Custom, Excise & Service Tax Tribunal
Showa India (P) Ltd vs C.C.E., Faridabad on 9 June, 2011
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Block No.2, R.K.Puram, New Delhi COURT-I Date of hearing:09.06 .2011 Date of decision: 14.7. 2011 Central Excise Appeal No.3282 of 2009 [Arising out of order in original No.46/NS/Adjn/09 dated 30.9.2009 passed by the Commissioner, Central Excise, NH-IV, Faridabad. For Approval and Signature: Honble Shri Justice R.M.S. Khandeparkar, President Honble Shri Rakesh Kumar, Technical Member 1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 26 of the CESTAT (Procedure) Rules, 1982? 2 Whether it should be released under Rule 26 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3 Whether their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes Showa India (P) Ltd. . Appellant Vs. C.C.E., Faridabad . Respondent
Appearance:
Shri A.R.Madhov Rao, Advocate for the appellants Shri R.K. Verma, Authorized Departmental Representative (DR) for the Revenue Coram: Honble Shri Justice R.M.S. Khandeparkar, President Honble Shri Rakesh Kumar, Technical Member Oral Order No.____________________ Per Shri Justice R.M.S. Khandeparkar:
Heard at length the Advocate for the appellants and the DR for the respondent. The present appeal arises from order dated 30.9.2009 passed by the Commissioner, Faridabad. By the impugned order, the adjudicating authority has disallowed the appellant cenvat credit amounting to Rs.63,32,281/- and ordered recovery thereof with interest and equal amount of penalty.
2. The appellants are engaged in the manufacture of automobile parts classifiable under Chapter 87 of the First Schedule to the Central Excise Tariff Act, 1985. The appellants operate under Cenvat Cerdit scheme and availed the benefit of the credit of inputs as well as on the capital goods in terms of Cenvat Credit Rules, 2004. The appellants set up their new factory by awarding the contract of construction thereof to M/s Taisei Corporation. The appellants registered themselves with Central Excise Department on 28.11.2006 for manufacture of automobile components. During the period from January 2007-08, the appellants availed cenvat credit amounting to Rs.1,27,17,506/- on service tax paid on the construction services on the strength of 12 invoices issued by the contractor M/s Taisei Corporation. Out of 12 invoices, 5 invoices involving cenvat credit of Rs.63,32,281/- were issued prior to 28.11.2006 and remaining 7 were issued after 28.11.2006, the date on which the appellants were registered with the Central Excise Department. In other words, the credit arising out of 5 invoices issued prior to 28.11.2006 was available with the appellants prior to the date of their registration with the Excise department. All those facts are not in dispute.
3. The Show cause notice dated 26.2.2009 came to be issued proposing to disallow the credit of Rs.1,27,17,506/- availed by the appellants on the input services. The same was contested by the appellants by filing their reply dated 25.3.2009. The Commissioner allowed the credit to the tune of Rs.63,85,227/- relating to the 7 invoices which were issued subsequent to 28.11.2006, however disallowed the credit in relation to the 5 invoices which were issued prior to 28.11.2006 on the ground that the appellants were not registered with the Excise Department at the time of issuance of those invoices and secondly, on the ground that the invoices were issued in the name of M/s Evergreen Autocomp (India) Pvt. Ltd., and not in the name of the appellants.
4. While assailing the impugned order, the learned Advocate for the appellants submitted that the original name of the company was M/s Evergreen Autocomp (India) Pvt. Ltd. However, the same was changed to the present name namely M/s Showa India (P) Ltd. pursuant to the Resolution passed under Section 21 of the Companies Act, 1956 and approved by the Central Government in terms of Certificate dated 16.10.2006 issued by the Registrar of the Companies. He further submitted that the name of company was changed, but the company remained the same and there is no dispute raised in that regard. He further submitted that the credit is sought to be denied in relation to 5 invoices on two grounds. Firstly, the invoices were in the name of M/s Evergreen Autocomp (India) Pvt. Ltd. and now in the name of the appellant company. Secondly, the invoices were issued prior to registration of the company with the Central Government.
5. As regards the first ground for disallowance of the credit, the learned Advocate submitted that in fact, the appellants had claimed credit on the basis of 12 invoices and all those 12 invoices were issued in the name of M/s Evergreen Autocomp (India) Pvt. Ltd.. While the credit was allowed in relation to 7 invoices, the same was disallowed in relation to 5 invoices. Once the credit was allowed in relation to 7 invoices issued in the name of Evergreen Autocomp (India) Pvt. Ltd. though the claim is made by the appellant company, there was no justification to disallow the credit in relation to 5 other invoices which were issued in the name of Evergreen Autocomp (India) Pvt. Ltd. When the claim was made by the appellants sufficient proof was produced that there was no change in the name of company but only the name of the company was changed and this aspect was not in dispute.
6. As regards the second ground for disallowance of credit, the learned Advocate submitted that there was no need for the appellants to register at the relevant time taking into consideration the provisions relating to availment for availing credit. The provisions of registration are comprised under Rule 9 of the Central Excise Rules, 2002 or in terms of the provisions of Service Tax (Registration of Special Category of Persons) Rules, 2005 were not applicable at the relevant time in the facts of the case. However, further he submitted that there is no provision in law which requires that in order to avail cenvat credit on input services, the manufacturer is necessarily required to register under Central Excise Rules. He further submitted that the provisions of Service Tax (Registration of Special Category of Persons) Rules, 2005 have absolutely no application in the matter in hand. The registration thereunder is required to be made within 30 days from the date of commencement of business and unless the manufacturing process actually commences, it cannot be said that the business of the appellant company had commenced. Reliance is placed in the decision of the Bombay High Court in the matter of Western India Vegetable Products Ltd. vs. Commissioner of Income Tax reported in (1954) 026 ITR 0151 and of the Supreme Court in the matter of Commissioner of Wealth Tax vs. Ramaraju Surgical Cotton Mills reported in (1967) 063 ITR 0478. It was further contended on behalf of the appellants that output service provider has no legal significance so far as the eligibility of cenvat credit is concerned and in that regard, reliance is placed in the decision in the matter of Jindal Steel and Power Ltd. vs. C.C.E.,. Raipur reported in 2009 (14) STR 68. Reliance is also placed in the decision in the matter of C.C.E.,Vapi vs. DNH Spinners reported in 2009 (16) STR 418.
7. Learned Advocate for the appellants further submitted that the claim was bared by limitation. The 5 invoices relate to the period prior to 28.11.2006. The show cause notice was issued on 26.2.2009 beyond a period of one year. The extended period of 5 years was sought to be invoked alleging suppression of facts with intent to evade payment of duty. He further submitted that the appellants had made it known to the Department under letter dated 10.5.2007 that they wanted to avail the credit of service tax paid in respect of input services on the strength of invoices in question. According to the learned Advocate for the appellants the required informations were available with the Department as early as on 10.5.2007, and therefore, allegation of suppression of fact is thoroughly unjustified and for the same reason there was no case for invocation of extended period of limitation. For the same reason, according to the learned Advocate, there is no case for imposition of penalty or demand of interest.
8. The DR on the other hand submitted that taking into consideration the provisions of Cenvat Credit Rules, 2004, Central Excise Rules, 2002 and Service Tax (Registration of Special Category of Persons) Rules, 2005, the appellants were admittedly not registered with the Excise Department prior to 28.11.2006 and therefore, in the absence of registration, they were not entitled to avail credit. Referring to Rule 3(2) and 3(3), it was sought to be contended that the said Rules clearly disclose the intention of framers of the law that unless the manufacturer is a registered body with the Department, it cannot avail the credit. In this regard, attention was sought to be drawn to the discussion and findings by the Commissioner on these aspects.
9. Undoubtedly, the credit in relation to the 5 invoices has been disallowed essentially on two grounds. Firstly, on the ground that the invoices were found issued in the name of Evergreem Autocomp India Pvt. Ltd. and secondly, on the ground that they were issued prior to the registration of the appellant company with the Excise Department.
10. The Commissioner in the impugned order has observed that since M/s Evergreen Autocomp India Pvt. Ltd. failed to get itself registered under Service Tax (Registration of Special Category of Persons) Rules, 2005, the assessee cannot avail the cenvat credit on the strength of invoices which were issued in the name of M/s Evergreen Autocomp India Pvt. Ltd. and therefore, cenvat credit amounting to Rs.63,32,281/- availed by the assessee on the strength of invoices which have been issued in the name of M/s Evergreen Autocomp India Pvt. Ltd is recoverable from them. Once it was not in dispute that the name of Evergreen Autocomp India Pvt. Ltd was changed in accordance with the provisions of law to Showa India (P) Ltd. , the appellant company and necessary documentary proof in that regard was produced, besides the fact of mere change in the name of company being not in dispute, indeed, it is not known how the credit could have been disallowed in respect of such invoices merely on the ground that the same had been issued in earlier name of the company. Once it was clearly established that, apart from the fact that the company being the same was not in dispute and, that merely the name of M/s Evergreen Autocomp India Pvt. Ltd was changed to M/s Showa India (P) Ltd., the appellants herein, it was not permissible for the authorities to disallow 11. The second ground for disallowance of the credit is that the credit was availed prior to the registration of the appellant company. The impugned order in this regard has observed that no benefit of cenvat credit can be extended to any person who is neither registered with the Central Excise Department nor with the Service Tax Department. The statutory provisions specifically require registration of input service distributor for availing credit of the input services and to utilize the same in setting up of a factory and in that regard, reference is made to the of Service Tax (Registration of Special Category of Persons) Rules, 2005. Reference is also made to the definition of the expression input service distributor and Rule 7 of the Cenvat Credit Rules in support of the said finding.
12. In terms of Cenvat Credit Rules, Rule 3 thereof enumerates duties, taxes and cess in respect of which credit can be availed by the manufacturer or producer of the final product or provider of taxable services. Rule 4 of the said Rules deals with the subject of conditions for allowing the cenvat credit. Rule 6 deals with the subject of obligation of manufacturer of dutiable and exempted goods and the provider of taxable and exempted services. Rule 7 speaks of manner of distribution of credit by input service distributor. Rule 9 enumerates document and accounts which are to be taken into consideration while deciding the issue regarding availment of credit. Undoubtedly, none of these provisions speaks of the requirement of registration either under Excise Act and Rules made thereunder or in terms of Service Tax (Registration of Special Category of Persons) Rules, 2005. However, in relation to the input service distributor as well as any provider of taxable service whose aggregate value of taxable service in a financial year exceeds nine lakh rupees, the said Service Tax Rules make specific provision regarding requirement of registration. Rule 3(1) thereof provides that such service provider shall make an application to the jurisdictional Superintendent of Central Excise in such a form as may be specified by Notification, by the Board for registration within a period of 30 days of the commencement of business or 16th day of June, 2005 whichever is later. Rules came into force with effect from 16.6.2005. The sub-rule (3) of Rule 3 thereof provides that the provision of sub-rule (2) to (8) of Rule 4 of the Service Tax Rules, 1994 shall be applicable to the persons or class of the persons who make application for registration under the provisions of the said Rules with such modifications and alterations as may be prescribed by the Board. Rule 2(c) clarifies that expression input service distributor shall have the same meaning assigned to it in clause (m) of Rule 2 of the Cenvat Credit Rules, 2004. Serviec Tax Rules, 1994, in particular, Rule 4(1) thereof provides that every person liable for paying service tax shall make an application to the concerned Superintendent of Central Excise in Form ST-1 for registration within a period of 30 days from the date on which the service tax under Section 66 of the Finance Act, 1994 is levied. Sub-rule (2) to sub-rule (8) relates to the various aspect in relation to such person and sub-rule 7 thereof specifically provides that the registered assessee on cessation of providing taxable service for which he is registered, shall surrender his registration certificate immediately to the Superintendent of Central Excise.
13. Apparently, on plain reading of the above provisions it may appear that the question of registration by any provider of taxable services would arise under the said Rules in case of service distribution after commencement of business. However, what is the meaning of the expression commencement of business?.
14. Undisputedly, in the matter in hand, we are concerned with sub-rule (1) of Rule 3 of the said Rules. The contention of behalf of the appellants is that the said provision essentially applies after the commencement of business with grace period of 30 days provided for completion of registration proceeding once the business commences. In case of manufacturing activity, it is the contention of the appellants that their business does not commence unless the process of manufacturing commences. As the appellants had not commenced such business, they had no obligation to comply with the requirement of Rule 3 at the relevant time and therefore, on that ground, the credit could not be denied.
15. In Western India Vegetable Products Ltd. the Bombay High Court was dealing with the matter arising under Income Tax Act, 1922. Therein, the Honble High Court was dealing with issue as to whether the mere fact that first transaction of purchase of raw materials which took place in September 1946 was by itself a justification for holding that expenses made from April 1946 were not for the purpose of business of the company. In that case, it was not disputed that business was carried on in the relevant previous year which was the financial year 1946-47 but the important question was that from which date were the expenses of such business were eligible for deduction and for that purpose Section 2(11) of Income Tax Act, 1922 was required to be considered and that Section defined the term previous year and for the purpose of a business the previous year was to begin from the date of the setting up of a business. In that context, the Bombay High Court held that Therefore, it is only after the business is set up that the previous year of that business commences and in that previous year, the expenses incurred in the business can be claimed as permissible deductions. In other words, the observation about differentiation between the expression setting up of business and the expression commencing of business by the Bombay High Court in Western India Vegetable Products Ltd. case was with specific reference to the provisions of Rule contained under the Indian Income Tax Act, 1922 relating to the entitlement of deductions from income in the previous year pertaining to the business expenses.
16. Another decision which is sought to be relied upon in this regard is in the matter of Ramaraju Surgical Cotton Mills Ltd. case. The said decision was in relation to the provisions of Wealth Tax Act., 1957 In the said case, the said public limited company was carrying on the business of manufacturing of absorbent cotton wool since 1939. In March1955, the company resolved to establish a new spinning unit under the name of Sudarsanan Spinning Mills. The company placed orders for the purpose of necessary spinning machinery and plant in the months of January and February, 1956. The construction of the factory building was taken up in March 1956 and completed by December 1957. The erection of spinning machinery and the plant in the building was completed in several stages commencing from June 1957. A licence from the Factory Inspector for working in the factory was obtained in June 1958. The time to complete project was extended by the Government upto 17.3.1959. The company was assessed to wealth tax for the assessment year 1957-58. The company claimed for computing wealth on the valuation date which was 30th September 1956, an amount of Rs.1,43,727/- was required to be deducted as being the amount laid out in setting up a new unit. The said claim was disallowed by the Wealth Tax Officer on the ground that the unit was set up prior to the date on which the Wealth Tax Act came into force i.e. from 1st April 1957. The question before the Honble Supreme Court was therefore, whether the assets of Rs.1,43,277/- were exempt under Section 5(1)(xxi) read with the second proviso thereunder. The High Court had answered the question in favour of the company and therefore, the Department was in appeal.
17. The Apex Court after considering the Section 5(1)(xxi) and the rival contentions in respect thereof observed thus The High Court held that unless a factory is erected and plants and machinery installed therein , it cannot be said to have been set up. The resolution of the Board of Directors, the orders placed for purchasing machinery, licence obtained from the Government for constructing the machinery are merely initial stages towards setting up, however, necessary and essential they may be to further the achievement of the end. It is not however the actual functioning of the factory or its going into production that can alone be called setting up of the factory. The setting up is perhaps a stage anterior to the commencement of the factory. Thereafter, the High Court referred to a decision of the Bombay High Court in Western India Vegetable Product vs. Commissioner of Income Tax (I), and on its basis, concluded that the proper meaning to be assigned to the expression set up in Section 5(1)(xxi) would be ready to commence business. We are unable to agree with the learned counsel for the Commissioner that, in arriving at this view, the High Court committed any error. The unit cannot be said to have been set up unless it is ready to discharge the function for which it is being set up. It is only when the unit has been put into such a shape that it can start functioning as a business or a manufacturing organisation that it can be said that the unit has been set up.
18. It is to be noted that the Apex Court was essentially dealing with the scope of the expression new separate unit set up after commencing of this Act and in relation to claim for deductions from the assets which can be excluded from the total assets for calculating the wealth tax liability. Besides, the claim of deduction directly related to the availability of the assets at the relevant time and the one which can be considered as being falling within the ambit of the applicability of the Wealth Tax Act.
19. Apparently, both the above decisions are not on the point of interpretation of the expression commencing of business as is found in Rule 3 of the said Rules. As already seen above, , the expression used in Rule 3 to the effect that commencing of business would obviously apply to all cases where a person or firm is interested in availing cenvat credit. It is true that under the Cenvat Credit Rules there is no provision regarding the requirement of registration. Section 69 (1) of the Finance Act, 1994 clearly requires every person liable to pay service tax under law to get registered with the Superintendent of Central Excise by filing proper application in the prescribed form and manner and within time stipulated. However, Section 94 of the Finance Act 1994 clearly empowers the Government to frame rules for carrying out provisions of the said Act. Sub-rule 2(b) clearly speaks power to frame rules regarding the time and manner and form in which the registration under the said Act and in particularly Section 69 thereof could be obtained. Being so, the payment of service tax is directly related to the requirement of registration in terms of Section 69 read with Section 94 of the Finance Act, 1994 and the Rules have been framed in exercise of powers conferred thereunder. It cannot be disputed that cenvat credit can be availed in relation to service tax paid in accordance with and in compliance of the statutory provisions, which itself makes registration obligatory. In other words, in order to enable the party to avail cenvat credit in relation to service tax paid on service inputs, obviously , a person has to get registered in terms of the provisions of the Finance Act read with Rules framed thereunder. Therefore, it is abundantly clear that the expression commencing of business would apply from the time the party seeks to pay service tax and avail credit in respect thereof in terms of the provisions of law. The term commencing of business in Rule 3 therefore, cannot be understood in the manner whereby it will apply only to the cases where the actual manufacturing process would start. It would commence from the time the preparation commences for the establishment of manufacturing unit as the party is entitled to avail credit even prior to actual commencement of production.
20. It is also to be noted that a decision delivered in relation to the scope of interpretation of statutory provisions in one taxing statute cannot be blindly applied to the cases arising under different taxing statute. The applicability depends essentially on the similarity between the two provisions. There is no such similarity between the Rule 3 of the said Rules and or the provisions of law which were under consideration in the decisions relied upon by the appellants.
21. As far as the decision in Jindal Steel and Power Ltd. case is concerned, it has no application to the facts of the case in hand. It was in a totally different set of facts. Therein, the credit was sought to be denied solely on the ground that the assessee had played dual role as the provider of deemed output service and as actual recipient of service, the denial of the credit was essentially on the said ground. That is not the case in the matter in hand. Hence the decision has no application to the facts of the case.
22. As far as DNH Spinner case is concerned, the denial of credit was on the technical ground that the documents were not in the name of the assessees factory situated at Silvasa but the same were issued in the name of Head Office of the assessee situated at Mumbai. Apparently, the decision was in a totally different set of facts. Hence, the same has no applicability to the matter in hand.
23. As far as the contention about the time limit and absence of material to justify invocation of extended period of limitation, undisputedly, the show cause notice was issued on 26.2.2009 and the same related to the period prior to 28.11.2006 but certainly within period of 5 years earlier to 26.2.2009. The contention in this regard is that since under letter dated 10.5.2007, the appellants had made it known to the Department that they wanted to avail credit in relation to the service tax paid in respect of service on the strength of invoices in question that the department was not justified in invoking the extended period of limitation. Undoubtedly, the availment of credit relates to the period prior to 28.11.2006. At the relevant time, the appellants had not registered themselves in terms of the requirement of the laws in order to avail the benefit of cenvat credit. The same was revealed pursuant to the investigation and assuming that it was revealed on 10.5.2007, the same having been revealed after suppressing the said fact during the relevant period, no fault can be found with the department invoking the extended period of limitation.
24. For the reasons stated above, we do not find any case for interference in the impugned order and hence the appeal fails and is dismissed.
(Pronounced in the open Court on . 2011)
(Justice R.M.S. Khandeparkar)
President
Rakesh Kumar)
Technical Member
scd/