Difference between Rule 6(1) and Rule 6(3)

[RAM SHARMA]

Dear Experts,

What is the difference between Rule 6(1) and Rule 6(3) of cenvat credit rule 2004. Which rule is best for us if we are removing excisable goods and exempted services(Trading Goods) without keeping seperate record.

Thanks

[Rajagopalan Ranganathan]

Sir,

Rule 6 (2) of Cenvat Credit Rules, 2004 provides that if your manufacturing dutiable excisable and exempted excisable goods or you are providing taxable service and exempted service and you are availing credit of duty paid on inputs and service tax paid on input services and you are not maintaining separate inventory of inputs and input service in respect of dutiable excisable goods and exempted excisable goods or taxable services and exempted services then you can follow any of the following options: -

(i) pay an amount equal to six per cent. of value of the exempted goods and seven per cent. of value of the exempted services subject to a maximum of the sum total of opening balance of the credit of input and input services available at the beginning of the period to which the payment relates and the credit of input and input services taken during that period; or;

(ii) pay an amount as determined under sub-rule (3A).

Sub-rule 3A provides a formula by which you have to calculate the amount of credit utilised for manufacture of exempted excisable goods and/or for providing exempted service.

It is for you to take a decision about which method will be beneficial and not cumbersome to you, Experts writing in this column cannot decide which is the better option without any data made available to us. You may engage a local consultant/Charted Accountant for this job.

[Ganeshan Kalyani]

Sir, Sri Rajagopalan Sir, has rightly mentioned that 'without studying the data nobody can say which option is the better one.

Sir, moreover how department will frame provision - one beneficial and other unfavourable. The main difference is the option for an assessee to maintain books of account and in other option it is not required.

Sir, you may contact experts in this forum, who would help you out with nominal fees. Thanks.

[KASTURI SETHI]

I strongly support the views of both experts.

AI Summary

Cenvat credit apportionment: choose percentage-based discharge or formula-based calculation depending on records and credit position. Where a taxpayer makes both dutiable and exempted supplies without separate inventory records, Rule 6(2) allows either payment of a prescribed percentage of the value of exempted goods and exempted services-capped by the opening credit balance plus credits taken during the period-or calculation of credit attributable to exempted supplies by the formula in sub rule 3A; the choice depends on which method is more beneficial and on recordkeeping requirements.