2024 (4) TMI 860 - AT - Central Excise

Reversal of proportional CENVAT Credit - manufacture as well as trading activity - demand on the ground that the sale of tyre tube and flap in set to their depot is a trading activity which as per amendment made on 01.04.2011 such trading activity is a exempted service accordingly proportionate credit is required to be reversed - HELD THAT - The activity of selling the tyre duly fitted with tube and flap whether a trading activity or otherwise is pending before the Hon ble Supreme Court in appellant s own case in SLP (CE) No. 34310-34311/2011 wherein two orders were issued by the Hon ble Supreme Court dated 14.10.2011 and 08.11.2011. In view of this position unless it is decided that the activity is a trading activity or otherwise the consequential liability of proportionate credit in respect of service tax cannot be concluded. Moreover the appellant have vehemently argued that the quantification of proportionate credit is incorrect, this is also reason that the matter needs to be reconsidered as regard the correct quantification of the demand. In this position the entire matter on all the issues need to be reconsidered only after the outcome of the Hon ble Supreme Court judgment in the appellant s SLP pending. The impugned order is set aside - Appeal is allowed by way of remand to the adjudicating authority for passing a fresh order.

Summary

Issues involved:
The issues involved in this case are:
1. Whether the appellant is liable to pay proportionate credit of Cenvat in respect of Service Tax paid on input service attributed to the trading activity in the replacement segment.
2. Whether the demand for proportionate credit of service tax is correctly quantified.

Issue 1 - Liability of Cenvat credit in replacement segment:
The appellant, engaged in the manufacture of Automobile Tyres, had two segments for sales: Original Equipment (OE) Segment and Replacement Segment. In the OE segment, the purchaser, an Original Equipment Manufacturer, took CENVAT Credit of duty paid on inputs procured. However, in the replacement segment, where no CENVAT Credit was taken by the purchaser, duty was paid on the tyre manufactured by the appellant, and the tube and flap were supplied along with the tyre without separate duty payment. The department contended that the sale of tube and flap, on which no duty was paid, was an exempted trading activity, making the appellant liable to pay proportionate credit of Cenvat for Service Tax paid on input service. The appellant challenged this demand, arguing that only input services used for both manufacturing and trading activities should be considered for calculating proportionate Cenvat credit.

Issue 2 - Quantification of proportionate credit:
The appellant argued that the calculation of proportionate Cenvat credit of service tax was incorrect as it included all input services, rather than only those commonly used for both manufacturing and trading activities. The appellant also contended that the activity of selling the tyre with tube and flap was pending consideration before the Supreme Court, and therefore, the demand was premature. The Tribunal agreed with the appellant, stating that the matter needed to be reconsidered after the outcome of the Supreme Court judgment in the appellant's case. The impugned order was set aside, and the case was remanded to the adjudicating authority for a fresh decision based on the observations made.

*(Pronounced in the open court on 19.04.2024)*