In a decision, the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) West Zonal Bench at Ahmedabad permitted the reversal of proportionate Cenvat credit to address a tax demand linked to trading activities.
The case hinged on whether the appellant/ assessee, Emerson Project Management, a private entity involved in both manufacturing and trading—should be required to pay an additional 10%, 8%, or 6% on traded goods during the disputed period, as claimed by the tax authorities. The tax demand arose because the appellant had utilized Cenvat credit on input services that served both dutiable manufacturing goods and exempted trading activities.
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Arguing for the appellant, Advocate Adithya Shrinivasan contended that trading services were not categorized as exempted services during the period under dispute. Hence, the appellant was not liable to pay a percentage on the difference between the purchase and sale values of traded goods. To settle the matter, the appellant proposed to reverse the proportionate Cenvat credit corresponding to trading activity, rather than meeting the percentage-based payment demand. Supporting his position, the counsel cited numerous legal precedents, arguing that credit reversal was sufficient to offset the tax burden under similar circumstances, according to past tribunal and court decisions.
On behalf of the tax authorities, Deputy Commissioner Tara Prakash argued in favor of upholding the original demand, which mandated payment based on the turnover value of traded goods. The counsel for revenue presented case law to back this interpretation, asserting that the Cenvat credit utilized for both dutiable and trading activities went against regulatory standards.
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After examining the submissions and evidence presented by both parties, the CESTAT bench, comprising Judicial Member Ramesh Nair and Technical Member Raju, decided that the appellant’s willingness to reverse the proportionate Cenvat credit attributable to trading was a reasonable approach to resolve the issue. They accepted this without further exploring whether the fixed percentage on traded goods was due, stating that the proportionate reversal could satisfy the tax authority’s demand.
According to the appellant’s figures, the proportionate Cenvat credit due amounted to Rs. 13,65,259, alongside an education cess of Rs. 47,998. Interest was calculated at 18% from July 1, 2017, to April 30, 2024, totaling Rs. 59,057.16. However, CESTAT noted that these figures should be confirmed by the adjudicating authority before finalizing the order.
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CESTAT drew upon prior judgments in similar cases, observing that courts and tribunals had previously held that the reversal of proportionate credit linked to exempted goods or services negates the need for a fixed percentage payment. This basis allowed the tribunal to set aside the initial demand and remit the case for re-evaluation by the adjudicating authority, which would verify the calculations and issue a revised order.
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