Clearances Made on Payment of Excise Duty Can’t Be Considered as Exempt Service: CESTAT [Read Order]

The Mumbai Bench of Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) in Suyash Auto-Press Components & Assemblies P. Ltd. vs. Commissioner of Central Excise, held that clearances made on payment of Excise Duty cannot be considered as exempt service.

In the instant case, the appellant manufacture bodies of motor vehicles and motor vehicle parts. They had availed Cenvat Credit on the input of steel sheets and on the input services. Sometimes the assessee on payment of excise duty sell the steel sheets to their vendor on sale basis. The vendor availed the credit of the duty so paid by the appellant and after manufacturing of the component, the same is returned back to the appellant on payment of duty on sale basis. Thereafter, the appellant availed credit of the said manufactured component and used it in the manufacture of their sub-assembly. The said subassembly is cleared on payment of duty.

The Department considered the sale of steel sheets to the vendor as a trading activity and that the appellant was liable to pay 5% or 6% on the traded goods. Demand under Rule 6(3) of the Cenvat Credit Rules,2004 was confirmed and an equal amount of penalty was imposed under Section 11AC of the Central Excise Act, 1944. On appeal, the Commissioner (Appeals) upheld the demand and penalty imposed. Aggrieved, the appellant approached the CESTAT.

The Counsel for the appellant argued that the inputs were removed under Rule 3(5) of the Cenvat Credit Rules 2004 on payment of excise duty which is equal to Cenvat Credit and for that reason Rule 6(3) should not be applied. The Counsel for the Department reiterated the findings of the impugned orders.

The single bench comprising of Judicial Member Ramesh Nair found that the removal of sheets was indeed a trading activity but such clearances were made on payment of excise duty and therefore could not be considered as an exempted service. The Tribunal further observed that Rule 6 of the Cenvat Credit Rules 2004 could only be applied in a case when the goods are purchased and sold without taking credit and without payment of duty.

“In the present case, the removal of input under Rule 3(5) was made admittedly on payment of duty. Therefore, there is no case of trading activity which is an exempted service. Accordingly, there is no application of Rule 6(3) of the Cenvat Credit Rules, 2004. Accordingly, the impugned order is set aside.” said the Tribunal.