Manufacturing Activity Cannot be Treated as Exempted Service: CESTAT Sets Aside CENVAT Credit Demand [Read Order]

The Customs, Excise and Service Tax AppellateTribunal (CESTAT) has set aside the demand raised observing that an activity that qualifies to be manufactured under the Central Excise Act cannot be treated as exempted service for the purpose of demanding reversal of CENVAT credit.

The Department had raised the dispute against the assessee on the grounds that the assessee had availed CENVAT credit for the input services during the course of performing the job work activities.

Further,the Department claimed that the activity undertaken by the assessee qualifies to be an exempted service and therefore the assessee is liable to reverse the credit under Rule 6 of the CENVAT Credit Rules, 2004. The demand for reversal of CENVAT credit along with interest and penalties was confirmed by the adjudicating authority.

The contention of the assessee was that the work done by it led to a process that constituted manufacture as per the Central Excise Act, 1944. Hence, it could not qualify as an exempted service under the CENVAT Credit Rules.

It was contended that once the service qualifies as a manufacturer,the provisions of the rules with regard to reversal of credit as applicable to exempted services, could not be invoked.

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The contention of the Department was that the service was a service and, therefore, the provisions of Rule 6 would apply.

After analyzing the nature of the activity undertaken and the statutory provisions the Tribunal comprising Binu Tamta[Judicial Member] and Hemambika. R Priya [ Technical Member] observed that the activity undertaken by the appellant amounts to manufacturing. It also held that the attempt made by the department to classify the activity undertaken as an exempt service was legally untenable.

The Tribunal also observed that the applicability of the provisions under Rule 6 of the CENVAT Credit Rules is applicable only if the inputs or input services are utilized for the purpose of providing exempt service.

Since the appellant was engaged in manufacturing activity, the provisions for reversal of CENVAT credits cannot be invoked.Thus, the demand for CENVAT credits along with interest and penalties was set aside.

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