Cenvat Credit on exempted job work

A job worker not paying excise duty/service tax, eventhough takes credit, cannot transfer the same to the manufacturer. The point that ultimately manufacturer pays the duty is irrelevant as the job worker cannot transfer accumulated credit to he manufacturer.

Well Dinesh, I examined the issue.

If the job worker has his own manufacturing, he can use the accumlated Cenvat Credit for paymeny of duty on his manufactured goods. If he doesnt have own manufacturing activity, he can receive goods from the principal manufacturer on payment of duty (removal of goods as such) and pay duty using his own credit, passing on the credit to the principal manufacturer, in addition to what he received.

The other way is to not to take Service Tax exemption on job work (i.e. S T Notification 8/2006) as it is not necessary to avail conditional exemption. Then he can pay service tax on job work, utilising the credit accumlated and passing on to the principal manufacturer.

Dinesh, it never hurts to take credit.

When both exempted and taxable goods are manufactured or services are provided there is an option to pay duty as underand avail 100% CENVAT credit :

(b) Pay amount equal to 10% of value of exempted goods (if he is ‘manufacturer) and/or 8% of value of exempted services (if he is service provider) if he does not maintain separate inventory and records – Rule 6(3)(i) w.e.f. 1-4-2008.
 

Q. What rate would be applicable as thereafter the rate of CE and ST has been reduced from 14% to 8% and 12 to 10% ? Is there any change ?

But Mohan this payment of 10% is not eligible for cenvat credit.

No, there is no change in the rate of amount of 10% under Rule 6 of the Cenvat Credit Rules.