2026-VIL-1306-CESTAT-HYD-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - Reversal of common input service credit in respect of trading activity under Rule 6 of Cenvat Credit Rules 2004 - Manufacturer of excisable goods also engaged in purchase and sale of bought-out items as trading activity - Whether trading constitutes exempted service for purposes of Rule 6 requiring reversal of proportionate common input service credit attributable to trading - HELD - Trading is an exempted service for limited purpose of Rule 6 of Cenvat Credit Rules 2004. The insertion of Explanation to Rule 2(e) by Notification No. 3/2011-CE (NT) dated 01.03.2011 consciously created legal fiction by providing that exempted service includes trading. Appellant's contention that trading cannot be regarded as service since transfer of title in goods is sale ignores specific deeming fiction created by Rules - The dispute does not concern levy of Service Tax on trading but relates to special scheme in Rule 6. Prior to amendment divergent judicial opinions existed but amendment was introduced to remove such ambiguity - The argument that bought-out goods are not inputs and no Cenvat Credit was availed on such goods is irrelevant as Department has never alleged availment of credit on bought-out goods themselves but on common input services like security, telephone, insurance and professional services used for both manufacturing and trading activities. Rule 6 requires reversal because common input service credit attributable to exempted activity cannot be retained - Appellant was required to determine value of trading activity in accordance with statutory formula prescribed under Explanation (c) to Rule 6 being the difference between selling price and cost of goods sold or ten percent of cost of goods sold whichever is higher. Omission to include trading value while computing reversal resulted in short reversal of credit and constitutes suppression justifying invocation of extended period. Therefore, demand for Cenvat Credit reversal together with applicable interest and penalty is sustainable – The appeal is dismissed
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