2018 (9) TMI 981 – CESTAT CHENNAI – TMI – CENVAT Credit – inputs removed as such – whether such removal amounts to trading activity or not? – reversal of proportionate credit – Rule 6(3A) of CENVAT Credit Rules, 2004 – Held that:- The department does not have a case that these spares and consumables are not integrally connected to the machines. They have also not denied that these are inputs for the appellants and also that the credit availed on such spares and consumables are not eligible. It is to be specifically stated that there is no allegation show cause notice that such goods are not inputs to the appellant. Thus when inputs are removed as such Rule 3(5) would come into application.
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There is clear distinction from Rule 3(5) from trading activity for the reason that the credit is not eligible on traded goods whereas credit under Rule is eligible on inputs used for the clearance of final products.
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Credit remains allowed – appeal allowed – decided in favor of appellant
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e same. Hence this appeal. 2. On behalf of the appellant, ld. consultant Shri M. Saravanan appeared and argued the matter. He submitted that the appellants had cleared certain spare parts and consumables along with the final products namely CNS machines. The department alleges that removal of such inputs / goods on which the appellant has availed input credit amounts to trading activity and therefore the appellants having not maintained separate accounts is not entitled to the credit on common input services for the trading activity. He explained that the appellant is not engaged in any trading activity and the inputs were removed as such as per Rule 3(5) of CENVAT Credit Rules, 2004. Since there is no trading activity, the allegation that Rule 6 is applicable and that appellant is not eligible for the credit on input services attributable to trading is incorrect and on wrong interpretation of law. He relied upon the decision of the Tribunal in the case of Lakshmi ring travellers (CBE)
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purchased from other manufacturers and cleared it to the customers along with CNC machines. The department does not have a case that these spares and consumables are not integrally connected to the machines. They have also not denied that these are inputs for the appellants and also that the credit availed on such spares and consumables are not eligible. It is to be specifically stated that there is no allegation show cause notice that such goods are not inputs to the appellant. Thus when inputs are removed as such Rule 3(5) would come into application. There is clear distinction from Rule 3(5) from trading activity for the reason that the credit is not eligible on traded goods whereas credit under Rule is eligible on inputs used for the clearance of final products. The Tribunal in the case of Lakshmi ring Travellers (CBE) (supra) had occasion to consider the very same issue and observed as under:- 5. It is brought out from the facts that the appellant has reversed the credit when the
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