2009 (12) TMI 606 - AT - Service Tax

Cenvat credit on dutiable goods and traded items - No separate accounts - Rule 6 of the Cenvat Credit Rules - It is clear from the above provisions that the Central Government has power to make rules to provide for credit of duty paid on goods and credit of service tax paid on services used in or in relation to the manufacture of excisable goods - There is no power with the Government to make rules to provide for credit in respect of service tax paid on input services which is used neither in or in relation to manufacture of excisable goods nor for providing taxable output service - the argument of the Ld. Advocate that such credit is available in respect of input service used in relation to traded goods is prima facie not acceptable as neither the existing Rules provide for it nor the Government has power to make such Rules under Section 37(2) of the Central Excise Act, 1944 and Section 94 of the Finance Act, 1994 - Decided against the assessee by way of direction to deposit Rs. 15 Lakhs

Summary

Issues:
1. Denial of input duty credit under Rule 6 of the Cenvat Credit Rules for traded goods.
2. Applicability of Rule 6 restrictions on traded goods.
3. Eligibility of input duty credit for traded goods.
4. Interpretation of Rule 3 and Rule 6 of the Cenvat Credit Rules.
5. Power of the Central Government to make rules for credit of duty paid on goods and service tax paid on services.

Analysis:
The case involved a dispute regarding the denial of input duty credit to the appellants for traded goods under Rule 6 of the Cenvat Credit Rules. The appellants claimed credit for input services used for both dutiable goods and traded items. The original authority held that there is no provision allowing credit for tax paid on input services not related to the manufacture of final products. The lower appellate authority upheld this decision, leading to the appeal.

The advocate for the appellants argued that traded goods should not be considered exempted goods, thus the restrictions in Rule 6 should not apply. However, the Departmental Representative contended that input duty credit can only be availed by manufacturers of dutiable goods or providers of output services. She emphasized that traded goods do not fall within the definition of input service under Rule 2(l) of the Cenvat Credit Rules.

Upon perusal of the case records, the Tribunal found that Rule 3 of the Cenvat Credit Rules allows credit for excise duty paid on inputs and service tax paid on input services used in the manufacture of final products or provision of output services. Rule 6 prohibits credit for input services used in the manufacture of exempted goods. The Tribunal concluded that the appellants were not eligible for credit on service tax paid for input services used for traded goods as they are neither dutiable goods nor taxable output services.

The Tribunal also discussed the powers of the Central Government under Section 37(2) of the Central Excise Act, 1944, to make rules for credit of duty paid on goods and service tax paid on services used in the manufacture of excisable goods. It was noted that there is no provision for credit in cases where input services are not used in relation to the manufacture of excisable goods or for providing taxable output services.

As a result, the Tribunal directed the appellants to pre-deposit a proportionate amount related to the traded goods and stay the pre-deposit of the balance amount during the appeal process, emphasizing the importance of compliance with the directive.