Some Issues Raised in Our Workshop
1. Definition of capital goods:
As per the definition of Rule 2(a)(A) of CENVAT Credit Rules 2004, credit is allowed only if the capital goods are used “in the factory of the manufacturer of final products”. If the capital goods are used outside the factory premises, credit is not admissible. Some relaxation has been provided in this year's budget and credit is admissible for goods used outside the factory only in case of capital goods used for generation of electricity. However, there are many other cases like, credit on storage tanks located outside the factory, but used for receipt of raw materials/ storage of finished goods. Therefore an amendment is required to allow credit on storage tanks used outside the factory.
2. Trading: An explanation has been inserted in the definition of exempted service under CENVAT Credit Rules 2004 [Rule 2(e)] as under:
Explanation.- For the removal of doubts, it is hereby clarified that "exempted services" includes trading”
The important word “goods” is missing in the above explanation. Though in Rule 6 is has been specified that “in case of trading, shall be the difference between the sale price and the purchase price of the goods traded”, it is requested that the word “goods” may be inserted in the explanation under Rule 2(e) to clear the confusion.
3. Whether explanation is prospective only?
Whether the explanation inserted in Rule 2(e) of CENVAT Credit Rules, 2004 which clarifies that ‘exempted services' includes trading, effective retrospectively?
4. Components of Trading:
What are the components of expenses incurred in the course of ‘trading' that have to be included/excluded from the ‘value' of ‘trading' as explained in Explanation I (c) under sub-rule 3D of Rule 6 of CENVAT Credit Rules, 2004?
5. 1% duty on imported goods:
A number of goods which hitherto attracted Nil rate of duty have been notified under Notification 1/2011 CE dated 1.3.2011 with an effective rate of 1% subject to the condition that no CENVAT Credit shall be availed on the inputs/input services. When these goods are imported, the CVD is levied at 5% as the condition of non-availment of CENVAT Credit is non-verifiable for imported goods. This is leading to disparity and to cite an example, fertilisers attract 5% CVD when imported and when manufactured within India, it attracts only 1%. It is suggested that an unconditional exemption notification under Section 3 of the Customs Tariff Act, 1975 may be issued for these goods.
6. Point Of Taxation
– effective date: The Point of Taxation Rules 2011 are to come into effect from 1.4.2011 and the rules are complex and it is difficult to understand and implement the same by the taxpayers from 1.4.2011. Therefore it is submitted that the rules may be reviewed to make them simple and the migration to these rules may be deferred till the trade and industry prepare themselves for the new concept.
7. Point about Point of Taxation:
When Point of Taxation Rules, 2011 stipulates ‘Point of Taxation' for service providers as the time when service is provided or to be provided, or as the time when service provider issues an invoice or receives payment, or as the time when advance is received for provision of service, and when such services are input services for the recipient, whether it is proper to allow CENVAT credit on such ‘input services' on or after the day on which payment is made for such input service? To put it simply, whether sub-rule (7) of Rule 4 of CENVAT Credit Rules, 2004 is in tune with the provisions of Point of Taxation Rules, 2011?
8. Input Service:
The definition of input service includes services used in relation to modernisation, renovation or repairs of a factory, but at the same time excludes “construction service under (zzq) and works contract under (zzzza). This a clear anomaly and needs to be looked into.
9. Fertilisers Exempted or Not?
“All goods, other than those which are clearly not to be used as fertilisers” are exempted. The language of the Notification appears to be unnecessarily complicated and it is really not clear as to whether the Fertilisers still continue to enjoy exemption by virtue of Notification No. 04/2006. The scope of the exemption needs to be clarified.