CENVAT Credit - inputs/services used in non-excisable goods - Board proposes amendments
CBEC notes that the issue of reversal of wrongful availment of credit used in manufacture or production of non-excisable goods has been under litigation for a while. During a manufacturing process two kinds of goods may come into existence - excisable and non-excisable. Excisable goods can further be divided into two categories - exempted and non-exempted.
Provisions of rule 6 of the CCR, 2004 deals with reversal of credit when a manufacturer manufactures both excisable & dutiable products and excisable & exempted products. Similarly a service provider may provide both taxable and exempted services to which provisions of rule 6 apply. Rule 6 provides machinery provision for quantification of credit needed to be reversed on inputs and input services used in manufacture of exempted goods or in supply of exempted services. However, there is a crucial difference in rule 6 on reversal of credit by a manufacturer vis-a-vis a service provider.
Exempted services have been defined such that the services on which no service tax is payable are also considered as exempted service.Thus credit of inputs or input services used in supply of non-taxable services is also required to be reversed under rule 6. However, for a manufacturer, such provision does not exist in rule 6. Any raw material, consumables or services that are used in manufacture of non-excisable goods would not attract provisions of rule 6 as the definition of exempted goods would not cover non-excisable goods. Thus rule 6 seems to have no applicability for reversal or recovery of credit on raw material, consumables and input services used for production or manufacture of non-excisable goods.
Board notes that it can be argued that there is no machinery provision in the CENVAT Credit Rules, 2004 to quantify the input or input services credit used in production of non-excisable goods if a manufacturer manufactures/produces both excisable and non-excisable goods, as rule 6 does not apply in such case.
Board's proposed solution: One possible way to address the situation would be to amend the definition of exempted goods in the CCR, 2004 such that non-excisable goods would be deemed to be exempted goods. Then the rigour of rule 6 would apply for reversal of CENVAT credit on raw material, consumables and services consumed in production of non-excisable goods.
Board wants the views of the Chief Commissioners on the following:-
(i) Whether the amendment suggested above in the definition of exempted goods would enable reversal of credit used in the manufacture of non-excisable goods without any difficulty,
(ii) If there would be difficulties in implementing such an amended rule, please elaborate,
(iii) Number of Show Cause Notices issued and amount of Cenvat credit demanded to be reversed for use in manufacture of non-excisable goods in last three years (20011* -12, 2012-13 and 2013-14 upto November, 2013 - *What the Board meant is 2011).
(iv) Any other suggestion in this regard.
Board is in no urgent need of a reply from the Chief Commissioner - there is no time limit fixed for that.
CBEC Letter F. No. 17/1 2012-CX.1, Dated: December 23, 2013