Proportionate reversal of credit

[Dalia Felix]

Dear Sirs,

My doubt is regarding the proportionate reversal of cenvat credit as per sub-rule 3(A) of Rule 6, CENVAT Credit Rules, 2004. 

How can we calculate the amount to be reversed corresponding to the inputs used in the manufacture of exempted goods in the following case? Say, two products X and Y are simultaneously produced from inputs A and B ( X is the more valuable good). Suppose 1000 Tons each of A & B are used for producing 20 Tons of X, an exempted good and 50 Tons of Y, a dutiable product.How can we calculate the proportionate credit to be reversed by the manufacturer?  

Whether the manufacturer has to consider the quantity or value of X and Y produced? Is he free to choose either basis (whichever is more advantageous)?

AI Summary

Proportionate reversal of credit: follow value based allocation under the Rule rather than a taxpayer's quantity choice.
Proportionate reversal of cenvat credit under sub rule 3A of Rule 6 requires determining the credit attributable to inputs used for exempt goods. The debate is whether to apportion reversal by quantity of products or by value/turnover; input services contain a clear value based formula, and where the Rule bases calculations on value of final products and inputs, a taxpayer should not adopt a quantity basis solely because it is advantageous.