The Central Board of Excise and Customs (CBEC) has issued a very detailed Circular (no. 943/04/2011-CX dated April 29, 2011) clarifying various issues that arose consequent to the recent amendments to the Cenvat Credit Rules, 2004.
The CBEC says trading is an exempted service and so, credit of any inputs or input services used exclusively in trading cannot be availed. Where credit is being taken for use in providing, exempted and taxable services, for calculating the value, the method normally followed by the concern for its accounting purpose as per generally accepted accounting principles should be used. All taxes for which set-off or credit is available or are refundable/refunded may not be included. Discounts are to be included.
Goods in respect of which the benefit of exemption under notification No. 1/2011-CE, dated March 1, 2011, is availed are exempted goods. Taxable services, whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken, are exempted services. Hence credit of capital goods used exclusively in manufacture of such goods or in providing such service is not allowed, says the Circular.
In a significant clarification, the CBEC says goods such as furniture and stationary used in an office within the factory are goods used in the factory and are used in relation to the manufacturing and hence credit of the same is allowed. Credit of all goods used in the factory is allowed unless it is specifically denied. The expression “no relationship whatsoever with the manufacture of a final product” must be interpreted and applied strictly and not loosely. The expression does not include any goods used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not.
The CBEC reiterates well settled position that Credit of input services used for repair or renovation of factory or office is allowed. Services used in relation to renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, are specifically provided for in the inclusive part of the definition of input services. It clarifies that activity of sale promotion is specifically allowed and on many occasions the remuneration for same is linked to actual sale and therefore, Credit is admissible on the services of sale of dutiable goods on commission basis.
While applying Rule 6, the expression “in or in relation” must be read harmoniously with the definition of “inputs”, says the CBEC. In the definition of inputs and input services, Credit of specified goods and services such as used in a club or outdoor catering etc. are not allowed.
The Circular clarifies that the list given in the definition is only illustrative. The principle is that Cenvat Credit is not allowed when any goods or services are used primarily for personal use or consumption of employees.
The Circular also clarifies the special provisions for banking and financial services, life insurance services and management of investment under the ULIP service. It also says Credit on services received before April 1, 2011, shall be available if its provision had been completed before that date.
These useful clarifications from CBEC will help the trade improve compliance and avoid unnecessary litigations. Email: tncr@sify.com
