Circular No. 739 /55/2003-CX
28^th August, 2003.

F.No. 267 /58/2001-CX-8
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs

Subject: - Availment of CENVAT/ Modvat credit when common inputs are used for both dutiable and exempted goods- Board’s Circulars No. 591/28/2001-CX dated 16.10.2001 and No. 654/45/2002-CX dated 19^th August 2002- reg.

                        I am directed to draw your attention to Board’s circulars No. 591/28/2001-CX dated 16.10.2001 and No. 654/45/2002-CX dated 19.8.2002 wherein it has been, inter alia , stated that if a manufacturer does not fulfill the requirements of either sub-rule(2) [i.e. maintaining separate accounts] or sub-rule (3) [i.e. paying 8% of the price of the exempted goods other than the exceptions specified in clause(a)] of rule 6 of CENVAT Credit Rules,2002 , then in terms of sub-rule (1), the assessee shall not be allowed credit on such quantity of inputs which is used in the manufacture of exempted goods.  

2.         Consequent to that certain references were received from the field formations stating that in terms of the circular dated 16.10.2001 referred above, an option has been given to the manufacturer to reverse the actual credit instead of paying 8% of the price of the goods in compliance of rule 6(3) of CENVAT Credit Rules, 2002. It may be observed that as per rule 6 (1), CENVAT credit shall not be allowed on inputs used in the manufacture of exempted goods and it does not pertain to reversal of input credit. If the conditions of sub-rule (2) of rule 6 are not followed, then the question of taking CENVAT credit and subsequently reversing it does not arise at all. Board’s attention has also been drawn to the decision of tribunal in the case of  Pushpaman Forgings v/s  Commissioner of Central Excise, Mumbai-VII[2002(149)ELT 490] and dismissal of Civil Appeal by Supreme Court filed by the department against the said tribunal decision [2003(153) ELTA89(SC)]. 

 3.        Board has observed that though the issue of option to the manufacturer for payment of 8% of the price of the exempted goods or reversal of actual credit has been clarified by its circular dated 19^th August 2002, the matter is not free from doubt for the demands/ appeals raised prior to 1.3.2002  in the light of decision of the Tribunal in above mentioned case. Accordingly, Board has decided to further examine the matter relating to recovery of 8% of the amount under sub-rule (3) of rule 6 for appropriate action. The decision taken shall be communicated in due course.  

4.         Field formations may please be informed suitably. 

5.         Receipt of the circular may be acknowledged. 

6.         Hindi version will follow.

Vijay Mohan Jain
Under Secretary to the Govt. of India