Circular No. 654/45/2002-CX

F.No. 267/58/2001-CX-8

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise & Customs

19th August,2002

Subject: Availment of Cenvat/Modvat credit when common inputs are used for both dutiable and exempted products- Board’s circular No.591/28/2001-CX dated 16. 10.2001-regarding.

            I am directed to refer to Board’s circular No.591/28/2001-CX dated 16.10.2001 on the above subject. Consequent to issuance of the circular, certain references were received from field formations to say that the said circular has gone beyond the scope of the rule and that an option has been given to the assessee to reverse the actual credit contained in inputs or pay 8 percent of the price of exempted goods. Accordingly, the matter has been examined.

2.         Board observes that the provisions of Rule 6 of Cenvat Credit Rules, 2002 are unambiguous and clear. However there appears to be certain misconception in field formations regarding applicability of the said rule and the said circular. Accordingly, it is informed that the said circular was issued to clarify the legal position at the relevant period only. In terms of Rule 6, the assessee who has not maintained separate inventory and has taken credit on common inputs to manufacture dutiable and exempted products [except in the cases mentioned in the provisions contained in sub-Rule (3) (a)] has no option but to reverse 8 % of the price of the exempted goods as per provisions of sub-rule (3)(b) of the said rule. In fact, in terms of the Explanation –II to the said rule, if the said amount is not paid, it shall be recovered along with interest in the manner as provided in Rule 12 of Cenvat Credit Rules, 2002. Provisions of Rule 13 would also get attracted.

3.        Trade and field formation may please be informed suitably.

4.        Receipt of the same may please be acknowledged

5.        Hindi version will follow.