(a) Circular No. 868/6/2008-CX dated 09.5.2008
Question Answer
1. Whether an assessee availing option (i) or option (ii) under rule 6(3) is allowed to take CENVAT credit of the duty paid on inputs and input services which are used for both dutiable and exempted goods or service?
Yes, the credit on such inputs and input services is allowed.
However, an assessee following option (i) or (ii) under rule 6(3) shall not be allowed to take CENVAT credit of the duty paid on those inputs and input services which are used exclusively for the manufacture of exempted goods or provision of exempted services [refer to Explanation II of rule 6(3)].
For the purpose of the calculation of amount under the formula given under rule 6(3A), the total CENVAT credit taken on inputs and input services does not include the excise duty paid on inputs or the service tax paid on input services which are used exclusively for the manufacture of exempted goods or provision of exempted services.
2. Whether an assessee availing option (i) in respect of certain exempted goods/ services can also avail option (ii) in respect of other exempted goods or services simultaneously?
An assessee opting for either of the option is required to avail the said option for all the exempted goods manufactured by him and all the exempted services provided by him and the option once exercised during a financial year (F.Y.) cannot be withdrawn
during the remaining part of the FY. Therefore, the same assessee cannot avail both option (i) and option (ii) simultaneously during a financial year. [Explanation I to Rule 6(3)].
3. An assessee opting for option (i) is required to pay an amount equivalent to 10% (5% w.e.f.
7.7.09) of the value of exempted goods or 8% (6% w.e.f. 7.7.09) of value of exempted services. What is the scope of term "value" for the said purpose?
The value of the exempted goods is the transaction value as determined in terms of Section 4 of the Central Excise Act, 1944 , or the value determined under Section 4A. However, in case of goods chargeable to specific rate of duty, the value shall be the transaction value to be determined under section 4. The Value of the exempted service is the gross amount charged for providing the exempted service [without abatement].
4. What is the accounting code to be followed by the assessee who is required to pay 8% (6% w.e.f.
07.07. 09) or other amount for the exempted service under Rule 6(3)?
For the present, the assessee can pay the said amount under the accounting code [0044] applicable for service tax.
5. Whether input services distributor can also opt for option (i) or option (ii)
As ISD does not provide any service, and is like a trader, the question of availing either of the options would not arise.
6. Whether export of service without payment of service tax under Export of Service Rules shall be treated as exempted service for the purpose of rule 6(3)?
No; exports of services without payment of service tax are not to be treated as exempted services.
7. What is the manner for calculation of CENVAT credit amount attributable to inputs used in or in relation to the manufacture of exempted goods?
It is required to be done on the basis of actual consumption of the inputs used and the quantification may be made based upon the
stores/production records maintained by the manufacturer.
Further, a certificate from Cost Accountant/Chartered Accountant giving details of the quantity of the inputs used in the manufacture of exempted goods, value thereof and CENVAT credit taken on these input may be submitted at the end of the year.
8. Whether credit in respect of input services covered by rule 6(5) would be required to be taken into account for determination the of amount payable as per formula provided in rule 6(3A).
No, the credit attributable to services mentioned in sub-rule (5), shall not be taken into account for determination of the amount under rule 6(3A).
(b) CBEC Circular No. 870/8/2008 – CX dated 16.5.08
1. The undersigned is directed to refer to Circular No. 599/36/2001 – CX dated November, 2001 [2001 (134) ELT T29], wherein the issue of the applicability of the provision of section 11D of the Central Excise Act, 1944 in cases of the payments made under erstwhile rule 57CC(1) of the Central Excise Rules, 1944 was examined. It has been brought to the notice of the Board that there are some decisions of the Tribunal contrary to the said circular. Further, rule 6 of the CENVAT Credit Rules, 2004, has been amended w.e.f. 1.4.2008, necessitating a re-examination of the circular in the light of these developments.
2. It is seen that the Larger Bench of the Tribunal in the case of Unison Metals Ltd. v. Commissioner of Central Excise, Ahmedabad – I (2006) 204 ELT 323 (Tri. LB)] has held that section 11D provides that any amount which has been collected as excise duty and not paid to the credit of the Central
Government shall be liable to be recovered. The scheme of the Law is that manufacturers shall not collect amounts falsely representing them as central excise duty and retain them, thus, unjustly benefiting themselves. However, in case of the payments made under erstwhile rule 57CC(1), Section 11D of the Act is not applicable since the amount of 6% or 5% has already been paid to the revenue and no amount is retained by the assessee. The said order of the Tribunal has been accepted by the Department.
3. The matter has been examined. Sub-rule (3) of rule 6 of the CENVAT Credit Rules, 2004, has been amended w.e.f. 1.4.2008 to provide for the payment of an amount equal to 5% of the value of the exempted goods, instead of 5% of the price of the exempted goods as provided earlier. The value is to be determined as per section 4 or 4A of the Central Excise Act, 1944 read with rules made thereunder.
4. In the light of what is stated above, it is clarified that as long as the amount of 6% or 5% is paid to the Government in terms of erstwhile rule 57CC of the Central Excise Rules, 1944 or rule 6 of the CENVAT Credit Rules, 2004, the provisions of Section 11D shall not apply even if the amount is recovered from the buyers. However, it may be noted that the CENVAT credit of the said amount of 6% or 5% cannot be taken by the buyer since such a payment is not a payment of the duty in terms of rule 3(1) of the CENVAT Credit Rules, 2004. Therefore, the said 5% amount should be shown in the invoice as “5% amount paid under Rule 6 of the CENVAT Credit Rules, 2004”.
(c) Board’s Letter F. No. 137/72/2008 – CX dated 21.11.08
The issue of restriction of utilisation of accumulated CENVAT credit in terms of erstwhile Rule 6(3)(c) of CENVAT Credit Rules, 2004 has been examined. The following points emerged during its consideration
Prior to 1.4.2008 [before the amendment in rule 6(3)] the option available to the taxpayer under Rule 6(3), was that, he was allowed to utilize credit only to the extent of an amount not exceeding 20% of the amount of service tax payable on taxable output service. However, there was no restriction in taking
CENVAT credit and also there was no provision about the periodic lapse of balance credit. This resulted in accumulation of credit in many cases.
W.e.f 1.4.2008, under the amended rule 6(3), the following options are available to the taxpayers not maintaining separate accounts;
(i) Option No. 1 – In respect of exempted goods, he may pay an amount equal to 10% (5% w.e.f 7-7-09) of the value of exempted goods; and in respect of exempted / non taxable services, he may pay an amount equal to 8% (6%
w.e.f. 7-7-09) of the value of such exempted / non – taxable service.
(ii) Option No. 2 - He may pay an amount equivalent to CENVAT credit attributable to inputs and input services attributable to exempted goods/dutiable goods and taxable/ exempted services.
As stated earlier, many taxpayers had accumulated CENVAT credit balance as on 1.4.2008. The matter to be considered was whether this credit balance should be allowed to be utilized for payment of service tax after 1.4.2008.
As no lapsing provision was incorporated and that the existing Rule 6(3) of the CENVAT Credit Rules does not explicitly bar the utilization of the accumulated credit, the department should not deny the utilization of such accumulated CENVAT credit by the taxpayer after 1.4.2008. Further, it must be kept in mind that taking of credit and its utilization is a substantive right of a taxpayer under value added taxation scheme. Therefore, in the absence of a clear legal prohibition, this right cannot be denied.