2018 (6) TMI 1433 - AT - Service Tax

CENVAT credit - Trading activity - common inputs/input services - Rule 6 (3) (i) of the CCR 2004 - case of Revenue is that Since trading of goods was considered as an exempted service the appellant was required to pay an amount at the rate of 5%/ 6% of the value of exempted services in terms of Rule 6 (3) (i) of the CCR 2004 - Held that - Tubes flaps etc are procured by the appellant with the objective of supplying the same along with tyres manufactured by them. It is further seen that the flaps as well as tubes are packed inside the tyre and tube partially inflated to form the tyre set. From this it is evident that the tube and flap are nothing but accessories for the tyre and are cleared together with the tyre. It is nobody s case that the tyre can be used without the tube and flap. The activity of procurement of tube/ flap and clearing the same along with tyre as sets cannot be termed to be activity of trading. Consequently the demand made by the lower Authority in terms of Rule 6 (3) ibid cannot be sustained. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Determining whether the appellant is required to pay an amount under Rule 6(3)(i) of the Cenvat Credit Rules, 2004 for availing credit on common input services used in the manufacture and clearance of tyres along with accessories like tubes and flaps, and whether such activity constitutes trading.

Detailed Analysis:

Issue 1: Reversal of Cenvat Credit under Rule 6(3)(i) of CCR, 2004
The appellant availed Cenvat Credit on common input services used for the manufacture and clearance of tyres along with accessories like tubes and flaps. The Revenue contended that since the tubes and flaps were not used in the manufacture but sold along with tyres, the activity should be considered as trading, necessitating the reversal of credit. The Tribunal observed that tubes and flaps were essential accessories packed inside the tyre, and excise duty was paid on the entire set, including the value of tubes and flaps. The Tribunal rejected the Revenue's argument, stating that the common input services were used for manufacturing and clearing tyres and their accessories, not for trading activities.

Issue 2: Interpretation of Previous Decisions
The Revenue relied on a judgment by the Hon'ble Kerala High Court in the case of Appollo Tyres Ltd, which stated that the purchase and resale of tubes and flaps along with tyres constituted trading. However, the Tribunal noted that the Kerala High Court decision was not directly applicable to the present case and had been stayed by the Supreme Court. Therefore, the Tribunal concluded that the Kerala High Court decision did not support the Revenue's position and was not relevant to the current dispute.

Conclusion:
The Tribunal held that the activity of procuring tubes and flaps and clearing them along with tyres did not amount to trading. Consequently, the demand for reversal of Cenvat Credit under Rule 6(3)(i) of the CCR, 2004 was not justified. Therefore, the impugned orders were set aside, and the appeals were allowed.