Whether credit of service tax paid on transportation of inputs which are removed as such required to be reversed?

PJ/Case Laws/2012-13/1350

Case:- J.S. KHALSA STEELS (P) LTD. VS COMMISSIONER OF C. EX., CHANDIGARH

Citation:- 2010 (17) S.T.R. 517 (Tri. - Del.)

Brief facts:-The appellants availed Cenvat credit on inputs, capital goods and input services. During the period 1-3-2005 to 31-12-2005 they cleared the inputs as such and reversed the credit in terms of Rule 3(5) of Cenvat Credit Rules, 2004. A show cause notice dated 15-10-2006 was issued proposing to reverse the credit on input service on the transportation of goods by road amounting to Rs. 83,575/- in respect of clearance of inputs as such. The original authority confirmed the demand of Rs. 82,575/- and imposed penalty of equal amount along with interest. The Commissioner (Appeals) upheld the adjudication order.

Appellant’s contention:-Learned Advocate on behalf of the appellants submits that Rule 3(5) of Rules provides reversal of credit on input or capital goods. He submits that the Commissioner (Appeals) proceeded on the basis of Rule 3(1) of the Rules which relates to taking of credit and has no relevance with the reversal of credit. He also submits that capital goods, input and input service are different components and are defined separately under Rule 2 of the Rules. He relied upon the decision of the Tribunal in the case of Chitrakoot Steel & Power Pvt. Ltd. v. CCE, Chennai, reported in 2008 (10)S.T.R. 118 (Tri. - Chennai).

Respondent’s Contention:-The respondent reiterates the findings of the Commissioner (Appeals). He submits that clause (ix) of Rule 3(1) provides taking of credit of service tax leviable under Section 66 of the Finance Act. He also submits that Rule 3(5) of the Rules provides that the assessee shall pay an amount equal to the credit availed in respect of such input or capital goods. It is his contention that when the inputs were removed as such they are liable to reverse the entire credit taken under Rule 3(1) of the Rules which includes credit on input and input service. He further submits that by reading Rule 3(5) of Rules, the reversal of credit would include both the components, namely input and input service. So demand of service tax credit and imposition are penalty are justified.

Reasoning of Judgement:- The Tribunal in the case of Chitrakoot Steel & Power Pvt. Ltd. (supra) held that there is no such provision of reversal of credit of service tax availed in relation to input or capital goods from the factory. Relevant portion of the decision of the Tribunal is reproduced below:-

“On a careful study of the statutory provisions, it is seen that when the credit-availed inputs or capital goods are removed from the factory of the assessee, sub-rule (5) of Rule 3 of the Cenvat Credit Rules, 2004 provides for recovery of equal amount of credit. There is no such provision to reverse credit of service tax availed in relation to such inputs or capital goods when removed from the factory. Moreover, Rule 14 of the Cenvat Credit Rules, 2004 provides for recovery of Cenvat credit availed or utilized wrongly. In the instant case, the appellant had taken the credit correctly in terms of the statutory provisions. No provision exists in the Finance Act, 1994, which would render utilization of such credit erroneous for the reason that some of the inputs, transport of which yielded GTA service tax credit are returned as not suitable. The credit availed is anyway used to pay duty on the finished goods. In the circumstances, I find that the impugned order sustaining the demand of service tax and education cess to be not sustainable and accordingly vacate the same.”

In view of the above discussion, impugned order is set aside. Appeal is allowed with consequential relief.

Decision:-Appeal allowed.

Comment:-The analogy drawn from this case is that there is no requirement to reverse cenvat credit in respect of service tax paid in respect of inputs that are ultimately removed as such because Rule 3 (5) specifically provides for reversal of credit availed in respect of inputs and capital goods only.

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PJ/Case Laws/2012-13/1350

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