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TMI Blog2022 (11) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... formula under Rule 6(3A), the subsidized urea prices would result in the amount of ineligible Cenvat credit going down substantially to the extent sale 80%. Therefore, instead of Rs. 500/- being ineligible, the appellant will be ineligible to about Rs. 100/- as Cenvat credit as per the formula. The remaining Rs. 400/- which will logically be the credit on inputs/input services which have gone into the manufacture of ammonia which finally got converted into urea will still be available to the appellant and it can use this credit for clearing other dutiable goods. However, this inherent unfairness/distortion created by the formula given in Rule 6(3A) should make no difference. An intelligent asessee, who manufactures urea can, by selling a small percentage of the intermediate product ammonia as such on payment of duty avail Cenvat credit on all the inputs and reverse a small percentage of it only. Such a tax planning by the assessee is perfectly within the frame work of law. The formula under Rule 6(3A) only requires the value of the exempted goods removed to be reckoned and not the value of the intermediate goods. The exempted good in this case is the urea. Its value is not in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d goods was required to reverse Cenvat credit on a monthly basis based on the value of clearances during the previous financial year and further adjust it towards the end of the year on an annual basis based on the value of clearances during that financial year. As per this rule the common credit (C) is calculated as follows: C = T (A + B) Where T is the total Cenvat credit availed A is the Cenvat credit attributable exclusively to dutiable goods and taxable services; and B is the Cenvat credit attributable exclusively to exempted goods and non-taxable services. 3. As may be seen, of the total Cenvat credit availed by the assessee, the Cenvat credit which is attributable to exclusively to dutiable goods or exclusively to exempted goods has to be deducted and what is left is the common credit. This common credit is partly eligible and partly ineligible because it is used both for dutiable goods and for exempted goods. 4. The amount of ineligible common credit (D) is to be calculated as (D)= (E/F) x C where (E) is the value of the exempted goods removed and F is the value of the dutiable and exempted goods removes during the preceding financial year. 5. In other wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or is rendering two output services, where one is exempt and the other dutiable. Further, Statute is very clear, under the Rule 6(3)(ii) read with Rule 6(3A), which clearly provides for eligibility of input services in or in relation to the manufacture of exempted goods, and its clearance upto the place of removal shall be calculated proportionately E/F x G, where E denotes the value of the exempted services provided plus the total value of the exempted goods manufactured and removed during the preceding financial year. (F) denotes the total value of taxable and exempted services provided and total value of the dutiable and exempted goods manufactured and removed during the precedent financial year and (G) denotes the total cenvat credit taken on input services during the month. 33. Thus, it is evident from the plain reading of the Rule that it speaks about the goods manufactured and removed during the financial year, and the intermediate products emerges during the manufacture of exempted final products. Accordingly, I hold that the case of the Revenue is mis-conceived and the show cause notice is bad. I further hold that in the facts and circumstances, the issue being wholly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... higher. An illustration will make it clear. If the assessee had availed Cenvat credit of Rs. 1000/- and manufactured only ammonia and cleared it on payment of duty it can avail the entire Rs. 1000/- as Cenvat credit. On the other hand, if the assessee had converted the entire amount of ammonia into urea it would not have been eligible to any Cenvat credit because the urea is exempted. The value of urea makes no difference. On the other hand, if the appellant used 50% of the ammonia to make urea and had sold 50% of the ammonia as such, logically, the assessee should be eligible to only half the Cenvat credit viz. Rs. 500/-. The remaining Rs. 500/- which has gone into inputs/input services used in manufacture of ammonia which were ultimately cleared as urea should not be available to the assessee. However, while applying the formula under Rule 6(3A), the subsidized urea prices would result in the amount of ineligible Cenvat credit going down substantially to the extent sale 80%. Therefore, instead of Rs. 500/- being ineligible, the appellant will be ineligible to about Rs. 100/- as Cenvat credit as per the formula. The remaining Rs. 400/- which will logically be the credit on inputs/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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