CONDITIONS FOR TAKING CENVAT CREDIT ON INPUT SERVICES

Rule 3 of CENVAT credit allows the manufacturer or provider of output services to take credit of service tax paid on input services and utilizes the same against the payment of central excise or service tax. 

The term ‘input service’ is defined under Rule 2(l) as any service-

• used by a provider of output service for providing an output service; or
• used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal,

and includes services used in relation to 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 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; but excludes,-

• service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for -

• thereof; or construction or execution of works contract of a building or a civil structure or a part
• laying of foundation or making of structures for support of capital goods,

 except for the provision of one or more of the specified services; or

•  services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or
•  service of general insurance business, servicing, repair and maintenance , in so far as they relate to a motor vehicle which is not a capital goods,  except when used by -

• a manufacturer of a motor vehicle in respect of  a motor vehicle manufactured by  such person ; or
• an insurance company in respect of a motor vehicle insured or reinsured by such person; or

• such as those 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.

Rule 4 provides conditions for availing CENVAT Credit.   Rule 4(7) (as amended) imposes conditions on taking credit on input services.  

                        According to Rule 4(7)-

• The CENVAT credit in respect of input service shall be allowed on or after the day on which the invoice. Bill or as the case may be, challan referred to in Rule 9 is received;
• If the payment of the value of input services and the service payable as indicated in the invoice, is not made within three months of the date of the invoice, bill or, as the case may be, challan, the manufacturer or the service provider who has taken credit on such input services, shall pay an amount equal to CENVAT credit availed on such input service except the service tax paid as recipient of service;
• In case the said payment is made after the reversal of CENVAT credit, the manufacturer or the service provider shall be entitled to take the credit of the same;
• The credit shall be allowed in respect of service tax paid on reverse charge mechanism only after the service tax is paid to the credit of the Central Government;
• If any amount is refunded towards an input service or a credit note is received by the manufacturer or service provider, who has taken credit on such input service, an amount equal to the CENVAT credit taken in respect of the amount is refunded or credit is to be reversed;
• The CENVAT credit in respect of invoice, bill or as the case may be, challan referred to in Rule 9 issued before 01.04.2011 shall be allowed on or after the day on which payment is made of the value of input service and the service tax paid or payable as indicated in invoice, bill or, as the case may be, challan referred to in Rule 9;
• The manufacturer or provider of output service shall not take credit after one year (with effect from 01.03.2015) of the date of issue of any of the documents specified in Rule 9(1).
• The amount mentioned in this rule, unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, when such payment shall be made on or before the 31st day of the month of March;
•  If the manufacturer of goods or the provider of output service fails to pay the amount payable under this rule, it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken;

The following are the documents as specified in Rule 9(1):

• an invoice issued by-

• a manufacturer for clearance of inputs or capital goods from his factory or depot or from the premises of the consignment agent of the said manufacturer or from any other premises from where the goods are sold by or on behalf of the said manufacturer or inputs or capital goods as such;
• an importer;
• an importer from his depot or from the premises of the consignment agent of the said importer if the said depot or the premises, as the case may be, is registered in terms of the provisions of Central Excise Rules, 2002;
• a first stage dealer or a second stage dealer, as the case may be, in terms of the provisions of Central Excise Rules, 2002; or

• a supplementary invoice, issued by a manufacturer or importer of inputs or capital goods in terms of the provisions of Central Excise Rules, 2002 from his factory or depot or from the premises of the consignment agent of the said manufacturer or importer or from any other premises from where the goods are sold by, or on behalf of, the said manufacturer or importer, in case additional amount of excise duties or additional duty leviable under section 3 of the Customs Tariff Act, has been paid, except where the additional amount of duty became recoverable from the manufacturer or importer of inputs or capital goods on account of any non-levy or short-levy by reason of fraud, collusion or any wilful misstatement or suppression of facts or contravention of any provisions of the Excise Act, or of the Customs Act, 1962 or the rules made there under with intent to evade payment of duty;
• a supplementary invoice, bill or challan issued by a provider of output service, in terms of the provisions of Service Tax Rules, 1994 except where the additional amount of tax became recoverable from the provider of service on account of non-levy or non-payment or short-levy or short-payment by reason of fraud or collusion or willful mis-statement or suppression of facts or contravention of any of the provisions of the Finance Act or of the rules made there under with the intent to evade payment of service tax;
• a bill of entry; or
•  a certificate issued by an appraiser of customs in respect of goods imported through a Foreign Post Office; or
• a challan evidencing payment of service tax, by the service recipient as the person liable to pay service tax; or
• an invoice, a bill or challan issued by a provider of input service on or after the 10th day of, September, 2004; or
• a Service Tax Certificate for Transportation of goods by Rail (herein after referred to as STTG Certificate) issued by the Indian Railways, along with the photocopies of the railway receipts mentioned in the STTG certificate; or
• an invoice, bill or challan issued by an input service distributor under rule 4A of the Service Tax Rules, 1994.