Commissioner of CGST & Central Excise Vs K. K. Enterprises (CESTAT Mumbai)
The CESTAT Mumbai dismissed the Revenue’s appeal against the order of the Commissioner (Appeals), which had upheld the adjudicating authority’s decision dropping the service tax demand.
The respondent was engaged in providing taxable Clearing & Forwarding Agency services and had availed CENVAT credit on input services. During the disputed period, the Department observed that the respondent was also engaged in trading, an exempt activity, and had used common input services for both taxable services and exempt trading. The Department therefore contended that Rule 6(3) of the CENVAT Credit Rules, 2004 required the respondent to pay 5%/6% of the CENVAT credit attributable to the exempt trading activity.
The adjudicating authority dropped the proceedings after recording that the respondent had reversed the entire CENVAT credit attributable to the trading activity. It observed that the purpose of Rule 6 is to prevent utilization of CENVAT credit in respect of exempt goods or services and that, once the entire credit is surrendered, it is equivalent to not having availed such credit.
The Tribunal agreed with this reasoning. It observed that although the respondent had initially taken CENVAT credit on the entire amount reflected in the invoices, it subsequently reversed the credit attributable to trading activities. Accordingly, the Tribunal held that the situation should be treated as if no CENVAT credit had been availed in respect of the input services used for the exempt trading activity. Finding no error in the orders of the lower authorities, the Tribunal dismissed the Revenue’s appeal. The cross-objection was disposed of.
