TaxTMI 
TaxTMI 
There are lots of manufacturing units availing area based exemption & not liable to pay excise duty. I would solicit your valuable views on the aspect that "can they accumulate service credit (being paid presently) & use it later on when the exemption is over?" Further as presently they are not required for registration under excise (hence not required to file ER1) how they will justify their case.
Area based exemption
30 Jul 2016 
11 Replies 
3801 Views Asked by
Cenvat credit on input services cannot be accumulated during excise exemption and used after the exemption ends.
Whether input service tax paid during an excise area-based exemption can be accumulated and utilised after exemption cessation; Cenvat requires paid tax and qualifying input service and permits utilisation only for taxable outputs. Rules emphasise credit tied to tangible inputs lying in stock at cessation; services consumed during exemption are not treated as stockable credits and therefore cannot be used later for duties on products becoming non-exempt. The exemption breaks the credit chain, and using accumulated service tax credits later is generally not permissible, though litigation has been suggested as a risky alternative. (AI Summary)
Whether input service tax paid during an excise area-based exemption can be accumulated and utilised after exemption cessation; Cenvat requires paid tax and qualifying input service and permits utilisation only for taxable outputs. Rules emphasise credit tied to tangible inputs lying in stock at cessation; services consumed during exemption are not treated as stockable credits and therefore cannot be used later for duties on products becoming non-exempt. The exemption breaks the credit chain, and using accumulated service tax credits later is generally not permissible, though litigation has been suggested as a risky alternative. (AI Summary)