EASY UNDERSTANDING OF RULE 6 OF CENVAT CREDIT RULES 2004 FOR CA FINAL STUDENTS – NOVEMBER 2011
Hi students you must be aware that a number of changes have been brought about in CENVAT Credit Rules, 2004 and more particularly in Rule 6 of CCR 2004 .
Let us discuss the amendments made in Rule 6 in a question Answer (PS)form in a simple language without going into the technical jargons.
Abhi Toshniwal : Sir , we all know that If Input and Input Services are used in mfg of Excisable Goods and for providing Taxable Services ,the Duty and Tax (CC) paid on such Inputs and Input Service(IS) is available for set off with the Excise Duty and Service Tax payable on Final Product(FP) and Output Service Provided(OSP) respectively. Elaborate what would be the treatment of CC of Input / IS which is used in exempted Goods and Exempted Services .
Answer (PS): Let us first understand where Inputs and IS is used. Following chart shows how Inputs / IS can be used.
|
Input used exclusively for : |
CC (Excise Duty ) of Inputs |
Input Services used exclusively for : |
CC (Service Tax) of IS |
|
Manufacture of Exempted Goods |
Not available |
Manufacture of Exempted Goods |
Not available |
|
Manufacture of Dutiable Goods |
Available |
Manufacture of Dutiable Goods |
Available |
|
Provision of Exempted Services |
Not Available |
Provision of Exempted Services |
Not Available |
|
Provision of Taxable Services |
Available |
Provision of Taxable Services |
Available |
Nehal Chugh : Sir , you mean to say Input and IS exclusively used for mfg of Excisable Goods and Taxable Services are eligible for CC .
Answer (PS): In a way you are right but you must know that it is the basic principle of Excise and Service Tax that Cenvat Credit (CC) of Inputs and Input Services (IS) is not available if these are used in mfg of Exempted Goods or provision of Exempted Services . If you do not pay the tax on the Final Product or Output Service , credit of excise duty or service tax paid on inputs or input services cannot be taken or availed. Thus here even if the goods and services are Excisable / Taxable it should not be exempted otherwise CC would not be available .In other word , goods must be dutiable and service must be taxable.
Azim Advani : What is the meaning of Exempted Goods and Services
Answer (PS): This we will discuss later on . Just remember no CC of Input/IS available if these are exclusively used for mfg of exempted goods / provision of exempted services.
Avni Patel : Sir , under which rule or section or notification it is said that CC would not be available if Inputs / IS used for exempted goods / services.
Answer (PS): Rule 6(1) of CCR specifically says that CC is not admissible on such quantity of input or input service which is used in manufacture of exempted goods or provision of exempted services
Dharti Dhoka : Sir , please explain if Input or Input service is partly used for mfg of exempted goods/ provision of exempted services and partly for mfg of Dutiable goods /Taxable services.
Answer (PS): Rule 6(1) mean to say that if common inputs and input services are partly used in mfg of Exempted Goods or provision of Output service then CC of that portion of input/input service will not be available which is used for mfg of exempted goods / provision of Taxable Services.
Fayaz Saboowala : Sir , how do we know that Common Inputs and IS are partly used for Dutiable Goods/Taxable Services and Partly for Exempted Goods/Services .
Answer (PS): See, there should not be any problem in availing / taking CC if Inputs / IS exclusively used for mfg of Dutiable Goods / Provision of Taxable Services. Neither there should be any difficulty in not taking / utilizing the CC if Input / Input service is exclusively used for mfg of Exempted Goods or Provision of Exempted services .
Now coming to your question, the real problem arises when there are certain Inputs and/ or Input Services which are partly or commonly used for mfg of Exempted Goods as well as Dutiable Goods and provision of both Exempted Service and Taxable Services. In other words, the same input/IS is used partly for Exempted goods/Services and partly for Dutiable goods / services .
Isha Agarwal : Sir can you explain it in more detail
Answer (PS): Why not . Just go through the following chart
|
Common Input can be used for : |
A |
Mfg of Dutiable goods and |
Mfg of Exempted Goods |
|
B |
Mfg of Dutiable Goods and |
Prov. of Exempted Services |
|
|
C |
Mfg of Dutiable Goods and |
Mfg of Exempted Goods and prov. Of Exempted Services |
|
|
D |
Provision of Taxable Services and |
Prov. of Exempted Services |
|
|
E |
Provision of Taxable Services and |
Mfg of Exempted Goods |
|
|
F |
Provision of Taxable Services and |
Mfg. of Exempted Goods and Prov. Of Services |
|
|
Similarly Common Input Services can also be used for |
1 |
Mfg of Dutiable goods and |
Mfg of Exempted Goods |
|
2 |
Mfg of Dutiable Goods and |
Prov. of Exempted Services |
|
|
3 |
Mfg of Dutiable Goods and |
Mfg of Exempted Goods and prov. Of Exempted Services |
|
|
4 |
Provision of Taxable Services and |
Prov. of Exempted Services |
|
|
5 |
Provision of Taxable Services and |
Mfg of Exempted Goods |
|
|
6 |
Provision of Taxable Services and |
Mfg. of Exempted Goods and Prov. Of Services |
Hitesh Goyani : But sir, how do we know how much common Inputs have been used for mfg of Exempted Goods .
Answer (PS): In all the above cases, in case A supra , it is most easy to find out the CC of Common Inputs used in Mfg of Exempted Goods as the quantitative details of inputs received and consumed can be available from stores and issue records and the quantitative details of goods manufactured can be available from production records and the inputs attributable to the manufacture of exempted product can be computed.
For example detail may be available from the stores and production records in respect of 100 kgs of Polyester Yarn received and 60 Kgs issued for production of 55 Kgs of Processed Yarn (Dutiable Goods) and remaining 40 Kgs of POY issued for mfg of 500 Mtrs of Grey Cloth (Exempted Goods) . Thus CC on 40 Kgs of POY used in mfg of 500 Mtrs of Grey Cloth [Exempted Final Product] will not be available. From the stores register, stock register and production register it can be easily identified / quantified/established which input and in what quantity has been consumed to make specific quantity and quality of FP.
Jignesh Shah : That’s seems to be so easy
Answer (PS): Yes, this is known as Inputs attributable to mfg of Exempted Good and as well as to Dutiable Goods.
Kushal Gheewala : And sir , how do we know how much of Common Inputs have been used in providing Exempted Services.
Answer (PS): The same may be made available from the Input issue and consumption register. Though its not as easy as in the case of Inputs used in Final Product. A little difficulty arises to quantify and identify the Common Inputs used in providing the Exempted Services. That why separate formula is provided in Rule 6(3A) which we are going to discuss elsewhere.
Mayank Ogriwala : Sir , from your answer it seems that it would be difficult to identify / quantify the Common IS partly used for Exempted Goods and partly for Dutiable Goods.
Answer (PS): You are right. Not only it is difficult to identify Common IS used partly in mfg of Exempted Goods and partly in Dutiable but also it is really difficult to find out common IS partly used in provision of Exempted Services and Partly in provision of Taxable Services .
For instance services of Chemical Engineers availed and services Tax paid thereon is Rs. 10300 , here it really becomes difficult to apportion the input services to the goods manufactured or the output services provided with the help of this Input services.
Prachi Shah : Sir , then what should be done to identify the Common Input/ IS used in mfg of Exempted Goods and Exempted Services .
Answer (PS): As rule 6(1) of CCR specifically prohibit availment of CC of Input / IS on such quantity of input or input service which is used in manufacture of exempted goods or provision of exempted services and if common inputs and input services are partly used in mfg of Exempted Goods or provision of Output service then CC of that portion of input/input service will not be available which is used in Exempted Goods / Services .
In order to quantify the exact amount of inputs or inputs services used in mfg of exempted goods or provision of exempted services it becomes necessary to maintain the separate records of receipt , consumption and inventory (RCI) of the Inputs and receipt and use of the Input services.
Aditya Singhvi : Sir can you explain through an example
Answer (PS): Why not , I will provide you an illustration
Illustration 1 :
Surti Lala Ltd mfg Products as well as provides Services in April , 2011 , from the following information, ascertain the duty liability of the company for the month of April 2011?
|
|
Quantity purchased/sold |
|
Value |
Rate |
|
|
|
Inputs |
80000 Pcs |
15 |
1200000 |
E.Duty 8.24% |
CC of Inputs |
98880 |
|
IS |
- |
|
500000 |
ST 10.30% |
CC of IS |
51500 |
|
|
|
|
|
|
|
|
|
DG |
40000 Pcs |
25 |
1000000 |
E.Duty 8.24% |
Duty payable |
82400 |
|
EG |
- |
- |
- |
- |
- |
- |
|
TS |
- |
- |
400000 |
ST 10.30% |
ST payable |
41200 |
|
ES |
- |
- |
- |
- |
- |
- |
E=Exempted T=Taxable D=Dutiable IS = Input Service S=Service G = Goods
Solution :
|
Excise Duty payable for April 2011 |
82400 |
|
|
Service Tax Payable for April 2011 |
41200 |
|
|
Total Duty and Tax payable |
123600 |
|
|
Less : Cenvat Credit |
|
|
|
Inputs |
98880 |
|
|
Input Service |
51500 |
|
|
Total CC available |
|
(150380) |
|
Balance of CC |
|
(26780) |
As there are no exempted goods / services Rule 6 will not be applicable
Govind Ladha : Sir , can you tell us how should separate records should be maintained
Answer (PS): Rule 6 (2) of the CCR 2004 elaborates how separate accounts are to be maintained for this purpose. Thus, in the first instance one should maintain the separate accounts of RCI viz . Receipts , Consumption and Inventory of Inputs as under :
|
Inputs |
Used in mfg of Exempted Goods |
Rule 6(2)(a)(i) |
|
Used in mfg of Dutiable Goods |
Rule 6(2)(a)(ii) |
|
|
Used in prov. Of Exempted Services |
Rule 6(2)(a)(iii) |
|
|
Used in prov. Of Exempted Services |
Rule 6(2)(a)(iv) |
And RU viz . Receipts and Use of Input services are to be made as under :
|
IS |
Used in mfg of Exempted Goods* |
Rule 6(2)(b)(i) |
|
Used in mfg of Dutiable Goods* |
Rule 6(2)(b)(ii) |
|
|
Used in prov. Of Exempted Services |
Rule 6(2)(b)(iii) |
|
|
Used in prov. Of Exempted Services |
Rule 6(2)(b)(iv) |
* All Input services used in relation to mfg of goods and their clearance upto the place of removal is to be considered [Inserted w.e.f. 01/04/2011]
For example if freight is paid for purchase of Raw material from supplier to the manufacturer‘s factory then CC of Service tax paid on freight is admissible and even if freight is paid to remove the goods manufactured from factory to the go-down/ depot/CN/Branch agent of the manufacturer then also CC will be available. But no CC is available if freight is paid from depot/ godown/CN agent /Branch to Buyers place. Since CC of Input Service is available upto the place of removal , accounts are to be maintained accordingly.
Krishna Agarwal : Sir, what will happen once the separate accounts are maintained.
Answer (PS) : Having maintained the above accounts , now the assessee can take the CC on the dutiable goods/ taxable service ( Dudh ka dudh aur pani ka pani ho gaya ) . Assessee shall take CC only of inputs under sub-clauses (ii) and (iv) of clause (a) [Dutiable goods and Taxable Service] and CC only of input services under sub-clauses (ii) and (iv) of clause (b) [Dutiable goods and Taxable Service]
Nilisha Shah : Sir , in reply earlier you told us to explain the meaning of Exempted Goods and Exempted Services.
Answer (PS): You are right, the definition of Exempted goods and services have undergone a vast change in the Budget 2011. It is important to know what really exempted goods and exempted services mean as the CC is not taken in relation to these two elements. Budget 2011 has made substantial changes in the meaning of Exempted goods and services .
The amended definition or meaning of Exempted Goods are as under :
Rule 2(d) of CCR - Meaning of Exempted Goods :
|
Taxable Goods but exempted by way of notification u/s 5A of CEA (Non-Dutiable) |
|
Goods with NIL rate in CETA (Non-Dutiable) |
|
130 Items attracting 1% concessional rate as per NN01/2011 – First notification of the FY |
Priyanka Chipad : Sir , from the above it is clear that Non Taxable (Non-Excisable) Goods are not included in the definition. But I have not able to understand the third point. Can you elaborate it?
Answer (PS): Yes . The definition of “Exempted Goods” has been amended in Budget 2011 so as to include 130 items covered in the NN 1/2011 which allows the manufacturer to pay the duty at the concessional rate of 1% instead of the normal rates mentioned in CETA. On these 130 items excise duty @1% only is payable and no CC is available on Inputs/IS used in mfg of these items. These 130 items are construed as exempted goods.
Ritesh Singhal : Can you now tell us the meaning of exempted services
Answer (PS): Yes , as per Rule 2(e) of CCR - Exempted Services are :
|
Taxable Services but exempted by way of notification |
|
Services on which no service tax is leviable under section 66 of Finance Act (Non-Taxable Services) |
|
Taxable services whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken (inserted w.e.f. 1-4-2011Budget 2011Changes ) |
|
Trading Activity (inserted w.e.f. 1-4-2011 - Budget 2011Changes ) |
Vardhman Baid : Sir , am I correct if I say that even if a service does not fall within the purview of Service Tax it would be covered under the definition of exempted goods.
Answer (PS): Yes , you are right . It is important to note that if a particular service is not taxable under provisions of Finance Act, 1994, it will be treated as “exempted service” for purpose of rule 6. In other words , even non-taxable services are also covered under the definition of Exempted Services.
Shilpa Bajaj : But sir , Non-Excisable Goods are not covered under the definition of Exempted Goods
Answer (PS): Strangely Non-Taxable services are treated as exempted services but this is not so in the case of Non-Excisable Goods as already stated above.
Sandeep Patel : Sir, I have not been able to understand the third point above.
Answer (PS): The definition of Exempted Services has undergone major changes . Now the exempted services includes even those services in respect of which the service provider has opted for exemption on part of the value with a condition that no CC credit of input or input services is available.
Ridhi Shah : Sir , the above language is too technical. Can you explain it in simple language.
Answer (PS): I will try to explain you by an example. In case of services like Construction of Complexes, Erection, Installation and Commissioning, Transport of goods by Road, Transport by Rail etc where abatement or exemption is available through notification subject to the condition that no CC will be admissible then the entire service is construed as exempted service. For e.g. Gross value of service provided is 100 Lacs abatement available is 67 Lacs (67% of GV) and Tax is payable on 33 Lacs. In this case the entire service is exempted service .
Radha Tulsyan : and sir , what is the meaning of “Trading” and why Trading is covered under the definition of exempted services.
Answer (PS): The another major change made in the budget is that the exempted service include ‘trading activity’. Rule 2(e) of CCR as amended w.e.f. 1-4-2011 states that ‘exempted service’ includes trading . Before this amendment there were no specific provisions as to the treatment of CC of Inputs and Input Services partly used in dutiable goods /Services and partly in trading activities . A manufacturer or service provider may also engaged in the trading of goods and use the common inputs / IS partly for trading activities and partly for mfg of Dutiable goods / Provision of Taxable Services. Here CC of Inputs/ IS service used for Trading activities
Mahesh Sisara : Any example sir
Answer (PS): Suppose Service provider is engaged in trading of Yarn in its own account as well as act as a commission agent who receives commission from yarn manufacturer for introducing their product to customers and the bills are raised by the manufacturer directly in the name of customers . No commission is received from Yarn purchased for trading . Assuming that the yarn is sold (whether own sale or direct dispatch to customers from manufacturer) by the SP through sub-brokers to whom brokerage is paid by SP along with the service tax. Here, SP is eligible to take the CC only of the ST paid on brokerage which is not paid on the Own Sale of the SP (trading activity).
Kedar Kothari : But sir , if trading is exempted service, how , the value of trading activity is calculated
Answer (PS) : The value of trading is determined differently as provided in Rule 6(3A) . We will discuss it later on.
Lalit Choudhary : Sir , can you summarize the latest changes in the definition of exempted goods / services.
Answer (PS):
|
Actvity |
Status |
|
Trading activity |
Exempted service |
|
130 items attracting 1% Duty Rate as specified in Notification 1/2011 |
Exempted Goods |
|
Taxable services, with a condition that benefit of credit is not available |
Exempted Service |
Prarthana Pandya : Can you give an example how CC of Input / IS is taken if separate accounts are maintained.
Answer (PS): Definitely, let us take an example
Illustration 2 : Case 1
|
|
Quantity purchased/*sold |
|
Value |
Rate |
|
|
|
Inputs |
80000 Pcs |
15 |
1200000 |
E.Duty 8.24% |
CC of Inputs |
98880 |
|
IS |
- |
|
500000 |
ST 10.30% |
CC of IS |
51500 |
|
DG |
*40000 Pcs |
25 |
1000000 |
E.Duty 8.24% |
Duty payable |
82400 |
|
EG |
*10000 Pcs |
40 |
400000 |
- |
- |
- |
|
TS |
- |
- |
300000 |
ST 10.30% |
ST payable |
30900 |
|
ES |
- |
- |
400000 |
|
|
|
Solution 1 : If separate records of Receipt , Consumption and Inventory of Input and IS is maintained
The above information would not be sufficient , you need some more details relating to consumption of Inputs and IS. Assume that the separate records shows the following data :
|
Inputs / IS |
Duty used in mfg of DG (Rs) |
Duty used in mfg of EG (Rs) |
Duty used in prov. of TS (Rs) |
Duty used in prov. of ES (Rs) |
Total Duty |
|
Inputs |
49440 |
24720 |
6180 |
6180 |
86520 |
|
Input Service |
15450 |
4635 |
9270 |
20600 |
49955 |
|
Total |
64890 |
29,355 |
15450 |
26780 |
136475 |
OR the data may be available in terms of quantity or other factors . Let us say
|
Inputs / IS |
Inputs/IS used in mfg of DG |
Inputs /IS used in mfg of EG |
Inputs/ IS to used in prov. of TS (Rs) |
Inputs/ IS to used in prov. of ES (Rs) |
|
Inputs |
1unit for 1 unit of DG |
2 Units for 1 unit of EG |
1 units for service of Rs. 60 |
1 units for service of Rs. 80 |
|
Input Service |
Rs. 3.75 Per unit |
Rs. 5 Per unit |
30% of the Output services |
50% of the output service |
The questions are set on two patterns :
(i) In some questions information in quantity and value is given only in relation to Inputs / IS used in mfg of Goods/ provision of services
(ii) And in some question details of quantity / value are given with regard to the inputs /IS received and the details of Inputs/IS used are separately given.
In the first case, one can directly take the credit of Inputs / IS which are used in the Dutiable Goods / Taxable Services and not take the credit thereof in mfg of Exempted Goods and Services .
In the second case , one has to first take the Total CC available on Inputs received (purchased) / IS received (paid) and then reverse the CC of Inputs / IS used in mfg of Exempted Goods / Services . Here indirectly , we are taking the CC of on dutiable Goods and Taxable Services only.
In the above question it is mentioned that the total Input purchased is 80000 Pcs on which duty paid is Ts. 98880 and Total services provided in April 2011 is 500000 on which ST payable is Rs. 51500 Thus total CC available is 150380 and you have to reversed the CC on Inputs taken on Exempted Goods / Services 30900= (24720+6180) and CC of IS taken on Exempted Goods/Services 25235(4635+20600)
|
Excise Duty payable for April 2011 |
82400 |
|
|
Service Tax payable for April 2011 |
30900 |
|
|
Total Duty and Tax payable |
113300 |
|
|
Total CC available |
|
|
|
CC of Inputs |
98880 |
|
|
CC of IS |
51500 |
|
|
Total CC available |
150380 |
|
|
Less L Inputs / IS used in Exempted Goods/Services |
||
|
Inputs used in EG |
24720 |
|
|
Input Service used in ES |
6180 |
|
|
Inputs used in ES |
4635 |
|
|
Input Service used in ES |
20600 |
|
|
Total CC to be reversed / paid |
56135 |
|
|
CC used in Dutiable Goods / Services available for set off |
94245 |
|
|
Duty / Tax Payable |
|
19055 |
The above question could have been framed as under :
Illustration 2 : Case 2
|
|
Quantity used /*sold |
|
Value |
Rate |
|
|
|
Inputs |
60000 Pcs |
17.50 |
1050000 |
E.Duty 8.24% |
CC of Inputs |
86520 |
|
IS |
- |
|
485000 |
ST 10.30% |
CC of IS |
49955 |
|
DG |
*40000 Pcs |
25 |
1000000 |
E.Duty 8.24% |
Duty payable |
82400 |
|
EG |
*10000 Pcs |
40 |
400000 |
- |
- |
- |
|
TS |
- |
- |
300000 |
ST 10.30% |
ST payable |
30900 |
|
ES |
- |
- |
400000 |
|
|
|
|
Excise Duty payable for April 2011 |
82400 |
|
|
Service Tax payable for April 2011 |
30900 |
|
|
Total Duty and Tax payable |
113300 |
|
|
Less : Cenvat Credit |
|
|
|
Inputs used in DG |
49440 |
|
|
Input Service used in TS |
15450 |
|
|
Inputs used in TS |
6180 |
|
|
Input Service used in ES |
9270 |
|
|
Total CC available |
|
(80340) |
|
Duty / Tax Payable |
|
32960 |
Note : CC of Inputs / IS used in exempted Goods/Services not to be taken/ utilized. Here you can directly calculate the CC used in Dutiable Goods/ Taxable Services
Sunakshi Kedia : Sir , don’t you think that maintaining separate accounts as stated by you above is a bit cumbersome and impractical
Answer (PS): Yes , exactly that what I wanted to say
Viral Gaywala : Sir , then why not our law makers think of some other suitable method of identifying /quantifying the CC of Inputs / Inputs Services used in mfg of Exempted Goods / provision of exempted services, on which the assesee would not take the credit.
Answer (PS): Our lawmakers have devised certain criteria /formula on the basis of which one can quantify on a presumptive basis the CC of Inputs and IS used in mfg of exempted Goods or provision of exempted services.
Moxi Shah : Sir , can you explain the same in more details
Answer (PS): Sure . as I have already told you , if you can maintain separate accounts as mentioned in Rule 6(2) above then you can easily find out the CC of Inputs and IS used in mfg of exempted Goods or provision of exempted services. In a sense you can say this is the very first option available to you .
Now you have three more options if you don’t want to go through the painful process of maintaining the separate accounts of RCI of Inputs / CU of Services and still pay tax only on the Dutiable Goods / Taxable Services.
Pratik Muniwala : Sir where can I find the provisions relating to these three options
Answer (PS): These provisions are contained in Rule 6(3) of CCR namely Rule 6(3)(i) for the first option , Rule 6(3)(ii) for the Second Option and Rule 6(3)(iii) for the third option [If no separate books are maintained]
Nitin Modi: Sir, if means that in total we have 4 options
Answer (PS): You are absolutely right. In fact , there would be in total 4 options available to the Manufacturer of Final Product (MOFP) and Output Service Provider (OSP) . Option A - Maintain separate accounts as per Rule 6(2) and avail CC accordingly and Option B – It has three sub- options under Rule 6(3)
Akash Oza : Sir , what are those three options available , if no separate books are maintained
Answer (PS): Rule 6(3) provides three options to the MOFP or OSP to calculate the CC of Input/ IS payable on Dutiable Goods/Taxable Services thereby restricting the credit with respect to the credits pertaining to input and input services used in mfg of exempted goods/ provision of exempted service.
|
OPTION I |
Pay amount equal to 5% of value of exempted goods (in case of MOFP) and of value of exempted services (in case of OSP) |
Rule 6(3)(i) |
|
OPTION II |
Pay an ‘amount’ equal to proportionate CC attributable to exempted final product/ exempted output services, as provided in rule 6(3A) |
Rule 6(3)(ii) |
|
OPTION III |
Maintain separate accounts for inputs avail CC only on Dutiable Goods/Services and pay ‘amount’ as determined under rule 6(3A) in respect of input services used in Exempted Goods/ Services (Combination of Part Rule 6(2) and Part Rule 6(3)(ii) read with Rule 6(3A) |
Rule 6(3)(iii) |
Anjali Singh : Can you explain us Option No I with illustration
Answer (PS): Sure, I have used the same data from Illustration II explained above
Illustration III – Based on Illustration II – Case 1
|
|
Quantity |
|
Value |
Rate |
|
|
|
Inputs |
80000 Pcs |
15 |
1200000 |
E.Duty 8.24% |
CC of Inputs |
98880 |
|
IS |
- |
|
500000 |
ST 10.30% |
CC of IS |
51500 |
|
DG |
40000 Pcs |
25 |
1000000 |
E.Duty 8.24% |
Duty payable |
82400 |
|
EG |
10000 Pcs |
40 |
400000 |
- |
- |
- |
|
TS |
- |
- |
300000 |
ST 10.30% |
ST payable |
30900 |
|
ES |
- |
- |
400000 |
|
|
|
Solution : Option I – When no separate records maintained
In the present case the company is engaged in manufacturing of dutiable goods and exempted goods, therefore the company has the following options
|
Excise Duty payable for April 2011 |
82400 |
||
|
Service Tax payable for April 2011 |
30900 |
||
|
Total Duty and Tax payable |
|
113300 |
|
|
Less : Cenvat Credit |
|
|
|
|
(i) Total CC available |
|
||
|
Inputs |
98880 |
|
|
|
Input Service |
51500 |
|
|
|
Total CC available |
150380 |
||
|
(ii) Reversal of CC |
|
|
|
|
Inputs /IS used in mfg of EG - Presumptive basis
Credit on 5% of Value of EG (400000) |
20000 |
|
|
|
Inputs /IS used in prov.of ES - Presumptive basis
Credit on 5% of Value of ES (400000) |
20000 |
|
|
|
Total Reversal |
40000 |
||
|
Net CC available |
|
(110380) |
|
|
Duty / Tax Payable |
|
2920 |
Calculate 5% of the Value of Exempted Goods removed or Exempted Services provided . The amount arrived would be the CC to be reversed from the total credit of Inputs / IS ./ available .
Illustration III – Based on Illustration II – Case 2
|
|
Quantity used /*sold |
|
Value |
Rate |
|
|
|
Inputs |
60000 Pcs |
17.50 |
1050000 |
E.Duty 8.24% |
CC of Inputs |
86520 |
|
IS |
- |
|
485000 |
ST 10.30% |
CC of IS |
49955 |
|
DG |
*40000 Pcs |
25 |
1000000 |
E.Duty 8.24% |
Duty payable |
82400 |
|
EG |
*10000 Pcs |
40 |
400000 |
- |
- |
- |
|
TS |
- |
- |
300000 |
ST 10.30% |
ST payable |
30900 |
|
ES |
- |
- |
400000 |
|
|
|
|
Inputs / IS |
Duty used in mfg of DG (Rs) |
Duty used in mfg of EG (Rs) |
Duty used in prov. of TS (Rs) |
Duty used in prov. of ES (Rs) |
Total Duty |
|
Inputs |
49440 |
24720 |
6180 |
6180 |
86520 |
|
Input Service |
15450 |
4635 |
9270 |
20600 |
49955 |
|
Total |
64890 |
29,355 |
15450 |
26780 |
136475 |
OR the data may be available in terms of quantity or other factors . Let us say
|
Inputs / IS |
Inputs/IS used in mfg of DG |
Inputs /IS used in mfg of EG |
Inputs/ IS to used in prov. of TS (Rs) |
Inputs/ IS to used in prov. of ES (Rs) |
|
Inputs |
1unit for 1 unit of DG |
2 Units for 1 unit of EG |
1 units for service of Rs. 60 |
1 units for service of Rs. 80 |
|
Input Service |
Rs. 3.75 Per unit |
Rs. 5 Per unit |
30% of the Output services |
50% of the output service |
|
Excise Duty payable for April 2011 |
82400 |
||
|
Service Tax payable for April 2011 |
30900 |
||
|
Total Duty and Tax payable |
|
113300 |
|
|
Less : Cenvat Credit |
|
|
|
|
(ii) Total CC available |
|
||
|
Inputs used in mfg of all Goods/services |
86520 |
|
|
|
Input Service used in mfg of all Goods/services |
49955 |
|
|
|
Total CC available |
136475 |
||
|
(ii) Reversal of CC |
|
|
|
|
Inputs /IS used in mfg of EG - Presumptive basis
Credit on 5% of Value of EG (400000) |
20000 |
|
|
|
Inputs /IS used in prov.of ES - Presumptive basis
Credit on 5% of Value of ES (400000) |
20000 |
|
|
|
Total Reversal |
40000 |
||
|
Net CC available |
|
(96475) |
|
|
Duty / Tax Payable |
|
16825 |
Calculate 5% of the Value of Exempted Goods removed or Exempted Services provided . The amount arrived would be the CC to be reversed from the total credit of Inputs / IS ./ available .
Avni Patel : It means that the amount of 5% is to be applied on the Value of Exempted Goods removed / Value of Exempted Services provided and not on the value of Inputs / IS received or used.
Answer (PS): Absolutely correct
Rukha Siyab : Is education cess is leviable on the amount of 5% which make the effective rate of reversal 5.15%?
Answer (PS): A big NO. Its important to note that 5% mentioned above is the ‘AMOUNT’ to be reversed or paid and not the ‘DUTY/TAX of excise/ service tax . ‘Amount’ is not ‘duty’. E.Cess and S.H.S.E.Cess is payable only on ‘duties of excise’. Hence, E.Cess and S.H.S.E.Cess is not payable on such ‘AMOUNT’.
Vedant Shukla : Sir, you have mentioned that 130 items attracting 1% rates as per NN 01/2011 is also construed as EXEMPTED GOODS . Shall we have to apply 5% to the value of these items.
Answer (PS): Yes, of course , you have to but with a slight difference. Since you are paying tax on the these goods @1% , deduct this amount from the amount calculated @5%.
Ankita Sharda : Sir, can you give an example
Answer (PS): Take an example , Goods (1% rate) is removed for Rs. 100000 and duty paid is 1030 after adding E.Cess. Reversal @5% = 5000. Net reversal should be = 5000-1030=3970 which should be deducted from the balance of CC , if available or paid if balance of CC is not available
Ghanshyam Vaishnav : Where do we find this provision
Answer (PS): It is contained in Proviso 1 to Rule 6(3)
Manish Ramuka : Sir , from the above it is very much clear that an amount of 5% of the exempted goods and service is to be reversed every month. As per the recent changes in budget 2011 Taxable services on which abatement is available on the condition that no CC of Inputs / IS is treated as EXEMPTED GOODS. Shall we have to apply this 5% on the total value of this type of services.
Answer (PS): Of course , you have to apply 5% to the value of this kind of services . But remember one thing , though the entire service is construed as exempted service but you have to apply 5% only on the exempted portion.
Deepak Pathak: Sir please give an example
Answer (PS): Erection and Installation service provided Rs. 100000 abatement available 67000 tax payable on 33000 @ 10.3% . Though Rule 2(e) of CCR cover value of entire service as exempted service but for the purpose of this rule viz. Rule 6(3)(i) , you have to apply 5% only on 67000 and not on 100000
Ankita Davda : Is this provision contained in proviso 2 of Rule 6(3)
Answer (PS): Yes, You are right
Pragya Poddar : Sir , I have a doubt in my mind . If I reverse 5% amount on account of sale of exempted goods and charges the same in the bill , whether the buyer is eligible to take the CC of that 5% paid by him.
Answer (PS): No Cenvat credit of such ‘amount’ paid available to the buyer. The ‘amount’ paid on the exempted final product is not in the nature of excise duty. Hence, department has clarified that buyer of such exempted goods will not be allowed to avail Cenvat credit of ‘amount’ paid by the manufacturer/service provider. – Circular No 870/8/2008-CX dated 16/05/2008
Sakshi Bothra : Can you explain us the option II
Answer (PS): Yes. See Rule 6(3A)(a) provides that before exercising option II intimation with certain information is to be given to the jurisdictional SCE
Sonam Soni : Sir, what are those information which need to be furnished to the SCE
Answer (PS): The chart below reflect the information to be given to SCE and these are the general information which normally required.
|
Specific information / particulars to be furnished with the intimation |
Name address and registration No of manufacturer of goods or provider of output service |
|
|
Date from which this option is proposed to be exercised |
|
|
Description of dutiable goods or taxable service
|
|
|
Description of exempted goods or taxable service
|
|
|
CC of inputs and input services lying in balance as on date of exercising this option. |
Verma Darbari : Sir , is it necessary to give intimation if we exercise OPTION I under Rule 6(3)(i) of 5% reversal
Answer (PS): No, intimation is not required to be give to SCE
Swati Verma : Sir , please tell us about OPTION II
Answer (PS): If the MOFP/OSP is not be interested in paying the amount at a flat rate of 5% on the exempted goods and services then he has option No II to pay ‘AMOUNT’ on proportionate basis.
Tina Ramchandani : Sir, please elaborate
Answer (PS): Under option two, reversal of CC of Inputs and Input Services is calculated on the basis of ratio of Value of Goods removed / services provided in the PFY.
Surendra Parmar : Sir, I am a little bit confused. Whether Rule 6(3)(ii) will be applicable here or Rule 6(3A)
Answer (PS): This option is to be exercised under Rule 6(3)(ii) but the mode of calculation is provided in Rule 6(3A)
Sumit Somani : Can you explain us the mode of calculation sir
Answer (PS): We will calculate the mode of proportionate reversal stepwise with an illustration . Let us take our earlier example.
Step 1
First take the CC of inputs and input services used in all Goods and Services (Exempted as well as Taxable) monthly , say for April 2011 .
Nilesh : Sir, you mean Total CC on Inputs and IS in a month ?
Answer (PS): Yes , in the above example the total CC available is 98880+51500= 150380 . Now we will go to step two which calculate provisionally proportionate reversal of CC monthly as per Rule 6(3A) and involve three types of calculations.
Amit : sir, what does that mean?
Answer (PS): At the end of each month calculate the CC attributable to exempted Goods and exempted services on provisional basis – which means amount to be reversed at end of each month
|
Mode of reversal
Rule 6(3A) |
Usage |
Basis of Reversal |
Formula |
||
|
(1) |
Sub-Rule (b)(i) |
Inputs |
EG |
Not based on the PFY figure
Current Month figure is relevant |
No Formula - Amount equivalent to CC attributable to inputs used for mfg of EG |
|
(2) |
Sub-Rule (b)(ii) |
Inputs |
ES |
(On proportionate basis, based on ratio of PFY) |
Formula No 1 Given below |
|
(3) |
Sub-Rule (b)(iii) |
Input services |
EG and ES |
(On proportionate basis based on ratio of PFY) |
Formula No 2 Given below |
|
|
Total |
Amount to be reversed every month |
|
||
Rohit Choraria : Sir , can you explain it by giving the example.
Answer (PS): Yes , see first of all while exercising option II you should have the data relating to the Value of the Dutiable Goods / Exempted goods / Taxable Services / Exempted Services in the immediately preceding financial year. No need to have the data relating to value of amount of Inputs and Input services of PFY. Neither do we need the amount of Duty or Tax payable on Final Products or Output Services in PFY.
Ramesh Jain : Sir it means only Value of Goods and Services of PFY will suffice to enable us to carry out our calculations
Answer (PS): Yes, let us assume that in the preceding financial year (PFY) data of Value of Goods sold / Services provided were as under :
|
Total value of Dutiable Goods |
140,00,000 |
|
Total value of Exempted Goods |
50,,00,000 |
|
Total value of Taxable Service |
40,00,000 |
|
Total value of Exempted Services |
50,00,000 |
Here we have to determine the CC to be reversed every month and either reduce it from the total CC available and if there is no CC available in that month then pay the amount of reversal .
Prashant Rakhecha : Sir , all this has to be done on a provisional basis
Answer (PS): yes all this should be done on provisional or rather on presumptive basis every month as the information available every month may not be sufficient to calculate the exact amount of duty and tax attributable to the Dutiable goods / Taxable service. When we do not have the ample data to reverse the exact amount of CC attributable to the use for exempted goods/ services we take resort to the options .
Pallavi : yes sir , that is understandable. Now please tell us the criteria/ formula to calculate the reversal every month on a provisional basis.
Answer (PS): Rule 6(3A) of CCR provides the formula for reversing the CC of Inputs and Input Services which may be attributable to use for Exempted Goods and Exempted Services
|
Formula |
||
|
(1) |
Sub-Rule (b)(i) |
CC of Input directly attributable to EG – based on Input-output ration of the Relevant Month (CP) |
|
(2) |
Sub-Rule (b)(ii) |
VESPFY * [CC on inputs (CP) – CC on inputs to be reversed above]
VDGPFY+VTSPFY+VESPFY |
|
(3) |
Sub-Rule (b)(iii) |
(VESPFY + VEGPFY) * CC on input Services [CP]
VDGPFY+VEGPFY+VTSPFY+VESPFY |
|
|
|
Amount to be reversed every month = (1) + (2) + (3) |
V = VALUE E=EXEMPTED D= DUTIABLE T=TAXABLE G= GOODS S = SERVICES PFY = PREVIOUS FINANCIAL YEAR
N Purohit : Sir please explain it with the help of the example above .
Answer (PS): I have already told you before that it is easy to calculate the Inputs used in mfg of Final products as necessary data can be made available from Stores records, Issue Records, consumption records and production records .
Let us say the following data is available from the records mentioned above for April 2011
|
Inputs |
Inputs used in mfg of DG |
Inputs used in mfg of EG |
|
Inputs |
1unit for 1 unit of DG |
2 Units for 1 unit of EG |
From the above we can easily calculate the Inputs used in mfg of exempted and dutiable goods. No need to take resort of the data of the PFY.
|
Particulars |
mfg of DG |
mfg of EG (Rs) |
|
Quantity |
40000 |
10000 |
|
Quantity of Inputs used |
40000 |
20000 |
|
Value of Inputs used@ Rs. 15 |
600000 |
300000 |
|
Rate of Duty on Inputs |
8.24% |
8.24% |
|
Duty on above |
49440 |
24720 |
Here you have been able to find out the input used in mfg of exempted goods and the duty thereon.
Mitesh Sukhiyaj : Sir , it seems so easy to find out the Input used in mfg of Exempted Goods
Answer (PS): Yes quite easy.
Mausam Mehta : Sir , I can tell you your next step would be to find out the duty on inputs used in providing exempted services.
Answer (PS): You are absolutely right. I have already mentioned above that it is not that easy to calculate Inputs used in provision of services as loosely saying no unit of measurement is involved in the provision of service which can be directly attributable or applied to the use of Inputs. You have to calculate this on proportionately based on the ratio of PFY.
Manoj : Fine sir , we have found out provisionally CC of inputs used in exempted goods . What next?
Answer (PS): Next step as I told is to find out Inputs used in providing exempted services.
Lalit Gohil : Sir , if I am not wrong then the answer would be Total CC on Inputs – Inputs used in mfg of exempted goods , namely 98880-24720= 74160
Answer (PS): You are partly correct. This amount not only represents Inputs used in provision exempted services but also Inputs used on mfg of Dutiable Goods / Provision of Taxable Services. Thus, in order to find out the duty on inputs used in provision of exempted services adjustments is to be made with reference to the Value of Goods and Services used in the PFY.
Krunal Masrani : can you give an example
Answer (PS): Yes, here the formula is as under :
VESPFY * [CC on inputs (CP) – CC on inputs to be reversed above]= 74160
VDGPFY+VTSPFY+VESPFY = [140,00,000+4000000+5000000]=
5000000 * 74160 = 16121
[140,00,000+4000000+5000000]= 23000000
Thus the amount to be reversed on account of Inputs used for providing Exempted Services is Rs. 16121
Krishni Ranjan : Sir, what is the rationale behind this formula
Answer (PS): See we have got the figure of CC of Input used in exempted goods . Now we have to get the CC of Inputs used in Exempted Services . We have the total figure of CC of Inputs which is 98880 and out of this CC of inputs used in exempted goods is Rs. 24720 and after deducting 24720 from 98880 we get the figure of CC used in Goods and services other than Exempted Goods.
Now here comes the role of PFY’s performance . We have to find out what is the ratio of Total value of exempted services in the PFY to the total of Value of Goods and Services excluding the Total Value of Exempted Goods in the PFY . Here the denominator will not contain the total value of Exempted Goods as the same has already been considered in the previous case.
Harshil Ajbani : Sir, is there any easy way to remember the above
Answer (PS): I will try to tell you the easiest way to remember the formula
|
PFY |
Value of G/S |
Numerator |
Denominator |
|
Total value of Dutiable Goods |
140,00,000 |
- |
ü |
|
Total value of Exempted Goods |
50,,00,000 |
- |
- |
|
Total value of Taxable Service |
40,00,000 |
- |
ü |
|
Total value of Exempted Services |
50,00,000 |
ü |
ü |
K P Nair : Sir, now I can tell you what is to be calculated . There must be two types of calculations one for IS used in mfg of exempted goods and IS used in provision of exempted services as we have above one for Inputs used for mfg of exempted goods and Inputs used in provision of exempted services
Answer (PS): No. There will be only one calculation for IS used in mfg of exempted goods and IS used in provision of exempted services. As I told you earlier it is really cumbersome to directly find out the IS partly used in mfg of exempted goods and partly in provision of exempted service. That’s why the lawmakers have provided a single formula for the same.
Khushboo Dhoka : Sir can you tell us the formula again
Answer (PS): Yes , the formula given is as under :
(VESPFY + VEGPFY) * CC on input Services [CP]
VDGPFY+VEGPFY+VTSPFY+VESPFY
Deep Dixit : Please explain it with examples
Answer (PS):
(5000000 + 5000000) * 51500 = 18393
14000000+5000000+4000000+5000000
|
PFY |
Value of G/S |
Numerator |
Denominator |
|
Total value of Dutiable Goods |
140,00,000 |
- |
ü |
|
Total value of Exempted Goods |
50,,00,000 |
ü |
ü |
|
Total value of Taxable Service |
40,00,000 |
- |
ü |
|
Total value of Exempted Services |
50,00,000 |
ü |
ü |
Thus the CC of IS to be reversed is Rs. 18393 which is used in mfg of exempted FP and provision of exempted services as well
Chandni Ramchandani : Sir , it means the total amount to be reversed is 24720+ 16121+18393 = 59234
Answer (PS): yes , out of the total CC of Rs.150380 (98880+515000 ) in April 2011 amount to be reversed on account of utilization for exempted goods/ services is Rs. 59235. Thus net CC available is Rs. 91145 which can be set off from the duty payable on FP (Rs. 82400) /OSP (30900 ) = 113300. Thus net duty/tax to be paid is Rs. 113300-91145=22155.
Bhavin : Sir, can you present the above calculation in a concise manner
Answer (PS): of course
|
|
|
For April 2011 on inputs |
98880 |
|
For April 2011 in IS |
51500 |
|
Total CC availed |
150380 |
|
|
|
Inputs attributable to use in mfg of EG |
24720 |
|
Input used in providing Exempted Services |
16121 |
|
IS used in mfg of EG and provision of ES |
18393 |
|
Total reversal of CC |
59234 |
|
Eligible credit on provisional basis |
91146 |
|
Duty Liability for the Month of April 2011 ( E. Duty and Services Tax) |
112300 |
|
Duty paid in cash / (Closing balance of CC) |
21154 |
Asha Prajapati : That’s really seem to be so easy . But sir , do we have to calculate this for each month in the FY.
Answer (PS): Yes , CC to be reversed every month is to be calculated and duty/Tax is to be paid accordingly. Monthly reversal of CC calculated provisionally as above starting from the month in which the option is exercised till March is to be aggregated so as to get the annual figure of reversal.
Anshul Agarwal : What is the nest step sir
Answer (PS): Next step is to calculate at the end of the current financial year fresh calculations based on the actual annual figures reversal of CC on Inputs and IS. Here there is no role of the figures of the PFY.
Ridhi Shah : Sir how do we calculate reversal of CC from the year end figures
Answer (PS): Here we move on to the next step which is Step No. 4. Here the same formula will apply except that all the figures should be replaced with the current years actual annual figures.
|
Mode of reversal
Rule 6(3A) |
Usage |
Basis of Reversal |
Formula |
|
|
Sub-Rule (c)(i) |
Inputs |
EG |
CFY figure is relevant on actual input output ratio |
No Formula - Amount equivalent to CC attributable to inputs used for mfg of EG on the basis of total quantity of inputs used for mfg of said EG during the CFY year |
|
Sub-Rule (c)(ii) |
Inputs |
ES |
(On proportionate basis, based on ratio of CFY) |
Formula No 1 Given below |
|
Sub-Rule (c)(iii) |
Input services |
EG and ES |
(On proportionate basis based on ratio of CFY) |
Formula No 2 Given below |
|
Total |
|
|||
|
|
|
Formula |
|
(1) |
Sub-Rule (c)(i) |
CC of Input directly attributable to EG – based on Input-output ration of the CFY |
|
(2) |
Sub-Rule (c)(ii) |
VESCFY * [CC on inputs (CP) – CC on inputs to be reversed above]
VDGCFY+VTSCFY+VESCFY |
|
(3) |
Sub-Rule (c)(iii) |
(VEGCFY+VESCFY) * CC on input Services [CP]
VDGCFY+VEGCFY+VTSCFY+VESCFY |
|
|
|
Amount to be reversed for the entire CFY = (1) + (2) + (3) |
Azim Advani : Sir , can you explain it with an example
Answer (PS): We do not have the actual annual figures . However, for our illustration let us take the following figures
|
|
Quantity |
|
Value |
Rate |
|
|
|
Inputs |
1000000 Pcs |
15 |
15000000 |
E.Duty 8.24% |
CC of Inputs |
1236000 |
|
IS |
- |
|
5500000 |
ST 10.30% |
CC of IS |
566500 |
|
DG |
500000 Pcs |
25 |
125000000 |
E.Duty 8.24% |
Duty payable |
1030000 |
|
EG |
125000 Pcs |
40 |
5000000 |
- |
- |
- |
|
TS |
- |
- |
4000000 |
ST 10.30% |
ST payable |
412000 |
|
ES |
- |
- |
5000000 |
|
|
|
|
Inputs |
Inputs used in mfg of DG |
Inputs used in mfg of EG |
|
Inputs |
1unit for 1 unit of DG |
2 Units for 1 unit of EG |
Reversal of CC
|
CC of Input attributable to
Mfg of exempted Goods |
125000*2*15*8.24% |
309000 |
|
CC of Inputs used in providing ES |
50 Lacs*(1236000-309000)
[125 Lacs+40 Lacs+50 Lacs]= 215 Lacs |
215581 |
|
CC of IS used in EG+ES |
(50 Lacs+50 Lacs) *(566500)
[125 Lacs+50 Lacs+40 Las +50Lacs=265 Lacs] |
213774 |
|
Total reversal of CC |
738355 |
|
Mayank Ogriwala : Sir , you have calculated the reversal of CC for April 2011 and Reversal of CC for the entire FY and what is next from here ?
Answer (PS): Now we have to find out the differential amount arising from monthly provisional reversal of CC and the Annual (Final) reversal of CC .
For that we must have the data of monthly reversal for all the months and here we have the data of April 2011 only. Let us take some hypothetical data for May 2011 onwards .
Provisional Reversal of CC of Inputs and IS
|
April |
May |
June |
July |
August |
Sep |
Oct |
Nov |
Dec |
Jan |
|
59234 |
50000 |
45000 |
52000 |
48000 |
42000 |
50000 |
55000 |
45666 |
43000 |
|
Feb |
March |
Total |
|
42100 |
53000 |
585000 |
Nehal Chugh : Sir , now we have the aggregate of the provisional monthly figure of reversal of CC and the final annual figure as well . Now what would be the treatment of the differential amount i.e. 585000-738355= - 153355
Answer (PS): Lets follow Step 5 .
Here aggregate monthly reversal is less than the annual reversal figure which means that more CC had been taken or in other words less tax had been paid on the FP/OSP.
Here the assessee has to pay the differential amount as calculated above by 30th June 2012.
Moxi Shah : Sir, what will happen if we do not pay the amount by 30th June 2012.
Answer (PS): Interest is to be paid on this short amount @ 24% from 30th June 2012 till the date of actual payment .
Dharmesh Kheni : Sir , it means that interest need not be calculated from April 2011 or from any other earlier period .
Answer (PS): Not at all
Lalit Gohil : Sir , what will happen if aggregate Monthly reversals of CC is more than the actual annual reversal say aggregate monthly reversal of CC is Rs. 900000 and our annual reversal of CC comes to Rs. 738355
Answer (PS): If at the year end, it is found that the amount provisionally paid was more than the amount finally determined, the MOFP/OSP may adjust the excess amount on his own, by taking credit of such amount . Thus Self adjustment of excess amount of CC paid by taking CC is allowed [Rule 6(3A)(f)].
Poojan : Sir , what will happen if the assessee does not pay the differential amount at all
Answer (PS): As per explanation III to rule 6(3A) if assessee does not pay the ‘amount’ as provided in rule 6(3) or rule 6(3A), it can be recovered along with interest under rule 14 of CCR, as if it is a credit wrongly by the assessee . Thus the recovery proceeding would start.
Pragya Poddar : Sir , now tell us about OPTION NO 3
Answer (PS): The third option was not available till 31/03/2011 . This option is introduced in the budget 2011 which is basically a hybrid of two options .
|
Option A |
Rule 6(2) |
Maintain separate account for RCI of Inputs |
Take CC of Inputs only on DG/TS and don’t take CC of Inputs on EG/ES |
|
Option B |
Rule 6(3) |
Determine amount to be reversed under Rule 6(3A) |
Reverse CC of IS on EG/ES |
Fayaz Saboowala: Sir , can you give an example
Answer (PS): Let us take our earlier example
|
1 |
According to the Books of Accounts maintained under rule 6(2) |
CC of inputs used in DG Rule 6(2)(ii) |
Illustration 2 |
49440 |
|
CC of Inputs used in TS Rule 6(2)(iv) |
Illustration 2 |
6180 |
||
|
2 |
As per Rule 6(3) read with Rule 6(3A) |
CC of IS used in EG/ES |
|
18393 |
Khushboo Dhoka : From the above can we say that CC of Rs. 49440+6180= 55620 out of the total CC of 98880 is available as the inputs are used in Dutiable goods/ Taxable service and in the second case CC of IS amounting to Rs. 18393 is to be reversed from the total CC of Rs. 51500 . Thus effectively CC of Rs. 55620+ (51500-18393) will be available for utilization.
Answer (PS): That’s very true .
Nitin Modi : Then Sir it means that in this case too provisional figure of CC of IS to be reversed every month is to be calculated and then aggregated for the entire year and then compared with the actual annual figure of CC of IS to be reversed
Answer (PS): Absolutely right. All other provisions stated above like interest on short paid of CC , recovery of CC etc. would be applicable.
Anu Agarwal : Sir , when we determine the reversal of CC on Inputs we should have the figures Taxable/Exempted Goods / Services of the PFY. What if we don’t have dutiable Goods / taxable services in earlier year or the assessee carries its operation for the first time in the current financial year. Then how would we calculate the monthly provisional figures of reversal of CC.
Answer (PS): Under Rule 6(3) read with Rule 6(3A) calculation is based on the value of DG and EG and TS and ES of the PFY. If there is no dutiable Goods or Taxable Services in the PFY or there were no activities in the PFY (being first year of operation) , then Rule 6(3A)(h) says that the formula mention therein for calculating the monthly provisional proportionate reversal will become redundant as the requisite ratio of the PFY will not be available.
In such a situation there is no need to reverse the CC provisionally every month and the calculations should be made after the year is over and amount attributable to CC on EG and ES should be calculated and reversed and paid for the whole year.
Thus the formula would be applied on the actual annual figures.
Isha Agarwal : Sir , if any differential amount on account of short reversal of CC is payable shall we have to inform the department .
Answer (PS): We have to intimate the Jurisdictional SCE not only in respect of payment of shortfall but also when we adjust the excess amount from future duty/Tax liability. Relevant provisions are as under :
Intimation of details to Range Superintendent Rule 6(3A)(g)
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If liable to pay the amount |
within a period of fifteen days from the date of payment |
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If liable to adjust the amount from Duty / Tax payable in future |
within a period of fifteen days from the date of adjustment |
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Other particulars |
CC attributable to EG and ES month-wise for the whole CFY as determined provisionally |
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CC attributable to EG and ES month-wise for the whole CFY as determined finally |
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Amount of Short paid |
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Date of payment of the amount short paid |
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Interest payable and paid, if any, on the amount short-paid |
Avni Patel : Sir , it means we have to send intimation twice to the SCE, once when we exercise option no II and secondly when we pay differential tax or adjust the differential duty excess paid
Answer (PS) : Cent percent correct
Ritesh Singhal : Sir, I have read somewhere that the above provisions are not applicable if common Inputs / IS are used by Banking and Insurance Company.
Answer (PS): There are overriding special provisions for payment of “amount” in respect of banking and insurance services irrespective of any provision in rule 6(1), 6(2) and 6(3) . In other words, as per Rule 6(3B)and 6(3C) provisions of Rule 6(1), 6(2) and 6(3) are not applicable. No need to maintain separate records, No need to reverse CC @5% of VEG or VES, No need to reverse the CC in as per Rule 6(3A).
Shilpa Bajaj : Then what are the provisions in this regard
Answer (PS): Provision in this regard are provided in Rule 6(3C) of CCR. In the following cases there would be restriction on taking the CC of Inputs / IS. First take the full CC for the month and then reverse the amount at a certain percentage of CC
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Services |
Applicable to whom |
Reversal |
Applicable Rule |
Reasons |
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Banking service [section 65(105)(zm)] |
Bank or NBFC |
Required to pay “amount” equal to 50% of CC availed on inputs and input services |
[Rule 6(3B) of CCR Rules as inserted w.e.f. 1-4-2011] |
Substantial Income comes from Interest which is not a Taxable Services, thus CC is also restricted |
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Life insurance service [section 65(105)(zx)]
life insurance management of ULIPs65(105)(zzzzf)] |
Insurance Company |
“amount” payable is equal to 20% of CC availed on inputs and input services in the month |
[Rule 6(3C) of CCR as inserted w.e.f. 1-4-2011]
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Hitesh Goyani : Sir, every where in Rule 6(3) we have been using the words Value of the Exempted / Taxable / Dutiable Goods and Services . Can you explain what exactly is the Value of Goods and Services and how it is calculated?
Answer (PS): Explanation I to Rule 6(3D) has been inserted w.e.f. 1-4-2011 which tells us how to calculate the 'value' for purposes of rule 6(3) and 6(3A)
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Normal Output Services
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As per Section 67 read with rules made there under |
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Goods |
Value determined under section 3, 4 or 4A of the Excise Act, read with rules made there-under. |
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Value determined U/s 3 of CEA – Tariff Value
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Specific rate of Duty notified U/s 3A – Production Capacity Bases – TV [Para 3 CBE&C Circular No. 868/6/2008-CX dated 9-5-2008] |
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Value determined U/s 4 of CEA – TV/NTV |
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Value determined U/s 4A of CEA - RSP |
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Services in which Option available |
Optional Scheme |
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Air Travel Agent [Rule 6(7)] of STR |
Basic Fare |
0.60% (Domestic Booking)
1.20% (Intern. Booking) |
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Money Changer [Rule 6(7B)] of STR |
Gross amount of Currency Exchanged |
0.10%
Rs. 100 +0.05%
Rs. 550 +0.01%
(Maximum 5000) |
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Lottery Distributor or Selling Agent [Rule 6(7C)] of STR |
Aggregate face value Lottery Tickets |
6000 on every 10 Lacs or part
9000 on every 10 Lacs or Part |
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WC Composition Scheme [Rule 2] |
Gross value of Contract including Material
CC of IS/CG
No CC of Inputs |
4%
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Trading Activity = Exempted Services
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Higher of : |
Sales – [ Cost of goods sold – Expenses incurred towards purchase of goods sold]
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10% of Cost of Goods Sold |
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Radha Tulsyan : Sir, can you explain the above one by one
Answer (PS): U/s 67 if FA and rules made there-under valuation is basically on the basis of money’s worth of the services provided. In other word, the amount paid as consideration for provision of services.
Nirav : How the value of goods is determined
Answer (PS): Normally the value of goods are the Transaction value or Normal Transaction Value as calculated u/s 4 of CEA read with rules made there-under
If Tariff Value is fixed U/s 3(2) of the CEA then such tariff value is the Value of the Goods for the purpose of rule 6(3) and 6(3A)
If Tariff value is fixed on the basis of MRP from which abatement at certain percentage is also given then the net value is the value of goods . E.g. MRP is Rs. 100 and abatement available is 20% then Value of goods would be Rs. 80 and not Rs. 100.
Same is the case with the packaged commodities which are assessed at MRP . If any abatement is provided on such MRP then the net amount after such deduction would be the value of goods
If goods are liable to excise duty on the basis of production capacity U/s 3A then the transaction value is to be taken the value for the purpose of rule 6(3) and 6(3A)
For instance , if duty is fixed @ Rs. 100000 per machine per month on a particular product which is manufactured by that machine then duty is not payable on the transaction value . But in such cases the value is to be taken as TV at the time of removal of goods.
Pratik Muniwala : Sir can you explain it with examples
Answer (PS):
|
Exempted Goods |
Transaction Value |
Value - Exp 1 of Rule 6(3D) |
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Removal of Exempted Goods – Valued as per Section 4 |
300000 |
300000 |
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Removal of Exempted Packaged Goods valued as per section 4A (MRP 500000 abatement 10%) |
250000 |
450000 |
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Removal of Exempted Goods whose Tariff Value is 150000 |
100000 |
150000 |
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Removal of Exempted Goods on which duty paid U/s 3A – Machine wise |
100000 |
100000 |
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Total Exempted Goods |
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1000000 |
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Dutiable Goods |
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|
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Removal of Dutiable Goods – Valued as per Section 4 |
200000 |
200000 |
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Removal of Dutiable Packaged Goods valued as per section 4A (MRP 800000 abatement 20%) |
500000 |
640000 |
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Removal of Dutiable Goods whose Tariff Value is 200000 less rebate 20% |
100000 |
160000 |
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Removal of Dutiable Goods on which duty paid U/s 3A – Machine wise |
100000 |
100000 |
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Total Dutiable Goods |
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