Rule 12 – Special dispensation in respect of inputs manufactured in factories located in specified areas of North East region, Kutch district of Gujarat, State of Jammu and Kashmir and State of Sikkim :

It has been the Government’s policy to develop trade in specified States/regions areas by giving area based incentives. Rule 12 is aimed at achieving the said objective of the Government by extending credit on exempt inputs and capital goods cleared from specified areas under prescribed notifications.

Rule 12 provides that CENVAT credit on inputs or capital goods cleared by units situated in North Eastern States, Jammu and Kashmir, Sikkim and Kutch district under notifications granting area based exemptions from duty, shall be admissible as if no portion of the duty paid on such inputs or capital goods was exempted under any of the said notifications. The exemption to these units is given by way of refund i.e., duty is first paid by the manufacturer and later claimed back as refund.

Rule 12 overrides other CENVAT Credit Rules but is subject to the proviso to clause (i) of subrule (1) of rule 3. In other words, the provisions of rule 12 do not apply if the inputs/capital goods cleared by such units are:

• liable to 2% duty [cleared under Notification No. 1/2011 CE dated 01.03.2011] or

• liable to 1% duty [cleared under Notification No. 12/2012 CE dated 17.03.2012] i.e., they are goods specified at serial numbers 67 and 128 of Notification No. 12/2012 C.E. dated 17.03.2012.