1.1             Rule 6(3), Clause (b) & (c) of the Cenvat Credit Rules, 2004

Provision is made for Cenvat credit of duty/service tax paid on input/input services used in manufacture of dutiable final products. In case of exempt final products, no Cenvat credit is allowed towards duty/service tax paid on input/ input services.

In case of a manufacturer of dutiable and exempt goods, where separate accounts are not maintained, where Cenvat credit is availed on inputs/input services, 10% is payable on the value of exempted goods as well. However, in case of provider of output services, Cenvat credit of duty/service tax paid on inputs/ input services is allowed to the extent of 20% of the service tax payable.

1.2             Issue

Sub-rule (1) of rule 6 provides for that quantity of inputs/ input services, which is used in manufacture of dutiable goods only. However, in case of common input services (say advertisement services or sales promotion services) which are used in manufacture of both dutiable as well as exempt goods (area based exemption), quantification is not practically feasible.      

1.3             Suggestion

A suitable clarification should be issued, to clarify that in case of common input services, a proportionate credit can be calculated on the basis of the sale value of the dutiable as well as exempt goods, or based on the quantity or on any other reasonable basis.