Reversal of CENVAT credit used in exempted goods or service

CENVAT Credit Rules-2004-(Rules-6)- Reversal of CENVAT credit used in exempted goods or service

Under Rule-6 (1)- CENVAT credit shall not be allowed used in or in relation to manufacturing of exempted goods and services. Manufacturer or service provider is obliged to maintain separate account of input and input services for various activity. The CENVAT credit Rules made to facilitate assesses to reverse the CENVAT on exempted goods in proportion or adhoc reversal of 7% and 6% to service provider and manufacturer of goods.

The rules made are being simplified here-

Rule-6(2)

1-Maintain separate account for CENVAT on input and input service used in exempted goods/service and dutiable goods. or

2-To maintain separate account is difficult or not possible due to manufacturing process or services where if maintained would lead to confusion and difficult in workout, then pay an equal amount to 6 % of value of exempted goods and service to manufacturer and 7% to service provider or

3-Reverse service tax credit or pay amount as determined under sub rule-6-(3A)-

Sub Rule-3A prescribes formulae to be applied to arrive the amount of CENVAT reversal-

1-The manufacturer of goods or the provider of output service shall determine and pay provisionally for every month.the rules made being simplified through an example-

S. No. Particulars Period Value A Inputs used in or in relation to manufacturing of exempted goods Monthly 10,000 B Total value of exempted service provided Preceding Financial Year 5,00,000 C Total value of dutiable goods manufacture & removed+
Total value of output services provided

Total value of exempted services provided

Preceding Financial Year 10,00,000
15,00,000

5,00,000

Total 30,00,000 D Total CENVAT Credit taken as input during the monthLess-Input used as per A Monthly 50,000-10,000
40,000

CENVAT to be reversed on each month on InputReversal of CENVAT each Month-Rs.6667/-
Yearly reversal-6667*12=80004/-

B/C*D 50,00,00 / 30,00,000 X40,000   =
6,667

2. Determination of Input service used in related to manufacturing of exempted goods or provisions of exempted services

S. No. Particulars Period Value E Total value of exempted services provided+
Total Value of exempted goods manufactured

Preceding Financial Year 5,00,000
3,00,000

————–

8,00,000

F Total value of dutiable goods manufacture & removed+
Total value of output services provided

Total value of exempted services provided

Preceding Financial Year 10,00,000
3,00,000

5,00,000

3,00,000

Total value of exempted goods manufactured 28,00,000 G Total CENVAT credit taken on Input services Monthly 5,00,000 CENVAT to be reversed on each month on InputReversal of CENVAT each Month-Rs.14285/-
Yearly reversal-14285*12=171428/-

E/F*G 8,00,000 / 28,00,000 X5,00,00   =
14,285

3-The manufacturing of goods or the provider of Output service shall determine finally The amount of CENVAT Credit attributable to exempted goods and exempted services for the whole Financial year in the following manner-

Sl No. Particulars Value H CENVAT credit attributable to inputs used in or in relation to manufacturing of exempted goods on the basis of total quantity of inputs used in or in relation to manufacturing of said exempted goods During Financial Year 1,20,000 J Total value of exempted Services During Financial Year 7,00,000   K Total value of dutiable goods manufactured and removed+
Total value of Output services

Total value of exempted Services

During Financial Year 15,00,000
20,00,000

7,00,000

———–

42,00,000

L Total CENVAT credit takenLess-inputs used in exempted goods During Financial Year 7,00,0001,20,000
————

5,80,000

Yearly reversal of inputs used in exempted services J/K*H 7,00,000 / 42,00,000 X5,80,000   =
96,667

4-The amount of attributable to input services used in manufacturing of exempted goods and removed or provision of exempted services

S. No. Particulars Value M Total value of exempted services provided+
Total value of exempted goods manufactured

During Financial Year 7,00,000
30,00,000

—————-

37,00,000

N Total value of Output Services+
Total value of dutiable goods

Exempted goods

During Financial Year 20,00,000
15,00,000

30,00,000

—————

55,00,000

  P Total CENVAT taken on input services 2,00,000 Yearly reversal of inputs used in exempted goods or provision of exempted services M/N*P 37,00,000 / 55,00,000 X2,00,000   =
1,34,545/-

5-The aggregate of point no-1 and 2 provisionally reversed are Rs.80004+171428=251432/- and the aggregate of worked during the whole Financial year as per point no-3 and 4 are-Rs.-=96667+134545=231212/-

6-In this case the CENVAT amount excess reversed-251432-231212=20220/-

Condition of Rule-6(3A)

1-This excess amount will be adjusted in CENVAT amount and assess is required to inform Superintendent of Service tax with in 15 days.

2-In case where less amt reversed, the short amount will be paid before 30th June of succeeding year .If not paid till 30th June ,the interest will be payable @24% from 1-july to the date of payment.

3-The amount CENVAT attributable to be reversed provisionally not possible to determine as there was no manufacture of exempted goods and service in the preceding year, then the amount CENVAT will be computed on this basis of current year transaction

4-A banking company and a Financial institution including a non banking financial company shall pay for every month an amount equal to 50% of CENVAT credit availed on inputs and input services in that month

5-If any duty of excise is paid on the exempted goods, the same shall be reduced from the amount payable 6% or 7%.

6.If any part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs and input service, used for providing such taxable service,6% of the amount so exempted would be the amount to be reversed.

7-In case of transportation of goods or passenger by Rail,2% of value so exempted would be taken for reversal.

8-Trading activity would be considered exempted services and CENVAT would be reversed proportionately. The value to be taken is difference between sale value and cost of goods sold.

9-Export services are out of purview of Rule-6(3).For export Service tax Rule-6A applies where certain condition are to ensured to claim the benefit of export. If the payment of export is not received in convertible currency with in 6 month or extended period. The export service would not be taken as exempt service.

The procedure to workout CENVAT require lengthy computation and some time may lead confusion and litigation also, In particular, where some services are partially exempted and trading of goods. In export also, delayed receipts of services beyond specified period would loose the benefit of exempted service under Rule-6

This rule require a careful study of all aspects and design the procedure simple and straightforward to avoid litigation later on.