exempted material

[sukhvinder singh]

Dear Sir ,

Please clear , a company manufactureing  exempted goods as well as dutiable goods , some inputs are commenlly used  and some are exclusively used in  exempted goods ,my question is whether we requier to pay 5% duty on the sale value  of the exempted good excluding all taxes or   reverse the credit of  inputs exclusively used in exempted goods  or both .  

Thanks

[Vijay kumar]

Dear sir, please refer to Rule 6 of Cenvat Credit Rules, 2004. No credit can be taken on inputs used exclusively for exempted goods. For common inputs, you have three options - (i) maintain separate accounts; (ii) pay 5% amount of the value of exempted goods cleared every month or (iii) proportionate reversal of credit provisionally on monthly basis and finally at the end of the year. These options are independent of each other and you have to chose one of them. Option (iii) once exercised in a FY cannot be withdrawn during the remaining part of the FY. Hence you may chose the option which suits you the most. For more details you can contact your JRO.

[NEERAJ KUMAR, RANCHI]

Dear Mr Singh

I mention herebelow the provisions of Rule 6 of cenvat credit rules which are applicable to you.

(2)   Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services, and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take CENVAT credit only on that quantity of input or input service which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax is payable. 

(3)   Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow either of the following options, as applicable to him, namely:-

 

(i)	the manufacturer of goods shall pay an amount equal to five per cent. of value of the exempted goods and the provider of output service shall pay an amount equal to six percent. of value of the exempted services; or
(ii)	the manufacturer of goods or the provider of output service shall pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in, or in relation to, the manufacture of exempted goods or for provision of exempted services subject to the conditions and procedure specifiedin sub-rule (3A).
	Explanation I.- If the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year.
	Explanation II.-For removal of doubt, it is hereby clarified that the credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted goods or provision of exempted service.

Here  I invite ur attention to the "or" highlighted in red. I hope this woul clarfify your doubt. In  my opinion you need to follow either of the two option and not the both.

With regards

Neeraj

[kothapally Raji Reddy]

Sir,

It appears that you are under the impression that you are eligible for credit on the inputs used exclusively in the manufcature of exempted goods. If it is so, you can not take such credit in first place. Regarding credit on common inputs used both in dutiable goods and exempted goods,you can either pay 5% of the value of exempted goods or pay the credit attributable as the formula in Rule 6(3A)of CCR,2004.

[YAGAY andSUN]

I do agree with the views of our experts.

AI Summary

Company Must Choose One Option for Input Credits on Exempted Goods Under Rule 6 of Cenvat Credit Rules 2004. A company manufacturing both exempted and dutiable goods inquired about handling input credits for exempted goods. Experts advised referring to Rule 6 of the Cenvat Credit Rules, 2004, which prohibits credit on inputs exclusively used for exempted goods. For common inputs, the company can choose from three options: maintaining separate accounts, paying 5% of the exempted goods' value, or reversing credit proportionately. Once an option is chosen, it cannot be changed within the financial year. The consensus was that the company must select one option, not both.