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

AI Summary

Cenvat credit reversal: proportionate reversal required where input services support exempt supplies; flat option may overstate liability.
Cenvat credit on input services must be reversed proportionately for exempt supplies where separate books are not kept. Local sales subject to sales tax/VAT are not treated as exempt services, so they do not automatically trigger reversal. A flat rate option under the credit rules should be avoided if it yields a reversal greater than available credit. The 10% trading concession is not generally applicable where the cited authority does not match the taxpayer's facts.