Changes to CENVAT Credit Rules Take Effect April First

Posted by Reading Time: 4 minutes

DELHI – On April first, the Third and Fourth Amendments to India’s Central Value Added Tax (CENVAT) Credit Rules 2004 (CCR), which govern the CENVAT Credit of Central Excise Duty and Service Tax, will become effective. Additionally, the Central Board of Excise and Customs (CBEC) has provided the procedures for filing refund applications by a service provider under Rule 5B of the CENVAT CCR.

The first and second amendment rules to the CCR came into effect in early January.

Third Amendment Rules

The Third Amendment Rules were announced on February 24 via Notification No. 5/2014-CE (NT) to amend Rule 7 of the CCR.

Rule 7 concerns the distribution of credit on inputs, and the Third Amendment Rules will allow a Service Tax credit to be attributable to services used by one or more units engaged in the manufacture of exempted goods or rendition of exempted services. Additionally, pro-rata distribution of Service Tax credit will now be based on the turnover of units using the service mentioned previously during the “relevant period” to total turnover of units operational in the current year.

The “relevant period” will now be defined as:

(a) If the assessee has turnover in the ‘financial year’ preceding to the year during which credit is to be distributed for month or quarter, as the case may be, the said financial year; or

(b) If the assessee does not have turnover for some or all the units in the preceding financial year, the last quarter for which details of turnover of all the units are available, previous to the month or quarter for which credit is to be distributed.

Fourth Amendment Rules

The Fourth Amendment Rules 2014 were announced on February 28 via Notification No. 9/2014-CE (NT) to amend Rule 9 of the CCR.

In short, this amendment will add “registered importer” to Rule 9, sub-rule (8), which deals with documents and accounts, thereby requiring registered importers to submit a prescribed return in electronic form to the Superintendent of the Central Excise within 15 days from the end of each quarter.

Rule 9, sub-rule (8) currently reads:

Provided that where a manufacturer is availing exemption under a notification based on the value or quantity of clearances in a financial year, he shall file a quarterly return in the form specified, by notification, by the Board within twenty days after the close of the quarter to which the return relates.

(8) A first stage dealer or a second stage dealer, as the case may be, shall submit within fifteen days from the close of each quarter of a year to the Superintendent of Central Excise, a return in the form specified, by notification, by the Board.

As per the Fourth Amendment, the words “or registered importer” will be inserted after the words “second stage dealer.”

Filing Refund Applications

Earlier this month on March 3, the CBEC also outlined the procedures for filing refund applications by service providers under Rule 5B of the CCR, and for claiming refund of unutilized CENVAT credit on inputs and input services before or after July 1, 2012.

The original notification titled Notification No. 12/2014 – Central Excise (N.T.), dated March 03, 2014 can be found online here on the CBEC’s website with the below section of most relevance:

1. Safeguards, conditions and limitations. –

(a) the refund shall be claimed of unutilised CENVAT credit taken on inputs and input  services during the half year for which refund is claimed, for providing following output  services namely:-

(i) renting of a motor vehicle designed to carry passengers on non abated  value, to any person who is not engaged in a similar business;

(ii) supply of manpower for any purpose or security services; or

(iii) service portion in the execution of a works contract;  (hereinafter the above mentioned services will be termed as partial reverse charge services).

The original notification additionally outlines how to calculate the refund of CENVAT credit for qualifying companies as stated above.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam in addition to alliances in Indonesia, Malaysia, Philippines and Thailand as well as as well as liaison offices in Italy and the United States.

You can stay up to date with the latest business and investment trends across India by subscribing to Asia Briefing’s complimentary update service featuring news, commentary, guides, and multimedia resources.

Related Reading

Taking Advantage of India’s FDI Reforms
In this edition of India Briefing Magazine, we explore important amendments to India’s foreign investment policy and outline various options for business establishment, including the creation of wholly owned subsidiaries in sectors that permit 100 percent foreign direct investment. We additionally explore several taxes that apply to wholly owned subsidiary companies, and provide an outlook for what investors can expect to see in India this year.

Changes to India’s Patent Rules

India’s Corporate Social Responsibility Mandate: The Companies Act 2013

India to Restructure Bilateral Investment Promotion Agreement Framework