CESTAT Rules Omitted Rule 6(5) of Cenvat Credit Rules Applicable for Past Disputes

CESTAT Rules Omitted Rule 6(5) of Cenvat Credit Rules Applicable for Past Disputes

Introduction

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the benefit of Rule 6(5) of the Cenvat Credit Rules, 2004, though omitted in 2011, remains applicable for disputes pertaining to periods when it was in force.

Factual Background

SHV LPG India Private Limited (formerly Caltex Gas India Pvt Ltd.) was engaged in the import, storage, and bottling of LPG. The company sold its own LPG cylinders and also provided taxable storage and packaging services to Bharat Petroleum Corporation Ltd (BPCL). The department had disallowed Cenvat credit availed on common input services, arguing that credit pertaining to the sale of their own LPG (a trading activity not subject to service tax) was ineligible.

Procedural Background

The demands covered the period from April 2008 to March 2011. The appellant argued that during the disputed period, trading was not explicitly classified as an ‘exempted service,’ and thus, a full credit reversal was unjust.

Contentions of Parties

Appellant: The appellant contended that even if reversal was required, the credit was protected under Rule 6(5), which allowed full credit on specific listed input services unless used exclusively for exempted activities.

Revenue: The revenue authorities relied heavily on a judgment from the Madras High Court in the case of Ruchika Global Interlinks V. The CESTAT (2017), which held that the 2011 amendment adding ‘trading’ to the definition of exempted services was merely clarificatory.

Reasoning and Analysis

The Bench comprising Member (Judicial) Ajayan T.V. and Member (Technical) Vasa Seshagiri Rao acknowledged the settled legal position that credit on inputs used for trading activities must be reversed. However, the tribunal relied on the Supreme Court's judgment in Shree Bhagawati Steel Rolling Mills V. CCE (2015), which equated ‘omission’ with ‘repeal,’ and considered the protective nature of Section 38A of the Central Excise Act. The bench concluded that the legal provision must be applied to the period it was active.

Decision

The CESTAT held that the benefit of Rule 6(5) should be examined, and the matter was remanded to the original adjudicating authority for a fresh calculation to determine the exact quantum of credit eligible under Rule 6(5). The tribunal upheld the demand and interest liability on any ineligible credit that falls outside this protection.