- Credit of eligible duties and taxes in respect of inputs held in stock to be allowed in certain situations
This is a new provision added in the act aiming to cover such assessees who are engaged in manufacture of both taxable and exempted goods or are providing both taxable and exempted services. This provision reads as follows:
(1) A registered taxable person, who was engaged in the manufacture of non exempted as well as exempted goods under the Central Excise Act, 1944 (1 of
1944) or provision of non-exempted as well as exempted services under Chapter V of Finance Act, 1994 (32 of 1994), shall be entitled to take, in his electronic credit ledger,
(a) the amount of Cenvat credit carried forward in a return furnished under the
earlier law by him in terms of section 167; and
(b) the amount of Cenvat credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day, relating to exempted goods or services, in terms of section 169.
This is also a new provision introduced on this topic. We have been demanded the same and wrote an article on the same which was published at www.taxclick.org. This is welcome step wherein the assessee manufacturing exempted and dutiable product or taxable and exempted services will allowed the credit in return on taxable product or service and on stock for exempted product or service.
It is clear that basically the assessees covered under rule 6 of CCR, 2004 have been kept in view here so that they can also carry forward the cenvat available with them as shown in the return as well as take credit on stock of exempted product. But there are three procedures in Rules 6 which are listed below:-
- maintain separate inventory;
- take the credit on common input and input services and reverse the cenvat credit at particular percentage on value of exempted goods;
- take the credit on common input or input services and reverse the cenvat credit on proportionate basis.
This provision very well covers the first provision i.e. where the manufacturer or service provider has maintained the separate inventory and has taken the credit only inputs used in manufacture of dutiable goods or provision of taxable services . Hence, he will be allowed to take the credit on stock of inputs of exempted final product or exempted service.
But this provision does not hold good for the second alternative. If a manufacturer or service provider has already taken the credit on common input then credit cannot be allowed to him second time. Moreover, the credit is reversed at the time of removal of exempted final product or provison of exempted service. This mean that the credit is already contained in his balance for the stock of inputs lying with him. Then this provision will allow him the credit second time on these inputs. This is not the intention of the Government. Even the department will not allow him the credit second time on same inputs. But the problem does not end here. There is clear cut provision in Rule 6 that credit on inputs used exclusively in exempted goods will not be allowed credit. Hence, there will be two type of inputs viz. one common inputs on which credit is taken and second exclusively used inputs on which credit is not taken. Hence, this provision holds good for second type of inputs.
The similar problem is being faced for the third alternative. Here also, the credit is taken on common inputs and cenvat is reversed on proportionate basis at the end of month on exempted final product removed during the month or the exempted services provided during the month. This means that the credit is already taken on common inputs but the problem of exclusive inputs going in exempted goods still remains here also.
To solve this problem, it is suggested that the credit on stock of inputs for exempted goods should be allowed subject to condition that the credit is not already taken. This provision will solve the problem. The assessee will be allowed to take the credit on stock of those inputs on which credit is not taken by him.
But there are many other situations also where the credit is not taken by the assessee. We have come across a situation where the manufacturer has taken the credit only on inputs exclusively used inputs in dutiable final product but has not taken credit on common inputs for dutiable and final product as well as on inputs exclusively used in exempted final product. Hence, the credit should be allowed in such situation also.
Similarly many exporter manufacturer are claiming drawback and forgoing Cenvat credit. But they intend to take the credit on input stock as they intend to avail the credit under GST regime.
Similar is the situation for textile manufacturers who are exempted from payment of excise duty with the condition that no credit is taken on inputs. They have been taking credit on consignment of goods which are exported and not taking credit on those consignments which are cleared in domestic industry. This is being done as per provision of notification 29/2004 dated 9.7.2004 read with CBEC circular number 795/28/2004-CX dated 28.7.2004.
There is no transitional provision for manufacturers availing concessional duty of 2% with no Cenvat credit under notification number 1/2011. Whether their duty can be termed as composition duty at fixed rate or they can be termed as exempted goods as declared to them under Cenvat credit rules. Even there are certain export incentive schemes where the credit is not allowed.
There can be more situations like these on which there is no transitional provisions available. The non availment of credit is done as per statutory provisions. The credit on stock should be allowed to all manufacturers, service providers under transitional provisions who have not availed the credit due to one provision or the other subject to condition that they will not avail the credit twice.
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