Rule 6(3): Cenvat Credit Rules

[Sunil Kumar]

CENVAT CREDIT AVAILABLE VS CENVAT CREDIT TAKEN

ALARMING AMENDMENT IN RULE 6(3) OF CENVAT CREDIT RULES

(a) A manufacturer who manufactures two classes of goods namely:-

1. Non exempted goods removed
2. Exempted goods removed

Or

(b) a provider of output service who provides two classes of services, namely:-

1. Non Exempted Services
2. Exempted Services

Shall follow any one of the following options applicable to him namely:-

(i) pay an amount equal to 6% of value of exempted goods and 7% of value of the exempted services SUBJECT TO MAXIMUM OF THE TOTAL CREDIT AVAILABLE IN THE ACCOUNTS OF THE ASSESSEE AT THE END OF THE PERIOD TO WHICH PAYMENT RELATES; or

(i) pay an amount equal to six percent of value of exempted goods and seven percent of value of the exempted services SUBJECT TO MAXIMUM OF THE SUM TOTAL OF OPENING BALANCE OF THE CREDIT OF INPUT AND INPUT SERVICES AVAILABLE AT THE BEGINNING OF THE PERIOD TO WHICH PAYMENT RELATES AND THE CREDIT OF INPUT AND INPUT SERVICES TAKEN DURING THAT PERIOD or

(Notification No: 23/2016)

(ii) pay an amount as determined under sub-rule (3A):

Provided that if any duty of excise paid on the exempted goods, the same shall be reduced from the amount payable under clause (i):

Provided further that if any part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs and input services, used for providing such taxable service, shall be taken then the amount specified in clause (i) shall be seven percent of the value so exempted:

Provided also that in case of transportation of goods or passenger by rail, the amount required to be paid under clause (i) shall be an amount equal to 2% of value of the exempted services.

Explanation 1.- If the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year.

Explanation 2.- No CENVAT credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services.

Explanation 3.- For the purposes of this sub-rule and sub-rule(3A),-

(a) ―non-exempted goods removed‖ means the final products excluding exempted goods manufactured and cleared upto the place of removal;

(b) ―exempted goods removed‖ means the exempted goods manufactured and cleared upto the place of removal;

(c) ―non-exempted services‖ means the output services excluding exempted services.

(Notification No: 13/2016)

ANALYSIS:

AMENDEMENT THROUGH BUDGET

One of the options of reversal Rule 6(3) provides that a manufacturer/provider of output service manufacturing/ providing taxable as well as exempted goods/ services may pay an amount equal to 6% of value of the exempted goods and 7% of value of the exempted services subject to a maximum of the total credit available in the account of the assessee at the end of the period to which the payment relates. This may not be the intention of the law.

However, para h(iii) of Annexure II of F. No. 334/8/2016-TRU dated 29th February 2016 provides (a) pay an amount equal to 6% of value of the exempted goods and 7% of value of the exempted services, subject to a maximum of the total credit taken or (b) pay an amount as determined under sub-rule (3A).

The intent of the law in this option is to pay an amount equal to 6% of value of the exempted goods and 7% of value of the exempted services, subject to a maximum of the total credit taken and not total credit available. Therefore necessary amendment is being made in rule 6(3).