Rule 6 (6) of CENVAT Credit Rules 2004 - needs to be revisited
IN a significant move towards integration of taxes on goods and services, cross sectoral credit across goods and services was notified in 2004 by merging the CENVAT Credit Rules for goods and services. However, experience over a period of time proved the word “integration” wrong. What they did actually was only “Joining”. Otherwise, what could be the reason for not allowing credit on tippers and dumpers used for providing taxable services like mining or earth preparation? This anomaly has only been rectified recently.
There is one more anomaly which needs to be removed immediately. Under Rule 6(6) of the CENVAT Credit Rules, 2004, certain categories of supplies like exports, supplies to SEZ units etc are excluded from the purview of Rules 6(1),6(2),6(3) and 6(4) and hence full CENVAT Credit can be taken by the supplier on the inputs/input services even if the supplies are exempted / made without payment of duty. However there is no mention of any output services in Rule 6(6). To give an example, services rendered to the developers or the units in SEZ are exempted vide Notification No 9/2009-ST Dated 3.3.2009. The exemption is absolute for the services consumed within the SEZ and for other services, the exemption is allowed to the SEZ unit/ Developer through refund mechanism.
It appears the CENVAT credit on input services is denied to the service providers who supply their output services to SEZ units by invoking the provisions of Rule 6 (1) of the CENVAT Credit Rule 2004. When Rule 6(6) specifically mentions that the provisions of Rule 6(1) are not attracted to the goods supplied to the units in SEZ/ Developers, it makes no sense to deny the same benefit to the suppliers of services. This kind of problems will surface if we join the rules instead of integrating. It will benefit a number of service providers if Rule 6(6) is amended to include services supplied to SEZ Units also in addition to the goods.
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