reversal of cenvat credit under rule 6

[VINOD KUMAR]

Dear Sirs,

We have cleared machinery items during the F.Y. 2013-14 and 2014-15 for setting up a project for generation of power using non-conventional materials. The said clearance is exempt by virtue of Notification No. 33/2005-CE dated 08-09-2005 and we have fulfilled the necessary conditions to claim exemption. Hence, we have cleared the items without payment of excise duty and without reversal of Cenvat Credit claiming the benefit of Rule 6(6)(vii)(b) and(c). But later on we came to know that the said clause is not applicable on us as such supply is not exempt from BCD and CVD which is pre-requisite to avail the benefit of Rule 6(6)(vii).

Now, the query arises whether we are required to reverse 6% Cenvat Credit on the above clearances having assessable value more than ₹ 2.5 Crores. We have not maintained Separate records under Rule 6(2) of CCR 2004. Please intimate whether we can claim benefit of Rule 6(6)(vii).

Thanks.

[YAGAY andSUN]

Dear Vinod,

You had supplied the goods under Notification No.Notification No. 33/2005-CE dated 08-09-2005 and inadvertently availed the benefits of Rule 6(6)(vii)(b) and(c) which were not even available to you. We have checked the relevant provisions in this regard and it is our considered view that there is a need to reverse the proportionate CENVAT credit or pay an amount @ 6% vide notification no. 18/2012 CE(NT) dated 17-3-2012, w.e.f. 1-4-2012.

Further, you would have to also pay the VAT at applicable rate on the reversed amount.

Regards,

YAGAY and SUN

(Management and Indirect Tax Consultants)

[PAWAN KUMAR]

Dear Sir,

Reversal of amount @6% is not required if the identical goods also enjoy BCD and Addl. Duty exemption at the time of import into India as per rule 6(6)(vii) of Cenvat Credit Rules, 2004. As the benefit is not applicable for you, you need to reverse the 6% amount of sale value of goods supplied. No need to pay sales tax on it as this 6% amount is not a duty of excise and buyer cannot claim this 6% as Cenvat.

[YAGAY andSUN]

Dear Vinod,

The Rajasthan VAT Act,2003 vide its Section 2(32) clarifies the definition of sale price and uses the phrase 'Any Statutory Levy" in the definition of sales prices instead of Excise Duty. Further, RVAT Act does not recognize excise duty or reversed amount is duty of excise or not but it simply says what is includible or what is not in the sale price, namely:-

(36) “sale price” means the amount paid or payable to a dealer as consideration for the sale of any goods less any sum allowed by way of any kind of discount or rebate according to the practice normally prevailing in the trade, but inclusive of any statutory levy or any sum charged for anything done by the dealer in respect of the goods or services rendered at the time of or before the delivery thereof, except the tax imposed under this Act;

Explanation I. – In the case of a sale by hire purchase agreement, the prevailing market price of the goods on the date on which such goods are delivered to the buyer under such agreement, shall be deemed to be the sale price of such goods;

Explanation II. – Cash or trade discount at the time of sale as evident from the invoice shall be excluded from the sale price but any ex post facto grant of discounts or incentives or rebates or rewards and the like shall not be excluded;

Explanation III. – Where according to the terms of a contract, the cost of freight and other expenses in respect of the transportation of goods are incurred by the dealer for or on behalf of the buyer, such cost of freight and other expenses shall not be included in the sale price, if charged separately in the invoice;

Now, the moot question is payment of 6% amount under the CENVAT Credit Rules, 2004 is Statutory Levy or not? If it is statutory levy, then, VAT is payable otherwise not.

We perceive that it is statutory levy since it is derived from the provisions of Central Excise law. Please also check from the RVAT Department and with your Local VAT consultants before paying VAT on 6% amount.

Regards

YAGAY and SUN

(Management and Indirect Tax Consultants)

AI Summary

Reversal of Cenvat credit required where exemption lacks BCD and CVD; pay prescribed amount and VAT may apply. Where Rule 6(6)(vii) conditions are not satisfied because the supply was not exempt from import duties, the supplier must reverse proportionate Cenvat credit or pay the prescribed excise-rule amount; the reversed amount may attract VAT if it is regarded as a statutory levy under state VAT law. Lack of separate records under the relevant accounting rule was identified as a compliance issue affecting reversal and assessment.