Tribunal: Rule 6 CENVAT Credit doesn't require reversal for common inputs. Explanation (3) not retrospective. Decision set aside.

The Tribunal held that Rule 6 of the CENVAT Credit Rules did not require reversal of credit for common inputs used for both taxable and non-service activities during the relevant period. The introduction of explanation (3) in 2016 did not apply retrospectively. The impugned decision was set aside, allowing the appeal and providing relief to the appellant.

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Issues:
1. Dispute over the treatment of common input services used for taxable and non-taxable activities.
2. Interpretation of Rule 6 of CENVAT Credit Rules, 2004 regarding reversal of CENVAT credit.
3. Introduction and applicability of explanation (3) to Rule 6(1) with effect from 01.04.2016.

Analysis:
1. The appellant, engaged in construction of residential complexes, faced a dispute over the treatment of common input services used for flats where service tax was paid and those where it was not due to being transactions in immovable property. The original authority dropped the demand, stating that Rule 6 did not cover the situation before the introduction of explanation (3).

2. The first appellate authority allowed the department's appeal, citing Rule 2(l) and Rule 3 of CENVAT Credit Rules, 2004, asserting that the appellant was not entitled to credit for input services used in non-service transactions. The appellant argued that they were entitled to credit as they used the services for taxable services, even if not exclusively.

3. The departmental representative supported the first appellate authority's decision, emphasizing that the introduction of explanation (3) clarified existing principles that credit is only available for taxable services. The representative argued that the appeal should be dismissed as the explanation merely reiterated the pre-existing legal position.

4. The Tribunal found that during the relevant period, Rule 6 did not mandate reversal of CENVAT credit for common inputs used for both taxable and non-service activities. The insertion of explanation (3) in 2016 did not have retrospective effect and could not be applied to the appellant's case. Therefore, the impugned order was set aside, allowing the appeal and granting consequential relief to the appellant.

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