Cross utilisation of CENVAT credit – Myth and Reality
THERE is a manufacturer who avails CENVAT Credit on the inputs and pays excise duty on the final products. Incidentally, he is also a service provider and is also paying service tax on his output service. Now, he has credit of the excise duty/service tax pertaining to his manufacturing activity and also has the credit on the inputs/input services/capital goods pertaining to his “output service”. The question is whether the assessee is allowed to have a single CENVAT account and cross utilise the credit for payment of excise duty and service tax. In other words, can he discharge the service tax liability from the CENVAT credit of the manufacturing activity and vice versa.
Many officers believe this mixing of credit a blasphemy. Strangely, many top executives in trade and Industry are also not sure whether this is allowed and whatever little confidence in their understanding the provisions of law is overpowered by the powerful tax officers who would make them believe that this is not allowed. We were asked this question recently by the Sr. DGM of a top PSU.
CENVAT Credit Rules, 2004, in fact, provide for cross utilization of CENVAT credit of excise duty paid on input and/or service tax paid on input services for payment of excise duty on finished excisable goods or taxable output services by a manufacturer or an output service provider or any person who is engaged in both manufacture and provision of output service.
Rule 3 (1) read with Rule 3(4) of the Rules unambiguously lays down this principle subject to other conditions stipulated in the Rules and there is no scope for any contrary interpretation.
Surprisingly, this also coincides with the view of DG Audit. In a recent letter, he communicated that “The CENVAT credit on inputs, capital goods and input services which are used for manufacture of goods or for provision of services is available in a common pool and can be used for payment of excise duty and/or service tax. Therefore, the amount of CENVAT credit taken during a period, which is shown in ER-1 or ST-3 return, should be same”.
Unfortunately such important clarifications are confined only to the Commissioners and the trade and Industry, who are eulogised as “Stakeholders” in the flowery language used in the TRU letters, are kept in dark. God only knows how many show cause notices have already been issued on this issue.
For a change, why can't the Board demystify the doubts and give a clarification?
Please click here the DG (Audit) letter Dated 30.3.2010