PAYMENT OF 6% DUTY ON TRADING ACTIVITY, Central Excise

[BHAVAN VORA]

WE ARE A COMPANY REGISTERED UNDER EXCISE AND ARE INVOLVED IN PROCESSING OF EXCISABLE GOODS AND EXEMPTED GOODS AND ALSO INTO TRADING OF RAW MATERIALS.

WE DO NOT MAINTAIN SEPERATE BOOKS OF ACCOUNT FOR EXCISABLE AND EXEMPT GOODS HENCE WE PAY 12.50 % FOR EXCISABLE PRODUCT AND 6% FOR EXEMPT GOODS UNDER RULE 6.

FURTHER WE ALSO DO RR SALES OF RAW MATERIAL WHERE IN WE SELL THE GOODS IN TRANSIT WITHOUT RECEIPT OF MATERIAL AT OUR END RESULTANT WE DO NOT TAKE CENVAT CREDIT AND DO NOT CHARGE CENVAT CREDIT. DURING EXCISE AUDIT IT HAS BEEN PINTED OUT BY THE AUDITOR THAT WE NEED TO PAY 6% OF THE VALUE OF TRADING SALES.

PLEASE GUIDE AS WE ARE NOT TAKING ANY CENVAT CREDIT FOR THE TRADING GOODS SINCE THEY ARE SOLD AS SUCH IN TRANSIT AND SINCE WE DO NOT TAKE THE CENVAT CREDIT WE DO NOT PAY CENVAT OR CHARGE SERVICE TAX. SO IN THIS CASE ARE WE LIABLE TO REVERSE 6% OF CENVAT OR PAY SERVICE TAX ON THE TRADED GOODS

Posts / Replies

[Rajagopalan Ranganathan]

Sir,

You have stated that the raw materials are sold in transit without availing the cenvat credit of duty paid on the raw material. Since you are not availing the credit under Cenvat Credit Rules, 2004 you need not reverse 6% of the price of the raw material sold in transit.

[KASTURI SETHI]

Sh.Bhavan Vora Ji,

What it appears to me from your query:-

1. You account for the value of traded goods in your books of account.

2. You do not take credit but sell the raw material/trading goods in transit. Hence it is not removal as such. It is trading of goods is in the negative list of services under Section 66(D(e) of the Finance Act, 1994.Hence it is exempted service under Rule 2 (e) of Cenvat Credit Rules, 2004.

3. There is a great deal of difference between 'removal as such' and 'trading of goods'. In removal 'as such, first the inputs are received and entered in records and credit taken. Thereafter, inputs are found of poor quality or for any other reason, are rejected and credit already taken is reversed at the time of removal as such.Here is not that case. Inputs are not allowed to be entered in the premises of the factory and sold out in transit. So it cannot be called input removal 'as such' It is trading of goods and trading of goods is in the negative list and not taxable but 'exempted service'' for the purpose of reversal under Rule 6(3) of the Cenvat Credit Rules,2004.

In view of above, in my view, the Audit is right and reversal @ 6% of the value of exempted service is required.

[KASTURI SETHI]

In continuation of my reply dated 3.7.2016, it is further opined that just as non-excisable goods are being treated as exempted goods for reversal of credit under Rule 6(3), similarly, non-taxable services are to be treated as exempted service for reversal @ 6% of value of exempted services (Value of traded goods). After all the Audit has detected the lapse from books of accounts. You may have not allowed the raw material into the premises by way of sale in transit but in the accounts books inputs have entered into your premises irrespective of the issue that whether you have taken input credit or not.

[Ganeshan Kalyani]

Sir, this is a result of doing everything under one roof. The assesses should have maintained separate books for each kind of transaction. Now if you can substantiate that credit on trading goods has not been availed by you then you should initiate doing it. Otherwise as said by Sri Kasturi Sir the reversal or payment of duty is warranted. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Rightly understood and analysed. Root cause of problem is 'One Roof'. 'One Roof' means hotch-potch. Here an assessee needs practical advice. Facility provided under law is not always useful. Facility of cenvat credit across the board has also caused problem.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

There is no escape route except reversal of 6% on value of traded goods.