Custom, Excise & Service Tax Tribunal
Idea Cellular Ltd vs Commissioner Of Service Tax Mumbai-I on 11 January, 2019
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
COURT NO.
Appeal No.ST/88422/2014
(Arising out of Order-in-Original No. 31 & 32/ST/RN/SCL/MII/13-
14 dt.16.4.2014 passed by the Commissioner of Central Excise,
Mumbai-II)
Idea Cellular Ltd. : Appellant
VS
Commissioner of Central Excise, Mumbai-II : Respondent
Appearance ShriS.S. Gupta, C.A. for Appellant ShriM.K. Sarangi, Jt. Commr.(A.R) for Revenue CORAM:
Hon'ble Dr. D.M. Misra, Member (Judicial) Hon'ble Mr. SanjivSrivastava, Member (Technical) Date of hearing : 24/08/2018 Date of pronouncement:11/01/2019 ORDER NO. A/88297/2018 Per :Dr. D.M.Misra This is an appeal filed against order-in-original No. 31 & 32/ST/RN/SCL/MII/13-14 dt. 16.4.2014 passed by the Commissioner of Central Excise, Mumbai-II.
2. Briefly stated the facts of the case are that during the relevant period October 2004 to May 2007, the appellant were providing cellular phone services and accordingly registered with the Central Excise department and discharging service tax on the said taxable services. They had availed cenvat credit on various 'input services', 2 Appeal No.ST/88422/2014 'capital goods' which were used for providing taxable services as well as exempted services, namely, "International roaming charges"
and "Interconnect user charges". As the Appellant had failed to maintain separate accounts in the use of various input services, capital goods, for exempted as well as taxable services, and also since they have utilized credit in excess of 20% of the service tax paid in contravention of Rule 6(3)(c)of the Cenvat Credit Rules 2004, demand notices were issued for recovery of credit of ₹12.7crores and ₹ 42.4 crores for the period from October 2004 to March 2006 and April 2006 to March 2008, respectively with interest and penalty. The Ld. Commissioner after analyzing the issues held that the "International roaming charges" and "Interconnect user charges" became taxable w.e.f. 1.6.2007, being covered under the amended definition of Telecom service; consequently, he dropped the demand for subsequent period; also, he has observed that the credit taken on capital goods used both for taxable as well as exempted services cannot be faulted with as the same were not exclusively used for exempted services, accordingly, he reduced the demand to Rs.4,08,19,336/- and imposed penalty of equal amount under Rule 15(4) of the Cenvat Credit Rules, 2004 read with Section 78 of the Finance Act, 1994;also imposed penalty under Section 77 of the Finance Act, 1994.Aggrieved by the said order, the present appeal.
3. At the outset, Shri S.S. Gupta, Ld. Chartered Accountant for the appellant has submitted that during the relevant period, though common inputs were used in providing dutiable and 3 Appeal No.ST/88422/2014 exempted services, and since separate accounts were not maintained, they opted to adopt the laid down procedure of utilizing credit equal to 20% of the service tax liability as prescribed under Rule 6(3)(c) of CCR,2004 while discharging their service tax liability. However, the appellant had, for certain calendar months, while discharging their service tax liability, exceeded the limit of 20%, but for certain months, the utilization of credit was less than 20% of available cenvat credit. It is his contention that if overall utilization for the entire period in dispute is considered, there would not be excess utilization of CENVAT Credit, then allowed under Rule 6(3)(c) of Cenvat Credit Rules, 2004. He has further submitted that this issue is no more res integara and decided by Tribunal in the case of Vijayanand Roadlines Ltd. Vs. Commissioner of C. Ex., Belgaum 2007 (7) STR 219 (Tri.-Bang.) and followed in their own case in Idea Cellular Ltd. Vs. Commissioner of Central Excise, Customs and Service Tax, Hyderabad-II 2018 (6) TMI 193-CESTAT-Hyderabad and Order No. A/6080/2017-Ex.(DB) dt.01.9.2017. He has also submitted that the demand is barred by limitation as all facts were disclosed to the department i.e. utilization of the credit in discharging their service tax liability. Further, he has submitted that in any event, at best they would be required to discharge interest on the excess utilization of Cenvat credit in discharging service tax liability as they have correctly availed the credit on the service tax paid on inputs and the bar is on excess utilization of service tax credit than prescribed under Rule 6(3)(c ) of CCR,2004. He has submitted that the overall interest liability for excess utilization of the credit, if 4 Appeal No.ST/88422/2014 considered, on month to month basis would be Rs.87,44,723/- ; but if it is considered after adjusting the less amount of credit availed during certain months with that excess utilised than the interest liability would be Rs.40,09,682/- till both the services became taxable service.
4. Ld. AR for the Revenue reiterates the findings of the Ld. Commissioner. He has submitted that under the earlier Cenvat Credit Rules, 2002, refund of service tax credit under any circumstances was not allowed; there was no provision under the said cenvat credit rules to allow credit of input service for rendering exempted output service as per Rule 3(3) of said rules; besides Rule 3(5) of cenvat credit Rules provided for utilisation of credit to the extent of 35% of service tax liability was inserted by Notification number 5/2003 dated 14.5.2003. It is his contention that if a inferences is drawn that after utilizing cenvat credit to the extent of 35% of service tax liability, balance credit, if any, would accumulate, this would be against the mandate of the provision Rule 3(3) of Cenvat Credit Rules, 2002. It is apparently a legislation to improve Cenvat/PLA ratio. It may also so happen that the credit utilisation is hundred percent of the amount of credit availed. But to take an inference that balance credit with respect to exempted services/goods taken in a month could accumulate would definitely result into discrimination with other assessees who maintain separate accounts and availed cenvat credit only with respect to dutiable goods or taxable output services. He has submitted that under the Cenvat Credit Rules, 2004 till the 5 Appeal No.ST/88422/2014 amendment brought by notification number 10/2008-CE (NT), there was no provision for reversal of credit w.r.t. provision of exempted service. Further, he has submitted that in Vijayanand Roadlines Ltd.'s case from May 2003 to March 2004 the appellant did not utilise 35% of their entitlement to reverse cenvat credit from May 2003 to November 2003, which has been accumulated in their books of account. They have started utilising the credit from December 2003 onwards only. During the said period, based on monthly entitlement to reverse 35% of the credit, total credit accumulated credit was Rs. 4,94,494/-as against credit utilisation of Rs. 4,94,494/-. Hence the tax demand was set aside as duty liability was discharged correctly. Distinguishing the judgement of this tribunal in the appellant's own case delivered on 17.2. 2009 the learned A.R for the revenue has submitted that it was in a different set of circumstances and is not applicable to the present case. He also submits that the principle laid down in Vijayanand Roadlines Ltd.'s case followed subsequently in other judgments was passed without considering the statutory provisions viz. Rule 6(1) of the Service Tax Rules, 1994, accordingly not a binding precedent. Also, the said judgment is contrary to the recent judgement of Hon,ble Madras High Court in the case of Ruchika Global Interlink Vs. CESTAT, Chennai 2017 (5) G.S.T.L 225 (Mad).
5. It is his contention that the period for payment of service tax has been prescribed under Rule 6 of Service Tax Rules,1994 ; and under the said provision it is required to be paid on monthly basis. There is no provision under the Finance Act, 1994 or the Rules made there under that the service tax liability could be discharged 6 Appeal No.ST/88422/2014 quarterly or once in six months or yearly basis. Therefore, the limit to utilize cenvat credit upto 20% of the service tax liability as per Rule 6(3)(c) of CCR,2004 should be for discharging the liability of service tax for a particular month and not cumulatively for the whole year. Distinguishing the judgement cited by the learned CA for the appellant, he has submitted that the facts and issues raised in those cases are totally different from the present one, hence not applicable. Further he has submitted that the circular dated 21.11.2008, since not issued under section 37C of CEA, 1944, the same is not binding; also the said circular is not binding on this tribunal in view of the judgement of Hon'ble Supreme Court in the case of CCE,Bolpur Vs. Ratan Melting and Wire Industries 2008 (231) ELT 22 (SC). He further submits that since the appellant had utilized excess cenvat credit amount, such utilization is irregular, and since it is not disclosed in their monthly Returns, hence extended period is applicable. In support, he has referred to the judgment of Hon'ble Rajastan High Court in the case of Vodafone Digilink Ltd. Vs.CCE,Jaipur-II 2013 (29) STR 229(Raj.) It is his contention that therefore, the excess credit and interest are required to be recovered for excess utilization which otherwise not admissible to them to be utilized in the same month. In support, he has referred to the judgment of this Tribunal in the case of D.B.C. Port Logistics Ltd. Vs. commissioner of Central Excise, Raigad 2017 (48) STR 494 (Tri.-Mumbai).
5. Heard both sides and perused the records.
7 Appeal No.ST/88422/2014
6. Undisputedly, for the period prior to 01.6.2007 the appellant had provided exempted services, namely "International roaming charges" and "interconnect user charges" which were exempted from payment of service tax. Since they have used common input services, in providing both taxable as well as exempted services and failed to maintain separate accounts of the said use, the restriction prescribed under Rule 6(3)(c) of Cenvat Credit Rules, 2004 is applicable. It is also an admitted fact that during the relevant period i.e. October 2004 to May 2007, the appellant in certain calendar months utilized excess of the prescribed limit of 20% of Cenvat Credit available, in discharging the service tax liability for that month. The main contention of the appellant is that overall utilization of cenvat credit in a financial year ought to be taken into account, for applying the limit of 20% prescribed under Rule 6(3)(c) of the Cenvat Credit Rules,2004 instead of utilisation on month to month basis. The contention of the Revenue, on the other hand is that Rule 6(3)(c) of the Cenvat Credit Rules, no doubt allows an assessee to utilize Cenvat Credit, even though no separate accounts are maintained indicating use of input services towards taxable and exempted services, but the limit prescribed is 20% of the service tax liability; the issue of utilization Cenvat Credit arises only when applicable service tax on the service provided during a month is required to be discharged as per Rule 6(1) of the Service Tax Rules, 1994. Necessary corollary, If no service tax is required to be paid, then utilization of Cenvat Credit has no meaning and there is no provision to carry forward the eligibility percentage of credit to the next month. For example, 8 Appeal No.ST/88422/2014 if the appellant do not use cenvat credit in the month of January for the reason that either no taxable service was provided or the entire amount was paid by cash, and carries forward 20% of that month to the next month, that is February, and discharges 40% of service tax liability by debiting the cenvat credit account, then if the said arrangement is possible, it would leads to the inference that, cumulative calculation of 20% CENVAT Credit for utilisation under Rule 6(3)(c) of cenvat credit rules, in a financial year, is permissible. We are afraid that such an interpretation is not the intention of legislature. In that event there would not have been any restriction in the utilisation of avail credit under the said provision. For better appreciation, the relevant rule is reproduced below.
8. The Sub-clause (c) of Rule 6(3) of Cenvat Credit Rules,2004 reads as follows:
"Rule 6(3)(c )
(a).........
(b)..........
(c ) the provider of output service shall utilize credit only to extent of an amount not exceeding twenty percent of the amount of service tax payable on taxable output service.
Explanation I- The amount mentioned in conditions (a) and (b) shall be paid by the manufacturer or provider of output service by debiting the CENVAT credit or otherwise.
Explanation II- If the manufacturer or provider of output service fails to pay the said amount, it shall be recovered along with interest in the same manner, as provided in rule 14, for recovery of CENVAT credit wrongly taken;"
9. On a plain reading of the said provision, it is clear that in case of provider of output service who does not comply with Sub- 9 Appeal No.ST/88422/2014 rule(2) of Rule 6 of Cenvat Credit Rules, 2004, the procedure required to be followed is prescribed at sub-rule (3) of Rule 6 of CCR, 2004; and under the said rule a restriction on utilization of the amount of Cenvat Credit available is prescribed and it is limited to 20% in discharging the tax liability on the output service. There has been no other provision under the Cenvat Credit Rules about the method, manner or frequency of payment of service tax on taxable output service and also utilisation of cenvat credit. Therefore, the point of time of its utilization and the restriction on utilization of credit should be read harmoniously along with Rules framed under Finance Act 1994, so far as it relates to discharge of service tax liabiity.
10. The procedure for discharging service tax is laid down under Rule 6(1) of the Service Tax Rules 1994, which reads as below:
"Rule 6 (1). Payment of service tax (1) The service tax shall be paid to the credit of the Central Government,-
(i) by the 6th day of the month, if the duty is deposited electronically through internet banking; and
(ii) by the 5th day of the month, in any other case, immediately following the calendar month in which the service is deemed to be provided as per the rules framed in this regard:
Provided that where the [assessee is a one person company whose aggregate value of taxable services provided from one or more premises is fifty lakh rupees or less in the previous financial year, or is an individual or proprietary firm or partnership firm or Hindu Undivided Family],inserted vide Notification 19/2016-service tax the service tax shall be paid to the credit of the Central Government by the 6th day of the month if the duty is deposited electronically through internet banking, or, in any other case, the 5th day of the month, as the case may be, immediately following 10 Appeal No.ST/88422/2014 the quarter in which the service is deemed to be provided as per the rules framed in this regard" :
11. Needless to emphasize, the above rule requires an assessee to discharge the service tax on monthly basis. Reading both the Rules, that is, Rule 6(3)(c) of CCR, 2004 and Rule 6(1) of Service Tax Rules, 1994, it can safely be inferred that at the time of discharging monthly service tax liability of output service provided, the assessee cannot utilize CENVAT credit more than 20% available in their Books of Accounts. It cannot be at their whims and pleasure to utilize more than 20% of the available credit in one month on the ground that in the previous month they have utilised less than 20% of the credit in discharging their tax liability, even though such credit was available to them. Also, if it is their choice not to utilize CENVAT credit in discharging the service tax liability at all for a particular month and choose to pay the entire liability through cash only and in such circumstances Clause (c) of Sub- rule (3) of Rule 6 would not come into play. However, an assessee cannot be permitted to accumulate the limit of 20% for five months CENVAT credit and debit at one go the 100% credit in discharging their liability. We find that the observation made in Vijayanand Roadlines Ltdcase (supra) without taking note of the statutory provisions namely, Rule 6(1) of the Service Tax Rules, 1994, hence, per-incurium and cannot be considered as binding precedent. Therefore, subsequent judgments relying on the said precedent also cannot be considered as a binding precedent.
12. However, we are of the opinion that notwithstanding the excess use of credit, the consequence cannot lead to recovery of 11 Appeal No.ST/88422/2014 the credit being availed as per law and admissible to the appellant. This question is answered by the Tribunal in the case of D.B.C. Port Logistics Ltd. (supra). Considering the fact of excess utilization of credit this Tribunal observed that the assessee-appellant at best could be liable to pay interest on the excess amount of CENVAT credit utilized in discharging the service tax in lieu of cash. The aforesaid observation in our view is more or less akin to eligibility of credit on capital goods spread over to two financial years, allowing the assessee to avail 50% of the admissible credit in each financial year. Thus, the appellant would be required to discharge interest on the excess utilization of the cenvat credit in a particular month at the applicable rate. We do not find merit in the argument of the appellant that while calculating the liability of interest, it should be computed taking into account both excess utilisation as well as less credit availed during the period in dispute. There is no legal support to such method.
13. Also, we do not find any justification in imposing penalty or directing recovery of the credit, since the said Clause (c) of Rule 6(3) of Cenvat Credit Rules,2004 restricts utilization of credit to the extent of 20% and not on availing of cenvat credit. Nevertheless, after 1.4.2008 the embargo of utilization of 20% credit has been removed and the assessee are entitled to utilize the credit accumulated on their books of accounts as on the date.
14. In result, the impugned order is modified in the light of above observation and the matter is remanded to the adjudicating 12 Appeal No.ST/88422/2014 authority only for the limited purpose to calculate the amount of interest payable by the appellant for excess of the utilization of cenvat credit in a particular month i.e. on month to month basis for the entire period in question. The appeal is disposed of accordingly.
(Order pronounced in court on 11/01/2019) (Sanjiv Srivastava) (Dr. D.M. Misra) Member (Technical) Member (Judicial) SM.