2018 (6) TMI 877 - AT - Central Excise

CENVAT credit - common input services for manufacturing as well as trading activity - demand of 6% of the value of the said trading activity, in terms of provisions of Rule 6 (3)(i) of CCR - Held that - The appellants took a categorical stand before the lower authorities that they have reversed the proportionate credit of tax relatable to the trading activity, thus, not having any legal obligation to pay 6% of the value of said service - when the proportionate credit relatable to exempted services/ goods stand reversed by assessee, the effect of the same would be, as if no credit was ever availed. In such a scenario, there would be no requirement on the part of the assessee to pay a particular percentage of the value of service / goods - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellants are entitled to avail the cenvat credit of service tax paid on services used for trading activity.
2. Whether the appellants are obligated to pay a percentage of the value of the trading activity under Rule 6(3) of Cenvat Credit Rules.

Analysis:
Issue 1: The appellants, engaged in manufacturing excisable goods and trading activity, were availing cenvat credit of service tax paid on common services. The Revenue contended that trading activity is exempted, thus the credit is not allowed. Lower authorities acknowledged the reversal of credit related to trading activity but insisted on maintaining separate accounts under Rule 6(3). However, based on precedents like M/s. Zim Laboratories Ltd. and others, it was held that once credit related to exempted services is reversed, no obligation to pay a percentage of the value exists. The Tribunal found no merit in Revenue's stance and allowed the appeal.

Issue 2: The dispute centered on whether the appellants must pay 6% of the value of the trading activity as per Rule 6(3)(i) of Cenvat Credit Rules. The lower authorities rejected the appellant's argument of reversal of proportionate credit, citing failure to maintain separate accounts. Relying on established precedents, the Tribunal clarified that if the credit related to exempted services is reversed, the obligation to pay a percentage of the value does not apply. Following this principle, the impugned order was set aside, and the appeal was allowed with consequential relief.

In conclusion, the judgment clarified that when an assessee reverses the proportionate credit related to exempted services, the obligation to pay a percentage of the value does not arise. The decision was based on established precedents and upheld the appellant's right to avail cenvat credit on services used for trading activity.