FAQ’s on CENVAT Credit

Frequently Asked Questions on CENVAT Credit

Issue No.1: Whether service tax paid on Group medi-claim policy, Workmen’s accident policy,landscaping of factory garden etc. can be allowed as credit?

Expenses incurred towards outdoor catering in the canteen of the manufacturer, Medical personal accident policy, group personal accident policy, insurance, personal accident policy, personal vehicle services, landscaping of factory garden, catering bills.

CESTAT, Larger Bench, GTC Industries 2008 (12) STR 468
CESTAT, Bangalore in Millipore India Limited 2009 (236) ELT 145
CESTAT, Mumbai in Endurance Systems India Private Limited 2009 9237) ELT 204
Expenses which form part of manufacturing cost as per CAS 4 will be allowed as credit.

Issue No.2: Issue relating to Importance of Truck numbers on the Documents based on which credit has been availed.

Cenvat credit was availed on the invoice issued by registered dealers. It was alleged by the department that merely invoice was received and physically no inputs were delivered. Summons was issued to the truck owners who did not respond and it was later found that the addresses available on the record were fake. As the department did not deny genuinesness of the truck Numbers credit was allowed.

CESTAT, Delhi Ajay Industrial Corporation 2009 (237) ELT 175

Issue No.3: Whether Penalty under section 11AC can be imposed when Cenvat Credit reversed prior to issue of Show Cause Notice.


It was held by CESTAT, Mumbai, that provisions of section 11AC of Central Excise Act, cannot be invoked and penalty equal to duty amount is not imposable when the Cenvat Credit wrongly availed by the assessee was reversed immediately on being notified by the department and the same was done even prior to the issue of SCN. 2009 (237) ELT 95 Balaji Amines Limited.

Issue No.4: What is the position in law when depreciation as well as Cenvat Credit is availed on the Capital Goods?

The appellant ACC Limited had taken depreciation under the Income Tax Act, as well as availed Cenvat Credit on capital goods. The appellant reversed the depreciation as soon as mistake was noticed. It was held that Cenvat Rules do not have provision to allow credit on capital goods on withdrawal of depreciation claim. 2009 (237) ELT 77, Principal Bench, New Delhi.

In Sri Vishnu Shankar Mill Limited, CESTAT, Chennai, 2007 (5) STR 30 the appellant had availed
credit and also the depreciation under Income Tax Act. The Cenvat value of goods were deducted
by income tax authorities and assessment finalized. Since the Cenvat value of the goods was
deducted by the income tax authorities for calculation of taxable income and certified copy of
assessment order was produced before the Tribunal it was held that there was no simultaneous
availment of credit and depreciation.

Issue No.5: Whether goods which are received beyond the date of their expiry are eligible for Cenvat Credit?

The appellants received duty paid biscuits manufactured by them from one of their customers. They wanted to claim Cenvat Credit on the said goods which were returned. An inquiry was conducted by the Superintendent which revealed that the said biscuits were received after their expiry date printed on the packets and hence were unfit for human consumption. It was held that since the rejected goods are not fit for re-processing or remaking the appellants are not entitled to Cenvat Credit. CESTAT, Principal Bench, New Delhi, U.S.Foods Private Limited 2009 (236) ELT 719.

Issue No.6: Whether Capital Goods which are acquired on hire-purchase, lease or loan should be only through a finance company and not otherwise?

The appellants acquired certain capital goods on hire purchase from a Company which is not a Finance Company as per Reserve Bank of India Rules. On reference, the CESTAT, Ahmedabad Bench, granted full stay on the ground that prima facie such condition do not exist in Cenvat Credit Rules. Wimplast Limited 2009 (236) ELT 700.

Issue No.7: Whether assessee can maintain any procedure for recording input used in manufacture of exempted and dutiable product under Rule 6?

In Nirma Limited reported in 2009 (236) ELT 695 the CESTAT, Ahmedabad bench granted full stay when appellant followed separate procedures for more than one input used in manufacture of dutiable and exempted goods. In the case of one input the appellant recorded the quantity going in exempted products in Form IV register after debiting RG 23A part 1 and not availed credit on the quantity of inputs entered in Form IV while in case of other input the appellant debited the duty at the time of issue of the input for manufacture of exempted goods. It was the contention of the department that procedure was not sufficient as inputs not separately stored and accounted for and separate records not maintained. The Bench held that there is no specific procedure specified by the Board and what is to be insured is that the credit is not taken in inputs going into exempted products. As the appellant has ensured that credit is reversed in advance there is a strong case of waiver of pre-deposit.

Issue No.8: Whether credit available on inputs/capital goods used in power plant set up by manufacturer?

Service tax paid on charges paid for getting cement brand price and overhauling of DG set installed in power plant. Held, Cenvat credit used on inputs/capital goods used in power plant set up by manufacturer is admissible if final product is dutiable. Hence credit is available on overhauling of DG set installed in power plant. CESTAT, Ahmedabad, Sanghi Industries Limited 2009 (236) ELT 617.

Issue No.9: Whether Cenvat Credit is allowed on Mobile Phones?

A common question in the minds of the service providers and manufacturers. It is allowed as there is no specific provision in the Rules to disallow. CESTAT, Mumbai, Indian Rayon & Industries Limited, 2006 (4) STR 79.

Issue No.10: Can credit be taken on photo copies of duty paying documents?

Credit taken on photocopy of bill of entry certified by bankers and notary public as triplicate copy of bill of entry was misplaced the information of which was given to the Police and customs authorities. Held that credit was permissible on photocopy of authenticated invoice and triplicate or attested copy of bill of entry. CESTAT, Mumbai, Vardhman Acrylics Limited, 2006 (4) STR 489.

Issue No.11: Whether amounts can be collected under Rule 6(3) from the buyers and if so should the same be deposited under Section 11D of the Central Excise Act?

8% amount was debited in the Modvat account and collected from customers. Debited amounts to payment of the stipulated amount. Department contends that amounts collected from customers should be deposited under Section 11D. The Larger Bench of CESTAT held that payment of 8% is as per rules and the appellant has not collected any amount from buyers which are not paid to Government. Since the amounts recovered from the buyers not retained by the appellant there is no question of deposit under section 11D. Section 11D is applicable only when amount collected as duty and it is only to ensure that manufacturers do not collect amounts falsely representing as excise duty and retain the same unjustly. CESTAT, Larger Bench, Unison Metals Limited, 2006 (4) STR 491.

Issue No.12: Whether input service tax credit can be taken on the date of issue of cheque or realisation of cheque?

Credit of service tax paid on input service can be availed only when payment is made. Whether credit should be taken on the date of issue of cheque or realisation of cheque was addressed by the Mumbai Bench of CESTAT in Ahmednagar Forgings Limited, 2009 (14) STR 402. It was held that as the amount of cheques for which credit was raised in PLA was not dishonoured and the said amount was credited to the Government treasury the date of issue of cheque to the service provider was the relevant date of taking credit.

SOURCE:Visakhapatnam Branch of SIRC of ICAI

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