GST Bill passed in Lok Sabha - Who has the last laugh?

In CCE, Chandigarh-I vs. Punjab Steels [2010-TIOL-786-HC-P&H-ST] it has been held that when inputs are removed as such, there is no requirement to reverse the credit taken on input services under Rule 3(5) of the CCR, 2004.

Inputs or capital goods can be removed as such either for sale or towards stock transfer:

(i) When inputs or capital goods have been removed as such for SALE, it amounts to trading. The activity of ‘trading of goods’ is covered under the definitions of ‘service’ and ‘negative list of services’ and so, it is also covered under the definition of ‘exempted service’, as defined at Rule 2(e)(2) of CCR, 2004, being a service on which no service tax is leviable u/s 66B. As the activity of ‘trading of goods’ is an ‘exempted service’, provisions of Rule 6 of the CCR, 2004, regarding maintenance of separate accounts or reversal of credit @6% of the value of exempted service or reversal of pro rata credit as per the prescribed formula, as the case may be, shall apply. The value of the exempted service of trading, for the purpose of Rules 6(3) and 6(3A) of the CCR, 2004, is to be determined as per the Explanation I(c), and accordingly, the value shall be the difference between the sale price and the cost of goods sold or 10% of the cost of goods sold, whichever is more. Thus, provision for reversal of credit attributable to input service already exists.

(ii) When inputs or capital goods are removed as such towards STOCK TRANSFER, there is no provision for reversal of credit taken on input services like inward transportation, storage & warehousing etc. Even if such provision will be introduced, it will be very difficult or impossible in some situations to determine proportionate credit attributable to input service availed for such inputs or capital goods. Even if such credit is worked out and reversed, Cenvat credit of the same should be made available to consignee, similar to the case of reversal of Cenvat credit taken on inputs and capital goods. Thus, the entire exercise will be revenue neutral.

The views expressed are personal views.

Shvetal Parikh 07/05/2015