Cenvat credit of of duty paid on furnace oil & lab chemicals, Central Excise

[Kadayam Ganapathy Subramanian]

Dear Sirs,

We are manufacturing both dutiable and exempted pharmaceutical products in our factories. Maintaining batch wise manufacturing records (BMR) showing the description and quantity of inputs used in the manufacture of aforesaid products. Certain common inputs used both in manufacture of dutiable and as well as in exempted products. The credit of duty paid on such common inputs used in exempted products has been reversed by us based on the quantity of inputs shown in the batch manufacturing records of such exempted products before such manufactured products are transferred to finished good stores. However, the furnace oil used in boiler to manufacture stream which in turn used in the manufacture of both dutiable and exempted products and also the lab chemicals used for testing during the course of manufacture of aforesaid products has not been appearing in batch manufacturing records since it is practically difficult to measure the quantity of above oil and chemicals separately for dutiable and as well as for exempted products. We have agreed with the department to reverse the credit availed on above oil and chemicals attributable to exempted products. But in terms of Rule 6(3A)(b)(i) and 6(3A)(c)(i) of Cenvat Credit Rules,2004 read with S.No.7 of the table appended in CBEC Circular No. 868/6/2008-CX dated 09.05.2008, the credit of duty paid on common inputs attributable to exempted products should be reversed based on actual consumption of such inputs used and such quantification may be made based upon stores/production records maintained by the manufacturer. Such reversal particulars with input quantity details should also to be certified by Independent Cost Accountant or Chartered Accountant. Further, we cannot apply the formulas specified in other sub clauses of Rule 6(3A) of aforesaid rules as the same applies to determine the credit of duty paid on common inputs used for provision of exempted service and to determine the credit of service tax paid on common input services used in or in relation to manufacture of exempted goods or provisions of exempted service.

In view of the situations narrated above, we request the experts to advise the method to be followed to determine the actual consumption quantities of furnace oil and labs chemicals used in exempted products for calculating the appropriate credit reversal.

Since it is an issue raised by department audit, the compliance to be furnished by us at the earliest and hence advise us as early as possible.

Regards,

K.G Subramanian

Posts / Replies

[CMA ASIM SAHA]

dear

Mr Subramanium

Thanks for asking opinion on such a beautiful TOPIC.

fact : You are not maintaining separate accounts of inputs consumed both for dutiable and exempted output. You are simply reversed the input credit utilized for exempted outputs based on your manufacturing records. But in case of FO and lab chemicals it is not practically possible to identify the inputs FO / LAB CHEM used in exempted outputs though you have taken the policy of reversing the credit taken on FO / LAB CHEMICALS consumed.

Opinion / Suggestion: i) Pl calculate the cost involved to maintain separately but compare with loss of credit as against not maintenance of records separately.

ii) Pl check your declaration made in ER5 for the above inputs

iii) Pl identify the std norms as per your technical guide if any.

iv) try to explain this input / output ration to CMA who will certify.

v) Pl check whether you have made any rectification in ER5 regarding input / output ratio

vi) try to collect case law decision from either CENTAX / TAXMAN

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