Rule 6(3a) of cenvat credit rule
This query is : Resolved
19 October 2015
Rule 6 (3A) of Cenvat credit rule, value of trading activity defined earlier (in explanation -I). Now its not there. When it was removed and what will be value of trading activity for calculation purposes?
19 October 2015
If assessee intends to pay amount on proportionate basis as provided in rule 6(3)(ii), the amount is to be calculated as provided in rule 6(3A) of cenvat credit rules. He has to pay amount provisionally on monthly basis. At the year end he has to calculate exact amount and pay difference if any or adjust excess amount paid.
19 October 2015
Ok. In that case what will be the value of non taxable service if it is trading. The turnover value or gross profit or 10%of COGS which ever is higher?
22 July 2025
Good question about Rule 6(3A) of Cenvat Credit Rules and the valuation of trading activity!
Background:
Earlier, Explanation I under Rule 6(3A) defined how to calculate the value of trading activity for Cenvat credit reversal.
However, this Explanation was deleted (when and why depends on amendments by CBIC notifications).
So, the specific formula in Explanation I is no longer applicable.
Current scenario:
When you have trading activity (which is exempt or non-taxable), you must reverse Cenvat credit proportionately.
But now the rules do not explicitly define the value of trading activity in the rule text.
What to use now for calculation of value of trading activity?
In practice, many assessors and taxpayers follow the "Value of trading activity" as turnover from trading.
Turnover is the gross sales value from trading (excluding taxes).
Some professionals also consider Gross Profit or 10% of Cost of Goods Sold (COGS), but these are more of accounting or tax practice references, not specified in the rule anymore.
Recommended approach:
Use turnover of trading activity (i.e., gross sales value from trading) as the value for reversal calculation.
This is most consistent and aligns with general tax treatment since reversal is tied to exempt turnover.
Using gross profit or COGS percentage is not prescribed and may be challenged.
Background:
Earlier, Explanation I under Rule 6(3A) defined how to calculate the value of trading activity for Cenvat credit reversal.
However, this Explanation was deleted (when and why depends on amendments by CBIC notifications).
So, the specific formula in Explanation I is no longer applicable.
Current scenario:
When you have trading activity (which is exempt or non-taxable), you must reverse Cenvat credit proportionately.
But now the rules do not explicitly define the value of trading activity in the rule text.
What to use now for calculation of value of trading activity?
In practice, many assessors and taxpayers follow the "Value of trading activity" as turnover from trading.
Turnover is the gross sales value from trading (excluding taxes).
Some professionals also consider Gross Profit or 10% of Cost of Goods Sold (COGS), but these are more of accounting or tax practice references, not specified in the rule anymore.
Recommended approach:
Use turnover of trading activity (i.e., gross sales value from trading) as the value for reversal calculation.
This is most consistent and aligns with general tax treatment since reversal is tied to exempt turnover.
Using gross profit or COGS percentage is not prescribed and may be challenged.
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