2010 (12) TMI 210 - AT - Service Tax

Reversal of cenvat credit SCN issued alleging that as such inputs removed were not used for manufacture of final products, the credit service tax attributable to the GTA services utilized for bringing the inputs not available in terms of Rule 3(5) of Cenvat Credit Rules, 2004 - absence of express provision for reversal of credit of service tax attributable to input service associated with inputs, the question of reversal of credit of service tax does not arise - appeals filed by the department rejected

Summary

Issues:
1. Appeal against the order of the Commissioner (Appeals) setting aside duty demands, interest, and penalties.
2. Interpretation of Rule 3(5) of Cenvat Credit Rules, 2004 regarding credit for GTA services used to bring inputs into factories.

Analysis:
Issue 1: The department appealed against the Commissioner (Appeals) orders setting aside duty demands, interest, and penalties. The cases involved M/s.Hi-Tech Power & Steel Ltd. and M/s.R.K.Structures Pvt.Ltd. Both respondents received inputs and availed GTA services to bring the inputs into their factories. Subsequently, some inputs were removed without being utilized in the final product manufacturing process. The department alleged that the credit for service tax attributable to the GTA services should be denied as per Rule 3(5) of Cenvat Credit Rules, 2004. The original authority confirmed the demands, but the Commissioner (Appeals) overturned these decisions, leading to the department's appeal.

Issue 2: The crux of the matter revolved around the interpretation of Rule 3(5) of the Cenvat Credit Rules, 2004. The department argued that when inputs are removed as such without being used in the manufacturing process, the credit for service tax on GTA services should also be denied. However, the respondents contended that Rule 3(5) only requires the payment of an amount equal to the credit in respect of removed inputs or capital goods, without explicitly mentioning the payment of service tax involved. The respondents relied on several tribunal decisions to support their stance, emphasizing that without an express provision for reversing the credit of service tax linked to input services, such reversal is not warranted.

In the final judgment, the presiding officer found no fault in the orders of the Commissioner (Appeals) and dismissed the department's appeals. The decision was based on the argument that in the absence of a clear provision mandating the reversal of service tax credit related to input services, such reversal cannot be enforced. The tribunal's decision aligned with the interpretations presented by the respondents and the precedent set by previous tribunal cases.