Cenvat Credit Reversal Rule 6 CCR 2004

[Mahender Lalwani]

Facts :

1) We have Purchases from - Import Purchase , Local Vat / Interstate purchase and Excise purchase,

2) Sales - Local Sales and Excise sales,

3) We have availed Cenvat credit on Input Services received.

4) We have not maintained separate books of accounts for Dutiable and Exempted Goods

Query :

1) Weather local sales would be considered as exempted sales for reversal calculation.

2) Department is asking for reversal of Cenvat credit on Input Services received on proportionate basis of Exempted sales / Total Sales,

3) Weather the other option under Rule 6(3)(i) of CCR 2004 (7%/8%) of Exempted Service if selected can be beneficial.

4) I have read that 10% of trading activity is to be considered as exempt

The Calculation of reversal on proportionate basis is attached for your reference. Kindly guide which would be beneficial

Option	P&L turnover (A)	ER-1 turnover (B)	Exempted (C) (A-B)	ST Credit for the year (D)	'Proportionate 6(3) reversal (E) (D*C/A)
1 - 100% Trading Activity as Exempt	16066364	777014	15289350	14149	13465
2 - 10% Trading Activity as Exempt	16066364	777014	1528935	14149	1346

[KASTURI SETHI]

Query-wise views is as follows:-

1. No. No reversal on account of sale. In pre-GST era, sale and service were in opposite directions. There is a case law on this issue for non-reversal.

2. This approach is practical, correct and beneficial.

3. Not. The amount may exceed the amount of Cenvat Credit availed.

4. No such provision existed.

[Mahender Lalwani]

Thank you for your valuable input Sir. Appreciate your swift reply.

I have few more queries / clarification, would be happy if you could give your valuable inputs :

1) Request you to provide supporting case law.

As In the case of M/ s. Rajoo Engineers Limited vs Additional Commissioner, Central Excise & Service Tax, Rajkot 2016 = 2016 (9) TMI 1539. Trading activity was considered as Exempted service

As per Para 14.4.1 is states that "exempted services" includes trading. Reference made to Notification No. 3/2011-Central Excise (N.T.) and Notification No.28/2012-Central Excise (N.T) (Both Attached)

2) Even we are to consider reversing in this method, but the question here is what would be considered as value of exempted sales ? Weather complete trading activity would be considered as exempt or 10% of trading activity would be considered as exempt as mentioned in the case of M/ s. Rajoo Engineers Limited vs Additional Commissioner, Central Excise & Service Tax, Rajkot 2016 = 2016 (9) TMI 1539.

In Para 6 – Value of Exempted service was taken as Higher of difference between purchase and sale or 10% of Sales.

3) In point 3, reversal was restricted to Cenvat credit availed on input services

4) In option two given in table above, we have considered 10% of trading activity as exempt and then reversal on proportionate basis is done, can we do this?

Thanks in advance !!

[KASTURI SETHI]

1.The case law of Raju Engineers Ltd. is not relevant for you. It is for job-work only. Pl. confirm whether you have paid Sale Tax/VAT regarding local sales mentioned in query no.1. The case law mentioned by me is in the case of Popular Caterers Vs. Comm.CGST, Mumbai West reported as 2019 (27) GSTL. 545 (Tri.-Mumbai) = 2019 (5) TMI 702 - CESTAT MUMBAI. This is very helpful to you. No doubt trading is exempted service, especially, for the purpose of reversal under Rule 6(3) of Credit Rules, 2004. When sale-tax is paid, it is out of the definition of 'Service'. Difference between sale and service cannot be denied.Service Tax and Sale-tax both cannot be charged at the same time on the same transaction. Demanding 6%/7% on the value of the goods sold amounts to double taxation.

2.No need to drag the issue of 10% in this scenario inasmuch as the case law referred by you not applicable to you.

3. 10% mentioned in the table drawn by you computing reversal amounting to ₹ 1346/- is incorrect. You are to follow option strictly according to Rule 6(3) of Credit Rules, 2004.

Go through the case law cited by me and thereafter you may post your query here only, if any.

[KASTURI SETHI]

I am still of the view that you have not posted full facts of the issue.

AI Summary

Clarifying Cenvat Credit Reversal: Local Sales Exemption and 7%/8% Rule Under Rule 6 CCR 2004 Explored A discussion on the reversal of Cenvat credit under Rule 6 of the CCR 2004, initiated by an anonymous party, involves queries about whether local sales are considered exempt for reversal calculations and the applicability of a 7%/8% reversal option. The responses suggest that local sales do not require reversal, the department's approach is practical, and the 7%/8% option may not be beneficial. References to case law, such as Popular Caterers vs. Comm.CGST, are provided to support these views, emphasizing that trading is considered an exempt service under certain conditions. Further clarifications are requested regarding the treatment of trading activities as exempt.