Rule 6 in a fix – Full CENVAT Credit on specified input services allowed in Rule 6(5) gets reduced in Rule 6(3A)
We have the famous Rule 6 in CENVAT Credit Rule 2004, dealing with cases where both exempted and taxable goods/services are manufactured/provided. One option is to maintain separate accounts and take credit only on the inputs/input services used in taxable goods/services.
Those who do not wish to exercise the above option have two more options. One is to pay 10% amount on exempted goods/8% on exempted services. The other option is to determine the credit attributable to the inputs/ input services and pay the amount.
Now, for determining the above “attributable” credit, a few formulae were inserted in Rule 6. A new sub-rule 6(3A) was inserted vide Notification No 10/2008 CE(NT) Dated 1.3.2008. As per Rule 3A (iii),
(iii) the amount attributable to input services used in or in relation to manufacture of exempted goods 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 taxable 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;
To put it in less confusing terms, if your exempted turnover is 25%, you have to pay an amount of 25% of the total CENVAT Credit on input services.
However, as per Rule 6(5) which was in vogue before the issue of Notification 10/2008 CE( NT), and also remained same after the issue of the Notn 10/2008, allows full credit on 17 specified services, though the same are used for both taxable and non-taxable goods/services.
Now, the full credit allowed on these 17 services also gets reduced by 25% in the above formula. Though Rule 6(5) starts with a non-obstinate clause, this clause only refers to sub-rules 1,2 and 3 but not 3A.
Thus, there seems to be a conflict and if the Govt wants to allow full credit on these 17 services even after the amendment in 2008, Sub-rule 3A (iii), it should have been written as:
(iii) the amount attributable to input services used in or in relation to manufacture of exempted goods 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 taxable 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 LESS THE CREDIT ON 17 SERVICES SPECIFIED UNDER RULE 6(5).
Or alternatively, they can add sub-rule 3A also in non- obstante clause in Rule 6(5).
Is someone listening?