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Re: Service Tax- Change in CENVAT Credit Rules 2004.

Attention is invited to our Circular No. FD/HOA&T/02/2005 dated 24.1.2005 wherein detailed guidelines as per CENVAT Credit Rules 2004 were communicated. The extract of relevant paras which are relevant for availment of CENVAT Credit are as under:

“Where the Bank maintain separate records for taxable, non-taxable and exempted services in respect of receipt, utilization and balance of input service meant for use in providing taxable and exempted output service, it can take credit of quantum of input services which is intended for use in providing taxable services. However, where no separate records is maintained by the bank it can only claim credit of 20% of the amount of service tax payable on taxable output service. Thus to take full advantage of input credit against output services the maintenance of separate records is necessary. Therefore the branches are advised to maintain separate records to take full advantage of the input credit of service tax.

The branches must maintain separate record/register indicating the serial number and date of documents on which service tax is paid, Service Tax Registration No., name of the input service provider, description and value of input services, service tax credit paid, service tax credit utilized for payment of service tax.”

It is observed that field functionaries are not maintaining separate records and are availing CENVAT Credit to the extent of 20% of the output services.

CENVAT Credit Rules 2004 have been amended as per Clause 85 of the Finance Bill 2008 to change the procedure in relation to availment of CENVAT Credit. Rule 6 is being amended to provide the following options to a provider of output services, using common inputs or input services for providing taxable as well as exempted services and opting not to maintain separate accounts, namely:-

(i)

shall pay 8% on amount of the value (to be determined in accordance with section 67 of the Finance Act 1994) of the exempted service; OR

(ii)

shall pay (reverse) the CENVAT credit attributable (to be worked out in a manner prescribed in the rule) to the inputs and input services used for providing exempted service, (The above changes have been made effective from 1.4.2008).

The method of availing 20% CENVAT Credit (where no separate account is maintained) has been discontinued w.e.f. 1.4.2008.

As per provisions of rule 6(3) of CENVAT Credit Rules, 2004, every assessee, opting not to maintain separate accounts for taxable service and non-taxable services, has now two options to avail CENVAT Credit i.e. (i) pay 8% on amount of the value of the exempted service, or (ii) follow the procedure mentioned under Rule 6(3A) to pay (reverse) the credit attributable to turnover of non-taxable services.

Apart from this, a declaration has to be filed by the branches to the Department to opt for this scheme.

In view of the above, it has been decided that Bank should opt for the option (ii) as the

same is comparatively beneficial for the Bank. Accordingly, the following action points

have emerged:

Procedure for availing option (ii) (i.e. opting to reverse the credit attributable to non-taxable turnover)

Step 1 : Information to be furnished to Jurisdictional Superintendent before opting for this scheme.

A declaration has to be filed by the branch to the Revenue Department to opt for this

scheme. The details to be furnished under the new scheme are:

(i)

Name, address and registration No. of provider of output service i.e. of branch;

(ii)

Date from which the option under this clause is exercised or proposed to be exercised i.e. 1 st April 2008;

(iii)

Description of taxable services;

(iv)

Description of exempted services;

(v)

CENVAT Credit or inputs and input services lying in balance as on the date of exercising the option under this condition.

Aforesaid particulars have to be submitted immediately to the concerned Superintendent

of Service Tax.

Step 2: Provisional CENVAT Credit to be taken by Branch on monthly basis.

Branch shall calculate the eligible amount of monthly CENVAT Credit in respect of input services and avail the same on provisional basis in the ratio of value of taxable and exempted services provided in the preceding year as per audited figures. Branch shall avail such provisional credit (estimated credit) while discharging its monthly Service Tax liability.

Calculation of claim of CENVAT on Input services.

Calculation of ratio for calculating estimated CENVAT Credit i.e. estimated %

 

Value of taxable services in

   

=

preceding Financial Year Total value of services (exempted + taxable in preceding year)

X

100

Provisional (Estimated) CENVAT Credit to be taken on Monthly Basis.

Total

 

Total CENVAT on input services

 

CENVAT in respect of

     

CENVAT in respect of 16

Estimated

admissible

=

during relevant year including credit received from Administrative Office (ISD).

-

services prescribed in Rule 6 (5) of CENVAT Credit Rules, 2004.

X

Estimated

+

services

Credit

on

%

prescribed in Rule 6 (5) of CENVAT Credit Rules,

2004.

Input

services.

Note: Rule 6 (5) of CENVAT Credit Rules, 2004 provides that in respect of specified “16” services, Rule 6 (3) i.e. the Rule for reversal of CENVAT Credit shall not be applicable. In other words, 100% CENVAT Credit can be availed in respect to the specified “16” services given as under:-

1. Consulting Engineer

2. Architect

3. Interior Decorator

4. Insurance Auxiliary Services

5. Maintenance or Repair

6. Foreign Exchange Broker other than Banking & Financial Institution with NBFC & Body Corporate.

7. Intellectual property service other than copy right.

8. Management Consultant

9. Real Estate Agent

10. Security Agency

11. Technical Testing & Analysis Agency

12. Scientific or Technical Consultancy

13. Banking & Other Financial Services

14. Erection, Commissioning or Installation

15. Technical Inspection or Certification

16. Construction services in respect of Commercial or Industrial Buildings or Civil Structures.

For example: During the financial year 2007-08, if a branch has earned an income of Rs.8,50,000/- from services exempted from Service Tax and Rs.1,50,000/- from taxable services on which Service Tax is applicable, then ratio for calculating estimated

CENVAT Credit to be availed will be worked out as under:-

1,50,000X100

=

15%

(8,50,000+1,50,000)

On the basis of above, branch has to avail CENVAT Credit equivalent to 15% of the CENVAT available i.e., [Credit of duty on inputs / Service Tax paid on Input Services] or while making the payment of Service Tax for each month during the Financial Year 2008-09. The remaining 85% of CENVAT is to be booked either as expenditure or to be capitalized in the cost of asset as the case may be.

Further, if any Service Tax is paid, on availment of aforesaid 16 specified services, then 100% CENVAT credit is to be availed on such Service Tax paid on such services in addition to 15% as discussed in above example.

Information to be given in Half Yearly Returns.

Branches shall provide the following details in its Half Yearly Service Tax Return for each month.

(a) In respect of Input services

Particular

Month

Total CENVAT Credit eligible to be availed on input services

XXXXX

Less : CENVAT Credit reversed on provisional basis of input services.

XXXXX

Total CENVAT Credit availed on provisional basis

XXXXX

Illustration: Continuing with the ratio in above example (i.e. 15% taxable services and 85% exempted services), above said proposition is illustrated as under:

Data for a given Month say April, 08

Value of taxable output Services

Rs.

13000

Service Tax @ 12.36%

Rs.

1606.80

Value of exempted output Services

Rs.

87,000

Duties and taxes paid:

 

Total Service Tax paid on input Services (including on 16 input services specified in rule 6(5)) used both for providing both taxable services and exempted services

Rs.

6,000

Service Tax paid on 16 input services specified in rule 6(5) commonly used for providing taxable and non-taxable services

Rs.

2,000

iii) Total CENVAT for April, 08 will be Rs. 2,600 (Rs. 600 + Rs. 2,000) as calculated hereunder.

Estimated Credit on Input services to be taken by assessee for relevant month.

=

6,000

-

2,000

X

15%

+

2,000

Note: Though the value of non-taxable services provided during April, 08 is 13% of the value of total services, yet CENVAT is to be claimed @ 15% i.e., ratio determined on the previous year’s turnover i.e., F.Y. 2007-08.

Information to be given in Half Yearly Returns

Assessee shall provide the following details in its half yearly service tax return for each month.

(a) In Respect of Input Services

Particular

Month (Rs.)

Total CENVAT Credit Availed on input Services

6,000

Less: CENVAT Credit reversed on provisional basis on input services.

3,400

Total CENVAT Credit availed on provisional basis

2,600

Step 3: Calculation of ‘Total Estimated CENVAT Credit’ availed by branches during the year and ‘Total Actual Admissible CENVAT Credit’ during the year.

At the end of Financial Year, branches shall calculate the ‘Total Actual Admissible Credit’ and ‘Total Estimated Credit’.

Total Estimated Credit

= “Estimated credit on input services” (claimed during the relevant Financial Year) = Total Actual Admissible Credit on input services.

Total Actual Admissible Credit

Calculation of claim of Actual CENVAT on Input Services.

Calculation of ratio

for

 

Value of taxable services in Relevant

     

calculating actual CENVAT Credit i.e. Actual %

=

Financial Year Total value of services (exempted + taxable in relevant year.

X

100

Total Actual Annual CENVAT Credit.

 

Total

 

Total CENVAT on input services

 

CENVAT in respect of

     

CENVAT in respect of 16

Actual

admissible

=

during relevant year including credit received from Administrative Office (ISD).

 

-

services prescribed in Rule 6 (5) of CENVAT Credit Rules, 2004.

X

Actual

+

services

 

Credit

on

%

prescribed in Rule 6 (5) of CENVAT

Input

services.

Credit Rules,

 

2004.

 

Illustration:

Total Estimated Credit = Rs. 7200 i.e., (Rs.48,000*15%) + Rs. 24,000 = Rs.31,200/- (claimed during the relevant financial year) (For the sake of easy calculation, monthly CENVAT available assumed to be Rs.6,000/-, out of which, monthly CENVAT from 16 specified services is assumed to be Rs. 2,000/-)

Total Actual admissible Credit

= Rs.6240 (Rs.48000*13%) + Rs.24,000 = Rs. 30240

Calculation of Claim of CENVAT on Input Services (Actual taxable services assumed to be 13%)

Calculation of Ratio for calculating actual CENVAT Credit i.e. Actual %

   

13000

     

=

 

1,00,000

X

100

Total CENVAT

 
 

Total Actual admissible Credit on Input Services

=

72000

-

24000

X

13%

+

24000

Step 4: Adjustment/payment of excess/short CENVAT Credit availed by branches.

Branches shall pay the CENVAT Credit on or before 30 th June of succeeding Financial Year if total estimated credit taken is MORE than total actual admissible credit. Interest @ 24% per annum shall be payable if there is delay in payment i.e. branches which make payment of differential CENVAT after the due date i.e. 30 th June.

Branches shall at their own take the additional CENVAT Credit if total estimated credit taken by them is LESS than total actual admissible credit.

1. In the Present Case, we assumed that the ratio of taxable value of service and exempted value of service is 15:85 on the basic of preceding Financial Year but at the end of the relevant Financial Year, the ratio comes out to be 13:87 ( i.e. the value of the taxable services is Rs.13,000 and the value of exempted services is Rs.87,000 ) . Accordingly total estimated CENVAT credit taken by us during the year is 15% of total CENVAT available i.e. Rs. 7200 + Rs.24,000 but total actual admissible credit comes out to be 13% i.e. Rs. 6240 + Rs. 24,000, so the branch is liable to pay additional CENVAT of Rs. 960/- up to 30 th June in order to avoid the interest @ 24% p.a.

Step 5: Information to be furnished to Jurisdictional Superintendent after making aforesaid payment/adjustment.

Branches shall inform to the Jurisdictional Superintendent of Central Excise within a period of 15 days from the date of additional payment or adjustment as explained in step

4 above.

Information given by the branches shall contain the following particulars,

namely:

(i)

Details of CENVAT Credit attributable to exempted goods and exempted services, month wise, for the whole Financial Year, determined provisionally and calculated as per step 2 &3 above.

(ii)

CENVAT Credit attributable to exempted goods and exempted services for the whole Financial Year, determined as per step 3 above.

(iii)

Amount short paid/determined as per step 4, along with the date of payment of the amount short paid,

(iv)

Interest payable and paid, if any, on the amount short paid, if payment is made after 30 th June of succeeding Financial Year.

(v)

Adjustment of CENVAT Credit if assessee had claimed the less CENVAT Credit on estimated basis.

All the concerned are advised to note these guidelines for strict compliance to avoid any punitive action.

For A.K.Batra & Associates Chartered Accountants

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