Cenvat credit reversal on site-use inputs not required where materials were moved for taxable erection and commissioning services.

Cenvat credit on paint inputs was not required to be reversed when the inputs were moved from the factory to an erection site for use in providing taxable erection and commissioning services. Applying Rule 3(5) of the Cenvat Credit Rules, 2004, the text notes that the removal was for use in the output service and not for an unrelated purpose. On that basis, mere physical removal of the inputs from the factory did not trigger reversal of credit, and the demand for reversal was treated as unsustainable.

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Issues: Whether Cenvat credit taken on paint inputs was required to be reversed when the inputs were removed from the factory to the erection site for use in providing the output service of erection and commissioning.

Analysis: The relevant provision was Rule 3(5) of the Cenvat Credit Rules, 2004. The inputs were not removed for an unrelated purpose but were required for providing the output service on which service tax was being paid. In such circumstances, the credit could not be reversed merely because the inputs were taken out of the factory for use at the site.

Conclusion: The demand for reversal of Cenvat credit was unsustainable, and the appeal was allowed in favour of the assessee.

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