2017 (11) TMI 157 - AT - Service Tax

CENVAT credit - whether the availment of CENVAT credit on common input services which are used for trading as well as rendering taxable output services is correct as also liability of interest on the full credit availed on capital goods in the first year itself? - Held that - As regards the availment of CENVAT credit on the capital goods, 100% of the amount of Central Excise duty paid, appellant s availment of 100% of credit of duty paid on capital goods in the first year was an error, as per law appellant is entitled to avail CENVAT credit of balance 50% in the subsequent year - demand set aside. Eligibility to avail CENVAT credit on FRO crates which are not capital goods - Held that - FRO crates cannot be considered as capital goods, if they are not considered as capital goods, the explanation given by the appellant before the lower authorities that such crates are used by them for movement of their various components which are used for rendering output service as authorised service station can be considered as inputs. Hence availment of CENVAT credit of the Central Excise duty paid on such FRO crates cannot be disputed and the appeal to that extent contesting the findings has merits and is allowed. Availment of CENVAT credit on capital goods without proper documents - Held that - In the case in hand, appellant is not providing any output service in order to avail the input service which has been taxed and charged by the service stations to whom appellant has outsourced the services of rendering free warranty services - credit not allowed. Appeal allowed in part.

Summary

Issues:
1. Availment of CENVAT credit on common input services used for trading and rendering taxable output services.
2. Liability of interest on full credit availed on capital goods in the first year.
3. Eligibility to avail CENVAT credit on FRO crates.
4. Availment of CENVAT credit on capital goods without proper documents.

Analysis:

1. The first issue pertains to the availment of CENVAT credit on common input services used for both trading and taxable output services. The judgment refers to the case law of F.L. Smidth Pvt. Ltd. vs. CCE, Tiruchy and Ruchika Global Services, where trading activity was considered as an exempted service. The Tribunal upheld the impugned orders, directing the lower authorities to requantify the reversal of CENVAT credit based on Rule 6(3A) of the CENVAT Credit Rules, 2004. The authorities were also instructed to quantify the interest and penalties based on the requantified amount.

2. The second issue involves the liability of interest on the full credit availed on capital goods in the first year. The Tribunal ruled that the appellant's 100% credit of duty paid on capital goods in the first year was an error. The appellant was entitled to avail CENVAT credit of the balance 50% in the subsequent year, as per settled law by various Tribunal decisions. The demand for interest on the excess credit availed was upheld, and the appeal was rejected in this regard.

3. Regarding the eligibility to avail CENVAT credit on FRO crates, the lower authorities had ruled that FRO crates were not capital goods. However, the Tribunal found merit in the appellant's argument that these crates were used for movement of components for rendering output services. Consequently, the appellant's availment of CENVAT credit on Central Excise duty paid on FRO crates was deemed valid, and the appeal was allowed in this aspect.

4. The last issue concerns the availment of CENVAT credit on capital goods without proper documents, as specified under Rule 9 of the CENVAT Credit Rules, 2004. The Tribunal noted a lack of findings by the lower authorities on this point. As a result, the issue was remanded to the adjudicating authority for reconsideration, with directions to follow the principles of natural justice in reassessing the matter.

In conclusion, the judgment addressed multiple issues related to CENVAT credit availment on various types of goods and services, providing detailed analysis and rulings on each specific matter, ensuring compliance with legal provisions and precedents.