Back
CESTAT Allahabad Quashes Rs. 10.99 Crore CENVAT Credit Demand Against BHEL, Rules on Common Credit
CESTAT Allahabad Sets Aside Service Tax Demand, Holds Only Common Credit Relevant for
The has allowed an appeal by against a ₹10.99 crore demand for alleged of CENVAT credit. The tribunal held that for computing under , only —and not total credit—is to be considered.
Case Background and Dispute
BHEL, a public sector undertaking, provides works contract, repair, and commissioning services, among others. It was registered under the and regularly filed returns. The company availed CENVAT credit and opted for under Rule 6(3A) for credit on inputs and input services used commonly for taxable and exempted services/goods.
The department issued a show cause notice on , alleging that BHEL had short-reversed credit by considering only common credit instead of total credit. The notice also treated BHEL's trading activity as an and invoked the , claiming .
The adjudicating authority confirmed the demand, leading BHEL to appeal before CESTAT.
Arguments and Contentions
BHEL, represented by , argued that the settled jurisprudence requires only common credit to be reversed. It relied on the tribunal's decision in , which held that "" in Rule 6(3A) means only credit on common inputs and input services. BHEL also contended that the extended period was not invokable as it had regularly disclosed the reversal in its ST-3 returns, and the department could have verified the calculation.
The department, represented by , defended the impugned order, arguing that prior to the 2016 amendment, total credit was required to be considered, and BHEL's failure to do so amounted to suppression.
Legal Analysis and Precedents
The tribunal examined the scope of Rule 6(3A) and the effect of the 2016 amendment. It observed that Notification No. 13/2016-CE (NT) dated
substituted the reversal formula
"in its entirety so as to bring about clarity in its interpretation."
The amendment was held to be
, thus applicable retrospectively.
Following Reliance Industries Ltd. , the tribunal held that "" for the purpose of the formula under Rule 6(3A) is only the credit on and does not include credit on inputs or input services used exclusively for dutiable goods. The department's interpretation would effectively disallow credit that was never intended to be reversed.
On the issue of
, the tribunal rejected the department's stance, stating that trading involves transfer of ownership of goods and is excluded from the definition of "service" under the
.
"To call trade as service is conceptually improper,"
the bench observed.
Key Observations
The tribunal made several critical observations on the limitation issue. It noted that the conditions for invoking the extended period under require a . Mere omission or failure to scrutinize returns by the department does not constitute suppression. The bench quoted from its earlier decision in :
"If the officer does not do so [scrutinize returns], and any tax escapes assessment, the responsibility for it rests on the officer."
It further held that BHEL had regularly disclosed the reversal in its ST-3 returns, and the department could have verified the calculation. The extended period was therefore invalid.
Court's Decision
The tribunal set aside the impugned order and allowed the appeal with consequential relief as per law. The decision clarifies that the 2016 amendment to Rule 6(3A) is retrospective and that only common credit is relevant for . It also reinforces the principle that trading is not an for purposes.
This ruling provides significant relief to businesses engaged in mixed activities, confirming that they need not reverse credit on inputs used exclusively for taxable outputs.
