Suhasini Gotmare Director (CERA/CRA) O/O DGACR, DELHI

Understanding Cenvat Credit Rules, ACES And Case Studies of CE Audit

“Value added tax “means that the tax is payable only on value added to commodities and on the services rendered.

Raw material passes through various stages and processes till it reaches the ultimate stage. i.e.final product. Thus,output of first manufacturer becomes input for second manufacturer,who carries out further processing and supplies it to third manufacturer. This process continues till a final product emerges. This product then goes to the distributor/wholesaler who sells it to retailer and then it reaches the ultimate consumer. If a tax is based on selling price of product,the tax burden goes on increasing as raw material and final product passes from one stage to another.

CENTRAL EXCISE DUTY is levied on manufacturer of goods when those goods leave the place of manufacture formally called the, this tax is now known as CENTRAL VALUE ADDED TAX.{CENVAT} Manufactures may offset duty paid on materials used in manufacturing process by using that duty as a credit against excise tax through a process known as CENTRAL VALUE ADDED TAX CREDIT. The offsetting process was formerly known as modified value added tax {MODVAT}. was replaced by CENVAT w.e.f

WHAT IS CENVAT CREDIT? TAX/DUTY PAID ONONSERVICES/GOODS USED FOR PROVIDING CENVAT AVAILABLE TO MANUFACTURER/DEALER/SER VICE PROVIDER SUBJECT TO FULFILMENT OF CONDITIONS ATTACHED TO IT OUTPUT SERVICE/ FINISHED GOODS ON WHICH TAX/ DUTY IS PAID 5

CAPITAL GOODS means the following goods: 1.All goods falling under chapter 82,84,85,90 2.Components, spares and accessories 3.Moulds and dies 4.Refractories and refractory materials 5.Tubes,pipes and fittings thereof 6.Pollution control equipments 7.Storage tank above goods can be used:- I.In the factory of the manufacturer of final products II.Outside factory for generation of electricity for captive consumption.

EXEMPTED GOODS means goods exempted from whole of the duty and includes goods which are chargeable to ‘nil’ rate of duty. EXEMPTED SERVICES means taxable services which are exempted from the whole of the service tax. FINAL PRODUCTS means excisable goods manufactured or produced from inputs or using input services. FIRST STAGE DEALER means a dealer who purchases goods directly from 1.the manufacturer or from depot or from premises of the consignment agent or from any other premises. 2.an importer or from the depot of an importer or from the premises of consignment agent of importer.

INPUT means I.All goods used in the factory by manufacturer for manufacturing final product II.Any goods including accessories the value of which is included in the value of final product III.All goods used for generation of electricity for captive use IV.All goods used for providing output service excluding – LSD(low speed diesel), HSD(High speed diesel) etc.

 The CENVAT CREDIT on inputs may be taken immediately on receipt of the inputs in user /manufacturer is factory for manufacturing.  CENVAT CREDIT on capital goods is taken 50%in first year i.e. year of acquisition of capital goods while balance is utilised in the subsequent years.  However w.e.f the SMALL SCALE UNITS are allowed to take full CENVAT CREDIT for capital good in one installment in the year of acquisition.

 CENVAT CREDIT is allowed to a manufacturer even if the goods are acquired by him on lease,hire purchase or loan agreement.  CENVAT CREDIT will not be allowed on that part of value of capital goods that represents depreciation.  CREDIT is allowed even if the input /capital goods are sent to the place of job worker for further processing,testing,repair,reconditioning etc. and goods so send must have been received back within 180 days.

 The commissioner of central excise,having jurisdiction over the factory of manufacturer of final products who has sent the input or partially processed input outside his factory to a job worker,may by an order [order valid for a financial year } allow final product to be removed from the premises of job worker.

For export under bond,Cenvat credit on input or input services can be utilised for payment of duty on any final product cleared for home consumption or for export on payment of duty on final product or service tax. Where for any reason such adjustment is not possible,the manufacturer shall be allowed refund of such amount.

 Importance of new rule 6 in CCR 2004: Maintain separate accounts Or pay 5% on the value of exempted goods and six % on the value of exempted services

 Documents & accounts used /maintained in CENVAT  An invoice issued by a manufacturer,an importer,a first stage dealer,a consignment agent.  A supplementary invoice.  A certificate issued by custom appraiser.  A challan evidencing the payment of service tax.  A bill of entry.

Where the CENVAT CREDIT has been taken or utilised wrongly,the same along with interest shall be recovered from manufacturer under provisions of section 11A,11AA &11AB.

If a person take wrong CENVAT CREDIT then his goods shall be liable to confiscation or a penalty can be imposed that too should not exceed the either amount of duty or ten thousand rupees,whichever is greater.

ACES is a Mission Mode Project of Govt. of India under National e-Governance Plan Centralized,Web-based,Workflow-based System Provides complete End-to-End Solution Major Processes in Central Excise & Service Tax covered ACES website attracted hits over 31 crores More than 5 lakh Central Excise Returns filed online in ACES Capable to accept Digitally-signed Documents ACES - Highlights

ACES – Modules Available in Menu Bar on top of the Screen Central Excise Service Tax REG – Registration REG - Registration RET – Returns RET - Returns PRA - Provisional Assessment ST 3 A REF – Refunds REF - Refunds DSR - Dispute Resolution DSR AUD – Audit CLI - Claims and Intimations EXP – Exports

INTERFACE  INCOME TAX – Online Verification of PAN  EASIEST – Verification of Payment Particulars (GAR 7 Challans) from Banks through CBEC’s EASIEST Portal being maintained by NSDL

ACES – BENEFITS TO ASSESSEES  Reduce Physical Interface with Department  Online Registration of Central Excise Assessees and online amendment  Online Registration of Service Tax Assesses and online amendment  Electronic filing of Central Excise/ Service Tax Returns  Electronic filing of Returns  Electronic filing of Claims, Permissions, Intimations  Instant E-acknowledgement of documents with Unique Document Identification Number  View, File and Track Status of Documents filed online

ACES – BENEFITS TO ASSESSEES  Revenue Reconciliation (Payment information from Banks are reconciled with the information mentioned in the returns submitted by the assessees)  Online Messages/ Alerts on business related matters  Online filing of reply to Show Cause Notice  Online filing of application for Provisional Assessment  Online filing of Refund Claims  Online filing of selected Export related documents  Online filing of Appeals to Commissioner (Appeals)  All Services Available Free of Cost

ACES-NEW DEVELOPMENTS- CBEC NOTIFICATION  CBEC has issued Notifications in 2010, making e-filing of Central Excise Returns (ER-1 and ER-3) and Service Tax Return (ST-3) mandatory for assessees with effect from 1st April, 2010  The assessees are required to file their returns online or by uploading the downloadable off-line return utilities to the ACES website

CASE STUDY Central Excise Issues

 Central Excise valuations are done under Sections 4 and 4A of C.E. Act 1944 and other supplemental provisions  Rule 10A (i) of CE Valuation Rules, 2000, deals with value to be adopted by job worker- where excisable goods are manufactured by a job worker, then, in a case where the goods are sold by the principal manufacturer for delivery at the time of removal of goods from the factory of job worker, where the principal manufacturer and the buyer are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the transaction value of the said goods sold by the principal manufacturer.

M/s X, in Delhi Commissionertare cleared Petroleum coke(fuel grade used as industrial fuel as alternative for steam Coal) as a job worker during on payment of excise duty (on behalf of principal manufacturer) But assessable value arrived without including cost of job work, on the basis of cost of production instead of adopting transaction value of the goods sold by the principal manufacturer as required by above Rule. This resulted in undervaluation of ` 2.78 crore and consequent short levy of duty of ` lakh on differential value. Ministry in reply stated that the SCN has been raised.

 As per notification 1/2011-CE dated 1 March 2011 for specified final products like instant tea/coffee, paper, concessional rate of duty was fixed as 1 % on 130 items, with the condition that no Cenvat credit on inputs or input services used for such final products is availed  M/s. Y., Gwalior commissionerate imported Coal (fuel) by paying CVD at 1% of ` lakh and availed Cenvat credit of` this amount, which was in violation of condition of above notification.  The ineligible credit was required to be reversed. Dept replied that SCN was issued to recover the ineligible credit.

 Non ‐ payment of duty on price settlement  Explanation to Section 4 of the Central Excise Act, 1944 envisages, inter alia, that the price ‐ cum ‐ duty of the excisable goods sold by an assessee shall include the money value of additional consideration, if any, that flows directly or indirectly from the buyer to the assessee in connection with the sale of such goods.  Test check of records of M/s Fiat India Automobiles Ltd., in Pune ‐ III Commissionerate, revealed that the assessee had manufactured 'Manza’ brand of cars for M/s Tata Motors Ltd

 During the months of May and June 2012, the assessee had raised debit notes on M/s Tata Motors Ltd towards price settlement of the above models for the years 2010 ‐ 11 and 2011 ‐ 12.  Non ‐ inclusion of this debit note amount of ` crore towards the transaction value had resulted in short payment of duty of ` crore..  The department stated that DGCEI has booked a case and investigation is under way.

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