E2 E3 Financee2 E3 If Capital Goods On Which Cenvat Credit Has Been Taken

E2-E3
Finance
VAT & CENVAT Credit
For internal circulation of BSNL only

WELCOME
This is a presentation for the E2-E3

(Finance) Core Module for the Topic: VAT
& CENVAT Credit .
Eligibility: Those who have got the Up
gradation from E2 to E3.
This presentation is last updated on 21-3-
2011.
You can also visit the Digital library of
BSNL to see this topic.

AGENDA
Concept of VAT
Concept of CENVAT credit
BSNL instructions on CENVAT credit

CENVAT
Cenvat has its origin in

the system of
VAT.

BASIC CONCEPT OF VAT
A tax that applies to most business transaction that
involves the transfer of goods or services.
VAT replaces the Sales Tax imposes by State
Government.
A tax on the value addition.
Remove defect in tax system.
Good and transparent tax collection system.
VAT to avoid the cascading effect.
VAT & CENVAT exist and operate in parallel manner.

CENVAT CREDIT
MODVAT 1986 - applicable for
manufacturers.
1994 - MODVAT 1986 extended to capital
goods.
2001 - MODVAT scheme rechristened to
Cenvat credit rules.
2002 - Cenvat credit rules simplified and
reviewed.
10-09-2004: Cenvat rules 2004 issued.

CONCEPT OF CENVAT CREDIT
Grant credit of specifiedduties paid on

capital goods, inputs & input
services to the service provider.
Credit is utilized for payment of service tax
on output service.
Credit is available only when the output
service is taxable.

Capital
Goods
Input Various
Goods Services
Input
Services

SPECIFIED DUTIES FOR CENVAT CREDIT
Basic Excise Duty and corresponding CVD

on imported goods.
Special and Additional Excise Duty
National Calamity Contingent duty
EC and SAH on the above.
Service tax on input service.
EC and SAH on the above.

EXCLUSION OF DUTIES
Basic Customs duty.

Special Customs duty.
Special additional duty under customs.
Education cess paid in aggregate Customs
duty.
Secondary & Higher education cess on
Customs duty.

CAPITAL GOODS [RULE 2(A)]
The following items used for providing

output service:
(a) All goods falling under chapter 82,
chapter 84, chapter 85, chapter 90,
heading No.6805, grinding wheels and
the like, and parts thereof falling under
heading 6804 of the first schedule to the
Excise Tariff Act.

(b) Pollution control equipment

(c) Components, spares & accessories of the
goods at (a) & (b) above
(d) Moulds and dies, jigs and fixtures
(e) Refractory and refractory materials
(f) Tubes and pipes and fittings thereof
(g) Storage tank

(h) Motor vehicles in respect of certain

services:
Cargo handling Agency’s service

Courier Agency’s service
Outdoor caterer’s service
Pandal or shamiana contractor’s service
Tour operator’s service
Transport of goods by road service (GTA)

CAPITAL GOODS
Up to 50% credit can be availed in first year and

balance in subsequent years.
Depreciation should not be claimed on the
excise portion of the capital goods.
Capital goods obtained on hire
purchase/lease/loan are eligible for credit.

Capital CAPITAL GOODS
• Capital goods should be used for providing

output service.
• Duration is not specified. Hence , if the capital
goods are used for one day, Cenvat eligibility
is established as they are used.
• Credit can be taken when the capital goods
are received in the premises of provider of
output service.
.

INPUTS [RULE 2(K)]
The following goods used for providing

output service:
All goods, except light diesel oil, high speed

diesel oil, motor spirit, commonly known as
petrol and motor vehicles used for providing
any output service

INPUT SERVICES
The benefit of CENVAT credit has been

withdrawn to GTA service under CENVAT
Credit scheme

INPUT SERVICES
Mere payment of service tax to service

provider is not sufficient
Credit of Cenvat only after payment is made

to service provider

EXEMPTED OUTPUT SERVICES [RULE 6]
Capital goods used exclusively for providing

exempt service are not eligible for Cenvat credit. If
capital goods are partly used for taxable services
Cenvat credit will be available.

As per Rule 6(5) of Cenvat Credit Rules 2004,

Certain services even if they are partly used
in exempted services, entire credit will be
available for utilization to the service
provider.

Option to service providers when no separate

accounts are maintained for input and input
services-
1. Pay 6% on exempted services
or
2. Amount equivalent to cenvat credit
attributable to inputs and input services
used in exempted services( provisionally
every month)

NOTIFIED DOCUMENTS FOR AVAILING CENVAT CREDIT
[RULE 9(1)]
1. An invoice issued by -
(a) a manufacturer for clearance of
input goods or capital goods.
(b) an importer.
(c) a first stage dealer or second stage
dealer.
2. Supplementary invoice issued by
manufacturer or importer.

NOTIFIED DOCUMENTS FOR AVAILING CENVAT CREDIT
[RULE 9(1)]
3. A bill of entry.
4. A certificate issued by an appraiser of
customs for goods imported through a
foreign post office.
5. An invoice or bill or challan issued by
input service provider.
6. An invoice, bill or challan issued by input
service distributor.

RETURNS
Form ST-3: Half yearly return within one

month from close of half year, by provider of
output services.
Form ST-3: Half yearly return within one

month from close of half year, by Input
service Distributor.

CONFISCATION AND PENALTY
If Cenvat credit is taken wrongly or

without taking correctly, penalty will be the
amount not exceeding the duty on the
excisable goods or Rs.10,000/- whichever is
greater.

BSNL INSTRUCTIONS
Cenvat credit can be availed by all revenue

earning SSAs/Units having service tax
registration number.
Others can avail Cenvat credit by passing the

net debit balance to the nominated “Nodal
Offices” through ATD.

BSNL INSTRUCTIONS
All non-revenue earning circles/units like

Project, Maintenance, Q&A, Data net works,
Civil, Electrical, Store depot, Adm offices etc
may get registered with Service Tax
authorities as Input Service Distributor.
Invoice along with ATD are issued.
Half yearly return in Form ST-3 is filed.

BSNL INSTRUCTIONS
Availing of Cenvat credit by SSA/Units on
capital goods/input received from CTSDs.
CTSDs have to register as 1st Stage or 2nd

Stage dealer with Central Excise/ Service Tax
authorities.
In such case CTSD can issue
invoice/challan, on the basis of which unit can
avail Cenvat credit.

REMOVAL OF INPUT, CAPITAL GOODS
AND WASTE
The inputs or capital goods can be removed as

such from the premises of service provider on
payment of an amount equal to Cenvat credit
availed when the credit was taken
If capital goods on which Cenvat is availed are
cleared as such (i.e. without use) an amount equal
to Cenvat credit availed is required to be paid
If capital goods are sold as scrap, an amount
equal to duty payable on scrap value of capital
goods is payable

EFFECT OF CENVAT ON THE TRANSFER OF CAPITAL GOODS
[PROVISO UNDER RULE3(5)]
If capital goods on which Cenvat credit has

been taken, are removed after being used,
the provider of output service shall pay an
amount equal to the Cenvat credit taken on
the said capital goods reduced by 2.5% for
each quarter of a year or part thereof from
the date of taking the Cenvat credit.

CENVAT CREDIT ON TENDER EVALUATION
The evaluation and comparison of

responsive bids shall be done on the basis of
the net cost to BSNL on the price of the
goods offered inclusive of duties and taxes
(but excluding Cenvat –able duties and
taxes), sales tax, packing, forwarding, freight
and insurance charges.


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E2-E3

VAT & CENVAT Credit

For internal circulation of BSNL only

This is a presentation for the E2-E3

For internal circulation of BSNL only

For internal circulation of BSNL only

Cenvat has its origin in

For internal circulation of BSNL only

For internal circulation of BSNL only

For internal circulation of BSNL only

Grant credit of specifiedduties paid on

For internal circulation of BSNL only

For internal circulation of BSNL only

Basic Excise Duty and corresponding CVD

For internal circulation of BSNL only

Basic Customs duty.

For internal circulation of BSNL only

The following items used for providing

For internal circulation of BSNL only

(b) Pollution control equipment

For internal circulation of BSNL only

(h) Motor vehicles in respect of certain

Cargo handling Agency’s service

For internal circulation of BSNL only

Up to 50% credit can be availed in first year and

For internal circulation of BSNL only

• Capital goods should be used for providing

For internal circulation of BSNL only

The following goods used for providing

All goods, except light diesel oil, high speed

For internal circulation of BSNL only

The benefit of CENVAT credit has been

For internal circulation of BSNL only

Mere payment of service tax to service

Credit of Cenvat only after payment is made

For internal circulation of BSNL only

Capital goods used exclusively for providing

For internal circulation of BSNL only

As per Rule 6(5) of Cenvat Credit Rules 2004,

For internal circulation of BSNL only

Option to service providers when no separate

For internal circulation of BSNL only

For internal circulation of BSNL only

For internal circulation of BSNL only

Form ST-3: Half yearly return within one

Form ST-3: Half yearly return within one

For internal circulation of BSNL only

If Cenvat credit is taken wrongly or

For internal circulation of BSNL only

Cenvat credit can be availed by all revenue

Others can avail Cenvat credit by passing the

For internal circulation of BSNL only

All non-revenue earning circles/units like

For internal circulation of BSNL only

CTSDs have to register as 1st Stage or 2nd

For internal circulation of BSNL only

The inputs or capital goods can be removed as

For internal circulation of BSNL only