By TIOL News Service

NEW DELHI, FEB 29, 2016: THE amendments proposed to Rule 6 of CENVAT Credit Rules, 2004 runs into nearly 7 pages with complicated formulae, but the amendments are beneficial to the trade and are aimed at removing some anomalies in the existing Rule 6. The existing Rule 6(3A) apportions credit on inputs and input services used exclusively in dutiable goods / services and at the same time disallows credit on inputs / input services used exclusively in exempted goods / services. Netizens may recall the order of Tribunal in 2014-TIOL-1825-CESTAT-MUMwherein the Tribunal observed that if the formula leads to an anomalous situation, the remedy lies in amending the provisions of the Statute and the judiciary is helpless.

To address the issue, some major amendments have been made in Rule 6 with the following principles:

++ No credit is allowed on inputs/input services used exclusively in the manufacture of exempted goods / services.

++ Full credit is allowed on the inputs/input services used exclusively in the manufacture of dutiable goods / taxable services.

++ Credit on common inputs/input services is identified and the same is apportioned based on the turnover of the exempted/dutiable turnover. Credit on common inputs/input services is allowed only proportionately.

This is achieved by the following steps:

1. Take full credit on all inputs/input services. (T)

2. Identify credit on inputs/input services used exclusively in manufacture of exempted goods / services.(A)

3. Identify the credit on inputs/input services used exclusively in dutiable goods / taxable services.(B)

4. Identify the common input/input service credit C = T-(A+B)

5. Identify the credit not eligible on common inputs / input services based on turnovers (D).

6. Total credit to be paid back / reversed provisionally on monthly basis =A+D

7. Repeat the exercise at the end of financial year to determine final figures.

Simple! Ease of doing business.