6. Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services.-

(1)    The CENVAT credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or exempted services, except in the circumstances mentioned in sub-rule (2). 

            Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule. 

(2)    Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services, and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take CENVAT credit only on  that quantity of input or input service which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax is payable.

 (3)  Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer or the provider of output service, opting not to maintain separate accounts, shall follow either of the following conditions, as applicable to him, namely:-

 (a) if the exempted goods are-

                              (i)      goods falling within heading No. 22.04 of the First Schedule to the Excise Tariff Act (hereinafter in this rule referred to as the said First Schedule);

                            (ii)      Low Sulphur Heavy Stock (LSHS) falling within Chapter 27 of the said First Schedule used in the generation of electricity;

                           (iii)      Naphtha (RN) falling within Chapter 27 of the said First Schedule used in the manufacture of fertilizer;

                          (iv)      Naptha (RN) and furnace oil falling within Chapter 27 of the said First Schedule used for generation of electricity;

                            (v)      newsprint, in rolls or sheets, falling within heading No.48.01 of the said First Schedule;

                          (vi)      final products falling within Chapters 50 to 63 of the said First Schedule,

(vii) goods supplied to defence personnel or for defence projects or to the Ministry of Defence for official purposes, under any of the following notifications of the Government of India in the Ministry of Finance (Department of Revenue), namely:-  

(1)    No. 70/92-Central Excise, dated the 17th June, 1992, G.S.R. 595 (E), dated the 17th June, 1992;

(2)    No. 62/95-Central Excise, dated the 16th March, 1995, G.S.R. 254 (E), dated the 16th March, 1995;

(3)    No. 63/95-Central Excise, dated the 16th March, 1995, G.S.R. 255 (E), dated the 16th March, 1995;

(4)    No. 64/95-Central Excise, dated the 16th March, 1995, G.S.R. 256 (E), dated the 16th March, 1995, 

         (viii) Liquefied Petroleum Gases (LPG) falling within tariff items 2711 12 00, 2711 13 00 and 2711 19 00 of the said First Schedule, for supply to household domestic consumers;

          (ix)  Kerosene falling within heading 2710 of the said First Schedule, for ultimate sale through public distribution system.                  

the manufacturer shall pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in, or in relation to, the manufacture of such final products at the time of their clearance from the factory; or 

 (b)    if the exempted goods are other than those described in condition (a), the manufacturer shall pay an amount equal to  ten per cent. of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory;

(c) the provider of output service shall utilize credit only to extent of an amount not exceeding twenty per cent. of the amount of service tax payable on taxable output service.

 Explanation I.- The amount mentioned in conditions (a) and (b) shall be paid by the manufacturer or provider of output service by debiting the CENVAT credit or otherwise.

  Explanation II.- If the manufacturer or provider of output service fails to pay the said amount, it shall be recovered along with interest in the same manner, as provided  in rule 14, for recovery of CENVAT credit wrongly taken.

 Explanation III.- For the removal of doubts, it is hereby clarified that the credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted goods or exempted services.

 (4)    No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year. 

 (5)    Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clause (g), (p), (q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services.

 (6)    The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the excisable goods removed without payment of duty are either-

                              (i)      cleared to a unit in a special economic zone; or

                            (ii)      cleared to a hundred per cent. export-oriented undertaking; or

                           (iii)      cleared to a unit in an Electronic Hardware Technology Park or Software Technology Park; or

                          (iv)      supplied to the United Nations or an international organization for their official use or supplied to projects funded by  them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No.108/95-Central Excise, dated the  28^th August, 1995, number G. S R. 602 (E), dated the 28^th August, 1995; or

                            (v)      cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002; or

                          (vi)      gold or silver falling within Chapter 71 of the said First Schedule, arising in the course of manufacture  of copper or zinc by smelting; or

            (vii) all goods which are exempt from the duties of customs leviable under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty leviable under section 3 of the said Customs Tariff Act when imported into India and supplied against International Competitive Bidding in terms of notification No. 6/2002-Central Excise dated the 1st March, 2002 or notification No. 6/2006-Central Excise dated the 1^st March, 2006, as the case may be.”