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CBEC Action Plan to Reduce Litigation


CENVAT Credit - Common input services - Manufacture and trading

Trading has been declared as an exempted service w.e.f. 01.04.2011 and it has been prescribed how the value of ‘Trading Service’ is to be calculated.

But the term ‘Trading’ is being interpreted differently by Auditors (from Central Excise as well as from CERA) and in many cases, even removal of ‘input as such’ is considered as ‘Trading’, which is likely to result in much litigation in near future unless the term ‘Trading’ is also suitably defined / clarified. The following are the major views / counter-views regarding considering removal of ‘input as such’ as ‘Trading’

1. Removal of ‘Input as such’ is ‘Trading’ as assessee merely purchases and sales those goods / inputs without any manufacturing process being undertaken on those goods / inputs.

-> Removal of ‘Input as such’ is governed by specific provision of Rule 3(5) of CCR, 2004. Once the assessee pays the amount as required under Rule 3(5) of CCR, 2004, no further demand can be made under Rule 6 of CCR, 2004 by considering the removal of ‘input as such’ as ‘Trading’.

2. Removal of those inputs on which Cenvat credit has not been taken (non duty paid inputs) can be considered as ‘Trading’.

-> There is no need to make distinction between duty paid ‘inputs’ and non duty paid ‘inputs’ to treat the clearance of later as ‘Trading’. ‘Inputs’ remain ‘inputs’, irrespective of their duty paid character.

3. The removal of input as such (whether Cenvat credit taken or not) may be termed as ‘Trading’ depending upon the profit margin earned by the assessee.

-> Value of Trading has been defined as the difference between the sale price and the cost of goods sold or ten per cent of the cost of goods sold, whichever is more. Therefore, there is no scope to consider clearance of input as such as trading solely on the basis of profit margin.

4. The removal of input as such (whether Cenvat credit taken or not) may be termed as ‘Trading’ depending upon the quantum of such inputs used in manufacture and quantum of such inputs removed as such.

-> The CCR, 2004 do not provide any quantitative restriction / ratio for inputs to be used in manufacturing activity and quantity / ratio of inputs that can be cleared as such.

(views are personal)

Rameshchandra Kabra 19/01/2016

 

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