Vide Notification No. 6/2015-CE(NT) dated March 1, 2015, Explanation-I to Rule 6(1) of the Credit Rules have been inserted to state that w.e.f March 1, 2015, for the purpose of this Rule, exempted goods and final products shall include non-excisable goods cleared for a consideration from the factory:
“Explanation 1. – For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of rule 2 shall include non-excisable goods cleared for a consideration from the factory.
Further, by virtue of the Explanation-2 inserted in Rule 6(1) of the Credit Rules, the value of non-excisable goods shall be the invoice value and where such invoice value is not available, the value of non-excisable goods shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the Rules made thereunder:
“Explanation 2. – Value of non-excisable goods for the purposes of this rule, shall be the invoice value and 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 thereunder.”
It is clear from the above Explanations that exempted goods and final products now include non-excisable goods also for the purpose of Rule 6 of the Credit Rules, which provides the mechanism for availment of Cenvat credit by a manufacturer of dutiable and exempted goods and providers of taxable and exempted services. In such cases, the manufacturer/ service provider has following four options, effective from April 1, 2011:
Option I: Maintain separate inventory and accounts of Inputs and Input services – Rule 6(2)
Option II: Pay prescribed ‘amount’ on value of exempted goods or exempted services if separate inventory and records not maintained – Rule 6(3)(i)
Option III: Proportionate reversal of Cenvat credit – Rule 6(3)(ii)
Option IV: Maintain Separate inventory and accounts of Inputs but common records of Input services – Rule 6(3)(iii)
The first point to be noted here is that the Explanation is applicable only for the purpose of Rule 6 and there is no amendment in the definition of ‘exempted goods’ or in the definition of ‘final product’ under the Credit Rules. Therefore, Rule 6 is now applicable for the manufacturer of dutiable goods and non-excisable goods also. Moreover, it is apposite to highlight that the achievement of the objective of insertion of the aforesaid Explanation, which was applicable for the provision relating to reversal for Cenvat credit in Rule 6 of the Credit Rules to non-excisable goods apart from existing applicability to exempted goods and services is at stake in the plight on certain issues, for which clarification is much needed:
Therefore goods which do not have any rate specified in the CETA are treated as non-excisable goods. E.g., electricity which is mentioned in the CETA but without any rate of duty, the same is considered to be non-excisable. Now, the question may arise on the fate of treatment of such goods.
Further, the word ‘Consideration’ has not been defined under the Credit Rules or in the Excise Act. In such a scenario, the same has been left open to multiple views and interpretations. Further, it is not made clear that whether the consideration will cover in its ambit only monetary consideration or both monetary and non-monetary consideration.
Conclusion: The clear clarification of the terms used and corresponding valuation in the stated Explanations to Rule 6(1) of the Credit Rules is very much required from the Board so as not to create another area of future litigation.
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: firstname.lastname@example.org)