Rule 3(5) of CCR Mandates Reversal Only on Inputs/Capital Goods Cleared ‘As Such’, Not on Input Service Credit Like Transportation: CESTAT [Read Order]
CESTAT ruled that under Rule 3(5) of the CENVAT Credit Rules, reversal applies only to inputs and capital goods cleared “as such,” not to input service credit like transportation.
The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that Rule 3(5) of the CENVAT Credit Rules requires reversal of credit only on inputs and capital goods cleared “as such,” and not on input service credit like transportation.
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Gagan Ferrotech Ltd., the appellant, is a manufacturer of sponge iron, billets, ingots, TMT bars, and HR coils. During an audit, it was found that the appellant had reversed CENVAT credit on inputs and capital goods cleared “as such” but had not reversed service tax credit taken on transportation of those goods.
The department issued a show cause notice demanding reversal of Rs. 14,47,994 along with interest and penalty. The adjudicating authority confirmed the demand, and the Commissioner (Appeals) upheld it. Aggrieved, the appellant approached the CESTAT.
The appellant’s counsel argued that Rule 3(5) only required reversal of credit taken on inputs and capital goods themselves and did not extend to service tax paid on their transportation. He relied on earlier tribunal rulings in Shyam Ferro Alloys Ltd. v. CCE, Durgapur and Chitrakoot Steel & Power Pvt. Ltd. v. CCE, Chennai where it was held that no reversal of input service credit was required in such cases.
The revenue counsel argued that the appellant was also required to reverse the proportionate input service tax credit along with the credit on inputs and capital goods.
The single-member bench comprising K. Anpazhakan (Technical Member) observed that Rule 3(5) of the CENVAT Credit Rules only envisages reversal of credit on inputs and capital goods cleared “as such.” It does not cover credit of input services like transportation.
The tribunal pointed out that this issue had already been settled in earlier decisions, including those affirmed by the Punjab and Haryana High Court. The tribunal explained that taxing provisions must be read strictly, and no liability can be imposed by presumption or inference. The demand, along with interest and penalty, was set aside and the appeal was allowed.
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