Cenvat reversal

[Debtosh Dey]

If common input service is ₹ 1,00,000 which caters to taxable output service ₹ 75,000, traded goods ₹ 25,000 (cost ₹ 20,000) and exported goods ₹ 10,000 (cost ₹ 6,000), what is the input-output ratio for reversing Cenvat ? (I am not clear if exported goods should be taken into account for ratio though not for reversal, and if yes, on what value ?)

Debtosh Dey

[Ganeshan Kalyani]

In my view only credit proportionate to traded goods should be reversed.

[KASTURI SETHI]

Dear Debtosh Dey Ji,

The value of exported goods is not to be taken into consideration for working out the proportionate credit to be reversed. Exported goods are not exempted goods - exe mption means exemption by virtue of notification under Section 5A of Central Excise Act (made applicable to Service Tax). Export goods are dutiable goods. As per Rule 5 of Cenvat Credit Rules, you are not required to reverse the credit on the inputs, input service involved in the goods exported. There are a number of judgments on this issue.

 

[Debtosh Dey]

I did mention that export goods do not attract Cenvat reversal but my question was whether any value of export goods is to be considered in the denominator for input-output ratio. Since common input is also used for exports, the ratio is bound to be unjustifiably higher if such value is not considered in the denominator.

Ref my numerical example : Ratio without export goods = 1,00,000/ (75,000+5,000) = 125% which is absurd ! Does this mean, assessee may reverse Cenvat @ 7% on service value in traded goods ? Please correct me if I am wrong.

Thanks to all.

[KASTURI SETHI]

Sh.Debtosh Dey Ji,

I want to explain what I understand from your query. First of all I would like to say you should resort to Rule 6(3)(i) of Cenvat Credit Rules. Since exported goods are not exempted goods, these can be treated as dutiable goods. So as per this option you are to pay 7% of the value of exempted services i.e. on trading goods. No exempted goods are involved. Hence no question of addition of 6 % of the value of exempted goods. It means only 7% of the value of traded goods is required to be paid. This has also been suggested by Sh.Ganeshan Kalyani.

Now the question of second option under Rule 6 (3A) (i) (ii) of the CCR. As already explained in my reply dated 5.11.2015, the exported goods cannot be termed as exempted goods. These are dutiable goods. So the value of exported goods have to be considered in the denominator for input-output ratio. Formula is as under

The amount of Cenvat Credit attributable to inputs used for provision of exempted services=(B/C) multiplied by D 'B' stands for total value of exempted services during the preceding year. C stands for total value of dutiable goods manufactured and removed plus the total value of output services plus value of exempted services. D stands for credit taken on the inputs during the month minus 'A'. 'A' is Rule 3 A(b)(i). Sir, Have you applied 'D' ? 'A' may be nil as it pertains to exempted goods.

I think something is missing in adopting the methodology. After completely following the methodology, if input-output ratio works out to be odd or absurd, then there may be flaw in the law. We will have to depend on certificate of C.A. or Cost Accountant required in terms of Board's circular No.868/6/2008-CE dated 9.5.2008 which is issued on the basis of actual consumption. Question nos.6 & 7 refer. Better option is 7 %.

 

 

 

 

[Debtosh Dey]

Thanks Mr Kasturi Sethi

Yes, I also observe the anomaly in the methodology of calculation of input-output ratio for Cenvat Reversal. I stand clarified that export goods should be included in the denominator.

Regards

Debtosh Dey

[KASTURI SETHI]

Sh.Debtosh Dey Ji,

You are highly qualified and virtually all-rounder in taxation field.It is a fact and no exaggeration.I am elated to read that you have agreed to my view point.

K.L.SETHI

AI Summary

Cenvat reversal input-output ratio must include exported goods in the denominator, while reversal targets traded services only. Exported goods are dutiable and must be included in the denominator when computing the input-output ratio for Cenvat apportionment, while credit attributable to inputs used for exports need not be reversed. Where chosen, a composition payment based on the value of trading services is an alternative to formulaic apportionment. If detailed apportionment is used, the formula allocates credit to exempted services by reference to the ratio of exempted service value to total dutiable output value (including exports), and reliance on an auditor's certificate reflecting actual consumption may be required.