2018 (6) TMI 378 - AT - Central Excise

CENVAT credit - common inputs used in taxable service as well as trading activities - clearance of goods as such - case of appellant is that they have reversed the credit, as under Rule 3(5), when they have cleared the goods as such - Held that - The appellants have reversed the credit, as under Rule 3(5), when they have cleared the goods as such. In a normal trading activity, the goods which are procured, are sold and there is no question of availing the credit of such goods or clearing them on the payment of duty. In the present case, the appellant has availed credit on the inputs and, in some circumstances, they were not able to use the goods in the manufacture of final products. They have opted to clear the goods as such, under the provision of Rule 3(5) by reversing the credit - demand cannot sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
Interpretation of trading activity under Cenvat Credit Rules, 2004.

Analysis:
The case involved a dispute regarding the classification of an activity as trading under the Cenvat Credit Rules, 2004. The appellants, engaged in manufacturing gears and accessories, were found to be selling inputs/raw materials purchased from other units after reversing the duty credit availed on them. The department contended that such activity constituted trading, making the assessee liable to pay a certain percentage on the value of traded goods as an "exempted service." A show cause notice was issued, demanding payment along with interest and penalties. The original authority and the Commissioner (Appeals) upheld the demand.

The appellant argued that they had removed the raw materials under Rule 3(5) of the Cenvat Credit Rules after reversing the credit, emphasizing that there was no trading involved. They relied on a decision in a similar case to support their stance. On the other hand, the department supported the findings in the impugned order, citing an explanation added to the definition of exempted service from April 1, 2011, which included trading. The department contended that the appellants' activity amounted to trading, making them liable to pay the stipulated percentage on the value of traded goods.

Upon review, the Tribunal noted that the appellants had indeed reversed the credit under Rule 3(5) when clearing the goods as such. The Tribunal differentiated normal trading activities from the appellants' situation, where goods procured with credit were not used in manufacturing final products and were cleared under Rule 3(5) by reversing the credit. Referring to precedents and the specific provisions of the Cenvat Credit Rules, the Tribunal concluded that the appellants' activity did not constitute trading as an exempted service since the goods were cleared on payment of duty, not without credit or duty payment. Therefore, the demand was deemed unsustainable, and the impugned order was set aside, allowing the appeal with consequential reliefs.

In summary, the judgment clarified the interpretation of trading activity under the Cenvat Credit Rules, emphasizing the distinction between normal trading and activities involving the removal of goods with reversed credit under specific rules. The decision highlighted the importance of payment of duty in determining the classification of trading as an exempted service, ultimately ruling in favor of the appellants based on the specific circumstances and legal provisions involved.