Thursday, October 22, 2015

Refund of CENVAT Credit

ALSO APPLICABLE FOR NOVEMBER - 2015 EXAM

(1) A manufacturer who clears a final product or an intermediate product for export without payment of duty under bond or letter of undertaking, or a service provider who provides an output service which is exported without payment of service tax, shall be allowed refund of CENVAT credit as determined by the following formula subject to procedure, safeguards, conditions and limitations*, as may be specified by the Board by notification in the Official Gazette:

Refund amount = (Export turnover of goods+ Exportturnover of services) x Net CENVAT credit
                                                                      Total turnove

Where,-
(A)  Refund amount means the maximum refund that is admissible;

(B) Net CENVAT credit means total CENVAT credit availed on inputs and input services by the manufacturer or the output service provider reduced by the amount reversed in terms of sub-rule (5C) of rule 3, during the relevant period;

(C) Export turnover of goods means the value of final products and intermediate products cleared during the relevant period and exported without payment of Central Excise duty under bond or letter of undertaking;

(D) Export turnover of services means the value of the export service calculated in the following manner, namely:-
Export turnover of services = payments received during the relevant period for
export services + export services whose provision has been completed for which payment had been received in advance in any period prior to the relevant period – advances received for export services for which the provision of service has not been completed during the relevant period;

(E) Total turnover means sum total of the value of -

  • (a)  all excisable goods cleared during the relevant period including exempted goods, dutiable goods and excisable goods exported;
  • (b) export turnover of services determined in terms of clause (D) of subrule (1) above and the value of all other services, during the relevant period; and
  • (c)  all inputs removed as such under sub-rule (5) of rule 3 against an invoice, during the period for which the claim is filed.

(2) This rule shall apply to exports made on or after the 1st April, 2012:

Provided that the refund may be claimed under this rule, as existing, prior to the commencement of the CENVAT Credit (Third Amendment) Rules, 2012, within a period of one year from such commencement:

Provided further that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties and Service Tax Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, in respect of such duty; or claims rebate of service tax under theService Tax Rules, 1994in respect of such tax.

Explanation 1.- For the purposes of this rule,-

(1)   export service” means a service which is provided as perrule 6A of the Service Tax Rules 1994;         (1A) export goods" means any goods which are to be taken out of India to a place outside India.(01.03.2015)

(2)    relevant period” means the period for which the claim is filed.

Explanation 2. -For the purposes of this rule, the value of services, shall be determined in the same manner as the value for the purposes of sub-rule (3) and (3A) of rule 6 is determined.

*Safeguards, conditions and limitations.- Refund of CENVAT Credit under rule 5 of the said rules, shall be subjected to the following safeguards, conditions and limitations, namely:-

  • (a) the manufacturer or provider of output service shall submit not more than one claim of refund under this rule for every quarter:
  • provided that a person exporting goods and service simultaneously, may submit two refund claims one in respect of goods exported and other in respect of the export of services every quarter.
  • (b) in this notification quarter means a period of three consecutive months with the first quarter beginning from 1st April of every year, second quarter from 1st July, third quarter from 1st October and fourth quarter from 1st January of every year.
  • (c) the value of goods cleared for export during the quarter shall be the sum total of all the goods cleared by the exporter for exports during the quarter as per the monthly or quarterly return filed by the claimant.
  • (d) the total value of goods cleared during the quarter shall be the sum total of value of all goods cleared by the claimant during the quarter as per the monthly or quarterly return filed by the claimant. 
  • (e) in respect of the services, for the purpose of computation of total turnover, the value of export services shall be determined in accordance with clause (D) of sub-rule (1) of rule 5 of the said rules.
  • (f) for the value of all services other than exportduring the quarter, the time of provision of services shall be determined as per the provisions of the Point of Taxation Rules, 2011.
  • (g) the amount of refund claimed shall not be more than the amount lying in balance at the end of quarter for whichrefund claim is being made or at the time of filing of the refund claim, whichever is less.
  • (h) the amount that is claimed as refund under rule 5 of the said rules shall be debited by the claimant from his CENVAT credit account at the time of makingthe claim.
  • (i) In case the amount of refund sanctioned is less than the amount of refund claimed, then the claimant may take back the credit of the difference between the amount claimed and amount sanctioned.

3.Procedure for filing the refund claim.

(a) The manufacturer or provider of output service, as the case may be, shall submit an application in Form A annexed to the notification, to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, as the case may be, in whose jurisdiction,-

  • (i)    the factory from which the final products are exported is situated.
  • (ii)  the registered premises of the provider of service from which output services are exported is situated.

(b) The application in the Form A along with the documents specified therein and enclosures relating to the quarter for which refund is beingclaimed shall be filed by the claimant, before the expiry of the period specified in section 11B of the Central Excise Act, 1944 (1 of 1944).

(c) The application for the refund should be signed by-

  • the individual or the proprietor in the case of proprietary firm or karta in case of Hindu Undivided Family as the case may be;
  • any partner in case of a partnership firm;
  • a person authorized by the Board of Directors in case of a limited company;
  • in other cases, a person authorized to sign the refund application by the entity.

(d) The applicant shall file the refund claim along with the copies of bank realization certificate in respect of the services exported.

(e) The refund claim shall beaccompanied by a certificate in Annexure A-I, duly signed by the auditor (statutory or any other) certifying the correctness of refund claimed in respect of export of services.

(f) The Assistant Commissioner or Deputy Commissioner to whom the application for refund is made may call for any document in case he has reason to believe that information provided in the refund claim is incorrect or insufficient and further enquiry needs to be caused before the sanction of refund claim.

(g) At the time of sanctioning the refund claim the Assistant Commissioner or Deputy Commissioner shall satisfy himself or herself in respect of the correctness of the claim and the fact that goods cleared for export or services provided have actually been exported and allow the claim of exporter of goods or services in full or part as the case may be.

Ascertain whether the refund ofservice tax paid on input services can be claimed with the help of
following information available for the relevant quarter:   
Total available credit of service tax paidon input services    Rs6,000
Total turnover of output service exported    Rs30,000

Further, the CENVAT credit balance at the end of quarter was ` 7,500. CENVAT credit balance at the time of submitting refund claim was Rs.3,200. Assume that all the conditions prescribed vide rule 5 of the CCR, 2004 for availing the refund are fulfilled in the given case.(PM-13) Answer

Rule 5 of CENVAT Credit Rules, 2004 inter alia provides that the CENVAT credit in respect of input services used in providing output services which are exported shall be allowed to be utilized towards payment of service tax on taxable output services. However, where such adjustment is not possible, the refund of credit shall be allowed.

In the given case, there is no service tax liability as the entire turnover of output services has been exported. Thus, refund can be claimed in respect of entire service tax of Rs.6,000/- paid on input services.

However, refund should not be more than the amount lying in balance at the end of quarter for which refund is claimed or at the time of filing of the refund claim, whichever is less. Hence,the eligible refund claim is Rs.3,200.

Ascertain whether the refund of service tax paid on input services can be claimed in the following Case

Total available credit of service tax paid on input services    Rs.6,000
Total turnover of output service    Rs.30,000
Turnover of output service exported    Rs.20,000

Answer – (PM-14)   
Rule 5 of CENVAT Credit Rules, 2004 inter alia providesthat the CENVAT credit in respect of the input services used in providing output services which are exported shall be allowed to be utilized towards payment of service tax on taxable output services. However, where such adjustment is not possible, the refund of credit shall be allowed.

In this case the service tax liability ontaxable services of Rs.10,000 (Rs30,000 -Rs20,000) is
Rs.1, 236 @12.36%. Therefore, there is an excess credit of Rs.4,764 (Rs.6,000 – Rs.1,236) which can not be utilized. Thus, the refund of such credit can be claimed. However, the refund will be restricted to the extent of ratio of export turnover to the total turnover for the given period, i.e. ` 4,000 [` 6,000 x (Rs.20,000/Rs.30,000)].

Rule 5A. Refund of CENVAT credit to units in specified areas.-

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