Major amendments to Rule 6 of CENVAT Credit Rules – A third option is born

NEW DELHI, FEB 28, 2011: IN Budget 2011, Rule 6 of the CENVAT Credit Rules has been totally revamped and a number of changes have been made.

Under the existing provisions, a manufacturer or output service provider, opting not to maintain separate accounts has two options. One is to pay an amount at the rate of 5% of exempted goods ( 6% in case of exempted services)  or pay an amount equivalent to the credit attributable to the exempted goods/ services as determined under Rule 3(A).

Now there is a third option. 

The three options are, the manufacturer / output service provider can:

“(i) pay an amount equal to five per cent. of value of the exempted goods and exempted services; or

(ii) pay an amount as determined under sub-rule (3A); or

(iii) maintain separate accounts for the receipt, consumption and inventory of inputs as provided in the new rule and pay an amount as determined under sub-rule (3A) in respect of input services.

Essence of the amendment is that the manufacturer can maintain separate accounts for inputs and pay the amount determined under Rule 3(A) in respect of the input services.

The other beneficial amendment is  that the services rendered to SEZ units and SEZ developers have been excluded from the provisions of Rule 6. A new Rule (6A) has been inserted to this effect which is as under:

“(6A) The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the taxable services are provided, without payment of service tax, to a Unit in a Special Economic Zone or to a Developer of a Special Economic Zone for their authorised operations.”.