Reversal of cenvat, Central Excise

[srinivas chaganti]

i wish to know, is it mandatory for reversing 10% of the invoice value or can we reverse proportiante cenvat amount involved in the exempted goods without maintaing separate books for both dutiable and exempted clearances.

Posts / Replies

[Brijesh Verma]

Basically there are three options for those assessees who provide both dutiable and exempt goods or services. The first one is maintenance of seprate books. The second one is for reversal of credit as mentioned by you. And the third one relates to reversal of Proportionate Credit on the basis of past years figures. You are advised to go through Rule 6(3) of the Cenvat Credit Rules for further reference which is given by me hereunder: "Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow either of the following options, as applicable to him, namely:- (i) the manufacturer of goods shall pay an amount equal to ten per cent. of value of the exempted goods and the provider of output service shall pay an amount equal to eight per cent. of value of the exempted services; or (ii) the manufacturer of goods or the provider of output service shall 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 or for provision of exempted services subject to the conditions and procedure specified in sub-rule (3A)."

[Rama Krishana]

Mr. Brijesh Verma has elaborated the issue nicely. Rule 6(3A) is introduced to make the credit proportionate in case no separate books are maintained. Your purpose would be solved more authentically and correctly by applying rule 6(3A)

[Madhukar N Hiregange]

Though Rule 6(3) talks of separate books it ti practically possible for input services ( say telephone) It is clearly impossible. However an old judgement relied on in many recent cases - Chandrapur Magnets lays down that reversal of credit ( along with interest) would amount to not avaiuling the credit. In our opinion this is legally tenable and practicable.