Facts: The appellant is engaged in the manufacture of bodies for motor vehicles and motor vehicle parts falling under Chapter sub-heading No.87071000 and 87089900 respectively, of the Central Excise Tariff Act, 1985. They availed cenvat credit on the input such as steel sheets and other inputs as well as on the input services. In some of the cases, they sell their input i.e. steel sheets on payment of duty to their vendor on sale basis. The vendor availed the credit of the duty so paid by the appellant and after manufacturing of the component, the same is returned back to the appellant on payment of duty on sale basis. The appellant in turn availed the credit of the said manufactured component and thereafter used in the manufacture of their sub-assembly and the said sub-assembly is cleared on payment of duty. The case of the department is that the sale of the steel sheets to the vendor is a trading activity. Therefore, the appellant is liable to pay 5% / 6% on the value of the traded goods.
In the present case, the removal of input under Rule 3(5) was made admittedly on payment of duty. Therefore, there is no case of trading activity which is an exempted service. Accordingly, there is no application of Rule 6(3) of the Cenvat Credit Rules, 2004. Accordingly, the impugned order is set aside. The appeal is allowed.