By TIOL News Service

MUMBAI, MAY 03, 2018: THE appellant is engaged in the manufacture of bodies for motor vehicles and motor vehicle parts. They availed cenvat credit on the inputs such as steel sheets as well as on input services.

They also clear their inputs i.e. steel sheets on payment of duty to their vendor on sale basis. The vendor availed the credit of the duty so paid by the appellant and after manufacturing of component returned the same on payment of duty on sale basis.

The appellant, in turn, availed credit of the duty paid on the said manufactured component and thereafter used the same in the manufacture of their sub-assembly which is cleared on payment of duty.

The case of the department is that the sale of the steel sheets to the vendor is a trading activity and, therefore, the appellant is liable to pay 5% / 6% on the value of the traded goods .

Demand u/r 6(3) of the CCR, 2004 was confirmed and equal amount of penalty was also imposed. The order was upheld by the Commissioner (Appeals).

In appeal before the CESTAT, the appellant submitted that they are removing the inputs as such under Rule 3(5) of the CCR, 2004 on payment of excise duty which is equal to the cenvat credit and hence rule 6(3) of CCR, 2004 does not come into play. Inasmuch as the demand is not sustainable. Reliance is also placed on the following case laws -

+ Inductotherm (I) Pvt. Ltd. – 2012-TIOL-929-HC-AHM-CX

+ AR Casting (P) Ltd. – 2010-TIOL-245-CESTAT-DEL

+ Chitrakoot Steel and Power Pvt. Ltd. – 2008-TIOL-246-CESTAT-MAD

While supporting the order of the lower authorities, the AR mentioned that all the case laws cited by the appellant were examined and distinguished by the Commissioner(A).

The Bench considered the submissions and observed -

++ The Revenue has demanded the amount under Rule 6 equal to 5% / 6% of the value of the traded goods i.e. steel sheets sold to their vendor. There is no dispute that the said removal is governed by Rule 3(5) of the Cenvat Credit Rules, 2004. It is admitted fact that the appellant has cleared the said steel sheets on payment of duty. The department is considering the said clearances as exempted service being a trading activity.

++ I find that though this removal of steel sheets is indeed a trading activity, but the said clearances were made on payment of excise duty. Therefore, it cannot be considered as an exempted service .

++ Rule 6 applies on the trading activity only in a case when the goods are purchased and sold without taking credit and without payment of duty. Then only such trading will be considered as exempted service. Accordingly, there is no application of Rule 6(3) of the Cenvat Credit Rules, 2004.

Resultantly, the impugned order was set aside and the appeal was allowed.

In passing: Also see 2014-TIOL-2865-CESTAT-MUM

(See 2018-TIOL-1424-CESTAT-MUM)