CENVAT Credit rules under service tax

By | November 11, 2013

CENVAT Credit rules under service tax

Meaning of CENVAT Credit – when any service provider provides its services to service recipient and he pays service tax or excise duty on inputs, input services or capital goods received for providing output services then for payment of service tax in respect of output service he is entitled to use credit of service tax or excise duty paid on inputs, inputs services and capital goods.

So as per CENVAT Credit rules, a provider of output service shall be entitled to take credit of  service tax paid on all the input services received/used in relation to provision of output taxable services.

Some provisions related to CENVAT Credit

  • As per CENVAT Credit rules, CENVAT Credit is not allowed when any goods and services are used primarily for personal use or consumption of employees.
  • Tax paid on inputs or input services for providing exempted services is not eligible for CENVAT Credit.
  • If service provider has taken CENVAT Credit on inputs or capital goods and then removed them as such from premises then the provider of output service shall pay an amount equal to the credit availed in respect of such inputs or capital goods.

Provided that no reversal of CENVAT credit is required if removal of inputs or capital goods are for providing of output services

Utilization of CANVAT credit

  • Cenvat credit can be used for payment of tax due on output service.
  • Cenvat credit can also be used when credit taken inputs or capital goods are removed as such.
  • The credit taken on education cess and SHE cess can be utilized only for payment of education cess and SHE cess respectively.

Availment of CENVAT Credit

In respect of inputs

CENVAT Credit in respect of inputs may be taken immediately on receipt of the inputs in the premises of the provider of output service.

In respect of capital goods

  • 50% of excise duty can be availed as CENVAT Credit in the year of purchase and remaining 50% can be availed in the next financial year.
  • CENVAT Credit is available even if capital goods are acquired on lease, hire purchase or loan agreement.
  • CANVAT credit is not allowed for the amount of duty which has been claimed as depreciation.
  • CENVAT Credit is allowed even if capital goods are used for providing taxable as well as exempted output services.

In respect of input services

  • CENVAT Credit on input service is allowed only on or after the day on which the invoice, bill or Challan is received in premises i.e. credit shall be allowed on accrual basis.
  • In case of reverse charge mechanism, CENVAT Credit is allowed only after making the payment of tax on input services received.

Documents required for taking CENVAT Credit

  • Invoice issued by
    • Manufacture,
    • Importer,
    • Registered agent of depot of importer
    • First stage or second stage dealer
  • Supplementary invoice issued by manufacturer or importer
  • Bill of entry
  • Certificate issued by an appraiser of customs
  • Challan evidencing payment of service tax in case of reverse charge mechanism
  • Invoice, bill, Challan issued by input service distributor



by C.A. Deepika pamecha


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