SKP Tax Alert
21 November 2014 | Volume 7 Issue 12
This Alert is with regard to the recent judgment delivered by the Mumbai Tribunal in the case of Thyssenkrupp Industries (I) Pvt Ltd vs Commissioner of Central Excise, Pune, 2014 (10)TMI 476 with regards to the reversal of CENVAT credit where the company is engaged in providing both, taxable as well as exempt, goods and services as per Rule 6(3)(ii) read with Rule 6(3A) of the CENVAT Credit Rules, 2004 (CCR).

  • Thyssenkrupp Industries (I) Pvt Ltd (the appellant) is engaged in the manufacture of excisable goods and provision of taxable as well as exempted services (i.e. trading). The appellant had availed the entire CENVAT credit for services used in the manufacture of excisable goods, and proportionate CENVAT credit for the provision of exempt as well as taxable services.
  • The company had not maintained any separate records for input services utilised in the manufacture of goods and provision of services.
  • The adjudicating authority held that the reversal ratio should be applicable on all input services received i.e. input services used for the manufacture of excisable goods and those used for the provision of taxable as well as exempt services.
  • However, the appellant contended that eligibility for credit of input services that were solely used either for the manufacture of dutiable goods or for rendering taxable output services are not in dispute, and only the CENVAT credit attributable to common input services alone should be reversed. Reliance was placed on the decision given by the Tribunal in the case of Sify Technologies Ltd vs CCE&ST (LTU) Chennai - ST/184/2012 dated 18 March 2014.
The issue under consideration was whether the reversal ratio as per Rule 6(3A) of CCR was applicable on all input services or on common services only.

  • To understand the amount of credit to be considered for reversal, Rule 6(3A)(c)(iii) of CCR must be referred to. The relevant portion of the Rule is reproduced below:
(3A) For determination and payment of amount payable under clause (ii) of sub-rule (3), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely:-
c.iii. the amount attributable to input services used in or in relation to manufacture of exempted goods and their clearance up to the place of removal or provision of exempted services = (M/N) multiplied by P, where M denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, N denotes total value of output and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and P denotes total CENVAT credit taken on input services during the financial year.
  • The term used in the above rule is 'total CENVAT credit taken on input services' and is not restricted to common input services.
  • The Tribunal stated that while interpreting statutes, no words can be added or removed/deleted from the statute. Accordingly, the credit to be reversed shall not be interpreted as credit on common input services only and the interpretation made by the appellant cannot be accepted.
  • The Tribunal further held that the case of Sify Technologies that was referred to has not been settled as the order issued is an interim order and is under further appeal; hence it cannot be relied on.
  • Based on the above, the Tribunal ordered a pre-deposit of INR 14 million for the period under appeal i.e. April 2011 to March 2012.
SKP's Comments
  • On referring to the abovementioned judgment, it can be understood that if the service provider provides both taxable as well as exempt services, CENVAT credit received specifically against exempt services will be disallowed, and further CENVAT credit used against taxable output services and common services shall be reversed proportionately.
  • The intention of the law would not be to reverse credit of input services used specifically against the provision of taxable output services as the same would be unjust to the customer. Accordingly, taking a position that reversal would apply only on common input services would be litigative.
  • Also, inverse reading of Rule 6(1) of the CCR, i.e. claiming full credit against taxable output services is not permissible according to this judgment.
We hope you find the above information useful. Please click here to see a copy of the judgment.

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