Service Tax on Trading of Goods

[deepak kalambate]

Dear Sir,

We are manufacturer Exporter.

Our major Input is Cotton Yarn. We are procuring Yarn from local market at NIL rate of CEx Duty (being most of the yarn manufacturers and working under Notfn. 30/2004 CE) as well as importing from various countries on payment of Customs Duty and also availing CENVAT of CVD/SED.

We have Exported some quantity of Yarn (our Input) and it is shown as 'Traded Goods' in our Financial Reports.

Now C.Ex. department is demanding 6% Reversal of Service Tax Credit as per Rule 6(3) of CCR 2004 being trading activityis now EXEMPTED SERVICE even though the GOODS are Exported under Bond (Para 3.4 of Chapter 5 of CBEC Manual-Supplementary Instructions)

Please advice.

[KASTURI SETHI]

Pl. go through Rule 6 (6) (v) of Cenvat Credit Rules, 2004. Value of exported goods not to be taken into account though trading goods. Rule is very much clear.

[YAGAY andSUN]

No need to reverse the CENVAT credit as there is no duty/taxes on exports. Further, Rule 6 6 (v) of the CENVAT credit Rules should be brought to the kind knowledge of the Department.

[deepak kalambate]

Service Tax Rule 6A (1) (c) Export of Services is applicable for this?

[YAGAY andSUN]

Not applicable, Since you are exporting goods on which such services were used in manufacturing of finished goods.

[CSSANJAY MALHOTRA]

Dear Deepak,

Please note that Central Excise officers can demand Service Tax @6% only if your are dealing in Excisable and Exempted goods from same place of business.

Also note that if you have availed CENVAT Credit on common Input Services used for manufacture & Trading of goods such as Telephone Bills, Statutory Audit fees, etc and have further availed the benefit of Duty Drawback on manufactured goods, then the Demand raised by Excise officers on Trading part is correct.

AI Summary

Cenvat credit reversal on trading activity may not apply where goods are exported; exported goods excluded from reversal. The Central Excise has sought reversal of CENVAT credit treating trading activity as an exempted service, but advisory responses state exported goods' value should be excluded from reversal under Rule 6(6)(v), exports not being subject to excise, and Rule 6A(1)(c) on export of services is inapplicable; however, a demand may be valid where excisable and exempted goods are dealt with at the same place of business or where common input services credit was used for both manufacture and trading while duty-drawback was claimed on manufactured goods.