2021 (6) TMI 60 - AT - Central Excise

Reversal of CENVAT Credit - value of service in case of trading - proportionate amount of CENVAT credit of common input services attributable to the exempted services is reversed - HELD THAT - Undisputedly, trading is a form of service and no service tax is leviable on it and hence it is an exempted service. Usually the amount one pays to a service provider is the value of the services. For example, what one pays a doctor, dentist, lawyer, hair dresser, etc. represents the value of their services. Unlike other services, the amount transacted in trading represent not only the service rendered by trader but also the value of the goods delivered. The service element cannot be the total turnover of the goods traded but is only a small fraction of the turnover. This turnover represents the value of the goods plus the value of the service rendered by the trader - Explanation I(c) to this Rule for both the relevant periods (2015-16 and April 2016 to June 2017) clearly specifies that in case of trading service, the value of the service is the difference between the buying and selling price or 10% of the traded goods whichever is higher. The adjudicating authority erred in not taking this Explanation into account while calculating the amount required to be reversed as per Rule 6(3A) and reckoning the total trading turnover as the value of the exempted services rendered. Whether only the CENVAT credit taken on common input service should be considered or the entire CENVAT credit taken should be considered for calculating the proportionate amount of CENVAT to be reversed as per Rule 6(3A)? - HELD THAT - The appellant has taken no credit on inputs or input services used exclusively for exempted services and had taken credit only on the inputs and input services used in manufacture of dutiable goods. The only dispute is regarding the credit on common input services used in their headquarters which was transferred to the field units through ISD invoices. This credit cannot be attributed wholly to either the dutiable goods manufactured or the exempted service rendered viz., trading. This should therefore, be apportioned. Since the appellant has followed Rule 6(2) and has not taken any CENVAT credit on the input services which were used exclusively for providing exempted services, the formula under Rule 6(3A) can only be used to only proportionately divide the credit taken on common input services and deny credit to the extent it is attributable to the exempted service viz., trading during the periods relevant to both appeals, viz., 2015-16 and April 2016 to June 2017 - the main basis on which the demands were raised in both the Show Cause Notices have already been dropped by the adjudicating authority since the appellant had reversed proportionate amount of credit. Only the computation of the amount to be reversed is in dispute. The impugned orders cannot be sustained - Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Admissibility of CENVAT credit on input services used for exempted services (trading of goods).
2. Correct computation of the amount of CENVAT credit to be reversed under Rule 6(3A) of the CENVAT Credit Rules.
3. Determination of the value of trading services for the purpose of Rule 6(3A) computation.
4. Applicability of amended Rule 6(3A) for the period April 2016 to June 2017.
5. Interpretation of Rule 6(3A) in relation to common input services and total CENVAT credit.

Detailed Analysis:

1. Admissibility of CENVAT Credit on Input Services Used for Exempted Services:
The appellant, a manufacturer of CR coils and similar products, also trades in these goods and avails CENVAT credit on inputs and input services. The revenue argued that the appellant availed inadmissible credit on input services used for exempted services (trading of goods). Show Cause Notices were issued for the periods 2015-2016 and April 2016 to June 2017, demanding payments under Rule 6(3)(i) of the CENVAT Credit Rules. The appellant contended that they reversed the proportionate amount of credit attributable to trading activity, which was accepted by the adjudicating authority in previous periods.

2. Correct Computation of the Amount of CENVAT Credit to be Reversed:
The appellant argued that they maintained separate records for input services used exclusively for exempted services and did not take credit on such services. For common input services, they opted for Rule 6(3)(ii) and reversed the proportionate credit as per Rule 6(3A). The adjudicating authority recalculated the proportionate credit but included credit for services used exclusively for manufacturing dutiable goods, which the appellant argued was incorrect.

3. Determination of the Value of Trading Services:
The adjudicating authority considered the total trading turnover as the value of exempted services, ignoring Explanation I(c) to Rule 6(3A), which states that the value of trading service should be the difference between the sale price and the cost price or 10% of the cost of goods sold, whichever is higher. The Tribunal agreed with the appellant that the adjudicating authority erred in not following this explanation.

4. Applicability of Amended Rule 6(3A) for the Period April 2016 to June 2017:
For the period April 2016 to June 2017, Rule 6(3A)(b) was amended to consider only the common input services and not the total input service credit for computing the amount to be reversed. The adjudicating authority's reliance on the unamended rules for this period was deemed incorrect by the Tribunal.

5. Interpretation of Rule 6(3A) in Relation to Common Input Services and Total CENVAT Credit:
The Tribunal held that Rule 6(3A) should be interpreted to consider only the common input services for computing the amount of credit to be reversed. The adjudicating authority's inclusion of total credit, including credit for services used exclusively for manufacturing dutiable goods, was against the explicit rule position. The Tribunal concurred with the view that the total CENVAT credit for the purpose of Rule 6(3A) should only include common input services.

Conclusion:
The Tribunal allowed the appeals, setting aside the impugned orders. It was held that the adjudicating authority erred in calculating the amount of credit to be reversed by not considering the value of trading services as per Explanation I(c) to Rule 6(3A) and by including total credit instead of only common input services. The demands based on incorrect computation were not sustained, and the appellant was granted consequential relief. The cross-objection was rejected.

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