2014 (3) TMI 748 - AT - Central Excise

Reversal of CENVAT Credit availed on service tax when inputs are removed as such - Whether the appellant is required to reverse CENVAT credit of service tax paid on CHA service and commission agent service attributable to the imported products which were sold as such by the appellant as replacement for worn out parts in the market - Held that - when the Cenvat availed inputs or capital goods are removed from the factory of the assessee as such, sub rule 3(5) provides for recovery of the amount of the Cenvat credit availed in respect of such inputs or capital goods and there is no provision to reverse the credit of service tax availed in respect of such goods or capital goods. Following the judgment of the Tribunal in the case of Chitrakoot Steel & Power Ltd. Vs. CCE, Chennai 2007 (11) TMI 135 - CESTAT, CHENNAI , I hold that the impugned order is not sustainable - Decided in favour of assessee.

Summary

Issues involved:
1. Admissibility of CENVAT credit on service tax paid on CHA services and commission agent services for importing and selling goods.
2. Requirement to reverse CENVAT credit of service tax paid on CHA service and commission agent service attributable to imported products sold "as such."

Detailed Analysis:
Issue 1: The appellants, manufacturers of reamers, boring bars, and cutting rings, imported tools and inserts for use in manufacturing and as replacements for worn-out parts. They availed CENVAT credit on service tax paid on CHA services and commission agent services. The authorities contended that selling imported finished products "as such" constituted a trading activity, making the credit inadmissible. Proceedings resulted in a demand for service tax and a penalty. The Tribunal noted that the issue was settled by the High Court's decision in Punjab Steels, allowing the appeal without pre-deposit.

Issue 2: The key issue was whether the appellant must reverse CENVAT credit of service tax paid on CHA service and commission agent service for imported products sold as replacements for worn-out parts. The Tribunal referred to a similar case involving Chitrakoot Steel & Power Pvt. Ltd., where the Tribunal held that only the credit of excise duty, not service tax, needed reversal when goods were removed as such. The High Court, considering the matter on merits, found a statutory requirement to reverse the credit of service tax paid. It emphasized the specific definitions of "input" and "input service" in the Rules, stating that Rule 3(5) only addressed credit on inputs or capital goods, not input services. The Court highlighted the importance of plain language in interpreting tax statutes and ruled in favor of reversing the service tax credit.

In conclusion, the Tribunal allowed the appeal, citing the precedent set by the High Court's decision and granting consequential relief to the appellants.