CENVAT Credit Rules, 2004 have been notified vide Notification No. 23/2004-Central Excise (NT) dt. 10-9-2004 [Rules 1 to 16]. The same is in supersession of CENVAT Credit Rules, 2002 (CCR 02) and Service Tax Credit Rules, 2002 (STCR). CCR 04 applies to the whole of India. However, it would not apply, to the extent it relates to availment and utilization of credit to the State of Jammu & Kashmir.

1. A Manufacturer or Producer of Final Products (i.e., excisable goods manufactured or produced from input or using input service) [MFP]

2. A provider of taxable output service [OSP] excluding a GTA

1. The amended definition of "inputs", wef 1/4/11, includes the following :

1. all goods used in the factory by the MFP or

2. any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products or

3. all goods used for generation of electricity or steam for captive use; or

4. all goods used for providing any output service

2. The amended definition of "inputs", wef 1/4/11, excludes the following:

1. light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol;

2. any goods used for :

• construction of a building or a civil structure or a part thereof; or

• laying of foundation or making of structures for support of capital goods

except for the provision of specified taxable services [viz. Port, Other Port, Airport, Commercial or Industrial Construction, Construction of Complex & Works Contract]

3. capital goods except when used as parts or components in the manufacture of a final product;

4. motor vehicles;

5. any goods, such as food items, goods used in a guest house, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; and

6. any goods which have no relationship whatsoever with the manufacture of a final product.

1. The amended definition of "input services", wef 1-4-2011, includes the following :

1. any Service used by OSP for providing an output service; or

2. any Service used by MFP, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal and includes:

• services used in relation to modernisation, renovation or repairs of a factory, premises of OSP or an office relating to such factory or premises

• advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation up to the place of removal

2. The amended definition of "input services, wef 1-4-2011, excludes the following:

1. services specified in 4(b)(ii) earlier and architect services [Specified Services] insofar as they are used for:

• construction of a building or a civil structure or a part thereof; or

• laying of foundation or making of structures for support of capital goods,

except for the provision of one or more of the specified services as stated above or

2. The taxable services [viz. General Insurance, Rent a Cab Scheme Operator, Authorised Service Station & Supply of Tangible Goods for use] inso far as they relate to a motor vehicle except when used for the provision of taxable services for which the credit on motor vehicle is available as capital goods; or

3. Services which are provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as leave or home travel concession, when such services are used primarily for personal use or consumption of any employee.

1. CENVAT credit shall not be allowed on such quantity of inputs or input services which is used in the manufacture of exempted goods or exempted services except in the manner specified. [Refer para 11 hereafter].

2. No CENVAT credit shall be allowed on CG which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the FP which are exempt under SSI Exemption Scheme.

3. CENVAT credit on CG shall not be allowed in respect of that part of value of CG which represents the amount of SDT on such CG which the manufacturer or OSP claims as Depreciation u/s. 32 of Income-tax Act, 1961.

4. In cases where, under a Notification abatements have been claimed by specified OSP, CENVAT credit of duties paid on inputs /capital goods or Service Tax paid on Input Services cannot be availed.

5. In cases where an OSP opts for Works Contract Composition Scheme, CENVAT Credit of duties paid on inputs, cannot be availed.

1. CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of OSP.

2. i) The CENVAT credit in respect of CG received in a factory or in the premises of the OSP at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent of the duty paid on such CG in the same financial year. [However, CENVAT credit in respect of CG shall be allowed for the whole amount of the duty paid on such CG in the same financial year if such CG are cleared as such in the same financial year.]

ii) The balance of CENVAT credit may be taken in any financial year subsequent to the financial year in which the CG were received in the factory of the manufacturer, or in the premises of OSP, if the CG are in the possession on the MFP or OSP in such subsequent year.

iii) An amendment has been made w.e.f. 1-4-2010 to provide that SSI units can avail 100% CENVAT Credit on Capital goods in the year of receipt. [SSI unit shall be eligible if aggregate value of clearances of all excisable goods for home consumption in the preceding financial year computed in a prescribed manner does not exceed Rs. 400 lakhs]

3. The CENVAT credit in respect of the CG shall be allowed to a manufacturer / OSP even if such CG are acquired by him on lease, hire purchase or loan agreement, from a financial company.

4. The amended Rule 4(7) of CCR 04 provides that CENVAT Credit on input services shall be available on receipt of invoice, Bill or, as the case may be, challan referred to in Rule 9 raised on or after 1/4/11 (except in cases of reverse charge) as long as the payment is made within three months from the date of the invoice.
   
   However, if the payment is not made within 3 months the same would have to be reversed and will be re-available as credit whenever payments are being made.
   
   In case of an "input service" where the Service tax is paid under reverse charge by the recipient of the service, the CENVAT credit shall be available only when payment is made of the value of input service.

5. An amendment is made in Rule 4(7) to provide that, CENVAT Credit in respect of an Invoice, Bill or Challan referred in Rule 9 of CCR 04 which is issued before 1/4/11, shall be allowed on the day on which payment is made of the value of input service & Service tax.

                (CENVAT Credit shall not be utilized for payment of duty on goods in respect of which exemption under Notification No 1/11 – CE dt. 1/3/11 is availed.)

2. i) When inputs or CG on which CENVAT credit has been taken, are removed as such from the factory, or premises of OSP, the MFP or OSP, shall pay an amount equal to the credit availed in respect of such inputs or CG and such removal shall be made under the cover of an invoice.
   
   ii) However, such payments shall not be required to be made where any inputs CG are removed outside the premises of the OSP for providing the OS.
   
   iii) W.e.f. 13-11-2007, if the CG on which CENVAT Credit has been taken are removed after being used, the MFP or OSP shall pay an amount equal to the CENVAT Credit taken on the said CG reduced by 2.5% for each quarter of year or part thereof from the date of taking the CENVAT Credit.
   
   W.e.f. 27-2-2010 a higher rate of depreciation has been specified in case of removal of Computers & Computer peripherals.
   
   iv) If the Value of inputs or CG (before put to use) on which CENVAT Credit has been taken is fully or partially written off (or such provision is made) in the books of account, the MFP or OSP shall pay an amount equal to CENVAT Credit in respect of said inputs/CG.

3. Credit of EC on excisable goods/taxable services and the SHEC on excisable goods/taxable services can be utilized, either for payment of EC on excisable goods/SHEC on excisable goods or for payment of EC/SHEC on taxable services.

1. CENVAT Credit in respect of input or input services which is used in the manufacture of FP which is cleared for export under Bond or used in Intermediate product which is cleared for export or providing OS which is exported, shall be allowed to be utilized by MFP or OSP towards payment of:

i) Duty of excise on any FP cleared for home consumption or for export on payment of duty; or

ii) service tax on output service.

2. Where for any reason such adjustment is not possible, the MFP or OSP shall be allowed to claim refund of such amount, subject to compliances of specified procedures,

3. No refund of credit shall be allowed if the MFP or OSP avails of drawback, or claims a rebate of duty under CER in respect of such duty.

4. "Output Service which are exported" means any OS exported in accordance with the Export of Services Rules, 2005.

11.1 Rule 6(1) has been amended, wef 1-4-2011 to provide that CENVAT Credit shall not be allowed on "inputs used in or in relation to the manufacture of exempted goods or for provision of exempted services" or "input services" used in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services

11.2 Rule 6(2) has been substituted, wef 1-4-2011 to provide that, where a MFP or OSP avails CENVAT credit in respect of any inputs or input services and manufacturers such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, the MFP/ OSP shall maintain separate accounts for the following :

1. receipt, consumption and inventory of inputs used :

i) in or in relation to the manufacture of exempted goods;

ii) in or in relation to the manufacture of dutiable final products excluding exempted goods;

iii) for the provision of exempted services;

iv) for the provision of output services excluding exempted services;

2. receipt and use of input services :

i) in or in relation to the manufacture of exempted goods and their clearance upto the place of removal;

ii) in or in relation to the manufacture of dutiable final products, excluding exempted goods, and their clearance upto the place of removal;

iii) for the provision of exempted services; and

iv) for the provision of output services excluding exempted services,

shall take CENVAT credit only on inputs stated in a (ii) & (iv) above and input services stated in b (ii) & (iv) above

11.3 Rule 6(3) has been substituted, wef 1/4/11, specifying the following options to a MFP / OSP:

1. Payment of an amount equal to five per cent of value of the exempted goods and exempted services; or

2. Payment of an amount as determined under Rule 6(3A) or

3. Maintenance of separate accounts for the receipt, consumption and inventory of inputs and take CENVAT credit only on inputs stated in Paras 11.2 (a)(ii) & (iv) above and pay an amount as determined under Rule 6(3A) in respect of input services.

11.4 The following has also been provided in substituted Rule 6(3)/6(3A) wef 1-4-2011:

1. If any part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs and input services, used for providing such taxable service, shall be taken then the amount stated in 11.3(a) above shall be five per cent of the value so exempted.

2. Credit shall not be allowed on inputs used exclusively in or in relation to the manufacture of exempted goods or for provision of exempted services and on input services used exclusively in or in relation to the manufacture of exempted goods and their clearance up to the place of removal or for provision of exempted services.

3. No CENVAT credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services.

4. Payment of an amount under Rule 6(3) shall be deemed to be CENVAT credit not taken for the purpose of an exemption notification wherein any exemption is granted on the condition that no CENVAT credit of inputs and input services shall be taken.

11.5 Rule 6(3B) has been inserted, wef 1-4-2011 to provide that, notwithstanding anything contained in Rules 6(1), (2) and (3), a banking company and a financial institution including a non-banking financial company, providing taxable service specified in Section 65(105) (zm) of the Act shall pay every month an amount equal to fifty per cent of the CENVAT credit availed on inputs and input services in that month.

11.6 Rule 6(3C) has been inserted, wef 1-4-2011 to provide that, notwithstanding anything contained in Rules 6(1), (2), (3) and (3B) a Service Provider providing the specified taxable services [viz. Life Insurance and ULIP] shall pay every month an amount equal to twenty per cent of the CENVAT credit availed on inputs and input services in that month.

11.7 An Explanation has been inserted, wef 1-4-2011, to the effect that "Value" for the purpose of Rule 6(3) & (3A) shall :

1. have the same meaning as assigned to it under Section 67 of the Act, read with rules thereunder or, as the case may be, the value determined under Section 3, 4 or 4A of the Central Excise Act, 1944 read with rules thereunder.

2. in the case of a taxable service, when the option available under sub-rules (7), (7B) or (7C) of rule 6 of the Service Tax Rules, 1994, or the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007 has been availed, shall be the value on which the rate of Service tax under of the Act, read with an exemption notification, if any, relating to such rate, when applied for calculation of service tax results in the same amount of tax as calculated under the option availed.

3. in the case of trading, "Value" for the purpose of Rule 6(3) and 6(3A) shall be the difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or ten per cent of the cost of goods sold, whichever is more.

11.8 The procedure prescribed under Rule 6(3A) of CCR 04 requires the MFP/OSP to comply with following:

1. Intimate in writing to the Superintendent of Central Excise, giving the specified particulars;

2. Determine and pay provisionally every month, an amount equivalent to CENVAT Credit attributable to manufacture of exempted goods/provision of exempted services in accordance with the formula prescribed in Rule 6(3A)(b) of CCR 04;

3. Determine finally, the amount of CENVAT Credit attributable to exempted goods/exempted services for the whole financial year, in accordance with the formula prescribed in Rule 6(3A)(c) of CCR 04;

4. Determine shortfall/surplus in payment of CENVAT Credit;

5. Pay the shortfall by 30th June. In case of delay, interest would be payable at the rate of 24% per annum;

6. Adjust the excess amount on their own by taking credit of such amount; and

7. Intimate in either case to the jurisdictional Superintendent of Central Excise, within 15 days from the date of payment/date of adjustment giving the specified particulars.

11.9 The aforesaid provisions shall not be applicable in case excisable goods removed without payment of duty are cleared to units in SEZ (or to a developer of a SEZ), 100% EOU, EHTP, STP, specified international projects, for Export under Bond, supply to mega power projects under specified circumstances etc.

11.10 A retrospective amendment is made in Rule 6 w.e.f. 10-9-2004, for resolvement of disputes, in cases where a dispute relating to adjustment of credit on inputs used in or in relation to exempted final products for the period from 10-9-2004 to 31-3-2008 is pending as on the date of the enactment of Finance Bill, 2010. A manufacturer availing CENVAT Credit in respect of any inputs or input services and manufacturing final products which are dutiable as well as exempted and desirous of resolving pending dispute can pay an amount equivalent to CENVAT Credit attributable to the inputs or input services used in or in relation to the manufacture of exempted goods before or after the clearance of such goods along with interest at the rate of 24% p.a. from the due date till the date of payment.

11.11 Rule 6(6A) has been inserted, wef 1-4-2011 to provide that, the provisions of Rule 6(1), (2), (3) and (4) shall not be applicable in case the taxable services are provided without payment of service tax, to a Unit in a SEZ or to Developer of a SEZ for their authorised operations.

1. ISD has been defined to mean an office of MFP or OSP which receives invoice issued under Rule 4A of Service Tax Rules, 1994 (STR) towards purchase of input services and issues invoice, bill or challan for distributing the credit of service tax paid on said services to such MFP or OSP.

2. ISD may distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or units providing OS, subject to the following conditions:

1. The credit distributed against a document should not exceed the amount of service tax paid thereon; or

2. Credit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed.

3. W.e.f. 16-6-2005, ISD is required to be registered, with Service Tax Dept.

13. W.e.f. 1-4-2008 a new Rule 7A is inserted under CCR 04, to prescribe a procedure to enable OSP to take credit on inputs and CG on the basis of invoice, bill or challan issued by its other offices or premises. Rules relating to Regis-tered Dealer Mechanism under Central Excise shall apply mutatis mutandis to such offices or premises of the OSP.

14. Documents & Accounts

1. The CENVAT credit shall be taken by MFP/OSP/ISD be on the basis of specified duty/tax paid documents. [Refer Rule 9(1) of CCR 04]

2. Rule 9(2) has been amended to provide for availability of credit even though any document may not contain all the particulars specified subject to a condition that Deputy Commissioner of Central Excise is satisfied that goods or services covered by the said document have been received and accounted for in the books of account of the receiver.

3. The MFP or OSP taking CENVAT credit on input or CG or input service, or the ISD distributing CENVAT credit on input service is required to take all reasonable steps to ensure that the input or CG or input service in respect of which he has taken the CENVAT credit are goods or services on which the appropriate duty of excise or service tax as indicated in the documents accompanying the goods or relating to input service, has been paid.

4. The CENVAT Credit in respect of input or CG purchased from a first stage dealer or second stage dealer shall be allowed only if such first stage dealer or second stage dealer, as the case may be, maintains records indicating the fact that the input or CG was supplied from the stock on which duty was paid by the producer of such input or CG and only an amount of such duty on pro rata basis has been indicated in the invoice issued by him.

5. The MFP /OSP shall maintain proper records for the receipts, disposal, consumption and inventory of the input and CG in which the relevant information regarding the value, duty paid, CENVAT credit taken and utilized, the person from whom the input or CG have been procured is recorded and the burden of proof regarding the admissibility of the CENVAT credit shall lie upon the MFP/OSP taking such credit.

6. The MFP / OSP shall maintain proper records for the receipt and consumption of the input services in which the relevant information regarding the value, tax paid, CENVAT credit taken and utilized, the person from whom the input service has been procured is recorded and the burden of proof regarding the admissibility of the CENVAT Credit shall be upon the MFP/OSP taking such credit.

7. Returns required to be filed in the prescribed form are as under:

Person	Periodicity	Due Date
Manufacturer of FP	Monthly/ Quarterly (SSI)	10 days from the close of Month 10 days from the close of Quarter
First stage or second stage Dealer	Quarterly	15 days from the close of Quarter
OSP availing CENVAT Credit	Half Yearly	End of the month following the Quarter/ Half year
ISD	Half Yearly	End of the month following the half year

8. W.e.f. 1-3-2007 Rule 9 has been amended to allow an assessee to rectify mistakes and file revised return within 60 days from the due date from filing of original return.

1. If a MFP shifts his factory to another site or the factory or if a OSP shifts or transfer his business is transferred on account of change in ownership or on account of sale, merger, amalgamation, lease or transfer of the factory to joint venture with the specific provision for transfer of liabilities of such factory, then, MFP/OSP shall be allowed to transfer the CENVAT credit lying unutilized in his accounts to such transferred, sold, merged, leased or amalgamated factory.

2. The transfer of the CENVAT credit shall be allowed only if the stock of inputs as such or in process, or the CG is also transferred along with the factory or business premises to the new site or ownership and the inputs, or CG on which credit has been availed of are duly accounted for to the satisfaction of the Central Excise Authorities.

Any amount of credit earned by a MFP under CCR 02 as they existed prior to the 10-9-2004 or by a OSP under the STCR, as they existed prior to the 10-9-2004, and remaining unutilized on that day shall be allowed as CENVAT credit to such MFP/OSP under these Rules, and shall be allowed to be utilized in accordance with CCR 04.

In cases where the CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the MFP or OSP and the provisions of sections 11A and 11AB of CEA or sections 73 and 75 of the Act, shall apply for effecting such recoveries.

1. If any person, takes CENVAT credit in respect of input or CG/in respect of Input Services wrongly or contravenes any of the provisions of these rules in respect of any input or CG then:

• all goods shall be liable to confiscation and

• such person, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention has been committed, or Rs. 2,000/-, whichever is greater.

2. In cases where the CENVAT credit in respect of input or CG/in respect of input services has been taken or utilized wrongly on account of fraud, wilful misstatement, collusion or suppression of facts, or contravention of any of the provisions of CEA/CER with an intention to evade payment of duty, then, the MFP/OSP shall also be liable to pay penalty in terms of the provisions of section 11AC of CEA/Section 78 of the Act.

3. W.e.f. 1-3-2008, Rule 15A is inserted under CCR 04, to provide for a general penalty up to Rs. 5,000 in case of contravention of any of the provisions of the Rules for which no specific penalty is provided.