Method of computation of value in respect of Input services used for trading prior to 01.04.2011

Method of computation of value U/R 6(3A) of the Credit Rules in respect of Input services used for trading cannot be applied for period prior to April 1,2011 – Value to be calculated on proportionate turnover basis

Synise Technologies Ltd. (the Assessee) was engaged in the provision of “Business Auxiliary Services” (BAS), IT Software Services as well as trading of scrap and availed Cenvat credit of Service tax paid on common services received for providing output services as well as in trading activities. The Department disallowed the benefit of wrongly availed Cenvat credit amounting to Rs. 21,05,690/-on Input services used in trading activity during the period April 2006 to March 2011, computed in proportion of trading turnover to the total turnover.

On appeal being filed, the Ld. Commissioner (Appeals) held that since w.e.f. April1, 2011 the definition of exempted services was amended to include trading, the method of computation of value of Input services used for trading as prescribed under Rule 6(3A) of the Credit Rules can be adopted retrospectively and accordingly reduced the amount of Cenvat Credit demanded to Rs. 6,97,822/- along with interest and penalty.

The Hon’ble CESTAT, Mumbai relying upon the decision in the case of Mercedes Benz India Pvt. Ltd. Vs. CCE, Pune I [2014-TIOL-476-CESTAT-MUM] held that the method of computation of value under Rule 6(3A) of the Credit Rules in respect of Input services used for trading cannot be applied for period prior to April 1, 2011. Thus, the Cenvat credit disallowed in proportion of trading turnover to the total turnover is correct.