2018 (7) TMI 1950 - AT - Service Tax

Tribunal clarifies Cenvat Credit Rule: Input services not covered, only inputs/capital goods

The Tribunal ruled in favor of the appellants, holding that Rule 3(5) of the Cenvat Credit Rules, 2004 does not apply to input services, only to inputs or ... CENVAT Credit - input services - GTA Services for bringing their inputs i.e. Iron and Coal - coal fines of 5 mm in size which is not suitable for use in klin are being sold as such - Rule 3 (5) of Cenvat Credit Rules, 2004 - HELD THAT:- Rule 3 (5) of Cenvat Credit Rules, 2004 provides that when “Inputs or Capital Goods” on which Cenvat Credit has been taken, are removed as such from the factory, or premises of the provider of output service, the manufacturer of the final products or provider of output service, as the case may be, shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in Rule “9”. It is clear from the above that Rule 3 (5) ibid, is not covering the input service. Hon’ble High Court of Punjab and Haryana in the case of COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH VERSUS PUNJAB STEELS [2010 (7) TMI 252 - PUNJAB AND HARYANA HIGH COURT] has decided the issue in favour of the assessee on similar facts and circumstances. Demand set aside - appeal allowed - decided in favor of appellant. Issues:1. Interpretation of Rule 3(5) of the Cenvat Credit Rules, 2004 regarding availing Cenvat Credit on GTA Services for inputs.2. Applicability of Rule 3(5) to input services in addition to inputs or capital goods.3. Reversal of input credit on service tax paid on transportation of goods.4. Comparison of language in Rule 3(5) and Rule 5 of the Rules.5. Judicial interpretation of the rules and definitions in the context of Cenvat credit.Issue 1: Interpretation of Rule 3(5) of the Cenvat Credit Rules, 2004 regarding availing Cenvat Credit on GTA Services for inputs:The case involved the appellants availing Cenvat Credit on GTA Services for bringing inputs like Iron and Coal. The Department directed them to reverse the credit taken on GTA Service for the inputs under Rule 3(5) of the Cenvat Credit Rules, 2004. The appellants argued that the rule is applicable only to inputs or capital goods, not input services. They cited relevant decisions to support their contention.Issue 2: Applicability of Rule 3(5) to input services in addition to inputs or capital goods:The Tribunal analyzed Rule 3(5) and found that it specifically mentions 'inputs or capital goods' when discussing the reversal of Cenvat Credit upon removal from the factory. The Tribunal concluded that Rule 3(5) does not cover input services, based on the language of the rule. It referenced a judgment by the Hon'ble High Court of Punjab and Haryana to support its interpretation in favor of the assessee.Issue 3: Reversal of input credit on service tax paid on transportation of goods:The Revenue argued that the assessee should reverse the input credit on service tax paid for transportation of goods when reversing credits on inputs removed without use. They relied on Rule 3(5) and Rule 5 of the Rules to support their position. The assessee contended that the rules define 'input' and 'input service' separately, and since Rule 3(5) only mentions inputs or capital goods, the reversal should not apply to input services.Issue 4: Comparison of language in Rule 3(5) and Rule 5 of the Rules:The Tribunal compared the language of Rule 3(5) and Rule 5 to highlight the distinction between the treatment of inputs or capital goods and input services. It emphasized that Rule 3(5) specifically addresses Cenvat credit on inputs or capital goods, while Rule 5 discusses credit on any input or input service used in manufacturing final products. The Tribunal noted that the rules define terms independently, supporting the view that reversal requirements differ for inputs and input services.Issue 5: Judicial interpretation of the rules and definitions in the context of Cenvat credit:The Tribunal referred to previous judgments and legal definitions to interpret the rules governing Cenvat credit. It cited a case where the Tribunal ruled that the reversal of credit under Rule 3(5) applies only to inputs or capital goods, not to service tax credits related to those inputs. The Tribunal's decision aligned with the specific language and definitions provided in the Rules, emphasizing the need for clarity and adherence to statutory language in tax laws.This detailed analysis of the judgment addresses the key issues involved, providing a comprehensive understanding of the legal interpretation and application of the Cenvat Credit Rules in the case.