In his Budget speech last month, the finance minister mentioned amendments to the Cenvat Credit Rules (CCR), 2004, to improve credit flow, reduce compliance burden and associated litigation. Every year, such changes are made in the CCR with the same intentions but the actual wording in the notifications creates new uncertainties. So, too, this year.
First, the positives. The definitions of capital goods and inputs have been widened, provisions for availing of credit on assignment of a right to use natural resources have been spelt out, the manner of distribution of credit by input service distributors has been simplified. The facility of distribution of input service has been extended to job workers, a problematic provision for recovery of credit wrongly taken or erroneously refunded has been removed. Credit of eligible inputs, capital goods and input services have been allowed for providing transportation of goods by a vessel from the customs station of clearance in India to a place outside the country. Eligibility for availing credit on the basis of an invoice issued by the service provider for removal of inputs/capital goods has been stated clearly, the time limit for filing applications for a refund of credit under Rule 5 of the CCR in case of export of services has been prescribed. And, validity of permission from the assessing authority has been extended to three financial years for clearing goods from the factory of a job worker.
Banking and non-banking financial institutions providing services by way of extending loans or advances have been given an option to reverse the credit, either proportionally or to the extent of 50 per cent as earlier. Reversal of credit will not be required for service by way of transportation of goods by a vessel from the customs station of clearance in India to a place outside.
In his speech, the minister claimed the CCR amendments would enable manufacturers with multiple manufacturing units to maintain a common warehouse for inputs and distribute these with credits to individual manufacturing units. The actual provisions merely repackage the existing facility to do the same as a registered dealer and give nothing new.
On the restrictive side, capital goods have been made ineligible for cenvat credit if used solely for exempted goods/services for the first two years. The facility of adjustment on national calamity contingency duty (NCCD) has been restricted to payment of NCCD. And, utilisation of excise duty credit for payment of the new infrastructure cess has been barred. There is no mention about utilisation of accumulated education cess and secondary higher education cess.
The major change is the redrafting of Rule 6 of CCR that provides for reversal of credit in respect of inputs and input services used in manufacture of exempted goods or for provision of exempted services. The idea is to simplify the provisions without altering the established principles for reversal of such credit. There is not much to quarrel with in the new formula but the controversial part is an explanation that brings within the definition of ‘exempted services’ any activity which is not a ‘service’ as defined in Section 65B (44) of the Finance Act, 1994. How can something that is not a service become an ‘exempted service’? A question that can bring fresh uncertainty and litigation.
