By TIOL News Service

ALLAHABAD, SEPT 19, 2016: THIS is an appeal filed by CCE& ST, Meerut-II.

The assessee was audited by the department.

They informed the audit team that imported acetic acid was their input which was used in manufacture of final product and that acetic acid was also sold by them and while clearing said input as such they reversed Cenvat credit as required by Rule 3(5) of CCR, 2004. However, they did not reverse Cenvat credit of Service Tax paid on inward transportation.

A SCN came to be issued seeking recovery of credit of Rs.25,74,831/- taken on input services on the trading of goods for the period September 2007 to March 2011.

The adjudicating authority confirmed the demand and in appeal the Commissioner (A) held that the inputs which were cleared as such were covered by Rule 3(5) of said Rules and only reversal of credit availed on such inputs was required at the time of these clearances. Reliance was placed on the decision in Punjab and Haryana Steels - 2010-TIOL-786-HC-P&H-ST. Inasmuch as the o-in-o was set aside.

Aggrieved with this order, Revenue is before the CESTAT and after referring to the definition of ‘input service' appearing in rule 2(l) of CCR, 2004 places reliance on the decisions in Orion Appliances Ltd. - 2010-TIOL-752-CESTAT-AHM, Synise Technologies - 2015-TIOL-1036-CESTAT-MUM & Godrej & Boyce Mfg. Co. Ltd. - 2014-TIOL-1188-CESTAT-MUM to emphasise that CENVAT credit is required to be reversed.

The respondent inter alia brought to the notice of the Tribunal a letter F.No. 96/85/2015-CX-I, dated 7/12/2015 issued by Central Board of Excise & Customs, New Delhi wherein the decisions regarding issues of assessment taken in Tariff Conference held on 28th & 29th October 2015 were circulated for clarity of understanding and uniformity of practice in assessment.

And in which point B. 26 read thus -

"B.26 - Meerut zone - CENVAT Credit - Reversal of Cenvat Credit in respect of Service tax Paid on Input Services:

Issue:

Rule 3(5) of the Cenvat Credit Rules, 2004 provides as under:

"when the inputs or capital goods, on which CENVAT credit has been taken, are removed as such from the factory, or premises of the provider of output service, the manufacturer of the final products or provider of output service, as the case may be shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in rule 9"

An audit objection has been raised that Cenvat credit taken in respect of service tax paid on input services like Customs Brokers charges, Clearing and Forwarding Agencies Services (C&F), GTA etc. used for procurement/transportation of inputs/capital goods, should also be reversed at the time of clearance of inputs/capital goods as such from the factory of the manufacturer, The present Rule 3(5) of the Cenvat Credit Rules, 2004 does not mention 'Input Services' amongst the credits required to be reversed and therefore it is not possible to demand reversal of credit of input services. There is need to amend the rules so that reversal of credit taken on input services can also be achieved.

Discussion & Decision:

The conference noted that Rule 3(5) of the CENVAT credit Rules, 2004 does not provide for reversal in respect of input services for a reason. Input services are consumed once the inputs and capital goods are received in the factory. Thus on receipt of inputs and capital goods, the associated input services have to be considered as consumed within the factory and become a cost to the business. Demand for reversal of the input services credit, when such input services cannot be reused, unlike inputs and capital goods which are available for reuse would not be fair to the trade. Therefore, the conference concluded that the present rule represents the correct provision in accordance with the principles of input tax credit. Rule 3(5) of the Cenvat Credit Rules, 2004, does not need any amendment. Audit para may be replied accordingly."

The Bench observed -

"8. …The contention in the grounds of appeal is that the respondent procured said inputs only for trading. The grounds of appeal also stated that they have taken Cenvat credit of the inputs services on the goods traded. It also claims that the party deliberately twisted the facts towards Rule 3(5) of said Rules. The show cause notice contended that the respondent imported Acetic Acid for their own requirement and for sale. The goods which are procured for own requirement and used in the manufacture satisfy the definition of input in said Cenvat credit Rules. Further when the inputs are cleared as such Cenvat credit to be reversed on such clearance of inputs is provided in said Rule 3(5). However the grounds of appeal stated that the party had deliberately twisted the facts toward Rules 3(5). It is very clear that the grounds of appeal are travelling beyond Show cause notice. Therefore, the grounds of appeal are not sustainable. Therefore, the appeal filed by Revenue is not maintainable…."

The Revenue appeal was dismissed with consequential relief, if any, to the respondents.

(See 2016-TIOL-2442-CESTAT-ALL)