Reversal formula of ITC on exempted supplies applicable to 'common input tax' credit

Last updated: 03 June 2021

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Quick Summary

The CESTAT has ruled that companies can follow Rule 6(2) of the CENVAT Credit Rules to maintain separate records for inputs and input services used in manufacturing dutiable goods and exempted services like trading. This means credit can be claimed on inputs for dutiable goods, while credit for common input services must be apportioned using Rule 6(3A) based on the value of trading turnover, not the total trading value. The ruling clarifies that the reversal formula for common input tax credit applies only to credit not covered by Rule 6(2).

Court :
CESTAT, New Delhi

Brief :
The Hon'ble CESTAT, New Delhi in the case of M/s National Steel & Agro Industries Limited v. Principal commissioner [Final Order Nos. 51518-51519/2021 decided on May 25, 2021] quashed the demand under Rule 6(3)(i) of the CENVAT Credit Rules, 2004 ('the CCR') as the assessee has followed Rule 6(2) of the CCR and maintained separate records and not taken credit on inputs/input services used for exempt services i.e., trading. Further, held that nothing in the CCR prohibits an assessee from following Rule 6(2) of the CCR in respect of the inputs and input services where it is feasible to maintain separate records and follow Rule 6(3A) of the CCR in case of such inputs or input services where it is not feasible to do so.

Citation :
Final Order Nos. 51518-51519/2021 decided on May 25, 2021

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Judgement posted by

Bimal Jain

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FCA, FCS LLB with21 Yrs of Experience inTaxation Indirect and Direct: Education Qualification: B.Com (Hons) Chartered Accountants Company Secretary LLB Qualified SAP FI/CO Consultants Professional Membership: Chairmanof Indirect Tax Committee of PHD Chamber of Commerce Member of Indirec ... Read more

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