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2023 (11) TMI 1031 - CESTAT MUMBAIRecovery of credit of tax paid on input services - manufacturer of ball bearings - common use in undertaking of manufacturing activity as well as rendering of exempted service - Non-reversal in the manner prescribed in rule 6 of CENVAT Credit Rules, 2004 - mechanism to be adopted for neutralization owing to operation of rule 6(2) of CENVAT Credit Rules, 2004 - HELD THAT:- The issue lies in the narrow compass of applicability of rule 6(3) of CENVAT Credit Rules, 2004 insofar as the period prior to specific exclusion of ‘trading activity’ is concerned. From the very beginning, eligibility for availment of CENVAT credit of tax paid on ‘input service’ was set out to exclude such as used for undertaking ‘exempt service’ – which incorporates both ‘taxable service’ subject to exemption and services on which no tax is leviable thereon. Though, ‘trading’ came to be acknowledged within the framework of CENVAT Credit Rules, 2004 specifically with effect from April 2011, the Explanation incorporating such specifies had to be clarificatory in consequence; such services as are beyond the purview of Finance Act, 1994 such as has been held by the Tribunal, in M/S. ORION APPLIANCES LTD. VERSUS CST AHMEDABAD [2010 (5) TMI 85 - CESTAT, AHMEDABAD], lies within exclusive powers of the State Government and is in conformity by the second limb of the definition. Accordingly, trading activity was always to be treated as having been exempt service within the meaning of rule 2(e) CENVAT Credit Rules, 2004. Consequently, credit availed thereof is to be disallowed to such extent insofar as ‘input services’ were deployed in common on the activity of manufacturing of, as well as ‘trading’ in, ball bearings. Mechanism to be adopted for neutralization owing to operation of rule 6(2) of CENVAT Credit Rules, 2004 - HELD THAT:- Rule 6(3) of CENVAT Credit Rules, 2004 affords neutralization authorized by law as is evident from the commencement with non obstante qualification. Even within the scheme of such reversal, alternatives are provided with the option of discharging payment through CENVAT credit account by such percentage of value of exempted service as is prescribed or by proportionate reversal. The appellant herein had undertaken proportionate reversal which is not in question and the only issue in contention is the correctness of proportion. While the impugned order has taken the value of manufacturing and value of trading as the factors for such delineation, it is the claim of the appellant that adoption of value of traded goods would distort the principle underlying CENVAT credit scheme. As the appellant had reversed the credit, and rule 14 of CENVAT Credit Rules, 2004 would come into play only when the reversal prescribed in rule 6(3) of CENVAT Credit Rules, 2004 had not been complied with by assessee, we see no reason for further proceedings except insofar as notice under rule 14 of CENVAT Credit Rules, 2004 and penalty under rule 15 CENVAT Credit Rules, 2004 is to be confined to non-adherence to the terms as set out. Appeal disposed off.
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