Tribunal grants relief to appellant in Cenvat credit dispute

The Tribunal allowed the appellant's appeal, setting aside the decision confirming the demand for reversal of Cenvat credit, interest, and penalty. The dispute regarding whether the value of goods supplied in works contract execution should be treated as trading goods for calculating the reversal amount under Rule 6(3)(ii) of CCR was resolved in favor of the appellant. The Tribunal granted consequential benefits to the appellant, finding the inclusion of works contract goods in trading turnover as erroneous, and left the issue of limitation open while disposing of the miscellaneous application.

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Issues:
Whether the value of goods deemed to be supplied in execution of works contract should be treated as trading for calculating the amount for reversal of proportionate credit under Rule 6(3)(ii) of Cenvat Credit Rules.

Analysis:
The appellant, a service provider of works contract service and Business Auxiliary Service, also engages in trading activities. An audit objection led to a demand for reversal of Cenvat credit based on the ratio of trading goods to total turnover. A show cause notice was issued, leading to confirmation of the demand, interest, and penalty by the Adjudicating Authority. The appellant appealed on grounds of compliance with Rule 6(3), limitation, penalty, and interest.

The Commissioner (Appeals) upheld the decision, leading to the appeal before the Tribunal. The appellant argued that trading of goods is exempted from service tax, and as they do not maintain separate accounts, they opted for reversal under Rule 6(3)(ii) of CCR. The dispute centered on the method of quantifying the proportionate credit for reversal, specifically regarding the value of trading activities to be considered.

The Tribunal found the addition of the value of goods supplied in works contract execution to trading turnover as erroneous. Referring to a previous similar case where such a demand was dropped, the Tribunal allowed the appeal, granting consequential benefits to the appellant. The issue of limitation was left open, and the miscellaneous application was disposed of.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal and granting the appellant consequential benefits. The dispute over the treatment of goods supplied in works contract execution as trading goods was resolved in favor of the appellant.

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