Custom, Excise & Service Tax Tribunal
A Menarini India Private Limited vs Service Tax - Ahmedabad on 17 October, 2022
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad
REGIONAL BENCH- COURT NO.3
Service Tax Appeal No.10563 of 2021
(Arising out of OIA-AHM-EXCUS-001-COMMR-28-30-20-21 dated 17/02/2021 passed by
Commissioner of Central Excise, Customs and Service Tax-SERVICE TAX - AHMEDABAD)
A MENARINI INDIA PRIVATE LIMITED ........Appellant
A-101 Shapath-Iv Opp Karnavati Club S G Highway
Ahmedabad, Gujarat
VERSUS
C.S.T.-SERVICE TAX - AHMEDABAD .......Respondent
7 Th Floor, Central Excise Bhawan, Nr. Polytechnic CENTRAL EXCISE BHAVAN, AMBAWADI, AHMEDABAD, GUJARAT-380015 WITH Service Tax Appeal No.10564 of 2021 (Arising out of OIA-AHM-EXCUS-001-COMMR-28-30-20-21 dated 17/02/2021 passed by Commissioner of Central Excise, Customs and Service Tax-SERVICE TAX - AHMEDABAD) A MENARINI INDIA PRIVATE LIMITED ........Appellant A-101 Shapath-Iv Opp Karnavati Club S G Highway Ahmedabad, Gujarat VERSUS C.S.T.-SERVICE TAX - AHMEDABAD .......Respondent 7 Th Floor, Central Excise Bhawan, Nr. Polytechnic CENTRAL EXCISE BHAVAN, AMBAWADI, AHMEDABAD, GUJARAT-380015 AND Service Tax Appeal No.10565 of 2021 (Arising out of OIA-AHM-EXCUS-001-COMMR-28-30-20-21 dated 17/02/2021 passed by Commissioner of Central Excise, Customs and Service Tax-SERVICE TAX - AHMEDABAD) A MENARINI INDIA PRIVATE LIMITED ........Appellant A-101 Shapath-Iv Opp Karnavati Club S G Highway Ahmedabad, Gujarat VERSUS C.S.T.-SERVICE TAX - AHMEDABAD .......Respondent 7 Th Floor, Central Excise Bhawan, Nr. Polytechnic CENTRAL EXCISE BHAVAN, AMBAWADI, AHMEDABAD, GUJARAT-380015 APPEARANCE:
Shri Harish Bindumadhavan, Advocate & Shri Kumar Parekh, CA for the Appellant Shri R P Parekh, Superintendent (AR) for the Respondent CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON'BLE MEMBER (TECHNICAL), MR. RAJU
2|Page ST/10563-10565/2021 Final Order No. A/ 11213-11215 /2022 DATE OF HEARING: 21.06.2022 DATE OF DECISION: 17.10.2022 RAMESH NAIR Brief facts of the case is that during the course of audit of records of the Appellant, it was observed by the department that the appellant were engaged in providing various taxable services and also engaged in trading activities. Since trading activity is an 'exempted service' in terms of Rule 2 of the Cenvat Credit Rules 2004, the provisions of Rule 6 of the Cenvat Credit Rules, 2004 would be applicable in as much as the Appellant were engaged in providing both, taxable and well as exempted service. The Appellant had not maintained separate accounts for the receipts and use of input services for provisions of taxable and exempted output services and failed to intimate the Range Superintendent their option as required under Rule 6(3A) (a) of the Cenvat Credit Rules, 2004. Therefore, it appears that Appellant required to pay an amount equivalent to 5% of the value of exempted services for the year 2011-12 and 6% for 2012-13 and 2013-14. Accordingly, show cause notice dated 19.09.2014 was issued to the appellant for the period April 2011 to March 2014alleging that, since the appellant had availed Cenvat credit in respect of common input service which are used for both dutiable and exempted services the appellant is required to pay an amount @ 5% /6% of the value of exempted service in terms of Rules 6(3)/6(3A) of Cenvat Credit Rules, 2004for the period 2011-2012 to 2013-14. Similar two SCNs were issue for the subsequent periods. The adjudicating authority i.e. Commissioner vide impugned Order-In-Original No. AHM-EXCUS-001- COMMR-28 to 30 -20-21 dated 17.02.2021 confirmed the demand along with interest and penalty. Aggrieved by the said orders, the appellant filed present different appeals.
02. Shri Harish Bindumadhavan & Shri Kumar Parekh, learned counsel appearing on behalf of Appellants submits that calculation adopted by the department is not in accordance with law and is also illogical. The department has applied percentage of exempted turnover on total credit including on credit used for taxable supplies as well as common supplies.
The reversal of cenvat credit on inputs & input services would be required to be undertaken only on exempted services as per Rule 6(1) of Cenvat Credit Rules, 2004. When the substantive provisions requires reversal of credit to extent of exempt service, the formula cannot expand the scope and seek the
3|Page ST/10563-10565/2021 Appellant to reverse the credit which have been used for taxable services only. He placed reliance on following Judgments:-
COMMISSIONER OF CENTRAL EXCISE VS. RELIANCE INDUSTRIES - 2019-TIOL-1593-CESTAT-AHM.) DELL INTERNATIONAL SERVICES INDIA PVT. LTD. VS. CCE & S.T BANGALORE - FINAL ORDER NO. 20369/2020.
MOLEX INDIA PVT. LTD. VS. COMMISSIONER OF CENTRAL EXCISE, KARNATKA -2019-TIOL-3205-CESTAT-BANG) DEEPAK FERTILSERS AND PETROCHEMICALS CORPORATION LTD. VS. COMMISSIONER OF CENTRAL AND SERVICE TAX, MAHARASHTRA (2020-TIOL-1310-CESTAT-MUM) IBM INDIA PVT. LTD. VS. CCE, ST &CUS, BANGALORE (APPEAL NO. ST/20741/2014-DB) 2.1 He also submits that even for time being it is assumed that the Appellant would be required to reverse the credit at particular percentage under Rule 6(3)(i) of Cenvat Credit Rules 2004 then same cannot exceed the amount of credit claimed while filing the return. Further, in case where the taxpayer opts for not maintaining separate books, the legislation allow assessee to opt for any option so as to make reversal of cenvat credit. The department cannot force any assessee to follow a particular option when the options are prescribed under legislation. Rule 6(3)(i) cannot be made automatically applicable considering belated intimation in writing about option of availment by Appellant. Procedure lapse cannot be the reason to deny the substantial benefit available with the Appellant. Mere delay in furnishing of intimation would not result into denial of option prescribed under Rule 6(3)(ii), which otherwise available. He placed reliance on following decisions.
TIARA ADVERTISING VS. UNION OF INDIA 2019 (30) GSTL 474 (TELENGANA) FOODS, FATS & FERTILIZER LTD. VS. COMMISSIONER OF CENTRAL EXCISE - 2011-22-STR-484 M/S TATA STEELS LTD. VS. CCEX. &S.TAX - 2020-VIL-336-CESTAT- KOL PHILIPS CARBON BLACK LTD. & OTHERS VS. CCE- 2020(1) TMI-530- CESTAT -KOL MERCEDES BENZ INDIA PVT. LTD. - 2015-TMI-1550-CESTAT-MUMBAI
4|Page ST/10563-10565/2021
03. Shri R P Parekh, learned Superintendent (AR) appearing on behalf of the Revenue reiterates the findings of the impugned order.
04. We have considered the submissions made by both sides. From the facts and circumstances of the case and arguments put forth by rivals, we find that the issue to be decided by us is whether appellant is required to pay 5% or 6% of total sale value of the goods traded by them in terms of provisions of Rule 6(3) when the appellant agree for reversal of actual credit attributed to the quantum of trading sale (trading activity) in terms of Rule 6(3A) following the option available under Rule6(3). Provisions for payment of 5% or 6% of the sale value of exempted goods / exempted services is provided as one of the option given in Rule6(3) of Cenvat credit Rules which is reproduced below :-
RULE6. Obligation of a manufacturer or producer of final products and a [provider of output service. - (1) The CENVAT credit shall not be allowed on such quantity of [input used in or in relation to the manufacture of exempted goods or for provision of exempted services, or input service used in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services], except in the circumstances mentioned in sub-rule (2) :
Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule. Explanation 1. - For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of Rule 2 shall include non-excisable goods cleared for a consideration from the factory. Explanation 2. - Value of non-excisable goods for the purposes of this rule, shall be the invoice value and where such invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made thereunder.
(2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for -
(a) the receipt, consumption and inventory of inputs used -
(i) in or in relation to the manufacture of exempted goods;
(ii) in or in relation to the manufacture of dutiable final products excluding exempted goods;
(iii) for the provision of exempted services;
(iv) for the provision of output services excluding exempted
services; and
(b) the receipt and use of input services -
(i) in or in relation to the manufacture of exempted goods and their clearance upto the place of removal;
5|Page ST/10563-10565/2021
(ii) in or in relation to the manufacture of dutiable final products,
excluding exempted goods, and their clearance upto the place of removal;
(iii) for the provision of exempted services; and
(iv) for the provision of output services excluding exempted services, and shall take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of clause (a) and input services under sub-clauses (ii) and
(iv) of clause (b).
(3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow [any one] of the following options, as applicable to him, namely :-
(i) pay an amount equal to five percent of value of the exempted goods and exempted services; or
(ii) pay an amount as determined under sub-rule (3A); or
(iii) maintain separate accounts for the receipt, consumption and inventory of inputs as provided for in clause (a) of sub-rule (2), take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of said clause (a) and pay an amount as determined under sub-rule (3A) in respect of input services. The provisions of sub-clauses (i) and (ii) of clause (b) and sub-clauses (i) and (ii) of clause (c) of sub-rule (3A) shall not apply for such payment :
Provided that if any duty of excise is paid on the exempted goods, the same shall be reduced from the amount payable under clause (i) :
Provided further that if any part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs and input services, used for providing such taxable service, shall be taken then the amount specified in clause (i) shall be [six per cent.] of the value so exempted.
Provided also that in case of transportation of goods or passengers by rail the amount required to be paid under clause (i) shall be an amount equal to 2 per cent. of value of the exempted services. Explanation I. - If the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year.
4.1 Learned Adjudicating Authority demanded 5% /6% of the total sale of the trading turnover of goods on the ground that option provided under Rule 6(3)(i) is applicable on the ground that claim of the appellant on the option provided under Rule 6(3)(ii) is not available for the reason that appellant have not complied with condition provided under sub Rule (3A) of Rule 6 which provides that manufacturers of the goods shall follow certain procedure and conditions as provided under sub-rule (3A)(a)(i) to (iv) inasmuch as the appellant have not given said information in writing to the Jurisdictional Superintendent of Central Excise timely. Secondly the
6|Page ST/10563-10565/2021 appellant, as provided under Claus (b) of sub-rule (3A) have not paid the amount of Cenvat.
4.2 We have observed that in Rule 6(3) prevalent at the relevant time, two options have been provided :-
(i) Payment of 5% / 6% on value of exempted services.
(ii) Payment of an amount equal to the Cenvat Credit amount attributed to input services used in or in relation to manufacture of exempted goods or provision of exempted services as provided under sub rule (3A)(b).
It is observed that appellant in the present matter also reversed credit and also produced copy of Chartered Accountant Certificate in this regard. In our view, options have been provided under Rule 6(3) and it is up to the assessee that which option has to be availed. Revenue could not insist the appellant to avail a particular option. As regard the contention of the department that this option should be given in beginning and before exercising such option, we are of the view that though there is no such time limit provided for exercising such option in the rules but it is a common sense that intention of any option should be expressed before exercising the option, however the delay can be taken as procedural lapse. We also note that trading of goods was considered as exempted service from 2011 only, thus it was initial period. We are also of the view that there is no condition provided in the rule that if a particular option, out of three options are not opted, then only option of payment of 5% or 6% provided under Rule 6(3)(i) shall be compulsorily made applicable, therefore we are of the view that Revenue could not insist the appellant to avail a particular option. In the present case admittedly it is appellant who have on their own opted for option provided under Rule 6(3)(ii). It is the appellant who have liberty to decide which option to be exercised and not the Revenue to decide the same.
4.3 We find that the appellant in the present matter agree to reverse to cenvat credit, this is not under dispute. Therefore in our view, the appellant have complied with the condition prescribed under Rule 6(3)(ii) read with sub-rule (3A) of Rule 6 of Cenvat Credit Rules, therefore demand of huge amount on the total value of the trading activity cannot be demanded. We are also of the view that Rule6 of the Cenvat Credit Rules is not enacted to extract illegal amount from the assessee. The main objective of the Rule6 is
7|Page ST/10563-10565/2021 to ensure that the assessee should not avail the Cenvat Credit in respect of input or input services which are used in or in relation to the manufacture of the exempted goods or for exempted services. If this is the objective then at the most amount which is to be recovered shall not be in any case more than Cenvat Credit attributed to the input or input services used in the exempted goods/ exempted service. It is also observed that in either of the two options given in sub-rule (3) of Rule 6, there is no provisions that if the assessee does not opt any of the option at a particular time, then option of payment of 5% or 6% will automatically be applied.
4.4 In view of our above observations, we are of the considered view that demand confirmed by the adjudicating authority is legally not correct and therefore the same cannot be sustained. We set aside the impugned order and hold that the appellant are required to reverse the proportionate credit relatable/ attributable to the exempted activity. Accordingly, the matter is remanded for the limited purpose of calculating the proportionate reversal credit in terms of Rule 6 of Cenvat Credit Rules 2004 in this matter. The adjudicating authority shall pass a fresh order regarding the proportionate credit to be reversed after giving a reasonable opportunity of hearing to the appellant.
05. The appeals are disposed of by way of remand to the adjudicating authority.
(Pronounced in the open court on 17.10.2022 ) (RAMESH NAIR) MEMBER (JUDICIAL) (RAJU) MEMBER (TECHNICAL) Mehul