Under Rule 6 of the Cenvat Credit Rules, 2004 the assessee who is engaged in manufacturing of Excisable (On which appropriate duty is required to be paid) and Exempted Goods simultaneously, has an option either to avail the Cenvat Credit on inputs used in Excisable Goods on proportionate basis or avail the Cenvat Credit and subsequently revers the Cenvat Credit equal to 10% on the Price of Exempted Finished Goods.

Various courts and Tribunal has accepted the above position and allowed Cenvat Credit with respect to exempted goods subject to reversal of 10% (earlier 8%) at the time of removal of exempted goods.

Now, the Board has issued a circular contrary to this well settled situation in respect of the manufactures availing exemption under notification no.29/2004-CE  and  30/2004-CE .

The Board has pointed out the following condition of the notification no. 30/2004 in its circular no. Circular No. 845/03/2006-CX dated 1-2-2007: -

'nothing contained in this Notification shall apply to the goods in respect of which the credit of duty on inputs has been taken under the provisions of the CENVAT Credit Rules, 2004'

It is strange to note that the rule 6 of the Cenvat Credit Rules, 2004 recognize the difficulty of availing Cenvat Credit on the common inputs used in both exempted and dutiable goods, but the Board does not. If the textile manufacturer, wants to avail the Cenvat Credit on common input, only one option has to be exercised - "Avail Cenvat Credit proportionately on common inputs"

Cenvat Credit rule: exemption notifications disapplied where input credit taken, forcing proportionate credit accounting by manufacturers. Manufacturers of both dutiable and exempt goods may either apportion Cenvat Credit proportionately on common inputs or take full credit and reverse a prescribed percentage on exempted goods; authorities have accepted both routes. A departmental circular invokes an exclusionary clause in Notification No. 30/2004 CE, stating the notification does not apply where input duty credit has been taken under the Cenvat Credit Rules, thereby restricting the exemption for manufacturers who have availed input credit and leaving proportionate apportionment as the practical option.