Cenvat credit on input services cannot be denied absent exclusive use for exempted goods, and no reversal follows removal as such.

Cenvat credit of service tax on GTA services used to procure raw materials for both exempted and dutiable goods could not be denied because Rule 6(5) permits denial only where the service is used exclusively for exempted goods or exempted services, and no exclusive use was found. Credit on input services also did not have to be reversed when the related inputs were removed as such, because Rule 3(5) provides reversal only for inputs or capital goods removed as such and contains no corresponding reversal provision for input service credit. The revenue challenge failed and the credit was sustained.

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Issues: (i) Whether Cenvat credit of service tax paid on GTA services used for procurement of raw materials used in the manufacture of both exempted and dutiable goods could be denied; and (ii) whether such credit on input services was required to be reversed when the inputs were removed as such.

Issue (i): Whether Cenvat credit of service tax paid on GTA services used for procurement of raw materials used in the manufacture of both exempted and dutiable goods could be denied.

Analysis: Rule 6(5) of the Cenvat Credit Rules, 2004 permits denial of credit only where the taxable service is used exclusively in or in relation to exempted goods or exempted services. The services here were used for both exempted and dutiable goods, and there was no finding of exclusive use for exempted goods.

Conclusion: The credit could not be denied and the finding is in favour of the assessee.

Issue (ii): Whether such credit on input services was required to be reversed when the inputs were removed as such.

Analysis: Rule 3(5) of the Cenvat Credit Rules, 2004 provides for reversal of credit on inputs or capital goods removed as such, but contains no provision for reversal of credit of input services attributable to such inputs. The applied reasoning was that credit correctly taken on input services does not become recoverable merely because the underlying inputs are later removed as such.

Conclusion: No reversal of input service credit was required and the finding is in favour of the assessee.

Final Conclusion: The revenue's challenge failed, and the order allowing Cenvat credit was sustained.

Ratio Decidendi: Cenvat credit on input services cannot be denied unless the services are used exclusively for exempted goods or exempted services, and in the absence of a specific reversal provision, credit on input services is not recoverable merely because the related inputs are removed as such.

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