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.
FULL TEXT OF THE CESTAT MUMBAI ORDER
Heard both sides and perused the case records.
2. Brief facts of the case are that the respondent herein, is engaged in providing the taxable services under the category of “Clearing & Forwarding Agency”. The respondent availed CENVAT Credit of service tax paid on the input services. During the disputed period, the Audit Wing of the Department had observed that apart from providing the said taxable service, the respondent is also engaged in the activity of trading and used the common input services for provision of taxable service as well as the trading activity, which is exempted. Thus, the Department had concluded that in respect of the common input service used for the trading activity, the provision of Rule 6(3) of the CENVAT Credit Rules 2004 would be applicable and the respondent was required to pay 5%/6% of the amount of the CENVAT Credit used in the exempted trading activity. The show cause notice issued in this regard was adjudicated by the learned Additional Commissioner of Central Excise, Pune, wherein the proposals made therein were dropped. In support of dropping the proceedings against the respondent, the original authority had recorded the following observation in the order dated 13.03.2017.
“Now, the question is once they had paid back the entire CENVAT Credit availed by them, are they to be still brought in the four corners of Rule 6 (3) again. The main intention of the Rule 6 of the CCR is to prevent any manufacturer or service provider from utilizing the CENVAT Credit on inputs or input services, while clearing exempted goods or providing exempted services. Once, the entire CENVAT Credit is surrendered by paying back the credit amount, it is equal to not availing the credit itself. This is a settled principle in the Central Excise law”.
3. On reading of the said observation made by the original authority, we find that the respondent though had taken the CENVAT Credit on the entire amount indicated in the invoices, but subsequently reversed the CENVAT Credit attributable to the trading activities. Thus, under such circumstances, since the CENVAT Credit has been reversed, it has to be construed that as if no CENVAT Credit at all has been availed in respect of the input services used/utilized for the exempted trading activity. The learned Commissioner (Appeals) has also upheld the order of the original authority and rejected the appeal filed by Revenue. Such action on the part of the learned Commissioner (Appeals), in our considered view, cannot be faulted with inasmuch as he has also applied the correct legal position by upholding the order of the original authority. Therefore, we do not find any justifiable reason to differ with the findings recorded in the impugned order.
4. In view of the above, we do not find any merits in the appeal filed by the Revenue and accordingly, the impugned order sustains and the appeal of Revenue is dismissed.
5. Cross objection stands disposed of.
(Dictated and pronounced in open court)
