Rule No. Brief Comments
2(d) ‘Exempted goods’ means goods which are exempt from whole of duty of excise leviable thereon and includes goods which are chargeable to ‘Nil’ rate of duty.
2(e) “Exempted services” means taxable services which are exempt from the whole of the
service tax leviable thereon, and includes services on which no service tax is leviable under section 66 of Finance Act.
2(h) ‘Final Product’ means excisable goods manufactured or produced from inputs, or using
input service.
2(k) Input” means – (i) all goods, except light diesel oil, high speed diesel oil and motor spirit,commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production; (ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service.
Explanation 1. The light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever.
Explanation 2 . Input include goods used in the manufacture of capital goods which are
further used in the factory of the manufacturer
2(l) Input service” means any service – (i) used by a provider of taxable service for providing
an output service; or (ii) used by the 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 (The words were ‘from the place of removal’ upto 31-3-2008) and includes services used in relation to setting up, modernization, 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, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal
2(n) Job Work means processing or working upon of raw materials or semi-finished goods supplied to job worker, so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for the aforesaid process.
2(p) Output service” means any taxable service provided by the provider of taxable service, to a customer, client, subscriber, policy holder or any other person, as the case may be, and the expressions ‘provider’ and ‘provided’ shall be construed accordingly
3(1) Cenvat Credit is a ‘pool’ consisting of following duties and taxes, paid on input or capital
goods or input service
• Basic excise duty on indigenous inputs [Paid on goods specified in First Schedule to
CETA]. Corresponding CVD on imported goods is allowable.
• Education cess on manufactured excisable goods and CVD equal to education cess on
imported goods. This credit can be utilised only for payment of education cess on final
product or output services
• SAH (Secondary and Higher Education) Cess manufactured excisable goods and CVD
equal to SAH education cess on imported goods. This credit can be utilized only for
payment of SAH education cess on final product or output services.
• Service tax on input services paid u/s 66 of Finance Act.• Education cess paid on service tax. This credit can be utilised only for payment of
education cess on final product or output services.
• SAH Education cess paid on service tax. This credit can be utilised only for payment of
SAH education cess on final product or output services.
• Additional Customs Duty paid u/s 3(5) of Customs Tariff Act w.e.f. 1-3-2005 (SAD or
Special CVD). This credit will not be available to service providers [This duty is perceived
as in lieu of sales tax. It is payable @ 4%. on most of the products, with few exceptions.]
• National Calamity Contingent Duty (NCCD) leviable under section 136 of Finance Act,
2001 and corresponding CVD paid on imported goods. This credit can be used for
payment of NCCD on outputs only and not for any other duty.
• Additional Excise Duty paid under section 85 of Finance Act, 2005. This duty is payable
w.e.f. 1-3-2005 on pan masala and certain tobacco products, as specified in Seventh
Schedule to Finance Act, 2005 [Credit of Additional Excise Duty paid under section 85 of
Finance Act can be used for payment of this duty. Any other credit cannot be utilised
and balance amount is required to be paid in cash only].
3(2) Manufacturer can take Cenvat credit of goods in stock on day when the final product ceases to be exempted goods or becomes excisable.
3(4) Pool of ‘Cenvat Credit’ [as defined in rule 3(1)] can be utilised for any of the following –
• Any duty on any final product manufactured by manufacturer [Rule 3(4)(a)]
• Payment of ‘amount’ if inputs are removed as such or after partial processing [Rule
3(4)(b)]
• Payment of ‘amount’ on capital goods if they are removed as such [Rule 3(4)(c)]
• Payment of ‘amount’, if goods are cleared after repairs under rule 16(2) of Central
Excise Rules [Rule 3(4)(d)]
• Service tax on output service [Rule 3(4)(e)]
• Payment under Cenvat Credit Rule 6 of 10% ‘amount’ on exempted goods or reversal
of credit on inputs when common inputs or common input services are used for
exempted as well as dutiable final products – Explanation 1. to Cenvat Credit Rule 6(3)
• Reversal of Cenvat credit, if assessee opts out of Cenvat – Rule 11(2)
• Payment of ‘amount’ if goods sent for job work are not returned within 180 days – Rule
4(5)(a).
1st proviso to rule 3(4) Even if duty/tax is payable by 5th /6th /15th /16th of following month,credit can be taken only as available on last day of the current month
2nd proviso to rule 3(4) Restrictions on some credits [summarised above under rule 3(1)]
3(5) ‘Amount’ equal to Cenvat credit a vailed to be paid if capital goods or inputs removed ‘as
such’ from the factory
1st proviso to rule 3(5) A service provider cannot avail Cenvat credit of special CVD of 4% paid u/s 3(5) of Customs tariff Act.
2nd proviso to rule 3(5) If capital goods are removed after use (but not as waste and scrap), an ‘amount’ equal to Cenvat credit taken on the capital goods, reduced by 2.5% for each quarter of a year or part thereof, from date of taking credit.
3(5A) ‘Amount’ equal to duty on scrap va lue payable if capital goods are cleared as waste and
scrap. This ‘amount’ is eligible as Cenvat Credit, as per rule 3(6)
3(5B) If (i) inputs or (ii) capital goods before being put to use, are written off in books or provision made in books, ‘amount’ to be paid equal to Cenvat availed
3(5C) If duty on final products is remitted under rule 21 of Central Excise, Cenvat credit of duty
paid on inputs used in manufacture or such goods shall be reversed.
3(6) Cenvat credit of duty paid by EOU as per formula
3(7)(b) NCCD, Education cess, SAH cess and additional duty under section 157 of FA 2003 or 85 of FA 2005 can be used for respective duties only. Education cess of excise and service tax interchangeable. Similarly, SAH Education cess of excise
4(1) Cenvat credit can be taken immediately on receipt of goods in factory or premises of
service provider
4(2) Capital goods – Cenvat Credit Upto 50% in first financial year and balance in subsequent
years, if they are in possession of manufacturer.
4(3) Cenvat credit available if capital goods taken on leas, hire or loan agreement
4(4) Depreciation on capital goods should not be availed on the excise duty portion of value of
capital goods
4(5)(a) Inputs and capital goods can be sent to job worker and should be brought back in 180 days
4(5)(b) Restriction of 180 days does not apply to tools, dies, jigs and fixtures can be sent to job
worker
4(6) Final product can be cleared directly from place of job worker on obtaining permission from AC/DC, valid for a financial year
4(7) Credit of input services can be availed only after the output service provider makes payment of value of input services and the service tax payable on it, as shown in invoice of input service provider.
5 Refund if final product is exported.
5A Refund in case of Exports by exempted units in North-East Region and Sikkim
6(1) Cenvat credit is not admissible on such quantity of input or input service which is used in
manufacture of exempted goods or exempted services, except as provided in rule 6(2)
6(2) Manufacturer manufacturing both exempt and dutiable goods (or service provider providing taxable as well as exempt services), may maintain separate inventory and accounts of receipt and use of inputs and input services used for exempted goods/exempted output services. In such cases, he should not avail Cenvat credit of the inputs and input services which are used in exempted final services at all.
6(3)(i) If the manufacturer/service provider opts not to maintain such separate accounts, he has
to pay an amount equal to 10% of the value of such exempted goods/ 8% of value of exempted services. Such payment can be made by debit to Cenvat credit account or PLA [Explanation II to rule 6(3A) [amendment w.e.f. 1-4-2008. Earlier, in few cases as specified in rule 6(3)(a), the manufacturer had to reverse Cenvat credit. Earlier, a service provider of exempted and non-exempted services not maintaining separate accounts was eligible to utilise Cenvat credit only to the extent of 20% of service tax payable on output services, under erstwhile rule 6(3)(c) existing upto 31-3-2008].
6(3)(ii) Alternatively, the manufacturer/service provider can opt to pay an ’amount’ which is
proportional to Cenvat credit availed on exempted final product/exempted output services [amendment w.e.f. 1-4-2008
ExplantionI  I to Rule 6(3) Such option [rule 6(3)(i) or rule 6(3)(ii)] has to be exercised in respect of all
exempted goods manufactured and all exempted output services provided.
The option once exercised shall not be changed in remaining part of financial year
6(3A)(a) The assessee exercising option under rule 6(3)(ii) should inform prescribed details to
Superintendent, while exercising the option.
6(3A)(b) The manufacturer of goods or the provider of output service shall determine and pay,
provisionally, for every month amount of Cenvat credit attributable to input services used
in relation to manufacture of exempted product or provision of exempt services, on the
basis of ratios of previous year
6(3A)(c) At the year end, the manufacturer of goods or the provider of output service shall determine finally amount of Cenvat attributable to input services used in relation to manufacture of exempted product or provision of exempt services, on basis of finalised accounts.
6(3A)(d) If amount is found to be short paid, the difference should be paid by 30 th June of succeeding year.
6(3A)(e) In addition to the amount short-paid, the assessee will be liable to pay interest at the rate of twenty-four per cent per annum from the due date, i.e., 30th June till the date of payment, where the amount short-paid is not paid within the said due date.
6(3A)(f) If at the year end, it is found that the amount provisionally paid was more than the amount finally determined, the manufacturer of goods or the provider of output service may adjust the excess amount on his own, by taking credit of such amount.
6(3A)(g) The manufacturer of goods or the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within a period of fifteen days from the date of payment or adjustment, the prescribed particulars.
6(3A)(h) If assessee does not manufacture dutiable final products or taxable output service, he can
take credit but is not required to pay proportionate amount on provisional basis as provided in rule 6(3A)(b). However, at year end, he should pay amount on proportionate before 30th June.
ExplantionI I to Rule 6(3A) “Value” for the purpose of rules 6(3) and 6(3A) shall have the same meaning assigned to it under section 67 of the Finance Act, 1994 read with rules made thereunder or, as the case may be, the value determined under section 4 or 4A of the Central Excise Act, 1944 read with rules made thereunder
ExplantionI II to Rule 6(3A) The amount under rule 6(3) or 6(3A) shall be paid by 5th of following month (except in March, where it is payable by 31st March.
6(4) Capital goods used exclusively for manufacture of exempted goods or providing exempt
service are not eligible for Cenvat credit.
6(5) In case of 16 specified services, full Cenvat credit available even if service partly used for
exempted goods or exempted service.
6(6) If excisable goods are removed to SEZ, EOU, EHTP, STP, UN agencies or for exports or
removal of gold or silver arising in manufacture of copper or zinc by smelting, rules 6(1) to
6(4) do not apply i.e. payment of 10% ‘amount’ or proportionate reversal is not required.
7 The ‘Input Service Distributor’ [as defined in rule 2(m)] may distribute Cenvat Credit in
respect of service tax, among its manufacturing units or providing output service. The
credit distributed should not be more than the service tax paid.
7A The office of service provider where inputs were received can distribute the credit of duty paid on such inputs and capital goods to the service provider by issuing an invoice. Such office will have to be registered with Central Excise and submit returns etc. similar to first stage dealer andsecond stage dealer.
8 Inputs can be stored outside the factory, with permission of AC/DC
9(1) Cenvat Credit can be taken on the basis of –
• Invoice of manufacturer from factory
• Invoice of manufacturer from his depot or premises of consignment agent
• Invoice issued by registered importer
• Invoice issued by importer from his premises or consignment registered with Central
Excise
• Invoice issued by registered first stage or second stage dealer
• Supplementary Invoice by manufacturer
• Bill of Entry
• Certificate issued by an appraiser of customs in respect of goods imported through
foreign post office
• TR-6 or GAR-7 Challan of payment of tax where service tax is payable by other than
input service provider
• Invoice, bill or challan issued by provider of input service on or after 10-9-2004
• Invoice, Bill or Challan issued by input service provider under rule 4A of Service Tax
Rules.
Proviso to rule 9(1) If a first stage or second stage dealer mentions in his invoice that Cenvat credit of the special CVD paid u/s 3(5) of Customs Tariff Act is not admissible, buyer cannot avail the Cenvat credit.
9(2) Cenvat credit can be taken only if all the particulars as prescribed in Central Excise Rules, 2002 or Service Tax Rules, 1994 are contained in the eligible duty paying document. Otherwise, permission of AC/DC is required.
9(4) First stage dealer and second stage dealer to maintain proper records and pass on duty on
‘pro rata’ basis.
9(5) Manufacturer and provider of output service to maintain proper records. Burden of proof of admissibility of Cenvat credit is on him.
9(8) First stage dealer and second stage dealer to submit quarterly return within 15 days from
end of quarter.
9(10) Input service distributor to submit half yearly return within one month
9(11) Revised return of Cenvat credit by provider of output service within 60 days.
9A(1) Information relating to Principal Inputs to be submitted annually by 30th April of each Financial Year by specified manufacturers other than SSI, in form ER-5. Change also to be informed within 15 days
9A(3) Monthly return of receipts and consumption of Principal Inputs by specified manufacturers of excisable goods in form ER-6
10 transfer of unutilised Cenvat credit, if a manufacturer shifts his factory orprovider of output services shifts his business or a manufacturer/service provider transfers his factory/business on account of change in ownership or on account of sale, merger, amalgamation, lease or transfer of factory to a joint venture
11(2) Reversal of credit at the time of opting out by SSI unit by paying an ‘amount’ equivalent to
Cenvat credit on such inputs lying in stock orinputs contained in final products. Balance
Cenvat credit, if any, will lapse.
11(3) If final product is exempt subsequent to receipt of inputs, Cenvat credit on inputs lying in
stock as on date of such exemption to be reversed by payment of ‘amount’.
12 Full credit available in case of goods obtained from North Eastern States, J&K, Sikkim and
Kutch district, even if the manufacturer is exempt from duty
12(A) Procedures applicable to LTU14 Recovery of Cenvat wrongly availed with interest
15 Confiscation and penalty for contravention of provisions
15(A) General penalty of Rs. 5,000 for contravention of rules when no penalty is provided in rules.