Reversal of Service tax credit on sale of raw material

[Harishanker Patel]

Whether service tax credit taken on GTA, Chargo handling & Business auxiliary service for procuring the Iron ore (raw material for sponge iron manufactrer) is required to reverse on sale of of some Iron Ore.

[CA Rachit Agarwal]

If Iron Ore is sold then Rule 6 of  Cenvat Credit Rule, 2004 would apply and service tax taken on GTA to be reversed.

However if the Iron Ore Fines is removed and Iron Ore Fines is generated during the course of manufacturing of sponge iron, cenvat credit is not required to be reversed. Reason is Iron Ore Fines is generated during the course of manufacturing. Iron Ore Fines is the bye products.

[vinay wakde]

CESTAT  in case of A.R.Casting VS CCE (2009 (12) TMI 182 - CESTAT, NEW DELHI)= (2010) 25 STT 244 (CESTAT SMB)  has held that the Rule uses the words Input which applies to Input  Goods and not the Input services. Hence, CENVAT credit of Input Services used in the factory is not required to be reversed. Further, CESTAT has also held that CENVAT  on GTA  service is allowable even if Inputs/ Capital Goods removed as such. The ratio of the cases also apply, as GTA can be treated at par with services of Barge. CCE VS Simplex Castings (2009 (7) TMI 608 - CESTAT, NEW DELHI) = 2010 (25)STT 106, Chtrakoot Steel Vs. CCE (2007 (11) TMI 135 - CESTAT, CHENNAI)

Regards,

VINAY

 

[JAMES PG]

Services, unlike inputs and Capital goods, cannot be stored and there is no concept of " removal as such" for services.Rule 3 (5) of  CCR provides reversal of credit only for removal of Inputs/Capital goods as such and no where it is mentioned that credit of services to be reversed. Similary Chennai CESTAT also held in the case of Chtrakoot Steel Vs. CCE (2007 (11) TMI 135 - CESTAT, CHENNAI) also held that credit on GTA service neednot be reversed on return of inputs

[JAMES PG]

An important judgement is missed out in this regard. Hon P&H High Court in the case of CCE, Chandigarh-I Vs Punjab Steels, rejected the Appeal filed by Dept and held that there is no requirement to reverse cenvat credit on input services under Rule 3(5) of CCE, when inputs are returned as such.

[sv bhasker]

Sir

The issue of reversal of input service on GTA when inputs are cleraed as such has become a contentious issue due to audit objections. As rightly pointed out by  Sri Vinay and Sri James , such input service credit may not be reversed as   Rule 3 (5) of  CCR do not mandate for such reversal of input services.  

[Harishanker Patel]

Dear All,

Thanks for your active participations & kindly clarify, whether above activity is the matter of as such clearance or this is a trading activity as the Iron ore is exempted from excise duty & rate of Iron ore for sell is different from purchase.

AI Summary

Reversal of service tax credit on services linked to removal of inputs may not be required under Cenvat rules Dispute centers on whether Cenvat credit on services like GTA, charge handling and business auxiliary services must be reversed when raw material is sold. One position applies input removal rules to require reversal; the prevailing tribunal and high court view distinguishes input goods from input services and holds that statutory reversal for removal of inputs/capital goods does not mandate reversal of service credit where inputs are removed as such. By products generated in manufacture do not trigger reversal. Factual issues such as trading versus removal as such and audit challenges remain relevant.