By TIOL News Service

MUMBAI, MAY 17, 2018: APPELLANT is a manufacturer of battery and procures duty paid polypropylene co-polymer (PPCP) on which CENVAT credit is availed.PPCP is cleared to their various ventures for converting to battery cases, plates, etc. While clearing the appellant reverses the CENVAT credit.

SCNwas issued to appellant demanding an amount equivalent to 6% of the value of the clearances of PPCP to various vendors on the ground that this activity amounts to trading of PPCP and trading activity being exempted and appellant having availed CENVAT credit of service tax paid on common input services; having not maintained separate accounts, he has to pay an amount equivalent to 6% of value of clearances of PPCP.

The adjudicating authority confirmed the demand along with interest and penalty.

The Commissioner(A) had a different take. He held that the appellant is required to reverse the amount attributable to the clearances of PPCP calculated as per Rule 6(3A) of the CCR, 2004 and for this purpose remanded the matter to the original authority. Nonetheless, the imposition of penalty and the finding of the adjudicating authority that the clearances of PPCP would amount to trading activity were upheld.

The appellant is before the CESTAT.

After considering the submissions, the Bench observed that the first appellate authority had totally misdirected his findings on the main plea raised by appellant.

Inasmuch as the Appellant had contended that the PPCP which is received by them, imported as well as indigenously procured, were "inputs" as per the findings of the adjudicating authority in the proceedings initiated against the appellant.

The Bench further noted that by the order-in-original dated 28/06/2013, proceedings initiated against the appellant to deny them CENVAT credit on the ground that PPCPis not an “input” for the manufacturing activity were dropped and furthermore the said o-in-o had been accepted by the Revenue.

Therefore, the CESTAT held -

"…If that be the case, claim of the appellant that they had cleared PPCP, the inputs to their vendors on reversal of CENVAT credit is correct and cannot be disputed. If an input is cleared from the factory of the appellant on reversal of CENVAT credit availed on such inputs, the question of invoking the provisions of Rule 6(3A) of the CENVAT Credit Rules, 2004 does not arise as per the ratio laid down by the Tribunal in the case of Commissioner of Central Excise, Ghaziabad v. U P Telelinks - 2015-TIOL-1420-CESTAT-DEL…"

The impugned order was held as unsustainable and set aside. The appeal was allowed.

In passing: Also see - 2018-TIOL-1424-CESTAT-MUM.

CX - Rule 6 applies on trading activity only in a case when the goods are purchased and sold without taking credit and without payment of duty - though removal of steel sheets is indeed a trading activity, but the said clearances were made on payment of excise duty in terms of rule 3(5) of CCR, 2004, therefore, it cannot be considered as an exempted service – impugned order demanding 5%/6% of the value of traded goods and imposing penalty u/s 11AC of CEA, 1944 is set aside and appeal is allowed: CESTAT [para 4]

(See 2018-TIOL-1541-CESTAT-MUM)