CENVAT credit may be taken and utilized on inputs, capital goods and input services.   Rule 4 provides for the conditions for taking the credit including the time limit.   In this article the time limit for taking CENVAT credit for the above three is to be discussed.

Inputs

Rule 4 (1) of CENVAT Credit Rules, 2004 (‘Rules’ for short) provides that the CENVAT credit in respect of inputs may be taken-

• immediately on receipt of inputs-

• in the factory of the manufacturer; or
•  in the premises of the provider of output service; or
• in the premises of job worker in case the goods are sent directly to the job worker on the direction of the manufacturer or the provider of output service; (with effect from 01.03.2015)

• in respect of final products, namely, articles of jewellery or other articles of precious metals falling under heading 7113 or 7114 as the case may be of the First Schedule to the Excise Tariff Act, the CENVAT credit of duty paid on inputs may be taken immediately on receipt of such inputs in the registered premises of the person who get such final products manufactured on his behalf, on job work basis, subject to the condition that the inputs are used in the manufacture of such final product by the job worker;

The other condition for taking CENVAT credit on inputs is that the manufacturer or the provider of output service shall not take CENVAT credit after one year of the date of issue of any of the documents specified in sub- rule (1) of rule 9.  This condition is with effect from 01.03.2015.  Before that the limitation is six month from 01.09.2014 to 28.02.2015.

Capital goods

Rule 4(2) provides for the taking of credit on excise duty paid on capital goods.  The CENVAT credit in respect of capital goods received-

• in a factory;
•  or in the premises of the provider of output service; or
•  outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory or in the premises of the job worker, in case capital goods are sent directly to the job worker on the direction of the manufacturer or the provider of output service, as the case may be,

at any point of time in a given financial year shall be taken only for an amount not exceeding 50%  of the duty paid on such capital goods in the same financial year.

The balance of CENVAT credit may be taken in any financial year subsequent to the financial yearin which the capital goods were received in the factory of the manufacturer, or in the premises of the provider of output service, if the capital goods, other than components, spares and accessories, refractories and refractory materials, moulds and dies and goods falling under heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act,  are in the possession of the manufacturer of final products, or provider of output service in such subsequent years.

The CENVAT credit in respect of capital goods shall be allowed for the whole amount of the duty paidon such capital goods in the same financial year if such capital goods are cleared as such in the same financial year.

The CENVAT credit of the additional duty leviable under Section 3(5) of the Customs Tariff Act, in respect of capital goods shall be allowed immediately on receipt of the capital goods in the factory of a manufacturer.

 Where an assessee is eligible to avail of the exemption under a notification based on the value of clearances in a financial year, the CENVAT credit in respect of capital goods received by such assessee shall be allowed for the whole amount of the duty paid on such capital goods in the same financial year.

Input Services

Rule 4(7) provides for taking credit of service tax in respect of input services.  The CENVAT credit in respect of input service shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan referred to in rule 9 is received.  If the credit is availed on or after the day on which the invoice is received, the payment in respect of the invoice shall be paid within three months from the date of invoice.  Otherwise the credit already taken is to be reversed.

The manufacturer or the provider of output service shall not take CENVAT credit after one year of the date of issue of any of the documents specified in sub-rule (1) of rule 9.  This condition is applicable with effect from 01.03.2015.   Before that the time limit is six months from 01.09.2014 to 28.02.2015.  Before that there is no time limit prescribed for taking the credit.

Input Service Distributor

Rule 9(1)(g) provides that the CENVAT credit may be taken on an invoice, bill, challan issued by an Input Service Distributor under Rule 4A of Service Tax Rules, 1994.  CENVAT credit on such invoice may be taken within one year from the date of invoice of the Input Service Distributor.

Time limit for Re-credit

The following are the situations in which CENVAT credit is required to be reversed and credit can be re-taken:

• Rule 4(7) provides that the credit on input services shall be allowed on receipt of the invoice, bill, challan.  But if the bill is not paid within three months the credit taken is to be reversed.  Subsequently, when such payments of value input service and service tax is made, the amount so paid back can be re-credited;
• Rule 3(5B) provides that if the value of any input or capital goods before putting use on which CENVAT credit has been taken, is written off or such provisions made in Books of Account, the manufacturer or service provider is required to pay an amount equal to credit so taken.   However when the inputs or capital goods are subsequently used, the amount so paid can be re-credited in the account.
• Rule 4(5)(a) prescribes that in case inputs sent to job worker are not received back within 180 days, the manufacturer or service provider is required to pay an amount equal to credit taken on such inputs in the first instance.   However, when the inputs are subsequently received back from job worker, the amount so paid can be re-credited in the account.

The Circular No. 990/14/2014-CX-8, dated 19.11.2014 clarifies that the purpose of fixing the limitation for taking credit is to ensure that after issue of a document under Rule 9(1), credit is taken for the time within one year of the issue of the document.   Once this condition is met, the limitation of one year has no further application.  Therefore in the above three situations, limitation of one year would apply when the credit is taken for the time on an eligible document.   It would not apply for taking re-credit of amount reversed, after meeting the conditions prescribed in the rules.

Input services under Reverse charge mechanism

In respect of input service where whole or part of the service tax is liable to be paid by the recipient of service, credit of service tax payable by the service recipient shall be allowed after such service tax is paid.  Author’s view is that the limitation of one year will not be applicable to RCM.