applicability of Rule 6 of CCR, 2004

[felix ka]

Happy Diwali to all!

We are about to manufacture a dutiable product; 40 % of which is to be removed under the exemption notification 64/95-CE, dated 16-3-95 (exemption to goods supplied for defence and other specified purposes). Please tell me whether 

(1)rule 6 is applicable to us since we are manufacturing no exempted goods

(2)we have to proportionately reverse the cenvat credit of the inputs and input services as per Rule 6 (3A) of CCR, 2004 and

(3) how you had decided the most advantageous option in an occasion where proportionate reversal of cenvat credit was required to be made.

thanks and regards

K A Felix

[YAGAY and SUN]

Dear Sir,

 

It is always beneficial to reverse the proportionate cenvat credit if dutiable and exempted goods are being manufactured unless untill it is a case of inflated duty structure on the finished goods.

 

Regards,

 

Pradeep Khatri

 

[NEERAJ KUMAR, RANCHI]

Dear Mr Felix,

In my view, the circumstances as stated by you in your query doesnot attract the said provisions.

 

[sv bhasker]

Sir,

it is not correct to say that you are not manufacturing exempted goods,because exempted goods means those goods which are wholly exempt from payment of duty like under Notfn No. 64/95. So Rule 6 will apply to you undoubtedly.

It is advisable to reverse credit as per Rule 6(3A) of CCR, 2004, which comes to proprotinate credit as rightly mentioned by Mr. Pradeep.

[NEERAJ KUMAR, RANCHI]

Yes I do agree with the views expressed by Mr Bhasker. In fact earlier I failed to understand your query properly.

[Radha Arun]

To decide the most advantageous option, the proportion of input duty is to be worked out. For some products, payment of 5% on the exempted product, which enables taking credit on all inputs and input services, is a viable and adminstratively easy option.

[NK SHETE]

I do agree with the views of Radha Arun. 

Rule 6 of CCR 2004 is applicable o your unit, following are the options available 

-  Maintain Separate set of books of accounts or

- Reverse the cenvat credit applicable to common inputs & services according to the formula or

- Pay 5% of the selling price of the removal

Any inputs which are exclusively used for manufacturing such product which are not meant for such defence purpose, no need to reverse the credit. Similarly any input services which are exclusively used for manufacturing such product which are not supplied for Defence can be fully availed. However any input or Input service or capital goods which are exclusively used for manufacturing such dutiable product which are meant of Defence purpose cannot be availed at all.

 Regards

Raja Rajan

AI Summary

Rule six cenvat reversal applies where exempt and dutiable production coexist; options include proportional reversal, separate accounts, or flat payment.
Rule 6 of the Cenvat Credit Rules, 2004 applies where both dutiable and exempt goods are manufactured under notification 64/95. Taxpayers must either maintain separate accounts, reverse common cenvat credit using the proportionate formula in Rule 6(3A), or pay a prescribed flat-rate charge on exempt removals to retain full credit. Credits for inputs and input services exclusively used for dutiable output are fully available; those exclusively used for exempt output are not available. Selection among options requires computing the proportion of input duty attributable to exempt production and comparing costs and compliance burdens.