Custom, Excise & Service Tax Tribunal
Lotte India Corporation Ltd vs Commissioner Of Central Excise on 24 January, 2014
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
Appeal No.S/239/2007
[Arising out of Order-in-Appeal No.96/2007(P) (ST) dated 29.6.2007 passed by the Commissioner of Central Excise (Appeals), Chennai]
For approval and signature:
Honble Shri MATHEW JOHN, Technical Member
1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? :
2. Whether it should be released under Rule 27 of the
CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? :
3. Whether the Member wishes to see the fair copy of
the Order? :
4. Whether Order is to be circulated to the Departmental
Authorities? :
Lotte India Corporation Ltd.
Appellant
Versus
Commissioner of Central Excise,
Pondicherry
Respondent
Appearance:
Shri Hari Radhakrishnan, Advocate For the Appellant Shri P. Arul, Superintendent (AR) For the Respondent CORAM:
Honble Shri Mathew John, Technical Member Date of hearing : 12-12-2013 Date of pronouncement : 24-01-2014 FINAL ORDER No.40051/2014
1. The appellant is engaged in the manufacture of sugar confectionaries. They avail Cenvat credit of duty paid on inputs and capital goods and input services in terms of Cenvat Credit Rules, 2004. Their factory is situated at Nellikuppam, Pondicherry. During the period Jan 05 to Aug 06, apart from excisable goods manufactured from the said factory, they were also getting sugar confectionaries manufactured from other manufacturers on job work basis situated at different places. Appellant supplied inputs like condensed milk, glucose and sugar directly from the suppliers to the job workers. After manufacture of sugar confectionaries by the job workers, the job worker paid the duty and dispatched the goods directly to various depots of M/s.Lotte India Corpn. Ltd.(appellant). In connection with transportation of inputs to the job workers premises and finished goods from job worker to various depots, the appellant made arrangements for such transportation and paid transportation charges along with service tax. Cenvat credit on such service tax paid was taken by the appellant and records maintained in their factory at Nellikuppam and was used for payment of excise duty on goods manufactured at Nellikuppam factory.
2. Revenue was of the view that service tax paid on transportation of inputs to the job worker premises and transportation of goods from job worker premises to the depot of the appellant could not have been availed by the appellant because it was not in relation to excisable goods manufactured by the appellant. Therefore, Revenue issued show cause notice dated 11-10-2006, for recovery of credit amounting to Rs.9,71,374/- on this count.
3. Revenue also noticed that appellant had taken Cenvat credit of service tax paid by the Zonal office of the appellant on GTA service for transportation of goods from their depot to the dealers on the basis of distribution challans issued by the Zonal office. Revenue was also of the view that such transportation beyond the place of removal is not covered by the input service as defined under rule 2(l) of CCR 04 and therefore proposed to deny Cenvat credit taken on such transportation amounting to Rs.2,43,604/-. On adjudication, a total demand of Rs.12,14,978/- was confirmed in terms of Rule 14 of CCR 04 read with proviso to sub-section (1) of section 11A and section 11AB of the Act. Further, a penalty of Rs.5000/- was imposed under section 15 (3) of CCR 04. Aggrieved by the order, the appellant filed an appeal with the Commissioner (Appeals) who rejected the appeal. Aggrieved by the order of Commissioner (Appeals), the appellants have filed this appeal before the Tribunal.
4. The Ld. Advocate for the appellant submits that since the appellant supplied the raw materials for manufacture of the goods by the job worker, and the appellant exercised quality control on final products manufactured, the appellant has to be considered as 'principal manufacturer' in respect of the goods manufactured by the job worker. Once the appellant is the principal manufacturer of the goods, the input services used in relation to such manufacturing activity like transporting the goods to the place of manufacture and transporting final product from the factory of manufacture to the depot of the appellant has to be considered as "input service" in view of the provisions under rule 2 (l) of CCR, 2004 as it stood during the relevant time.
5. The appellant also submitted that the matter was revenue-neutral since if the job workers were to pay transportation charges they could have availed Cenvat credit on such charges paid. If the appellant were to pay excise duty on the products manufactured by the job-workers then the appellant was eligible to take and utilize the Cenvat credit. Thus service tax so paid would have got set off either in the hands of the job worker or in the hands of the appellant and therefore there is no revenue loss involved in this case. The appellant also submits that since this matter is revenue-neutral, demand issued on 11-10-06 for the period Jan 05 to Aug 06 is partly time-barred as no intention to evade payment of service tax can be attributed to the appellant. He submits that appellants availed service tax credit in a bonafide manner.
6. The Ld. Advocate invites attention to Rule 10A of Central Excise Valuation Rules, 2000 to argue that the concept of principal manufacturer is recognized by the department in the matter of Central Excise levy. He also made a submission that final goods bore the brand name of the appellant and therefore it has to be considered that the manufacturing activity was done by the job worker on behalf of the applicant.
7. The appellant also argues that in terms of Notification 214/86-CE and Rule 4 (5) (a) of CCR 04, the appellant could have taken cenvat credit and thereafter sent the goods to the job worker and cleared the goods on payment of duty from the premises of the job worker under Rule 4 (6) of CCR 04. He relies on the following decisions of the Tribunal:-
i. Amul Industries Pvt. Ltd. - 2007 (79) RLT 415;
ii. CCE Bhuvaneswar Vs Konark Wires (P) Ltd. - 1995 (77) ELT 315 iii. Veekay Polycats Vs CCE New Delhi 2000 (39) RLT 585 CEGAT iv. R.D. Electronics Pvt. LTd. Vs CCE Delhi 2003 (161) ELT 1023 (Tri.-Del.) v. Ventron Chemicals Ltd. 2001 (430) RLT 107 vi. Rajarambapu SSK Ltd. Vs CCE 2007 (78) RLT 97 vii. Indorama Textiles Ltd. 2007 (80) RLT 620 (Tri.)
8. In view of above decisions, he submits that the credits taken were properly taken. If at all not properly taken there was no suppression with intent to evade payment of duty and therefore demand raised invoking the extended period of time is not maintainable.
9. Regarding the second component of the demand the argument of the appellant is that during the relevant time Cenvat Credit was available for input service for clearance of the final products from the place of removal as mentioned in Rule 2 (l) (ii) of Cenvat Credit Rules, 2004. In their case the goods were sold from depot to dealers and they were incurring transportation cost and paying service tax and the credit taken is for clearance of the goods from place of removal. According to him the place of removal for the goods is the depot.
10. Opposing the prayer, Ld. AR for Revenue submits that the Tribunal and High Courts have always been holding that a supplier of raw material is not a "manufacturer" and the duty liability has to be determined in the hands of the job worker. He further submits that in this case the duty was not paid by the appellant. The appellant who had not done manufacturing activity or paid the excise duty cannot be considered as the "manufacturer" for such goods. He also points out that in this case no declaration under Notification 214/86-CE was filed by the job worker to the effect that appellant will be paying duty on the goods manufactured and this cannot be considered as a technical lapse. Since the appellant had not followed the provisions of law or done any manufacturing activity or paid excise duty in respect of the goods involved, they cannot be considered as "manufacturer" for goods manufactured by job-workers. When the appellant is not the manufacturer in respect of goods manufactured by the job worker, appellant could not have taken cenvat credit on service tax paid on transportation of inputs or final products. Therefore, he submits that credit was taken wrongly and the same has to be reversed.
11. He argues that supplier of raw material cannot be considered as "manufacturer" and relies on the following decisions :-
1. O.R.G. Systems Vs CCE Vadodara 1998 (102) ELT 3 (SC)
2. CCE Vs Gwalior Chemicals Ind.Ltd.
2004 (172) ELT 186 (Tri-Del.)
3. Sri Raghavendra Food Industries Vs CCE., Bangalore - 1999 (105) ELT 326 (Tri.)
4. Aldowin Vs CCE - 2003 (156) ELT 254
12. He submits that Revenue-neutral cannot be a reason for dropping the demand and relies on the following decisions :-
(1) Lear Automotive India Pvt. Ltd. CCE Nasik 2012 (286) ELT 558 (2) Hindustan Zinc Ltd. Vs CCE 2012 (276) ELT 393
13. Ld. AR also argues that in this case excise duty on goods was paid under section 5A of the Central Excise Act based on Maximum Retail Price. He argues that in such cases the place of removal has to be considered as factory only. He argues that clearance of final products from place of removal to their dealer's premises is not covered by Rule 2(l) (ii) of CCR 2004. He relies on the decision of India Japan Lighting Pvt. Ltd. Vs CCE Chennai - 2007 (8) STR 124 (Tri.-Chennai) as affirmed by Hon. High Court of Madras as reported at 2013 (288) E.L.T. A23 (Mad.).
14. I have considered submissions on both sides. This is a case where the appellant did not do the manufacturing activity in respect of the goods for which Cenvat credit of input services was taken. Neither did the appellant pay excise duty on such goods. Both manufacturing and duty payment were done by job-workers. In such a situation there is no justification to consider the appellant has manufacturer for the purpose of taking Cenvat credit in respect service tax paid on transportation of inputs and final products. In the various decisions relied upon by the appellant the assessee has done either a part of the manufacturing activity or at least paid duty on the final product manufactured by job-worker by following various rules enabling such payment as distinct from facts of this case. Therefore I do not find any reason to allow Cenvat credit in such circumstances.
15. The argument that the credit on such transportation service can be taken by considering such activity as service in relation to business has been negative by the Hon Karnataka High Court in the case of CST Vs. ABB Ltd- 2011 (23) S.T.R. 97 (Kar.)
16. From the facts of the case, I am of the view that the job-worker or the appellant could have taken credit if service tax incidence was borne by the person paying duty on final product and appropriate procedure was followed. However, procedures laid down for taking credit cannot be by-passed based on argument of revenue neutrality or the argument that if not appellant someone else could have taken credit. Because such interpretation can be raised in most of the disputes involving value added tax and the entire rules and procedures enabling proper verifications of credits and duty payments can be circumvented. Such an interpretation cannot be supported through decisions of the Tribunal.
17. However, in the facts of the case, I see some merit in the argument of the appellant that taking credit was not an action with intention to evade payment of duty as far as the first component is concerned. So I order that the demand in respect of this component may be restricted to the normal period of one year.
18. The case credit taken for transportation from depots to their dealers also, I find that during the relevant time there was considerable confusion about the scope of the expression service used for clearance of final products from the place of removal which was used in definition at Rule 2 (l) (ii) of the definition of input service. In fact the decision of the Hon. Karnataka High Court in the case of ABB Ltd is to the effect that such credit was could be allowed upto 01-04-08. However, I follow the decision of the jurisdictional High Court in the case of India Japan Lighting Pvt. Ltd. (supra) in this matter. But since this issue was one of legal interpretation of rules wherein two views were possible, I order that the demand may be restricted to normal period of limitation.
19. In the facts and circumstances of the case, I set aside the penalty of Rs. 5000 imposed.
20. Thus, I partially allow the appeal by restricting the demand on the two issues to the normal period of limitation and the adjudicating authority is directed to quantify the amount.
(Pronounced in open court on 24-01-2014) (MATHEW JOHN) TECHNICAL MEMBER gs 2