Rule 6 – Obligation of manufacturer or producer of final products and a provider of output service :
(1) No credit on inputs/input services used in manufacture of exempted goods/for provision of exempted services [Sub-rule (1)]: CENVAT is not allowed on:-
(i) such quantity of input used in or in relation to the manufacture of exempted goods or for provision of exempted services
or
(ii) input service used in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services
except in the circumstances mentioned in sub-rule (2).
(2) Credit available in respect of the goods removed without payment of duty by a job worker doing job-work in articles of jewelley: CENVAT credit on inputs is not denied to a job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule [Proviso to sub-rule (1)].
Since, as per rule 12AA, the liability of payment of duty has been cast on the principal manufacturer, goods are cleared by a job worker without payment of duty. However, CENVAT credit on the inputs used in the manufacture of such goods is not denied by virtue of the proviso to rule 6(1) mentioned above.
(3) Exempted goods/final products include non-excisable goods: For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of rule 2 includes non-excisable goods cleared for a consideration from the factory [Explanation 1].
Value of non –excisable goods for the purpose of this rule, is the invoice value. Where such invoice value is not available, the value will be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made thereunder [Explanation 2].
It is to be noted that the above explanations are applicable only to rule 6. By virtue of the said Explanation, inputs and input services used in the manufacture of nonexcisable goods also attract the reversal provisions under rule 6. To illustrate, if a manufacturer manufactures dutiable and non-excisable goods, credit on input or input services used in the manufacture of non-excisable goods will have to be reversed in accordance with the provisions of rule 6.
It is worthwhile to note here that since exempted service inter alia means services on which no service tax is leviable under section 66B of Finance Act, 1994, credit of inputs or input services used in provision of non-taxable services is also required to be reversed under rule 6. Thus, there is no difference with regard to reversal of credit by a manufacturer vis-a-vis a service provider. In other words, provisions for reversal of credit on exempted goods and exempted services are at par.
Points to be noted:
(i) Expression “in or in relation” to be read harmoniously with the definition of “inputs”: It has been clarified vide Circular No.943/04/2011-CX dated 29.04.2011 that the expression “in or in relation” used in rule 6 does not override the definition of “input” under rule 2(k) for determining the eligibility of CENVAT credit. The definition of “input” is given in rule 2(k) and rule 6 only intends to segregate the credits of inputs used towards dutiable goods and exempted goods. Therefore, while applying rule 6, the expression “in or in relation” must be read harmoniously with the definition of “inputs”.
(ii) Reversal of credit where nil rated/exempted waste products arise during the course of manufacture: Circular No. 904/24/09 CX dated 28.10.2009 has clarified that in case the rate of duty in respect of bagasse, aluminium/zinc dross and other waste products arising during the course of manufacture and capable of being sold is NIL in the tariff or they are exempt from duty in terms of any exemption notification, and if CENVAT credit has been taken on the inputs which are used for manufacture of dutiable and exempted goods, then in terms of rule 6 of the CENVAT Credit Rules, 2004, the assessee is required to reverse the proportionate credit or pay 6% amount.
(4) Credit on inputs/input services allowed where separate accounts are maintained [Sub-rule (2)]: Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for –
(i) Receipt, consumption and inventory of following INPUTS–
(a) Exempted goods and services
• Inputs used in or in relation to the manufacture of exempted goods
• Inputs used for the provision of exempted services
(b) Dutiable goods and taxable services
• Inputs used in or in relation to the manufacture of dutiable final products excluding exempted goods
• Inputs used for the provision of output services excluding exempted services
AND
(ii) Receipt and use of following INPUT SERVICES—
(a) Exempted goods and services
• Input services used in or in relation to the manufacture of exempted goods and their clearance upto the place of removal
• Input services used for the provision of exempted services.
(b) Dutiable goods and taxable services
• Input services used in or in relation to the manufacture of dutiable final products, excluding exempted goods, and their clearance upto the place of removal
• Input services used for the provision of output services excluding exempted services.
The manufacturer or output service provider shall take CENVAT credit only on inputs under sub-point (b) of point (i) and input services under sub-point (b) of point (ii) above.
(5) Options where separate accounts are not maintained [Sub-rule(3)]: Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods/the provider of output service, opting not to maintain separate accounts, shall follow any one of the following options, as applicable to him, namely:-
(i) Option to pay 6% of value of exempted goods and 7% of the value of exempted services [Clause (i)]: The manufacturer of goods has an option to pay the following:-
| Particulars | Amount (`) |
| Amount equal to 6% of value of the exempted goods | xxxx |
| Less: Duty of excise, if any, paid on the exempted go | xxxx |
| Amount payable under rule 6(3)(i) | xxxx |
The provider of output service has an option to pay an amount equal to 7% of the value of exempted services.
Points to be noted:
(a) 7% of the value of the exempted service to be paid in case of partially exempted services with no facility of credits: If any part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs and input services, used for providing such taxable service, shall be taken then the amount specified in clause (i) shall be 7% of the value so exempted.
For example, if the abatement on certain service is 60%, the amount required to be paid shall be 4.2% (7% of 60) of the full value of the exempted service.
(b) Reversal of 2% in case of transport of goods/passengers by rail: In case of transportation of goods or passengers by rail, the amount required to be paid under clause (i) of rule 6(3) shall be an amount equal to 2% of the value of the exempted services.
(ii) Option to pay proportionate amount determined under sub-rule (3A) [Clause (ii)]: The manufacturer of goods/the provider of output service has an option to pay an amount as determined under sub-rule (3A).
(iii) Option to maintain separate accounts only in respect of inputs and payment of amount under sub-rule (3A) in respect of input services [Clause (iii)]: The manufacturer of goods/the provider of output service has an option to:-
(a) maintain separate accounts only for the receipt, consumption and inventory of inputs and take CENVAT credit only on inputs used in or in relation to the manufacture of dutiable final products and for the provision of taxable output services
AND
(b) pay an amount as determined under sub-rule (3A) in respect of input services. However, the provisions of sub-clauses (i) and (ii) of clause (b) and sub-clauses (i) and (ii) of clause (c) of sub-rule (3A) shall not apply for such payment.
| Points which merit consideration:
(i) If the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year. (ii) It is hereby clarified that the credit shall not be allowed on inputs used exclusively in or in relation to the manufacture of exempted goods or for provision of exempted services and on input services used exclusively in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services. (iii) No CENVAT credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services. |
(6) Method of computation of amount payable under sub-rule 3(ii) [Sub-rule (3A)]: For determination and payment of amount payable under clause (ii) of sub-rule (3), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely:-
(a) while exercising this option, the manufacturer of goods or the provider of output service shall intimate in writing to the Superintendent of Central Excise giving the following particulars, namely :-
(i) name, address and registration no. of the manufacturer of goods or provider of output service;
(ii) date from which the option under this clause is exercised or proposed to be exercised;
(iii) description of dutiable goods or output services;
(iv) description of exempted goods or exempted services;
(v) CENVAT credit of inputs and input services lying in balance as on the date of exercising the option under this condition;
(b) the manufacturer of goods or the provider of output service shall, determine and pay, provisionally, for every month,-
(i) the amount equivalent to CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods, denoted as A;
(ii) the amount of CENVAT credit attributable to inputs used for provision of exempted services (provisional)= (B/C) multiplied by D, where B denotes the total value of exempted services provided during the preceding financial year, C denotes the total value of dutiable goods manufactured and removed plus the total value of output services provided plus the total value of exempted services provided, during the preceding financial year and D denotes total CENVAT credit taken on inputs during the month minus A;
(iii) the amount attributable to input services used in or in relation to manufacture of exempted goods [and their clearance upto the place of removal] or provision of exempted services (provisional) = (E/F) multiplied by G, where E denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the preceding financial year, F denotes total value of output and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the preceding financial year, and G denotes total CENVAT credit taken on input services during the month;
(c) the manufacturer 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, namely :-
(i) the amount of CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods, on the basis of total quantity of inputs used in or in relation to manufacture of said exempted goods, denoted as H;
(ii) the amount of CENVAT credit attributable to inputs used for provision of exempted services = (J/K) multiplied by L, where J denotes the total value of exempted services provided during the financial year, K denotes the total value of dutiable goods manufactured and removed plus the total value of output services provided plus the total value of exempted services provided, during the financial year and L denotes total CENVAT credit taken on inputs during the financial year minus H;
(iii) the amount attributable to input services used in or in relation to manufacture of exempted goods [and their clearance upto the place of removal] or provision of exempted services = (M/N) multiplied by P, where M denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, N denotes total value of output and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and P denotes total CENVAT credit taken on input services during the financial year;
(d) the manufacturer of goods or the provider of output service, shall pay an amount equal to the difference between the aggregate amount determined as per condition (c) and the aggregate amount determined and paid as per condition (b), on or before the 30th June of the succeeding financial year, where the amount determined as per condition (c) is more than the amount paid;
(e) the manufacturer of goods or the provider of output service, shall, in addition to the amount short-paid, be liable to pay interest at the rate of 24% per annum from the due date, i.e., 30th June till the date of payment, where the amount short-paid is not paid within the said due date;
(f) where the amount determined as per condition (c) is less than the amount determined and paid as per condition (b), the said manufacturer of goods or the provider of output service may adjust the excess amount on his own, by taking credit of such amount;
(g) the manufacturer of goods or the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within a period of fifteen days from the date of payment or adjustment, as per condition (d) and (f) respectively, the following particulars, namely :-
(i) details of CENVAT credit attributable to exempted goods and exempted services, monthwise, for the whole financial year, determined provisionally as per condition (b),
(ii) CENVAT credit attributable to exempted goods and exempted services for the whole financial year, determined as per condition (c),
(iii) amount short paid determined as per condition (d), alongwith the date of payment of the amount short-paid,
(iv) interest payable and paid, if any, on the amount short-paid, determined as per condition (e), and
(v) credit taken on account of excess payment, if any, determined as per condition (f);
(h) where the amount equivalent to CENVAT credit attributable to exempted goods or exempted services cannot be determined provisionally, as prescribed in condition (b), due to reasons that no dutiable goods were manufactured and no output service was provided in the preceding financial year, then the manufacturer of goods or the provider of output service is not required to determine and pay such amount provisionally for each month, but shall determine the CENVAT credit attributable to exempted goods or exempted services for the whole year as prescribed in condition (c) and pay the amount so calculated on or before 30th June of the succeeding financial year.
(i) where the amount determined under condition (h) is not paid within the said due date, i.e., the 30th June, the manufacturer of goods or the provider of output service shall, in addition to the said amount, be liable to pay interest at the rate of 24% per annum from the due date till the date of payment.
(7) Banking company & financial institution (including NBFC) required to pay 50% of credit availed [Sub-rule (3B)]: Notwithstanding anything contained in sub-rules (1), (2) and (3), a banking company and a financial institution including a non-banking financial company (NBFC), engaged in providing services by way of extending deposits, loans or advances, shall pay for every month an amount equal to 50% of the CENVAT credit availed on inputs and input services in that month.
(8) Payment under sub-rule (3) deemed to be credit not taken for the purpose of exemption notification [Sub-rule (3D)]: Payment of an amount under sub-rule (3) shall be deemed to be CENVAT credit not taken for the purpose of an exemption notification wherein any exemption is granted on the condition that no CENVAT credit of inputs and input services shall be taken.
(9) “Value” for the purpose of sub-rules (3) and (3A):-
(a) shall have the same meaning as assigned to it under section 67 of the Finance Act, read with rules made thereunder or, as the case may be, the value determined under section 3, 4 or 4A of the Excise Act, read with rules made thereunder;
(b) in the case of a taxable service, when the option available under sub-rules (7),(7A),(7B) or (7C) of rule 6 of the Service Tax Rules, 1994, has been availed, shall be the value on which the rate of service tax under section 66B of the Finance Act, read with an exemption notification, if any, relating to such rate, when applied for calculation of service tax results in the same amount of tax as calculated under the option availed;
(c) in case of trading, shall be the difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or 10% of the cost of goods sold, whichever is more;
[The taxes and year end discounts should be included in the sale price and cost of goods sold. All taxes for which set off or credit is available or are refundable/ refunded may not be included. Discounts are to be included – Circular No. 943/4/2011 CX dated 29.04.2011].
(d) in case of trading of securities, shall be the difference between the sale price and the purchase price of the securities traded or 1% of the purchase price of the securities traded, whichever is more;
(e) shall not include the value of services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.
| Points which merit consideration
1. The amount mentioned in sub-rules (3), (3A) and (3B), unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, when such payment shall be made on or before the 31st day of the month of March. 2. If the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rule (3), (3A) and (3B), it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken. 3. In case of a manufacturer who avails the exemption under a notification based on the value of clearances in a financial year and a service provider who is an individual or proprietary firm or partnership firm, the expressions, “following month” and “month of March” occurring in sub-rules (3) and (3A) shall be read respectively as “following quarter” and “quarter ending with the month of March. |
(10) Credit not allowed on capital goods used exclusively in manufacture of exempted goods/for provision of exempted services [Sub-rule (4)]: No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods/in providing exempted services.
However, CENVAT credit in respect of the capital goods used in the manufacture of the exempted final products of an SSI unit shall be allowed.
Note: A SSI unit can avail the CENVAT credit of the capital goods used exclusively in manufacture of the exempted final product, but the same can be utilised for payment of duty only when the clearances cross ` 150 lakh.
Credit not allowed on capital goods used in manufacture of goods exempt under Notification 1/2011- CE or provision of partially exempted service subject to nonavailment of credit of inputs and input services: As per Rule 6(4), no credit can be availed on capital goods used exclusively in manufacture of exempted goods or in providing exempted service. Goods in respect of which the benefit of an exemption under Notification No. 1/2011- CE, dated 01.03.2011 is availed are exempted goods [Rule 2(d)]. Taxable services whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service shall be taken are exempted services [Rule 2(e)].
Hence, credit of capital goods used exclusively in manufacture of such goods or in providing such service is not allowed [Circular No.943/04/2011-CX dated 29.04.2011].
(11) Provisions of sub-rule (1) to (4) not applicable in respect of certain excisable goods removed without payment of duty [Sub-rule (6)]: The provisions of sub-rules (1), (2), (3) and (4) do not apply to removal of certain specified excisable goods without payment of duty. In case of these removals, though the final product is removed without payment of duty, CENVAT credit on inputs/capital goods/input services used in the manufacture of such final product can be availed. In other words, in such cases, reversal of credit or payment of amount will not be required. Such cases are as follows:-
(i) Clearances to unit/developer of SEZ: The excisable goods cleared to a unit in a special economic zone (SEZ) or to a developer of a special economic zone for their authorized operations without payment of duty.
(ii) Clearances to 100% EOU: The excisable goods cleared to a hundred percent exportoriented undertaking (100% EOU) without payment of duty.
(iii) Clearances to EHTP/STP: The excisable goods cleared to a unit in an Electronic Hardware Technology Park (EHTP) / Software Technology Park (STP) without payment of duty.
(iv) Goods supplied to the UN/International organization: The excisable goods supplied, without payment of duty, to the United Nations (UN) or an international organization for their official use or supplied to projects funded by them which are exempt under Notification No. 108/95-CE dated 28.08.1995.
(iva) Goods supplied to diplomatic missions/consular missions etc.: The excisable goods supplied, without payment of duty, for the use of foreign diplomatic missions or consular missions or career consular offices or diplomatic agents in terms of the provisions of Notification No. 12/2012-CE dated 17.03.2012.
(v) Export under bond: The excisable goods cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002 without payment of duty.
(vi) Gold/silver (falling within Chapter 71): Gold or silver falling within Chapter 71 of the said First Schedule, arising in the course of manufacture of copper or zinc by smelting are removed without payment of duty.
(vii) Specified goods exempt from import duty and CVD: All goods which are exempt from the duties of customs leviable under the First Schedule to the Customs Tariff Act, 1975 and the additional duty leviable under sub-section (1) of section 3 of the said Customs Tariff Act when imported into India and are supplied, without payment of duty —
(a) against International Competitive Bidding; or
(b) to a power project from which power supply has been tied up through tariff based competitive bidding; or
(c) to a power project awarded to a developer through tariff based competitive bidding, in terms of Notification No. 12/2012 CE dated 17.03.2012.:
(viii) Supplies made without payment of duty for setting up of solar power generation projects or facilities
(12) Provisions of sub-rule (1) to (4) not to apply in respect of services provided to a unit/developer of SEZ without payment of service tax [Sub-rule (7)]: The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the taxable services are provided, without payment of service tax, to a unit in a Special Economic Zone or to a developer of a Special Economic Zone for their authorized operations or when a service is exported.
(13) Export of service vis a vis exempt service [Sub-rule (8)]: For the purpose of this rule, a service provided or agreed to be provided shall not be an exempted service when:-
(a) the service satisfies the conditions specified under rule 6A of the Service Tax Rules, 1994 and the payment for the service is to be received in convertible foreign currency; and
(b) such payment has not been received for a period of six months or such extended period as may be allowed from time-to-time by the Reserve Bank of India, from the date of provision.
However, if such payment is received after the specified or extended period allowed by the Reserve Bank of India but within one year from such period, the service provider shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier in terms of rule 6(3). The credit can be availed to the extent it relates to such payment, on the basis of documentary evidence of the payment so received.