2024 (5) TMI 1332 - AT - Central Excise

Recovery of CENVAT Credit with interest and penalty - reversal of cenvat credit of the service tax availed on any services in relation to inputs received in the factory and part quantity of which was cleared to another factory - no provision in the Credit Rules or any other statute, which provides for reversal of such cenvat credit - HELD THAT - The issue is no more res integra and has been decided by the Tribunal in the appellant s own case for the subsequent period i.e. from July 2015 to February 2016 and September 2014 to June 2015. The Tribunal vide Final Order No. 71087-71088 of 2018 dated 03.05.2018 passed in Excise Appeal No.70301 and 70302 of 2018 allowed the appeals filed by the appellant by holding that ' I observe that no specific provision of Cenvat Credit Rules requiring reversal of proportionate input Service Tax credit involved in the inputs cleared as such has been invoked. In fact, there is no such provision in the law. The requirement under Cenvat Credit Rules 2004 is that when the inputs are cleared as such the Central Excise duty involved in the inputs which is availed as Cenvat credit needs to be reversed.' It has been the interpretation and understanding that such credit is already consumed till the inputs received and further there is no legal provision exists requiring the reversal of such credit, thus, the demand is not to be raised. The following allegation in the show cause notices based on which the demand was proposed has not legal backing. This court finds that the view as expressed by the Tribunal is strictly in conformity with the Rules. Rule 2(k) of the Rules defines input , whereas Rule 2(l) defines input service , meaning thereby both the terms have been defined independently. Rule 3 defines the term Cenvat credit , which includes duty paid under various enactments and also the service tax leviable under Section 66 of the Finance Act, 1994. Rule 3(5) of the Rules only talks about the Cenvat credit taken on inputs or capital goods - Once the rule-making authority has defined the terms specifically and used the same in different provisions consciously, the argument of learned counsel for the Revenue that merely by analogy even if in one provision both the terms have been used, the same should be read in the other provision as well, where it has not been specifically mentioned, has no legs to stand, as the tax cannot be levied merely by inference or presumption. It is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language. The impugned order cannot be sustained and is accordingly set aside - Appeal allowed.

Summary

Issues Involved:
1. Whether the appellant is required to reverse the Cenvat credit of service tax availed on input services when the inputs are removed as such from the factory.
2. Whether the demand for reversal of Cenvat credit of service tax has any legal backing under the Cenvat Credit Rules, 2004.

Issue-wise Detailed Analysis:

1. Requirement to Reverse Cenvat Credit of Service Tax on Input Services:

The appellant, engaged in manufacturing various assemblies and parts, availed Cenvat credit on capital goods, inputs, and input services. Upon auditing, it was found that the appellant had cleared certain inputs to another factory after reversing the excise duty credit but not the service tax credit on input services. The department issued show cause notices demanding the reversal of service tax credit, alleging that the appellant had willfully not reversed the credit of service tax on inputs removed as such.

The appellant contended that there is no provision in the Cenvat Credit Rules, 2004, or any other statute, which mandates the reversal of Cenvat credit of service tax on input services when inputs are removed as such. This argument was supported by the Tribunal's decision in the appellant's own case for a subsequent period, where it was held that no specific provision requires the reversal of proportionate input service tax credit involved in the inputs cleared as such. The Tribunal noted that the Cenvat Credit Rules only require the reversal of the central excise duty credit availed on such inputs.

2. Legal Backing for Demand of Reversal of Cenvat Credit of Service Tax:

The Tribunal referenced a Tariff Conference of Central Excise, which concluded that Rule 3(5) of the Cenvat Credit Rules, 2004, does not necessitate the reversal of credit on input services. The rule only mandates the reversal of credit availed on inputs or capital goods when they are removed as such. The conference emphasized that input services are consumed once the inputs and capital goods are received in the factory, and thus, there is no requirement for reversing the credit of input services when the associated inputs are removed.

The Tribunal further supported its decision by citing the Hon'ble Punjab & Haryana High Court's ruling in Commissioner of Central Excise, Chandigarh-I v. Punjab Steels, which held that the credit of input service availed at the time of receipt of inputs does not need to be reversed when the inputs are cleared as such. The High Court observed that the Cenvat Credit Rules explicitly define 'input' and 'input service' separately and require the reversal of credit only for inputs or capital goods, not for input services.

The Tribunal also referred to the Constitution Bench of the Hon'ble Supreme Court in Mathuram Agrwal v. State of Madhya Pradesh, which emphasized that the intention of the legislature in a taxation statute must be gathered from the plain language of the provisions. It is impermissible to add or substitute words to infer a tax liability not explicitly stated in the statute.

Conclusion:

The Tribunal concluded that the appellant is not required to reverse the Cenvat credit of service tax on input services when the inputs are removed as such. The demand for reversal of such credit has no legal backing under the Cenvat Credit Rules, 2004. The impugned order was set aside, and the appeal filed by the appellant was allowed with consequential relief as per law.