2. Why Rule- 6 PPT?
• Most detailed rule in CENVAT
• Applicable to almost all organizations under excise and service tax
• Most amended rule of CENVAT other than definition
• It expected to create more litigation
• Totally new rule introduced in 2016
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3. Purpose of Rule-6
• Rule-6 specifies that
• The credit of input and input services used for either providing exempt services or
manufacturing of exempt goods should not be allowed.
• Also it provides mechanism for identifying the portion of common credit used for
providing exempt services or manufacturing of exempt goods.
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4. Applicability of Rule-6
Fulfil one of the following conditions
• Any organization manufacturing any exempted goods along with taxable goods.
• Any organization providing taxable and exempt services.
• Any organization manufacturing any exempted goods and providing taxable service
• Any organization manufacturing any taxable goods and providing exempt service
And
It claims the credit of excise duty paid on input or it claims credit of service tax paid on
input services.
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5. Exempted Goods
• Non Excisable goods (added in rule -6 from 1/03/16)
• Excisable goods for which duty mentioned in tariff @ 0%
• Excisable goods which are exempt as per any notification(With Specific exclusion)
• Excisable goods cleared under Notification 1/2012
• Excisable goods cleared under Notification 2/2012
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6. Exempted Services
• Any activity which is not a service (added from 01/03/2016)
• Services specified under negative list
• Services specified under mega exemption notification or other service tax exemption
notification (Includes Trading)
• Abetment portion of services where no credit of input and input services is allowed.
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7. Rule 6 Summary
• Exclusive exempt service provider or exclusive exempt goods manufacturer
• No Credit available for service tax paid on input services and excise duty paid on inputs
• Manufacturer of exempted and taxable goods and Service provider of taxable and
exempt service
• Payment of 6% on the value of exempted goods and 7% of value of exempted services.
or
• Proportionate method.
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8. Proportionate Method
• This method has two type of working and liability payment
• Provisional monthly Working
• Yearly Working
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9. Proportionate method - Provisional
• A= Credit exclusively used for manufacturing exempted goods and
providing exempted services (During the month)
• B= Credit exclusively used for manufacturing non exempted goods and
providing non exempted services. (During the month)
• C= Total Credit - (A + B) (this is called as common credit)
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10. Proportionate method.-Provisional
• D= Value of Exempted services + Value of Exempted Goods (previous year)
• E= Value of Exempted Services & Goods + Value of non Exempted Services and
Goods (previous year)
• F= C x (D / E)
• Credit to be reversed = (A +F) (Proportionate common credit + exclusive used for
exempted)
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11. Yearly Working
• The formula mentioned in the above slide is same. The only changes are as follows.
• The value of taxable and exempt goods and services considered of current year.
• The proportionate reversal is computed on the basis of total yearly credit and total yearly
turnover of taxable and exempt goods.
• Difference if any between provisional and final working needs to be paid before
30th June of succeeding year.
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12. Yearly working
• If the amount reversed provisionally is greater than yearly final liability then the
excess reversal can be claimed as credit by 30th June of succeeding year.
• The delay of payment will attract interest @15% from 30th June till the date of
payment.
• Even if the intimation is not provided then officer may allow the assesse to pay the
liability under this method.
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13. Rules for proportionate method
• The intimation of selection of proportionate option is mandatory.
• The monthly payment under this method will be considered as provisional payment.
• Where in last year no exempted service is provided then 50% of the credit will be
considered as common credit.
• The intimation within 15 days after final reversal of credit on 30th June of succeeding year.
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14. Valuation
• Goods value will be determined as per the excise provisions and valuation rules thereunder.
• Services value will be determined as per service tax provisions and rules made thereunder.
• For trading the value will be difference between sales and Actual COGS or 10% of COGS
whichever is higher .
• For trading securities, the value will be difference between sales and purchases or 1% of
whichever is higher .
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15. Special Provisions
• Transportation of goods or passenger by rail the reversal will be 2% instead of 7%.
• For banking company and NBFC, 50% CENVAT credit should be reversed instead
of actual proportion.
• No CENVAT credit on capital goods available for two years if the same is used
exclusively for providing exempt service or manufacturing exempt goods. (not
applicable to SSI Exemption)
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16. Exclusions -Goods
• Export of goods or under CT-1
• Clearance of goods to SEZ, EOU, STPI,EHTP
• Supply to UN or Foreign diplomat mission.
• All goods exempt from customs for.
• Supply against International competitive Bidding
• Power project where supply is tied up with tariff based bidding.
• Power project awarded with tariff based Bidding.
• Supply made for solar power project
• Ethanol produced from molasses with specific conditions for sale.
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17. Exclusion-Services
• Services provided to SEZ developer or unit in SEZ for authorized
operations.
• Services for transportation of goods by vessel from Indian Custom station.
• Export of service if the payment is received within 6 months from the date
of invoice.
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