Trading of goods = Negative Service and therefore (is) it (is) a Service?

If trading is not considered as ‘service’, the indivisible portion of common input services, which has been used for trading, does not qualify as ‘input service’, as defined at Rule 2(l) of CCR, 2004. So, the assessee is not entitled to take Cenvat credit on such portion. If he has already taken the credit, he has to reverse it proportionate to turnover, as per CESTAT Order in Orion Appliances.

If trading is considered as ‘service’ falling under ‘negative list of services’ and thus, ‘exempted service’, assessee has options to pay the amount equal to 6% (7% w.e.f. 1.6.2015) of value of exempted service u/r 6(3)(i) or to pay the amount proportionate to turnover u/r 6(3)(ii) or (iii) read with rule 6(3A) of CCR, 2004.

For the purpose of Cenvat Credit Rules, 2004, trading is ‘exempted service’ and the value of this exempted service is the difference between the sale price and the cost of goods sold or 10% of the cost of goods sold, whichever is more, as per Explanation I(c) appended after rule 6(3D) of the CCR, 2004.

Assessees should carefully choose the option beneficial to them, out of the options available u/r 6(3) of CCR, 2004.

These are personal views.

Shvetal Parikh 26/05/2015