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VAT (Value Added Tax) »
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Cenvat Credit Rules, 2017 II Part
July, 20th 2017

In this part we will discuss the obligation of a manufacturer or producer of final products under Rule 8.  In this regard we may refer definitions of some terms.

Exempted goods

Rule 2(d) defines the expression ‘exempted goods’ as excisable goods, which are exempt from the whole of the duty of excise leviable thereon, and includes goods which are chargeable to NIL rate of duty.

Final Products

Rule 2(e) defines the expression ‘final products’ as excisable goods manufactured or produced from input.

Value of non excisable goods

Explanation 2 to Rule 8(1) provides that the value of non excisable goods shall be the invoice value.  Where such invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made there under.

Non exempted goods removed

Explanation 3(a)  to Rule 8(3) defines the expression ‘non exempted goods removed’ as the final products excluding exempted goods manufactured and cleared up to the place of removal.

Exempted goods removed

Explanation 3(b) to Rule 8(3) defines the expression ‘exempted goods removed’ as the exempted goods manufactured and cleared up to the place of removal.

Credit not allowed for any goods that are not inputs

Explanation 2 to Rule 8(3) provides that no credit shall be taken on the duty paid on any goods that are not ‘inputs’,  The term ‘input’ is defined under Rule 2(g) as excisable goods used in the factory by the manufacturer of final product but excludes high speed diesel oil or motor spirit commonly known as petrol.

Type of goods

Rule 8(3) provides that a manufacturer many manufacture two class of goods, namely-

  • Non exempted goods removed;
  • Exempted goods removed.

Credit not allowed for exempted goods

Rule 8(1) provides that the credit shall not be allowed on such quantity of input as is used or in relation to the manufacture of exempted goods and their clearance up to the place of removal.  The credit not allowed shall be calculated and paid by the manufacturers in accordance with Rule 8(2) or 8(3).

Rule 8(2) provides that a manufacturer who exclusively manufactures exempted goods for their clearance up to the place of removal shall pay the whole amount of credit of input and shall not be eligible for credit of any inputs.

Obligation of manufacturer

Rule 8(3)(a) provides that a manufacturer who manufactures two types of goods as discussed above shall follow any one of the following options applicable to him, namely-

  • pay and amount equal to 6% of value of the exempted goods; this payment is subject to a maximum of the total of the opening balance of credit of input available at the beginning of the period to which the payments relates and the credit of input taken during that period; or
  • pay an amount as determined under rule 8(4).

If any excise duty is paid on the exempted goods, the same shall be reduced from the amount payable.

Procedure and conditions under Rule 8(4)

Rule 8(4) provides that for determination of amount required to be paid, the manufacturer of goods shall follow the following procedure and conditions-

  • the manufacturer of goods shall intimate in writing to the Superintendent of Central excise giving the following particulars-
  • name, address and registration number of the manufacturer of goods;
  • date from which the option is exercised or proposed to be exercised;
  • description of inputs used exclusively in or in relation to the manufacture of exempted goods removed and description of such exempted gods;
  • description of inputs used exclusively in or in relation to the manufacture of non exempted goods removed and description of such non exempted goods removed;
  • CENVAT credit of inputs lying in balance as on the date of exercised the option under this condition.
  • once the option is exercised, such option shall not be withdrawn during the remaining period of the financial year;
  • the manufacturer shall determine the credit required to be paid, out of this total credit of inputs taken during the period may be denoted as ‘T’ in the following sequential steps and provisionally pay every month, the amounts determined-

  • the amount of credit attributable to inputs used exclusively or in relation to the manufacture of the exempted goods removed shall be called ineligible credit, denoted as ‘A’ and shall be paid;
  • the amount of credit attributable to inputs used exclusively in or in relation to the manufacture of non exempted goods removed shall be called as eligible credit, denoted as ‘B’ and shall not be required to be paid;
  • credit left after attribution of credit shall be called common credit, denoted as ‘C’ and calculated as-

C=T-(A+B)

Where the entire credit has been attributed, namely ineligible credit or eligible credit, there shall be left no common credit for further attribution;

  • the amount of common credit attributable towards exempted goods removed shall be called ineligible credit, denoted as D and calculated as follows and shall be paid-

D=(E/F) x C

where E is the sum total of value of exempted goods removed during the preceding financial year;

where F is the sum total of-

  • value of non-exempted goods removed, and
  • value of exempted goods removed, during the preceding financial year;

Where no final products were manufactured in the preceding financial year, the credit attributable to ineligible common credit shall be deemed to be 50% of the common credit;

  • remainder of the common credit shall be called eligible common credit and denoted as ‘G’, where

G=C – D;

It is hereby declared that out of the total credit ‘T” which is the sum of A, B, D and G, the manufacturer shall be able to attribute provisionally and retain credit of B and G, namely, eligible credit and eligible common credit.  The manufacturer shall provisionally pay the amount of credit of A and D, namely, ineligible credit and ineligible common credit;

  • if manufacturer fails to pay the amount as arrived at, he shallbe liable to pay the interest from the due date of payment till the date of payment of such amount, at the rate of 15% per annum;
  • the manufacturer shall determine the amount of credit attributable to exempted goods for the whole of financial year out of the total credit ‘T’ taken during the whole of the financial year in the following way-
  • the credit attributable to inputs used exclusively in or in relation to the manufacture of exempted goods removed on the basis of inputs actually so used during the financial year, shall be called Annual ineligible credit and denoted as A (Annual);
  • the credit attributable to inputs used exclusively in or in relation to the manufacture of non exempted goods removed on the basis of inputs actually so used shall be called Annual eligible credit denoted as B;
  • common credit left for further attribution shall be denoted as C(Annual) and calculated as-

C (Annual) = T (Annual) – [A (Annual) + B (Annual)];

  • common credit attributable towards exempted goods removed shall be called Annual ineligible common credit, denoted as D (Annual) and shall be calculated as follows-

D (Annual)) = (H/I) x C (Annual)

where H is the sum of value of exempted goods removed during the financial year; and where I is the sum of-

  • value of non-exempted goods removed; and
  • value of exempted goods removed

during the financial year;

  • the manufacturer shall pay on or before 30th June of the succeeding financial year, an amount equal to difference between the total of the amount of Annual eligible credit and Annual ineligible credit and the aggregate amount of ineligible credit and ineligible common credit for the period of whole year, namely-

where the former of the two mounts is greater than the later;

  • where the amount is not paid by the stipulated time, the manufacturer shall in addition to the amount of credit be liable to pay on such amount an interest at the rate of 15% per annum from 30th June of the succeeding financial year till the date of payment of such amount;
  • the manufacturer at the end of the financial year, take credit of amount equal to the difference between the total amount of the aggregate of ineligible credit and ineligible common credit paid during the whole year and the total of annual ineligible credit and annual ineligible common credit where the former of the two amounts is greater than the latter;
  • the manufacture shall intimate to the jurisdictional Superintendent of Central Excise, within a period of 15 days from the date of payment or adjustment, the following particulars-
  • details of credit attributed towards eligible credit, ineligible credit, eligible common credit and ineligible common credit, month wise, for the whole financial year, determined;
  • CENVAT credit annually attributed to eligible credit, ineligible credit, eligible common credit and ineligible common credit for the whole of financial year, determined;
  • amount determinedand paid with the date of payment of the amount;
  • interest payable and paid, if any,;
  • credit determined and taken, if any, with the date of taking credit.

Failure to give option

Rule 8(5) provides that where a manufacturer has failed to exercise the option under this rule and follow the procedure, the Central Excise Officer competent to adjudicate a case based on amount of credit involved, may allow such manufacturer to follow the procedure and pay the amount calculated for each month with interest calculated at 15% per annum from the due date for payment of amount for each of the month, till the date of payment.

Credit deemed not to be taken

Rule 8(6) provides that payment of an amount under Rule 8(3) shall be deemed to be CENVAT credit not taken for the purpose of an exemption notification wherein any exemption is granted on the condition that no CENVAT credit of inputs shall be taken.

Recovery

If the manufacturer of goods fails to pay the amount under Rule 8(3) or 8(4), the same shall be recovered, in the manner as provided in Rule 16 for recovery of CENVAT credit wrongly taken.

Non applicability

Rule 8(7) provides that the provisions of Rule 8(1), 8(2) and 8(3) shall not be applicable to the case the excisable goods removed without payment of duty are either-

  • cleared to a unit in a SEZ or to a developer of SEZ for their authorized operations; or
  • cleared to a 100% EOU; or
  • supplied to the United Nations or an International organization for their official use or supplied to the projects funded by them, on which exemption duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 108/95-CE, dated 28.08.1995;
  • supplied for the use of foreign diplomatic missions or consular missions or career consular offices or diplomatic agents in terms of Notification No.12/2012-CE, dated 17.03.2015;
  • cleared for export under bond in terms of Central Excise Rules, 2017.
 
 
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