cenvat credit availment on dutiable and exempted product

[Guest]

A company has two units, one for the manufacture of sugar and the other is distillery unit.  In the course of manufacture of sugar, molassess comes as a bye-product which is cleared on payment of duty and has been utilised in the manufacture of varieties of Ethyl Alcohol - Rectified Spirit and Neutral Spirit (RSNS) (non dutiable) and Denatured Spirit (DNS).  The carbondioxide which emerges, has also been cleared on payment of duty.

The company has been taking credit on the duty paid on molasses and expunging the same towards RSNS.  They are paying duty for the clearance of DNS and CO2.  They have opted under Rule 6(3)(ii) of Cenvat Credit Rules, 2004 and paying duty for RSNS at the proportionate rate.

They are using the formula as below

 

Amt.expunged = Total qty. ofMolasses consumed X Total qty. of RSNS produced

                           ------------------------------------------------------------------------------

                             Total quantity of RSNS & DNS produced

The Audit have objected to this method and the assessee started paying duty on the assessable value of RSNS by opting under Rule 65(3)(i) of CCR,2004.

By opting under Rule 6(3)(i) of CCR, 2004 the assessee is getting benefit compared to the proportionate expungement.   The Molasses consumed in the manufacture of RSNS is almost 90%.  The question is whether the credit can be allowed on molasses, as RSNS is non excisable.  Whether the stand of the assessee for option under Rule 6(3)(i) is correct

[Snehal Kulkarni]

 

You can avail the Cenvat Credit on dutiable goods used in manufacture of both dutiable and exempted goods.

1. Either you keep seperate account for the goods/services used in manufacture of the Exempted goods and reverse the cenvat to that extend.

 

2. Or you can simply pay 5% value ( 6% value in case of output service ) from Cenvat.

 

The second option is very benefitial. You may opt this instead of paying the duty as per the formula stated above.

[CASeetharaman KC]

The best way out would be to pay 5% on value of exempted goods and 6% on value of exempted services, once this is done the question of any dispute on availament of Cenvat credit would not arise

[Ramaiah Swamy]

good evening mr. vasudevan,

 

1.  It is not which option is beneficial that decides the acceptance or rejection of the option exercised by the assessee in the instant case

2.  It is whether the assessee has exercised the option ( 5%  amount pay up  or proportionate credit ) validly or not

3. If the option is valid, going for 5% reversal  or proportionate credit route at the assessee's option , the assessee complies the CCR mandate

4.  If above 3 steps are applied, the problem in your case should be over

 

With best wishes

 

Rangaswamy

AI Summary

Cenvat credit on inputs used for exempt outputs: reverse attributable credit or pay specified percentage under Cenvat Credit Rules. Cenvat credit on inputs used to produce both dutiable and exempted goods may be addressed either by keeping separate accounts and reversing the attributable credit for exempted outputs or by availing the alternative prescribed payment mechanism under the Cenvat Credit Rules; a production-ratio expungement formula was contested by audit and the assessee has opted to discharge duty under the payment option to resolve the dispute.