Ref: Rule 6 of the Cenvat Credit Rules 2004, Notification Number 13/2016-Central Excise, dated 01.03.2016 and Notification Number 23/2016-Central Excise, dated 01.04.2016
An assessee who is a manufacturer of dutiable goods or provider of output services or both invariably receives services on which he pays service tax and is eligible to take credit in terms of Rule 3(1) of the Cenvat credit rules,2004.
As per Rule 6(1) of Cenvat Credit Rules, Cenvat credit is not admissible on such quantity of input or input service which is used in manufacture of exempted goods or provision of exempted services.
The procedure for calculation of credit not allowed is provided in sub-rules (2) and (3), for two different situations.
Rule 6(2): A manufacturer who exclusively manufactures exempted goods for their clearance up to the place of removal or a service provider who exclusively provides exempted services (as per explanation ‘exempted services’ means any activity which is not a ‘service’ as defined in Section 65B (44) of the Finance Act, 1994). shall pay (i.e. reverse) the entire credit and effectively not be eligible for credit of any inputs and input services used.
Rule 6(3) When a manufacturer manufactures two classes of goods for clearance upto the place of removal, namely, exempted goods and final products excluding exempted goods or when a provider of output services provides two classes of services, namely exempted services and output services excluding exempted services, then the manufacturer or the provider of the output service shall exercise one of the two options, namely,
Rule 6 (3A) : The procedure and conditions for calculation of credit allowed and credit not allowed and such credit not allowed shall be paid, provisionally for each month. Intimation in writing to the Superintendent of Central Excise is necessary. The four key steps for calculating the credit required to be paid are:-
o No credit of inputs or input services used exclusively in manufacture of exempted goods or for provision of exempted services shall be available ;
o Full credit of input or input services used exclusively in final products excluding exempted goods or output services excluding exempted services shall be available;
o Credit left thereafter is common credit and shall be attributed towards exempted goods and exempted services by multiplying the common credit with the ratio of value of exempted goods manufactured or exempted services provided to the total turnover of exempted and non-exempted goods and exempted and non-exempted services in the previous financial year;
o Final reconciliation and adjustments are provided for after close of financial year by 30th June of the succeeding financial year, as provided in the existing rule.
For detail notification 13/2016 and 23/2016 has been attached here with.
