same inputs used for manufacture and processing

[Dalia Felix]

We are registered with the Excise department as 'manufacturer of excisable goods'. It is also possible to conduct certain processes not amounting to manufacture on the inputs purchased and clear them at a higher price. We generally take full cenvat credit of the excise duty paid on purchasing the inputs. Thus, common inputs are used for the manufacture of excisable goods and also removed after partial processing.

Thus, inputs are not 'cleared as such'; but after partial processing. Since the processing does not amount to manufacture, excise duty is not collected.

What is the amount of excise duty to be reversed when the partially processed inputs are removed?

What are procedures to be followed so that the excise duty paid on the inputs are available to us or the purchaser (of the value added inputs) as CENVAT Credit?

What about the applicability of Rule 6 of CENVAT Credit rules on these types of transactions?

[Mehul Pandya]

You should collect service tax on processing charges where process does not amounts to manufacture. as far as cenvat credit concerns, you can reverse proportionate input credit.

[Rajagopalan Ranganathan]

Sir,

If the process to which you subject the inputs does not amount to manufacture, then you are liable to service tax on such processing because such process amounts to rendering of an output service. Since you are paying service tax on the processed inputs you need not reverse any ;amount; under rule 6 (2) of CENVAT Credit Rules 2004.

[Arun Kumar Singh]

You are doing two activity one is falling under manufacturing category and another is trading as such. You have 3 option under rule 6(3) of cenvat credit rules 2004. (i) maintain separate account for both activity. (ii) Reversal of cenvat credit on proportionate way and (iii) Pay excise duty at the rate of 6% on exempted goods.

AI Summary

Service tax on processing may apply where processing is not manufacture; CENVAT reversal or separate account options follow. Processing that does not amount to manufacture is treated as rendering a taxable service and attracts service tax; if service tax is paid on the processed inputs, a CENVAT reversal for that processing need not be made. Where common inputs are used for both manufacture and non-manufacturing processing, taxpayers may either maintain separate accounts, reverse input credit proportionately, or opt for an excise-duty-based alternative for exempted removals to determine CENVAT credit availability.