CENVAT Credit Is Not Admissible On Input Services Attributable To Trading Activity: CESTAT

The Chandigarh Bench of the Income Tax Appellate Tribunal (CESTAT) has held that CENVAT credit is not admissible on input services attributable to trading activity.

The bench of S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that the appellants have rendered themselves liable to pay a penalty under Rule 15 of the CENVAT Credit Rules, 2004. However, while the imposition of an equal penalty would be harsh, the omissions by the appellants can be mitigated by the imposition of a suitable penalty.

The assessees and appellants are in the business of manufacturing and trading control panel equipment, etc. The appellants were availing CENVAT credit for the duties and taxes paid on inputs and input services. In the course of an audit conducted, the department noticed that the appellants had been using the input services in connection with the trading of the goods in addition to the manufacture. The inputs do not qualify themselves to be called input services in terms of Rule 2(l) of the CENVAT Credit Rules, 2004, and as such, the appellants have wrongly availed of CENVAT credit on trading activity. It is recoverable under the provisions of Rule 14 of the CENVAT Credit Rules, 2004.

Five different SCNs were issued periodically from April 2004 to March 2011, and they were confirmed by the Commissioner of Central Excise, confirming the recovery of wrongfully availed credit along with interest; a penalty under Rule 15(2) was also imposed.

The assessee contended that, though there were some restrictions on the availment of CENVAT credit for service tax paid on common input services to the extent they are used in exempt services prior to April 1, 2011, exempt services do not include trading of goods. Therefore, there was no need for the reversal of any credit for common input services.

The department contended that the assessee availed CENVAT credit on input services and utilized the same in trading activity as well; the appellants have submitted separate ground plans for the premises to be used for manufacturing and for trading. Thus, it was incumbent upon the appellants to maintain separate accounts for the inputs and input services used both in the manufacture of dutiable goods and the provision of exempted services.

The CESTAT held that exempted goods were beyond the scope of CENVAT credit, and therefore, the logic that the credit is not admissible only after April 1, 2011, when the same was specifically mentioned in the Rules, is farfetched and misplaced.

"Rule 2(l), the input services used in the manufacture of dutiable goods cleared by them qualify to be called input services, and therefore, credit cannot be denied on the same. Moreover, the appellants submit that the amount actually liable to be reversed is Rs. 41,82,096.48/-. This needs to be checked and properly arrived at. For this reason, the case needs to be remanded back to the adjudicating authority,’ the tribunal said.

Case Title: M/s Woodward Governor India Limited Versus Commissioner of Central Excise

Case No.: Excise Appeal No. 298 of 2010-[DB]

Date: 12.05.2023

Counsel For Appellant: Abhishek Jaju

Counsel For Respondent: Amandeep Kumar

Click Here To Read The Order