UTV Limited,2,000 units are sold in India and remaining 8,000 are exported. Based on these fact,

answer the following questions

(i) What is CENVAT credit available?

(ii) What is the duty payable through personal ledger account (PLA)?

(iii) Can UTV Ltd. get any refund of CENVAT credit?

Answer:

(i) CENVAT credit is available for the inputs used in manufacture of dutiable goods.Export goods are also dutiable if sold in India but particular transaction of exportis exempt. Export goods cannot be referred as exempted goods. Therefore, credit is

available even for the inputs used in manufacture of export goods.

In the given credit the assessee is entitled to get credit of Rs. 3,00,000 i.e. dutypaid on inputs.

(ii) Duty is payable only on the goods removed within India. The assessee is requiredto pay duty on 2000 units @ Rs. 16/- per unit i.e. Rs. 32,000. The assessee ishaving sufficient credit balance, therefore nothing is payable through PLA (cash).

(iii) Yes, the assessee is entitled for refund. According to Rule 5 of CCR, the assesseeis entitled to get refund of CENVAT credit availed on inputs used in manufactureof export goods in accordance with the prescribed formula.

Apply your understanding


32/98

A manufacturer manufactures 1,000 units of product P having a, Assessable Value ofwhich is Rs. 2,000 per piece. Duty payable is 20%.

Duty paid on raw materials is Rs. 2,00,000+EC+SHEC. The manufacturer sells 700pieces in India and 300 pieces are exported. What is CENVAT available and what is theduty payable through PLA?

Problem No. 11

MIs Tips and Toes Ld., manufactures four types of Nail Polishes, namely Sweety,Pretty, Beauty, Tweety. The company has availed CENVAT credit of Rs. 4,00,000 on thecommon inputs used in the manufacture of Nail Polishes during the financial year2011-12 the company manufactured 1000 litres of each type of Nail Polishes. TheCENVAT availed input was used in equal proportion in all the four types of the products.Examine the availability of Cenvat Credit and duty payable

Product Nature of SaleSale Price excluding Sales Tax&

other local taxesSweety Sale to Home Consumption Rs. 30 per 20 ml bottle

Pretty Sold to a 100% EOU Rs. 40 per 20 ml bottle

Beauty Fully exported Rs. 50 per 20 ml bottle

TweetySupplied to defence Canteen underexemption

Rs. 60 per 20 ml bottle

Solution

The assessee is authorised to avail full CENVAT credit for the inputs used inmanufacture of the goods which are removed for

1. Home consumption

2. Export

3. Supplied to 100% EOU

In respect of goods supplied to defence canteen, the assessee is having following options

1. If assessee is maintaining separate record for use of inputs used in manufacture ofvarious articles, then CENVAT credit cannot be availed on the inputs used inmanufacture of goods supplied to defence canteen or

2. On removal of goods to defence canteen duty can be paid @ 6% or

3. CENVAT credit availed on inputs used in manufacture of goods supplied to defencecan be reversed in accordance with the formula prescribed under rule 6(3A).

Problem No 12

An assessee cleared his manufactured final Product during the month of January 2013.The duty payable on the final product for the month is

Basic excise duty Rs. 48,000,


33/98

NCCD Rs.2000 and applicable education cess.

During the month he has received various inputs total duty paid on the inputs was asfollows.

Basic Excise duty Rs. 40000,

Special excise duty 4000,

Service tax paid on input services Rs. 8000.

Applicable education cess and SHEC was also paid. How much duty is payable throughaccount current

Solution

BED SED NCCD ServiceTax

EC andSHEC

Total

Creditavailable

40,000 4,000 8000 1,600 53,600

Dutypayable

48,000 2000 1500 51500

BED can be paidout of credit ofBED, SED as wellas ST. There issurplus credit ofRs. 4,000.

NCCD ispayable onlyin cash orout of NCCDcredit. Sincethere is nocredit forNCCD, thenit is payablein cash only

Thiscreditcan beused topay BED,SED, EC,SHEC

Creditexceedstheliability.

Therefore,excesscredit canbe carriedforward

Problem for PracticeAn assessee cleared his manufactured final Product during the month of March 2013.

The duty payable on the final product for the month is Basic excise duty Rs. 200000, Special excise duty Rs. 1,00,000 and applicable education cess.During the month he has received various inputs total duty paid on the inputs was asfollows -- Basic Excise duty Rs. 50000, Special Excise duty is Rs. 5000. Excise duty paid on capital goods received during the month was Rs. 12000 Service tax paid on inputs Rs. 1000,Applicable EC and SHEC was also paid. How much duty is payable through accountcurrent

Problem No 13

X availed Cenvat credit of Rs. 42,000 for manufacture of an item chargeable to duty.These goods were lying in his factory till 29-02-2013. From 1.3.2013 the final productwas made exempt from duty. What is the responsibility of assessee in respect of CENVAT

credit.

Solution


34/98

According to Rule 11 of CCR, if finished goods become exempt, the assessee shall reverseCC for all the inputs lying in stock as well as inputs contained in the finished goods instock.

In the given case, all the finished goods are in stock when dutiable goods becomeexempt. Therefore, the assessee is required to make reversal of CENVAT credit of Rs.42,000.

Problem No 14

Amanufacturer received certain inputs. The cost of inputs was Rs. 2,00,000 and dutypaid @ 16% was Rs. 32,000. After receipt of the inputs, the cenvat credit was availed ofby the manufacturer. He further carried out some processes on the inputs. The cost ofprocessing wasRs. 50,000. The semi-processed material was sent to a small-scale unitfor a job work. -Is there any duty payable at the time of removal of inputs for the jobwork? The material sent was not returned by the small- scale unit after the job workwithin 180 days. What will be the duty payable on such goods not returned after beingsent out for the job work?

Solution

According to Rule 4(6) of the CCR, if inputs or semi-finished goods are sent for job workwithout paying duty and if those are not returned within 180 days, the assessee isrequired to make reversal of the CENVAT credit on the inputs/inputs used in semifinished goods for the job-work.

In the given case, if goods are not returned within 180 days since removal for job-work,the assessee is required to make reversal of the credit availed. However, specialpermission can also be obtained for removal of finished goods from the premises of job-worker and in that case, duty will be payable on assessable value of finished goods.

Problem No 15

ASmall Scale Industrial unit (SSI) is required to pay the following central excise dutiesby January 10, 2013 for clearances effected from its factory in respect of final productsmanufactured during the month of December, 2012:

Basic Excise Duty (B.E.D.): Rs.36,000 Special Excise Duty (S.E.D.): Rs.18,000 National Calamity Contingency Duty (N.C.C.D.): Rs.1,000 EC and SHEC as applicable

Balances available as credit at the beginning of the month i.e. December, 2012 were asfollows:

BED Rs. 24,000 N.C.C.D. Rs. 2,000 E.C. Rs. 780

No inputs were received during the month. However, certain inputs were received onJanuary 1, 2013 on which total duty paid by the suppliers of inputs was as follows:

B.E.D Rs.16000, E.C. and S.H.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. and SHEC Rs.1200

For the month of December, 2012 you are required to determine:

(i) the credit available for utilization;


35/98

(ii) the permissible extent to which such available credit may be utilised againstpayment 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.).

Solution

CENVAT credit available for utilization

Excise SED NCCD EC SHEC Total

Openingbalance

24,000 - 2,000 520 260 26,780

Inputsreceived inDecember2103

- - - - - -

CapitalGoods

received inDecember2012

20,000 400 200 20,600

Total 44,000 - 2,000 920 460 47,380

Excise SED NCCD EC SHEC Total

Dutypayable

36,000 18,000 1,000 1100 550 56,650

Credit

available

44,000 2,000 920 460

Through CC 36,000 8,000 1,000 920

By cash - 10,000 - 180 90 10,270

Surpluscarriedforward

- - 1,000 - - 1,000

Problem No 16

An assessee cleared various manufactured final products during January 2013. Theduty payable for January 2013 on his final products was as follows - Basic - Rs.2,00,000 EC and SHEC - as applicable.

During the month, he received various inputs on which total duty paid by suppliers ofinputs was as follows

Basic duty - Rs. 50,000,Education Cess - Rs. 1,000,SHEC - Rs. 500.

Excise duty paid on capital goods received during the month was as follows

Basic duty - Rs. 12,000.Education Cess - Rs. 240.SHEC - Rs. 120.


36/98

Service tax paid on input services was as follows - Service Tax - Rs. 10,000. Educationcess - Rs. 200 SAH Education Cess - Rs. 100.

How much duty the assessee will be required to pay byGAR-7challan for the month ofJanuary 2013, ifassesseehad no opening balance in his PLA account2 What is last datefor payment?

Answer

CENVAT credit available for January 2013

Excise Duty/ST EC SHEC Total

Inputs 50,000 1,000 500 51,500

Capital Goods 6,000 120 60 6,180

Input Service 10,000 200 100 10,300

Total 66,000 1,320 660 67,980


37/98

Payment of duty through CC and through GAR 7

Duty Amount Payment through CC Payment through GAR 7

Excise 2,00,000 66,000 1,34,000

EC 4,000 1,320 2,680

SHEC 2,000 660 1,340

According to Rule 8 of CER, the duty shall be paid within 5 days after the end of themonth but where e-payment is made, instead of 5 days, 6 days are allowed. It is also tobe noted that e-payment is compulsory for the assessee who has paid duty of Rs. 10.00lacs or more during the preceding financial year.


38/98

In the case ofspecific rate of duty,the basis of levy is a specific

quantity of goods such as weight,length, volume, number of unitsproduced etc. Thus specific rate ofduty has no relevance to theselling price or value of theexcisable goods and is, in fact,independent of it e.g. Rs. 50/- perKG or Rs. 5000/- per KL

In the case of ad valorem rate of duty, thebasis of levy is the value of the goods. It is,

therefore, necessary to determine the valueof the excisable goods and then apply thead-valorem rate of duty which is a fixedpercentage of the value, say, 15% ad-valorem, 20% ad-valorem etc. Thus, ad-valorem rate of duty is entirely related to andis dependant on the value of excisable goodse.g. 20% or 8%.

Valuation of Excisable Goods

Under Central Excise Act, excise duty may be specific or ad-valorem. Specific duty is

quantity based while ad-valorem duty is value based. This chapter is relevant only whereduty is ad-valorem.

Types of Duties under the Central Excise

This chapter deals with determination of assessable value on the basis of which duty

may be charged. It is to be noted that price and value are not synonymous terms for

the purpose of excise. The assessable value for the purpose of duty may be -

(a) Tariff Value fixed by Central Government under Section 3(2) of Central Excise Act,

1944; or

(b) On the basis of valuation under Section 4 of Central Excise Act, 1944:

(i) Transaction Value

(ii) Valuation as per Central Excise Valuation (Determination of Price of

Excisable Goods) Rules, 2000, or

(c) On the basis of Retail Sale Price Valuation under Section 4A of Central Excise

Act, 1944.

Valuation under Section 3(2) of Central Excise Act, 1944 i.e., Tariff Value

The Central Government may, by notification in the Official Gazette, fix, for the purpose

of levying CENVAT or Special Excise Duty on any articles chargeable with duty ad

valorem, the Central Government may, by notification in the Official Gazette ,

Fix the tariff value of any article enumerated in First/Second Schedule

Alter any tariff values for the time being in force.

Under Section 3(3), the Central Government may fix different tariff values for

(a) Different classes or descriptions of the same excisable goods; or


39/98

(b) Excisable goods of the same class or description

(i) Produced or manufactured by different classes of producers or

manufacturers; or

(ii) sold to different classes of buyers:

Provided that in fixing different tariff values, regard shall be had to the sale prices

charged by the different classes of producers or manufacturers, or the normal practice ofthe wholesale trade in such goods.

Century Manufacturing Company Limited V. UOI Section 4 is subject to section 3(2) i.e.

when tariff value is fixed, provision of section 4 will not be applicable. Section 3(2) over

rides section 4. Section 3(2) and section 4A are mutually exclusive.

Valuation under Section 4A or RSP based Valuation

(1) The Central Government may, by notification in the Official Gazette, specify any goods,

in relation to which it is required, under the provisions of the Legal Metrology Act, 2002 or

the rules made thereunder or under any other law for the time being in force, to declare on

the package thereof the retail sale price of such goods, to which the provisions of sub-

section (2) shall apply.

(2) Where the goods specified under sub-section (1) are excisable goods and are

chargeable to duty of excise with reference to value, then, notwithstanding anything

contained in section 4, such value shall be deemed to be the retail sale price declared on

such goods less such amount of abatement, if any, from such retail sale price as the

Central Government may allow by notification in the Official Gazette.

(3) The Central Government may, for the purpose of allowing any abatement, take intoaccount the amount of duty of excise, sales tax and other taxes, if any, payable on such

goods.

(4) Where any goods specified under sub-section (1) are excisable goods and the

manufacturer-

(a) removes such goods form the place of manufacture without declaring the retail sale

price of such goods on the packages or declares a retail sale price which is not the retail

sale price as required to be declared under the provisions of the Act, Rules or other law as

referred to in sub-section (1) ; or

(b) tampers with, obliterates or alters the retail sale price declared on the packages of suchgoods after their removal from place of manufacture,

then, such goods shall be liable to confiscation and the Central Government shall ascertain

in the prescribed manner the retail sale price of such goods and the