By TIOL News Service

MUMBAI, APRIL 19, 2018: THIS IS A REVENUE APPEAL. The respondent, a manufacturer of medicaments, was also trading in goods and, from the records it is seen that the trading turnover was Rs. 260.98 crores out of a total turnover of Rs. 273.45 crores between 2007-08 and 2011-12.

Revenue alleged that while the respondent had reversed CENVAT credit on inputs that had been cleared as such, the credit availed on Input services was not limited to that proportion as was attributable to manufacture. Consequently, proceedings were initiated for recovery of Rs. 44,02,941/- out of the total credit of Rs. 48,73,745/- availed on services during this period.

Although the adjudicating authority confirmed the demand, the same was set aside by the Commissioner(A) and, therefore, the Revenue appeal.

The AR submitted that the lower appellate authority had failed to apply the definition of ‘input service' in rule 2(l) read with rule 3(1) thereof properly and, instead, accorded undue weight age to rule 3(5) of CENVAT Credit Rules, 2004. In doing so, according to Revenue, numerous decisions of High Courts and of the Tribunal had been disregarded in the impugned order, some of which are Orion Appliances Ltd - 2010-TIOL-752-CESTAT-AHM and Mercedes Benz India Pvt Ltd - 2014-TIOL-476-CESTAT-MUM .

The respondent contended that they had not traded but merely cleared inputs as such and that, on such clearances, appellant had reversed CENVAT credit. Furthermore, the incidental use of services in the removal of inputs as such could not, under CENVAT Credit Rules, 2004, be considered to be in breach of rule 3.

The Bench observed –

++ Clearance of inputs as such is an acknowledged activity under CENVAT Credit Rules, 2004. The demand pertains to the period from 2007-08 to December 2012 and it was only with effect from the 1 April 2011 that it was explicitly clarified that trading was an exempted service. …it is clear that clearance of inputs, as provided for in the Rules, was not intended to be subject to the restriction that trading was.

++ The claim of the appellant that the provision akin to reversal of credit on inputs does not exist for services is not tenable in the present context as it is impossible for input services to be cleared that such. Nevertheless, in the absence of any evidence of trading, which would ab initio nullify credit availed on goods procured for such activity, and as there is no scope for denying credit availed on inputs used for manufacture or for clearance as such, the disallowance of CENVAT credit availed on services in proportion to the value of clearance of inputs as such does not have the backing of law.

++ There is no evidence that any of these input services were utilized exclusively for the purpose of clearing inputs as such and, hence, the availment of credit is well within the provisions of rule 3 of CENVAT Credit Rules, 2004.

Holding that the appeal of Revenue lacks merit, the same was dismissed.

(See 2018-TIOL-1244-CESTAT-MUM)