SET OFF OF S TAX
This query is : Resolved
08 September 2010
WHAT ARE THE PROVISIONS IN THE ACT REGARDING SET OFF OF SERVICE TAX WHEN SAME SERVICE IS USED IN MANUFACTURE OF BOTH DUTIABLE AND NON DUTIABLE GOODS AND BYFURCATION OF SER. TAX IS NOT AVAILABLE. PLS SUGGEST. AND ONE RAW MATERIAL IS USED IN MANUFACTURE OF BOTH EXCISABLE AND NON EXCISABLE GOODS AND DIVISION OF RAW MATERIAL USED IN BOTH KIND OF PRODUCTS IS NOT POSSIBLE THEN HOW TO TAX CREDIT OF EXCISE PAID ON PURCHASE OF THAT RAW MATERIAL?
09 September 2010
according to my understanding,if manufacture exempted and non exempted goods, you need to maintain separate books, or the proportionate amount of credit related to exempted goods need to reverse
10 September 2010
But i dont know how much raw material and services were used in manufacture of excisable and non excisable godds.
25 July 2025
The situation you're describing involves **input tax credits for Service Tax and Excise Duty** when goods are manufactured both for **dutiable (excisable)** and **non-dutiable (non-excisable)** purposes, and when it’s not possible to **bifurcate the usage** of raw materials and services between the two types of products.
### **1. Service Tax Credit on Services Used in Manufacture of Dutiable and Non-Dutiable Goods:**
In cases where the same service is used for manufacturing both **dutiable and non-dutiable goods**, and it is not possible to **bifurcate the service tax paid** (i.e., the service is used partly for dutiable goods and partly for non-dutiable goods), the **Service Tax credit rules** under the **Cenvat Credit Rules, 2004** (for Excise Duty & Service Tax) come into play.
* **Cenvat Credit** is allowed only when the input services are used to manufacture **excisable goods** or provide **taxable services**.
* For **non-dutiable goods**, no **Cenvat Credit** can be taken. If the same service is used for both dutiable and non-dutiable goods, the following provisions apply:
#### **Proportionate Credit**:
If you cannot **separate or bifurcate the usage** of the service, the credit should be taken **proportionately** based on the **extent of usage** for **dutiable goods**.
* **Rule 6 of Cenvat Credit Rules** provides that if **input services** or **raw materials** are used to manufacture both **excisable (dutiable)** and **non-excisable (non-dutiable)** goods, then the credit on such inputs needs to be **proportionately reversed**.
* **Formula for Reversal**:
You will have to calculate the proportion of the input service **directly related to excisable goods**, and only this proportion can be claimed as **Cenvat Credit**.
For example, if you used 60% of the service for dutiable goods and 40% for non-dutiable goods, then you can claim **60% of the service tax paid** as credit.
### **2. Excise Duty Credit on Raw Materials Used for Both Excisable and Non-Excisable Goods:**
In situations where **one raw material** is used for the manufacture of both **excisable (dutiable)** and **non-excisable (non-dutiable)** goods, and it's not possible to **bifurcate the raw material usage** between the two, the rules are similar to those for **input service tax credit**.
#### **Cenvat Credit for Mixed Use**:
* **Rule 6(3) of the Cenvat Credit Rules** specifically addresses the situation where raw materials are used in the manufacture of **both excisable and non-excisable goods**.
#### **Proportionate Reversal for Non-Dutiable Goods**:
* Similar to services, when the raw materials are used for both **excisable and non-excisable goods**, you are **required to reverse the proportionate credit** attributable to the **non-dutiable goods**.
#### **Example**:
If you purchase a raw material and **Cenvat Credit** is taken on the Excise Duty paid, but that raw material is used in manufacturing both excisable and non-excisable goods, then you will need to calculate the **percentage of the raw material used in the excisable goods** and only claim **Cenvat Credit** on that proportion.
For example:
* **Raw material A**:
* Total Excise Duty paid: ₹1,00,000
* Raw material A is used in both excisable (say 60%) and non-excisable (say 40%) goods.
* The Cenvat Credit on this raw material would be based on 60% (related to excisable goods) of the total excise duty paid.
Thus, you would reverse the **40%** of the input credit as it is used for non-dutiable goods.
---
### **3. Key Rule to Follow:**
* **Rule 6(1) of Cenvat Credit Rules**:
If you use **input services** and **raw materials** for both taxable (excisable) and non-taxable (non-excisable) goods, you must reverse the **Cenvat Credit** on the portion used for **non-dutiable goods**.
**Cenvat Credit Reversal for Mixed Usage:**
* The reversal can be done by using the **proportionality method** based on the value of the excisable goods versus the total goods produced (including non-dutiable goods).
* If precise bifurcation is not possible, a **proportionate reversal** has to be done.
---
### **4. Separate Records and Maintenance of Books:**
As per **Rule 6 of Cenvat Credit Rules**, you may be required to maintain **separate records** for the inputs used in manufacturing both **dutiable** and **non-dutiable goods**, but this is not always mandatory.
* **Separate Records**: If you can’t determine the exact usage of the raw materials or services, maintaining separate books for **dutiable** and **non-dutiable goods** can help in correctly accounting for the **Cenvat Credit** and ensuring compliance with the rules.
---
### **5. Practical Approach:**
* **Proportionate Calculation**: If bifurcation is not possible, calculate the **proportion of use** for **dutiable goods** and **non-dutiable goods** and claim the Cenvat Credit only on the portion used for **excisable goods**.
* **Reversal**: Reversal of credit on raw materials or services used for **non-dutiable goods** must be made either monthly or quarterly as required, based on the proportion of their use.
* **Documentation**: Maintain clear records of how the credit was apportioned and reversed to avoid disputes with the authorities during audits.
---
### **Conclusion:**
* For both **services** and **raw materials** used in the manufacture of both **dutiable and non-dutiable goods**, **Cenvat Credit** can be claimed only for the portion used in the manufacture of **dutiable goods**.
* If exact bifurcation is not possible, a **proportional allocation** method must be used, and the **Cenvat Credit** on the portion used for **non-dutiable goods** must be reversed.
In case you are unsure about the apportionment, it may be helpful to consult a **tax consultant** or **compliance expert** to ensure that the correct reversal is done according to the provisions of the **Cenvat Credit Rules**.
Let me know if you need further clarification or help with specific examples!
### **1. Service Tax Credit on Services Used in Manufacture of Dutiable and Non-Dutiable Goods:**
In cases where the same service is used for manufacturing both **dutiable and non-dutiable goods**, and it is not possible to **bifurcate the service tax paid** (i.e., the service is used partly for dutiable goods and partly for non-dutiable goods), the **Service Tax credit rules** under the **Cenvat Credit Rules, 2004** (for Excise Duty & Service Tax) come into play.
* **Cenvat Credit** is allowed only when the input services are used to manufacture **excisable goods** or provide **taxable services**.
* For **non-dutiable goods**, no **Cenvat Credit** can be taken. If the same service is used for both dutiable and non-dutiable goods, the following provisions apply:
#### **Proportionate Credit**:
If you cannot **separate or bifurcate the usage** of the service, the credit should be taken **proportionately** based on the **extent of usage** for **dutiable goods**.
* **Rule 6 of Cenvat Credit Rules** provides that if **input services** or **raw materials** are used to manufacture both **excisable (dutiable)** and **non-excisable (non-dutiable)** goods, then the credit on such inputs needs to be **proportionately reversed**.
* **Formula for Reversal**:
You will have to calculate the proportion of the input service **directly related to excisable goods**, and only this proportion can be claimed as **Cenvat Credit**.
For example, if you used 60% of the service for dutiable goods and 40% for non-dutiable goods, then you can claim **60% of the service tax paid** as credit.
### **2. Excise Duty Credit on Raw Materials Used for Both Excisable and Non-Excisable Goods:**
In situations where **one raw material** is used for the manufacture of both **excisable (dutiable)** and **non-excisable (non-dutiable)** goods, and it's not possible to **bifurcate the raw material usage** between the two, the rules are similar to those for **input service tax credit**.
#### **Cenvat Credit for Mixed Use**:
* **Rule 6(3) of the Cenvat Credit Rules** specifically addresses the situation where raw materials are used in the manufacture of **both excisable and non-excisable goods**.
#### **Proportionate Reversal for Non-Dutiable Goods**:
* Similar to services, when the raw materials are used for both **excisable and non-excisable goods**, you are **required to reverse the proportionate credit** attributable to the **non-dutiable goods**.
#### **Example**:
If you purchase a raw material and **Cenvat Credit** is taken on the Excise Duty paid, but that raw material is used in manufacturing both excisable and non-excisable goods, then you will need to calculate the **percentage of the raw material used in the excisable goods** and only claim **Cenvat Credit** on that proportion.
For example:
* **Raw material A**:
* Total Excise Duty paid: ₹1,00,000
* Raw material A is used in both excisable (say 60%) and non-excisable (say 40%) goods.
* The Cenvat Credit on this raw material would be based on 60% (related to excisable goods) of the total excise duty paid.
Thus, you would reverse the **40%** of the input credit as it is used for non-dutiable goods.
---
### **3. Key Rule to Follow:**
* **Rule 6(1) of Cenvat Credit Rules**:
If you use **input services** and **raw materials** for both taxable (excisable) and non-taxable (non-excisable) goods, you must reverse the **Cenvat Credit** on the portion used for **non-dutiable goods**.
**Cenvat Credit Reversal for Mixed Usage:**
* The reversal can be done by using the **proportionality method** based on the value of the excisable goods versus the total goods produced (including non-dutiable goods).
* If precise bifurcation is not possible, a **proportionate reversal** has to be done.
---
### **4. Separate Records and Maintenance of Books:**
As per **Rule 6 of Cenvat Credit Rules**, you may be required to maintain **separate records** for the inputs used in manufacturing both **dutiable** and **non-dutiable goods**, but this is not always mandatory.
* **Separate Records**: If you can’t determine the exact usage of the raw materials or services, maintaining separate books for **dutiable** and **non-dutiable goods** can help in correctly accounting for the **Cenvat Credit** and ensuring compliance with the rules.
---
### **5. Practical Approach:**
* **Proportionate Calculation**: If bifurcation is not possible, calculate the **proportion of use** for **dutiable goods** and **non-dutiable goods** and claim the Cenvat Credit only on the portion used for **excisable goods**.
* **Reversal**: Reversal of credit on raw materials or services used for **non-dutiable goods** must be made either monthly or quarterly as required, based on the proportion of their use.
* **Documentation**: Maintain clear records of how the credit was apportioned and reversed to avoid disputes with the authorities during audits.
---
### **Conclusion:**
* For both **services** and **raw materials** used in the manufacture of both **dutiable and non-dutiable goods**, **Cenvat Credit** can be claimed only for the portion used in the manufacture of **dutiable goods**.
* If exact bifurcation is not possible, a **proportional allocation** method must be used, and the **Cenvat Credit** on the portion used for **non-dutiable goods** must be reversed.
In case you are unsure about the apportionment, it may be helpful to consult a **tax consultant** or **compliance expert** to ensure that the correct reversal is done according to the provisions of the **Cenvat Credit Rules**.
Let me know if you need further clarification or help with specific examples!
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