OBLIGATIONS OF MANUFACTURER OF DUTIABLE AND EXEMPTED GOODS AND PROVIDER OF TAXABLE AND EXEMPTED SERVICES

[Mr. M. GOVINDARAJAN]

INTRODUCTION:

Notifications are issued in central excise as well as service tax exempting the goods from the levy of excise duty and services from the levy of service tax. The manufacturer of goods may produce dutiable goods only or exempted goods only or dutiable goods and exempted goods. The output service provider may also provide taxable services or exempted services or both taxable and exempted services. The CENVAT Credit Rules allows the manufacturer and output service provider to avail CENVAT credit on excise duty paid for inputs and service tax paid on input service provider. CENVAT credit is not allowed in respect of exempted goods or services. Rule 6 of CENVAT Credit Rules, 2004 imposes some obligations of manufacturer of dutiable and exempted goods and provider of taxable and exempted services.

MAINTAINING SEPARATE ACCOUNTS:

According to Rule 6(1) the CENVAT credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or provision of exempted services, except in the case where a manufacturer or provider of output services maintains separate accounts for receipt, consumption and inventory of input and input services meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take CENVAT credit only that quantity of input or input service which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax is payable.

The CENVAT credit on inputs shall not be denied to job worker referred to in Rule 12AA of the Central Excise Rules, 2002 on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule.

OPTION IN CASE OF NON MAINTENANCE OF RECORDS

Rule 6(3) provides that in case the manufacturer of goods or the provider of output service is not opting to maintain separate accounts for dutiable goods and exempted goods/taxable and exempted services, the manufacturer of goods or the provider of output service shall follow of the following options as applicable to him:

i) manufacturer of goods:

* to pay an amount equal to 10 % of the value of the exempted goods; or

* to pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in, or in relation to the manufacture of exempted goods;

ii) provider of output service:

* to pay an amount equal to 8% of the value of the exempted services; or

* to pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in, or in relation for provision of exempted services.

The second option is subject to conditions.

CONDITIONS:

Rule 6(3A) provides the conditions as follows:

a) While exercising the second option, the manufacturer of goods or the provider of output service shall intimate in writing to the Superintendent of Central Excise giving the following particulars, namely:

* Name, address and registration number of the manufacturer of goods or provider of output service;

* Date from which the option under this clause is exercised or proposed to be exercised;

* Description of dutiable goods or taxable services;

* Description of exempted goods or exempted services;

* CENVAT credit of inputs and input services lying in balance as on the date of exercising the option under this condition.

* Such option shall not be withdrawn during the remaining part of the financial year;

* Credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted goods or provision of exempted services.

Provisional payment:

b) the manufacturer of goods or the provider of output service shall determine and pay, provisionally, for every month-

Inputs:

Amount equivalent to CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods	= A
Total value of exempted services during the preceding financial year	= B
Total value of dutiable goods manufactured and removed + total value Of taxable services + total value of exempted services provided during the preceding financial year	= C
CENVAT credit taken on inputs during the month - A	= D
The amount of CENVAT credit attributable to inputs used for provision Of exempted services (provisional)	=B/C*D
Total value of exempted services + total value of exempted goods Manufactured and removed during the preceding financial year	= E
Total value of taxable and exempted service provided + total value of Dutiable and exempted goods manufactured and removed during the Preceding financial year	= F
Total CENVAT credit taken on input services during the month	= G
The amount attributable to input services used in or in relation to Manufacture of exempted goods or provision of exempted services (provisional)	= E/F * G

Final Payment:

c) the manufacturer of goods or the provider of out put service shall determine finally the amount of CENVAT credit attributable to exempted goods and exempted services for the whole of the financial year in the following manner, namely:

The amount of CENVAT credit attributable to inputs used in or in Relation to manufacture of exempted goods, on the basis of total Quantity of inputs used in or in relation to manufacture of said Exempted goods	= H
The total value of exempted services provided during the financial year	= J
The total value of dutiable goods manufactured and removed + total value Of taxable services provided + total value of exempted services provided During the financial year	= K
Total CENVAT credit taken on inputs during the financial year - H	= L
The amount of CENVAT credit attributable to inputs used for Provision of exempted services	= J/K * L
Total value of exempted services provided + total value of exempted Goods manufactured and removed during the financial year	= M
Total value of taxable and exempted services provided + total value of Dutiable and exempted goods manufactured and removed during the Financial year	= N
Total CENVAT credit taken on input services during the financial year	= P
The amount attributable to input services used in or in relation to Manufacture of exempted goods or provision of exempted services	= M/N * P

d) the manufacturer of goods or the provider of output service, shall pay an amount equal to the difference between the aggregate amount as determined as per condition (c) and the aggregate amount determined and paid as per condition (b), on or before 30th June of the succeeding financial year, where amount determined as per condition (c) is more than the amount paid;

e) in addition to the amount short paid interest is liable to be paid at the rate of 24% per annuam from the date i.e., 30th June till the date of payment where the amount short paid is not within the said due date;

f) where the amount determined as per condition (c) is less than the amount determined and paid as per condition (b), the same may be adjusted on his own, by taking credit of such amount;

g) It shall be intimated to the jurisdictional Superintendent of Central Excise within a period of fifteen days from the date of payment or adjustment as per condition (d) and (f) respectively the following particulars:

* Details of CENVAT credit attributable to exempted goods and exempted services, month wise, for the whole financial year, determined provisionally as per condition(b);

* CENVAT credit attributable to exempted goods and exempted services for the whole financial year, determined as per condition (c);

* Amount short paid determined as per condition (d), along with the date of payment of the amount of the amount short paid;

* Interest payable and paid, if any, on the amount short paid determined as per condition (e); and

* Credit taken on account of excess payment, if any, determined as per condition (f);

h) where the amount equivalent to CENVAT credit attributable to exempted goods or exempted services cannot be determined provisionally, as prescribed in condition(b), due to reasons that no dutiable goods were manufactured and no taxable service was provided in the preceding financial year, then the manufacturer of goods or the provider of output service is not required to determine and pay such amount provisionally for each month, but shall determine the CENVAT credit attributable to exempted goods or exempted services for the whole year as prescribed in condition (c) and pay the amount so calculated on or before 30th June of the succeeding financial year;

i) where the amount determined under condition (h) is not paid within the said date, i.e., the 30th June, the manufacturer of goods or the provider of output service shall, in addition to the said amount, be liable to pay interest at the rate of 24% per annum from the due date till the date of payment.

j) The amount as calculated in 6(3) and 6(3A) shall be paid shall be paid by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, when such payment shall be made on or before 31st day of month of March.

k) If the manufacturer of goods or the provider of output service fails to pay the amount payable it shall be recovered, in the manner as provided in Rule 14 for recovery of CENVAT credit wrongly taken.

NON APPLICABILITY:

Rule 6(5) provides that the provisions of Sec. 6(1), 6(2), 6(3) are not applicable in case the excisable goods removed without payment of duty are either-

* Cleared to a unit in a special economic zone; or

* Cleared to a 100% EOU; or

* Cleared to a unit in an Electronic Hardware Technology Park or Software Technology Park; or

* Supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty, is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 108/95-Central Excise, dated 28.08.1995, No. GST 602 (E), dt. 28.08.1995; or

* Cleared for export under bond in terms of the provisions of Central Excise Rules, 2002; or

* Gold or silver falling within Chapter 71 of the First Schedule arising in the course of manufacture of copper or zinc smelting; or

* All goods which are exempt from the duties of customs leviable under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty leviable under Section 3 of the said Customs Tariff Act when imported into India and supplied against International Competitive Bidding in terms of Notification No.6/2002-Central Excise, dated 1.03.2002 or Notification No. 6/2006 - Central Excise, dated 01.03.2006, as the case may be.