2023 (10) TMI 676 - AT - Central Excise

Reversal of CENVAT Credit - Trading activity - exempt services - services under the head of Management Consultancy Service received by a foreign person - HELD THAT - It is seen that the management consultancy service is covered under sub clause (r) of Clause 105 of Section 65 of the Finance Act and therefore, included within the mischief of Rule 6(5) of Cenvat Credit Rules, 2004. A perusal of the impugned order shows that the Commissioner has relied on certain decisions of Tribunal holding that the trading activity is neither an output service nor a manufactured product liable to central excise duty, therefore, cenvat credit availed in respect of Trading Activity can be denied. Since rule 6(5) of the Cenvat Credit Rules, 2004 excludes the credit availed on Management Consultancy Service from the application of Rule 6(1), 6(2) and 6(3) of the Cenvat Credit Rules, 2004, no reversal of cenvat credit is required. The impugned order cannot be sustained. The appeal is allowed.

Summary

Issues involved:
The issues involved in the judgment are the reversal of cenvat credit in respect of Management Consultancy Service received from a foreign person and the applicability of Rule 6(5) of the Cenvat Credit Rules, 2004.

Reversal of cenvat credit for Management Consultancy Service:
The appellant, a company, received Management Consultancy Service along with other services and reversed cenvat credit for all services except Management Consultancy Service. The Revenue contended that trading activities by the appellant were exempted services requiring proportional cenvat credit reversal. However, the appellant argued that Rule 6(5) of the Cenvat Credit Rules allowed 100% credit for specified services, including Management Consultancy Service, irrespective of exempted activities. The Tribunal noted that Management Consultancy Service fell under Rule 6(5) and excluded it from Rule 6(1), 6(2), and 6(3) requirements for credit reversal.

Applicability of Rule 6(5) of Cenvat Credit Rules, 2004:
The Tribunal found that Management Consultancy Service was covered by sub-clause (r) of Clause 105 of the Finance Act, making it eligible for the exemption under Rule 6(5) of the Cenvat Credit Rules. The Commissioner's reliance on Tribunal decisions regarding trading activities not being subject to central excise duty was considered. Rule 6(1) prohibits credit for input services used for exempted services unless specified conditions are met, while Rule 6(2) mandates separate accounts for input services related to taxable output services. Rule 6(3) allows for payment equivalent to the credit for input services used in exempted services, subject to specified conditions.

Conclusion:
The Tribunal held that Rule 6(5) exempted the appellant from reversing cenvat credit for Management Consultancy Service, as it was not subject to the reversal requirements of Rule 6(1), 6(2), and 6(3) of the Cenvat Credit Rules. Consequently, the impugned order requiring credit reversal was set aside, and the appeal was allowed.