DEVIL ARRIVES – Amendment in Cenvat Credit Rules' 2004
1. Rule 4(1) of Cenvat Credit Rules' 2004 amended with major impact (applicable e.f. 1st Sept' 2014)
This rule specifies condition for taking cenvat credit on Inputs. New proviso has been added in this rule which states as follows -
"Provided also that the manufacturer or the provider of output service shall not take Cenvat credit after 6 months of the date of issue of any of the documents specified in rule 9(1).";
Pre amendment, time limit for taking cenvat credit was not prescribed. Assessee used to take the belated cenvat credit also. Now, the condition of 6 months has been prescribed for Input as well as Input Services.
2. Rule 4(7) Cenvat Credit Rules' 2004 amended with major impact (applicable e.f. 11th July' 2014 and 1st Sept' 2014)
This rule specifies condition for taking cenvat credit on Input Services. New proviso has been substituted for the first and second proviso which states as follows –
- "Provided that in respect of Input Service where whole of the service tax is liable to be paid by the recipient of service, credit shall be allowed after the service tax is paid: (Applicable e.f. 11th July' 2014)
Earlier the value of input service was also required to be paid to the service provider. Now, this condition has been dispensed with. Hence, pay tax under 100% reverse charge and take cenvat credit.
- Provided further that in respect of an Input Service, where the service recipient is liable to pay a part of service tax and the service provider is liable to pay the remaining part,
→The Cenvat credit in respect of such input service 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:
With this amendment, provisions for partial reverse charge have also been considered now. Cenvat credit can be availed after paying value of input service as well as service tax. (Applicable w.e.f. 11th July' 2014)
- "Provided also that the manufacturer or the provider of output service shall not take Cenvat credit after 6 months of the date of issue of any of the documents specified in rule 9(1)".
(Applicable w.e.f. 1st Sept' 2014)
Pre amendment, time limit for taking cenvat credit was not prescribed. Assessee used to take the belated cenvat credit also. Now, the condition of 6 months has been prescribed for Input as well as Input Services.
GIST (FOR SERVICE PROVIDER AS WELL AS MANUFACTURER)
→ Cenvat Credit on Input [Rule 4(1) of Cenvat Credit Rules' 2004]Cenvat Credit can be availed only within 6 months from the date of receipt of invoice, etc.
→ Cenvat Credit on Capital Goods [Rule 4(2) of Cenvat Credit Rules' 2004]
Cenvat Credit can be taken at any time after the receipt of capital goods in premises.
(6 month period is not applicable)
→ Cenvat Credit on Input Service [Rule 4(7) of Cenvat Credit Rules' 2004]
In case of 100% Reverse Charge
Cenvat credit to be availed after payment of service tax. (6 Month period is applicable from date of payment of service tax)
In case of Partial Reverse Charge
- Credit on portion of SP
Cenvat Credit is available after payment of Value and Tax to the service recipient (6 Month period is applicable from date of invoice).
- Credit on portion of SR
Rule silent. As per my interpretation, Cenvat credit to be availed after payment of value to the service recipient and service tax to the government. (6 Month period is applicable from date of invoice)
In case of Other Input Services
Cenvat credit to be available on the day the invoice is received. (6 Month period is applicable from date of invoice).
If payment of Service Tax and Value is not made to the service recipient within 3 months, then pay Cenvat Credit and then re-avail after its payment (6 Month period is applicable).
Now the moot question is that whether the provision for taking cenvat credit within 6 months is applicable on invoices issued w.e.f. 1st Sept' 2014 only or it is also applicable on invoices issued prior to this date?
In this respect it is mentioned that in the recent judgment passed by Mumbai Tribunal in case of Ashok Leyland Ltd vs. Commissioner of Central Excise, Nagpur (2014 TIOL 2102 CESTAT MUM) it was held that as per Rule 57G of CER, 1944 time limit of six months would be applicable even for the consignment which had arrived before the introduction of the procedural restriction.
Rule 57G of CER, 1944 was same as Rule 4(1) and Rule 4(7) of cenvat credit rules'2004. Rule 57G of CER' 1944 specifically provided that "no credit under sub-rule (3) shall be taken by the manufacturer unless the inputs are received in the factory under the cover of specified documents." Further, sub-rule (5) specifically provided that "credit shall not be taken by the manufacturer after six months of the date of issue of any document specified in sub-rule (3)."
The Bench adverted to the decision in Osram Surya (P) Ltd. vs. CCE, Indore – 2002-TIOL-64-SC-CX where the Apex Court observed that the substantive right had not been taken away by the introduction of the proviso to the Rule but a procedural restriction was introduced and which was permissible in law. Inasmuch as the time limit of six months would be applicable even for the consignment which had arrived before the introduction of the said proviso.
Thus, applying the ratio of this judgment, time limit of 6 months might be applied to invoices issued prior to 1 September, 2014.
(Author -CA Raman Singla, Partner- Indirect Tax Professionals, www.indirecttaxprofessionals.com ,Mail: caramansingla@gmail.com)
Arye wah! Instructions to reduce hardship of taxpayer in Income Tax Scrutiny
CA Umesh Sharma
Arjuna (Fictional Character): Krishna, recently on 7th November 2014, the Central Board of Direct Taxes has issued instructions for reducing hardship of taxpayers in Income tax scrutiny. But Krishna, what is this scrutiny?Krishna (Fictional Character): Arjuna, the taxpayer files his Income Tax Return. Income Tax Scrutiny means detailed assessment of Income Tax return by Income tax department. After collecting and verifying particular information about taxpayer, the filed return and books of accounts, etc. are examined by the department to check whether they are correct or not. Compliance of income tax provision by taxpayer is checked. Many myths and believes are there in the mind of the taxpayer regarding this.
Arjuna: Krishna, Please explain what is the method of Scrutiny?
Krishna: Arjuna, Income tax department now checks tax compliance with the help of Information Technology. Income Tax Department is choosing taxpayers for scrutiny by collecting information from various departments like Land records, sales tax, excise, etc. about taxpayers PAN, etc. According to section 143, Income tax Department issues scrutiny notice within six months from the end of the financial year in which return is filed. E.g. If return for F.Y. 2013-14 is filed on 25th September 2014, then Income tax department may issue notice up to 30th September 2015. After sending notice officer generally gives questionnaires to the taxpayer. As per questionnaire information is required to be given and on the basis of same Income tax liability is decided. All documents, supporting of expenses, books of accounts, etc. are required to be submitted to Income Tax Officer within specified time. Help of the tax expert can be taken by taxpayer if required. If the Income Tax Officer is satisfied and everything is correct as per law, then Assessment order is issued. Further if any dispute arises then the taxpayer and income tax department may appeal on the disputed matter.
Arjuna: Krishna, What are the criterias for selecting cases for scrutiny?
Krishna: Arjuna, generally department selects cases for scrutiny through: 1) Computer Assisted Scrutiny Selection (CASS) 2) Manual process, i.e., Income tax officer after permission of senior persons may issue scrutiny notice. There are various criterias for selecting cases for scrutiny which depends on case to case, some of the important out of them are:
- If taxpayers have income in 26AS statement and the same income is not shown in income tax return or if there is any major variation.
- If there is major variation in the Gross profit/net profit ratio of current year and previous year.
- If Rs. 10 lakhs or more cash is deposited in saving bank accounts.
- If Rs. 2 lakhs or more is spent through Credit card.
- If mutual funds were purchased for Rs. 2 lakhs or more.
- If immovable assets of Rs. 30 lakhs or more is purchased or sold.
- If there are huge debtors and creditors in books of accounts.
- If Information is collected from various departments like Sales tax, Service Tax, etc. and the same needs to be verified for probable tax evasion.
- If income tax department has issued AIR notice and taxpayer has not replied to the notice.
- If there is unsecured loan of huge amount.
- Cases involving addition in an earlier assessment year in excess of Rs. 10 lakhs on a substantial and recurring question of law or fact.
- If Taxpayer has received any notice under section 148 for escaped income.
These criterias may change from time to time. Further it's the power of the department to issue notice or not in each case. Hence no perfect formula is there for selection of scrutiny.
Arjuna: Krishna, What's there in New Instructions issued by CBDT?
Krishna: Arjuna, this Circular contains many instructions for implementation of non-adversarial tax regime. It contains that the Assessing officer should stick to reasons on the basis of which the case for scrutiny is selected. Mainly in cases of AIR/CBI/26AS, importance should be given to that point only. Unnecessarily confusion should not be created by issuing long and unrelated questionnaire. Similarly, order were high pitch assessment are made without any legal base should be avoided. While granting refund, it should be given according to the TDS certificates if difference in 26AS is found. Further it is also mentioned in this circular that Income tax officer should complete the scrutiny in the given time and legal frame. Tax payer's grievances should be reduced and thus non-adversarial tax regime can be promoted. But in practical sense real picture may be different, due to excessive work load of income tax officer in some areas and due to ignorance of law and incomplete information provided by the taxpayer. For better tax compliance security measures are used by the department, which sometimes results in increase in revenue and sometimes increase in tension of officer and tax payer both.
Arjuna: Krishna, What should the taxpayer learn from this Scrutiny?
Krishna: Arjuna, many taxpayers become frightened after receiving scrutiny notice. It is rightly said, "Kar Bhala To Ho Bhala" if taxpayer pays proper taxes then he will not have to fear of Income tax Department. As Honeybee collects Honey from the flowers without hurting it, Income Tax Department should collect tax from taxpayer without hurting them, which is the also the ultimate intention of any revenue laws. But now-a-days the intention of many businessmen or taxpayers is at stake and complicated tax laws have worsened the situation. Hope non-adversarial tax regime leads to increase in tax compliance and collection.
Dear Tax guru lovers, your comment please, as they are very valuable and precious.
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