Beware Manufacturers - take the credit of service tax on input services used commonly in exempted goods and excisable goods carefully? "

Generally it is misunderstood by some ignorant manufacturer, that they are eligible to take cenvat credit on all the services received either in the Head Office or Factory Premises even if they are engaged in manufacturing and removal of exempted goods as well as excisable goods.

As per the provisions of Rule 6 of the Cenvat Credit Rules, 2004, a manufacturer who is availing the cenvat credit on common inputs or services, he has to pay 10% of the value of the exempted goods where no separate records are being maintained.

However, certain services (16 services) are allowed fully even if used commonly for the purpose or exempted as well as excisable goods.

In an identical issue, honorable tribunal has refused to grant stay for recovery of cenvat credit wrongly availed by the assessee as alleged by the department (see:2007 -TMI - 1853 - CESTAT, MUMBAI)

Cenvat Credit - Ready Reckoner (an e-book)

Ch. No. 09     Exempted Goods / Services - Common

Ch. No. 09-A Exempted Goods - Manufacturer

Ch. No. 09-B  Exempted Services - Service Provider

Ch. No. 09-C  Exempted Services: - Special provision for General Insurance Companies.

Cenvat credit on common input services may require payment when used for exempted goods; recordkeeping is crucial to avoid recovery. Manufacturers claiming cenvat credit on input services used commonly for exempted and dutiable goods must comply with the apportionment and recordkeeping obligations; absent separate records an adjustment is required to account for credit attributable to exempted goods, while certain listed services remain fully allowable even when used for both exempted and dutiable outputs.