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Cenvat

sandhya (Senior Assosciate) (65 Points)

09 December 2011

A firm is manufacturing a product , which is used as an intermediate for a final product. The final product is dutiable as well as exempted vide 64/95 of CE. So if Rule 6 obligations are met, can the manufacturer claim exemptin under 67 / 95 (captive consumption) for the intermediate? In that case the inputs used for that intermediate cannot be entitled for input credit?

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CA Prabhat Gupta (Manager (Indirect Taxes)) (821 Points)
Replied 09 December 2011

Dear Sandhya,

Your query is not very clear but exemption under Exemption notification 67/95 will not be available as the said notification specifically reserves the availability of exemption where final goods are exempt from duty. the relevant part of Notifiaction No. 67/95 is produced below:

"Provided that nothing contained in this notificatin shall apply to inputs used in or in relation to the manufacture of final products which are exempt from the whole of the duty of excise or additional duty of excise leviable thereon or are chargeable to nil rate of duty, other than those goods which are cleared :-

i. to a unit in a Free Trade Zone(FTZ), or
ii. to a hundred per cent Export Oriented Undertaking(EOU) or
iii. to a unit in an Electronic Hardware Technology Park(EHTP), or
iv. to a unit in a Software Technology Park(STP), or
v. under notification No. 108/95-CE, dated the 28th August, 1995, or
vi. by a manufacturer of dutiable and exempted final products, after discharging the obligation prescribed in rule 6 of the CENVAT Credit Rules, 2001, [Old (rule 57AD of the Central Excise Rule, 1944)]."

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sandhya (Senior Assosciate) (65 Points)
Replied 09 December 2011

The intermediate product is manufactured and later its been used for exempted as well as dutiable final product. In that case will i get the exemption of Captive Consumption? Rule 6 will be applicable? Also can i claim cenvat credit for the basic inputs utilized for manufacture of itermediate product?

CA Prabhat Gupta (Manager (Indirect Taxes)) (821 Points)
Replied 09 December 2011

Please refer to the following links for amended Notifications:

https://www.eximkey.com/contents/showpage1.asp?pageid=6218

https://www.eximkey.com/contents/showpage1.asp?pageid=6220

In my opinion, when we read both these Notifications together & Cenvat Credit Rules as amended, Credit of inputs used in the manufacture of intermediate goods would be available in full as intermediate goods are dutiable, unless further used in the manufacture of dutiable final goods. As far as intermediate goods that are used in manufacture of dutiable final goods are concerned, credit of inputs used would be available as final goods are dutiable.

Suppose ‘A’ is the basic input, ‘B’ is intermediate product, ‘C’ be exempted final product & ‘D’ be dutiable final product.

Now credit of that part of ‘A’ which is used in manufacture of ‘B’ which is further used in manufacture of ‘C’ would be available for payment of duty on ‘B’. No credit of other inputs used in manufacture of ‘C’ would be allowed. Exemption of NN 67/95 would not be available as final products are exempted.

Credit of that part of ‘A’ which is used in manufacture of ‘B’ which is further used in manufacture of ‘D’ would be available for payment of duty on ‘D’, which is a dutiable final product. Credit of other inputs used in manufacture of ‘D’ would also be allowed. Exemption of NN 67/95 would be available as final products are dutiable.

Rule 6 will be applied in respect of Inputs used at the second stage of manufacture of final products in this case.

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sandhya (Senior Assosciate) (65 Points)
Replied 10 December 2011

what will be the valuation if a product is captivley consumed as well as sold outside?..Whether those captivley consumed will be valued at 110% and other on transaction value? or any other basis for determining the value for excise?

CA Prabhat Gupta (Manager (Indirect Taxes)) (821 Points)
Replied 10 December 2011

Yes, that part of intermediate products that are captively consumed will be Valued at 110% of COP & the part that is sold outside will be dutiable on the basis of transaction value.

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sandhya (Senior Assosciate) (65 Points)
Replied 10 December 2011

But, since sale value at the time of removal is available; doesnt Rule 4 overides Rule 8?. So transaction value or nearest sale value to independent third party will be applicable? isn't?

CA Prabhat Gupta (Manager (Indirect Taxes)) (821 Points)
Replied 10 December 2011

Dear Sandhya,

Each removal has to be assessed separately for the purpose of payment of Duty. Where the goods are sold the transaction value will be the assessable value for respective removals.

Before referring to Central Excise Valuation (Determination of price of Excisable Goods) Rules, 2000, we must read Section 4 (1) (a) & (b).

These rules are applicable in all cases where conditions of Section 4 (1) (a) are not satisfied, i.e., in cases where Section 4 (1) (b) is applicable (Rule 3).

Rule 4 of above Rules is applicable to more general cases u/s 4 (1) (b), whereas Rule 8 specifically applies to cases of captive consumption of intermediate goods.

Moreover, if we apply Rules of interpretation of various statutes where there is a conflict between specific provisions and general provisions, specific provisions should be applied. Therefore Rule 8 supersedes Rule 4.