Tribunal allows full Cenvat credit for input services in manufacturing and trading

The Tribunal allowed the appellant's appeal regarding eligibility for Cenvat credit on common input services for manufacturing and trading activities. The Tribunal held that the appellant could avail full credit without proportionate reversal for trading activities, based on Rule 6(5) of the Cenvat Credit Rules. The demands were set aside, and penalties were also waived due to the interpretational nature of the issue. The appeals were disposed of on 26-9-2017.

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Issues:
Eligibility for Cenvat credit on common input services for manufacturing and trading activities, interpretation of Rule 6(5) of Cenvat Credit Rules, 2004, applicability of amendments regarding trading activities pre and post-1-4-2011.

Analysis:
The appeals raised a common question of law regarding eligibility for Cenvat credit on common input services for manufacturing and trading activities. The revenue authorities contended that credit needed to be reversed proportionately for trading activities pre and post-1-4-2011. The lower authorities ruled against the appellant, confirming demands with interest and penalties.

The appellant argued that prior to 1-4-2011, there was no definition of 'trading activity' as exempted goods, and any clarification should apply prospectively. They also claimed that Rule 6(5) of the Cenvat Credit Rules allows for entire credit without proportionate reversal for trading activities. The appellant sought retrospective application of Rule 6(5) even pre-1-4-2005.

The Departmental Representative cited a Madras High Court judgment stating that amendments effective from 1-4-2011 apply from that date, supporting the disallowance of Cenvat credit as upheld by lower authorities.

The Tribunal considered whether the appellant could avail proportionate Cenvat credit for common input services used in manufacturing and trading activities, and whether the entire credit should be denied. Regarding Management Consultancy Services, the Tribunal analyzed Rule 6(5) of the Cenvat Credit Rules, which allows for full credit unless services are used exclusively for exempted goods or services. The Tribunal allowed the appellant's appeal on this ground, setting aside the demands.

The Tribunal found no basis for penalties due to the interpretational nature of the issue. Thus, penalties were set aside. The appeals were disposed of accordingly on 26-9-2017.

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