Exempted Goods / Services - Reversal of Cenvat Credit - Cenvat Credit - Ready Reckoner [OLD] - Cenvat Credit

Chapter 08 Exempted Goods / Services - Reversal of Cenvat Credit Scope of Rule 6(1) No Cenvat Credit shall be allowed on such quantity of input or input services which is used in the manufacture of exempted goods or exempted services, except in the circumstances mentioned in rule 6(2) . This condition is not applicable to Capital Goods, i.e. Rule 6(4). In accordance with the rule 6(1) and Judgment of Honourable Tribunal in Rochi Ram Sons 2003 (3) TMI 160 - CEGAT, NEW DELHI it can be clarified that: Credit on Input or input services which are utilized exclusively in dutiable goods / taxable services shall be allowed. Credit on input or input services which are utilized exclusively in exempted goods / exempted services shall not be allowed. Credit on input or input services which are utilized in both exempted and non -exempted goods or services shall not be allowed. However Cenvat Credit on these shall be allowed with in the provisions of rule 6(2) i.e. by maintaining separate books of accounts. However, Cenvat credit on input shall be allowed to a job worker referred to in rule 12AA (in case of jewellelry other article of precious metal) shall be allowed even if manufactured goods cleared without payment of duty. Here exempted goods or final product includes non -excisable goods cleared for a consideration from the factory. Value of non-excisable goods shall be invoice value and if invoice value is not available such value shall be calculated by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made thereunder. Scope of Rule 6(2) - Option 2 Where manufacturer manufactured exempted and non- exempted finished goods and service provider provides exempted and non -exempted services both and utilizes the common input or input services than the provision of Rule 6(2) shall apply. In this circumstances manufacturer or provider of services shall be required to maintain separate books of accounts. By maintaining separate books of accounts they are eligible for Cenvat Credit as follows:- Full Credit on input or input services used in dutiable goods or output services. Proportionate credit on input or input services used in dutiable and exempted products / services both. No Cenvat credit on input or input services used in exempted goods / services. Scope of Rule 6(3) - Option 3 If manufacturer of goods or provider of output service opting not to maintain separate books of account, he may choose to opt any method out of three methods mentioned in clauses (i), (ii) (iii) of Rule 6(3) . Clause (i) Option to pay an amount equal to six per cent. of value of the exempted goods and exempted services; Clause (ii) Option to pay an amount as determined under sub-rule (3A). Clause (iii) Option to maintain separate accounts for the receipt, consumption and inventory of inputs as provided for in clause (a) of sub-rule (2), take CENVAT credit only on inputs under sub clauses (ii) and (iv) of said clause (a) and pay an amount as determined under sub-rule (3A) in respect of input services. The provisions of sub-clauses (i) and (ii) of clause (b) and sub clauses (i) and (ii) of clause (c) of sub-rule (3A) shall not apply for such payment. Important points: Any assessee who wants to opt, any of the above clauses, need to be opt for all exempted goods or all exempted services. Once assessee chooses any option, it will be continue for the rest of the year. Cenvat credit can be availed only on Inputs or input services covered in the definition of input or input services. No Cenvat credit will be allowed on inputs or input services exclusively used in exempted goods or exempted services. Rule 6 (3A) of Cenvat Credit Rules, 2004 Rule 6(3) read with rule 6(3A) Proportionate reversal of Cenvat Credit (On provisional basis during the months) Rule Particulars Marked in rule 1) Rule 6(3A)(b)(i) Inputs used for exempted final products A 2) Rule 6(3A)(b)(ii) Inputs used for exempted services (On proportionate basis, based on ratio of previous year) B/C* D 3) Rule 6(3A)(b)(iii) Input services used for exempted final products and exempted services (On proporionate basis, based on ratio of previous year) E/F*G Total 1)+2)+3)= amount to be reversed every month on provisional basis Proportionate reversal of Cenvat Credit (On actual basis at year end) Rule Particulars Marked in rule 1) Rule 6(3A)(c)(i) Inputs used for exempted final products on the basis of total quantity H 2) Rule 6(3A)(c)(ii) Inputs used for exempted services J/K* L 3) Rule 6(3A)(c)(iii) Input services used for exempted final products and exempted services M/N*P Total 1)+2)+3)= Final amount need to be reversed At the year end, as shown in above table, assessee should calculate the ratio on actual basis and make fresh calculations and pay difference, if any, before 30 th June of the succeeding financial year. If it is found that provisional amount paid during the year is more than actual amount calculated at the year end, assessee can adjust the difference amount himself by taking credit. Only intimation to superintendent is required in 15 days of such payment or adjustment. In case of first year of production or provision of services, calculation will be made after the year is over as no data of last year will be available. Based on year end calculation, an amount attributable to Cenvat credit on exempted final products and exempted services will be calculated and paid. Such amount is required to be paid before 30 th june of the succeeding financial year. Scope of Rule 6(4) Rule 6(4) deals with the Cenvat Credit on Capital Goods, whereas rule 6(1) , 6(2) and 6(3) deals with the Credit on input and input services only. According to Rule 6(4) the Cenvat Credit on Capital Goods shall be allowed as: - Full credit is allowed on Capital Goods used in manufacturing of dutiable goods / taxable services exclusively. Full credit is allowed on Capital Goods used in manufacturing of dutiable goods and exempted goods / taxable services and exempted services both. No credit is allowed on Capital Goods used in manufacturing of exempted goods or exempted services exclusively. Scope of Rule 6(6) 6(6A) Rule 6(6) have an overriding effect to rule 6(1) , 6(2) , 6(3) and 6(4) and applicable to manufacturer only.. Rule 6(6A) states that the provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the taxable services are provided, without payment of service tax, to a Unit in a Special Economic Zone or to a Developer of a Special Economic Zone for their authorised operation Scope of Rule 6(7) The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the taxable services are provided, without payment of service tax, to a unit in a Special Economic Zone or to a developer of a Special Economic Zone for their authorised operations or when a service is exported . Scope of Rule 6(8) This rule explains when a service shall not be treated an exempted service. The following conditions must be fulfilled: - the service satisfies the conditions specified under rule 6A of the Service Tax Rules, 1994 and the payment for the service is to be received in convertible foreign currency; and - - such payment has not been received for a period of six months or such extended period as maybe allowed from time-to-time by the Reserve Bank of India, from the date of provision. - Thus, provision of proportionate reversal or payment of amount under rule 6 of Cenvat credit rule will be required if export is not defined in Rule 6A of Service Tax Rules or payment in foreign exchange is not received within period allowed by RBI. - In case of such payment is received after the specified or extended period but within one year from such period, the service provider shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier, on the basis of documentary evidence of the payment so received.