The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, has set aside a CENVAT credit demand of ₹3,86,78,711 against Solvay Specialities India Private Limited. The dispute concerned how much credit the company had to reverse for common input services used in both manufacturing and trading.
The bench of S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) has observed that, for the purpose of the calculation under Rule 6 of the CENVAT Credit Rules, 2004, the entire sale price of traded goods could not be treated as the value of trading. It found that Solvay had correctly determined and paid the amount attributable to its trading activity, and had informed the department of those payments.
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The appellant/assessee manufactured excisable goods, including sulphuric acid and ammonium lauryl ethanol sulphate, at its factory in Raigad, Maharashtra. It also traded in goods and availed CENVAT credit on services used in its business.
During an audit, the department found that the company had not maintained separate accounts for common input services used in manufacturing and trading. These services included professional, legal, security and transport services. The department took the view that Solvay had to reverse credit attributable to trading under Rule 6.
Solvay reversed a total of ₹71,94,289 for various periods between 2009–10 and March 2016. The department, however, disputed its calculation and issued three show cause notices. In January 2017, the Commissioner confirmed a demand of ₹3,86,78,711 with interest and imposed penalties, including a penalty of ₹2,90,21,819 relating to the extended period.
The assessee argued that it had calculated the value of trading and reversed the proportionate credit using the method provided under Rule 6. It said the department’s calculation overstated the trading component. The company also challenged the demand for the period before trading was expressly included in the definition of “exempted services” from 1 April 2011.
The department maintained that Solvay had neither kept separate accounts nor fully complied with the prescribed reversal procedure. According to the Commissioner’s order, the company had used an incorrect ratio and had failed to make the required disclosures in its excise returns.
The tribunal referred to the rule defining the value of trading for this purpose. That value is the difference between the sale price and the cost of goods sold, or 10% of the cost of goods sold, whichever is higher. The bench held that the entire sale price of traded goods could therefore not be used as the value in the Rule 6 calculation.
On examining the figures in the Commissioner’s order, the tribunal found that Solvay had separately provided details of manufactured goods, traded goods, sales expenses and turnover. It concluded that the company had properly worked out the credit attributable to common services used for trading and had paid the required amount.
The bench also referred to earlier tribunal decisions, including decisions concerning Solvay itself, in which demands did not survive after proportionate credit had been reversed. It observed that trading was expressly brought within the definition of “exempted services” with effect from 1 April 2011 and stated that reversal was not required for the period before that date.
Holding that no further CENVAT amount was payable, CESTAT set aside the Commissioner’s order, including the confirmed demand. Solvay’s appeal was allowed, and the Revenue’s cross-objection was disposed of.
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