Custom, Excise & Service Tax Tribunal
Siegwerk India Pvt Ltd vs Alwar on 1 October, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH
SERVICE TAX APPEAL NO. 53816 OF 2018
(Arising out of Order-in-Original No. ALW-EXCUS-000-COM-021-18-19 dated
28.08.2018 passed by Commissioner, Central Excise, Commissionerate, Rohtak)
M/s Siegwerk India Pvt. Ltd. ....Appellant
7-8 KM Stone, Bhiwandi-Alwar Road
PO-Khizuriwas, Bhiwadi,
Distt.-Alwar 301019
VERSUS
Commissioner, Central Goods & ....Respondent
Service Tax, Commissionerate Block-A, Surya Nagar, Alwar-301001 APPEARANCE:
Shri B.L. Narasimhan, Shri S.C. Vaidyanathan and Ms. Mehek Mehra, Advocates for the Appellant Shri Sanjeev Kumar Ray, Authorized Representative for the Department CORAM: HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT HON'BLE MS. HEMAMBIKA R. PRIYA, MEMBER (TECHNICAL) DATE OF HEARING: 07.05.2024 DATE OF DECISION: 01.10.2024 FINAL ORDER NO. 58747/2024 JUSTICE DILIP GUPTA:
M/s. Siegwerk India Pvt. Ltd.1 filed this appeal to assail the order dated 28.08.2018 passed by the Commissioner, Central Goods & Service Tax, Commissionerate, Alwar2 confiriming the demand of CENVAT credit under rule 6(3)(ii) of the CENVAT Credit Rules, 20043 with interest under rule 14(ii) of the 2004 Credit Rules read with the
1. the appellant
2. the Commissioner
3. the Credit Rules 2 ST/53816/2018 proviso to section 73(1) of the Finance Act, 19944. The order also imposes penalty and directs for payment of interest under rule 15(3) of the 2004 Credit Rules read with section 78 of the Finance Act.
2. The appellant manufactured printing inks falling under Central Excise Tariff Item5 3215 19 90 of the Central Excise Tariff Act, 19856. In terms of the policy of its parent company, Siegwerk Druckfarben AD & Co KGaA7, the appellant invested its surplus funds on the first day of every month in ‗Short Term Pure Liquid Debt Fund' under mutual funds and redeemed it at the end of the same month.
3. An audit was conducted of the records of the appellant and it was noticed that the appellant was engaged in trading of mutual funds to the extent of Rs. 6,22,20,898/- as 'Dividend Income on Current Investment' under the head of ‗Other Income'. The department formed a view that redemption of mutual funds qualifies to be 'trading of goods', which is an exempted service in terms of the exclusion under the negative list warranting proportionate reversal of credit availed on common input services such as ‗chartered accountancy services', ‗laptop and computer maintenance services', phone and internet services', and SAP IT services under rule 6 of the Credit Rules.
4. This led to the issue of a show cause notice dated 10.04.2018 to the appellant in earlier proceedings to recover CENVAT credit of Rs. 1,38,99,600/- with interest and penalty under the relevant provisions of the Finance Act for the period from April 2012 to March 2015. The present proceedings relate to the subsequent period from April 2015
4. the Finance Act
5. CETI
6. the Tariff Act
7. the Parent Company 3 ST/53816/2018 to March 2016. The appellant filed a detailed reply to the said show cause notice and denied the allegations. The Additional Commissioner, by order dated 10.08.2018, confirmed the entire demand against the appellant. Feeling aggrieved, the appellant filed an appeal before the Commissioner (Appeals) who by the order dated 09.09.2019 upheld the demand. The appellant assailed this order dated 09.09.2019 before the Tribunal and the appeal is said to be pending.
5. The department issued another show cause notice dated 19.04.2018 to the appellant proposing to recover credit of Rs. 3,66,92,225/- under rule 6(3) of the Credit Rules read with the proviso to section 73(1) of the Finance Act, and rule 14(ii) of the Credit Rules with interest and penalties alleging that the activity of 'redemption of mutual funds' is an exempted service falling under the ambit of ‗trading of goods' in the negative list under section 66D(e) of the Finance Act warranting reversal of CENVAT credit, in terms of rule 6(3)(i) of the Credit Rules. This appeal relates to the order passed on this show cause notice.
6. The appellant submitted a reply dated 11.07.2018 and denied the allegations made in the show cause notice. The appellant submitted that ‗investment in mutual funds' is not akin to ‗trading of goods' and is not an ‗exempted service' in terms of section 66D(e) of the Finance Act read with rule 2(e) of the Credit Rules and, therefore, no reversal of credit was required to be made in terms of rule 6(3)(i) of the Credit Rules. The appellant also submitted that reversal of credit, if any, was made by the appellant under rule 6(3)(ii) read with 4 ST/53816/2018 rule 6(3A) of the Credit Rules, which would be sufficient compliance of the provisions of the Credit Rules.
7. The Commissioner (Appeals), by order dated 28.08.2018, confirmed the demand of recovery of credit with interest and imposed penalties upon the appellant holding that redemption of mutual funds is an exempted service, as it falls under the ambit of 'trading of goods' under section 66D(e) of the Finance Act.
8. This appeal has been filed to assail the said order dated 28.08.2018 passed by the Commissioner (Appeals).
9. Shri B.L. Narasimhan, learned counsel for the appellant assisted by Shri S.C. Vaidyanathan and Ms. Mehek Mehra made the following submissions:
(i) Investment in mutual funds is not akin to ‗trading of goods' which alone is an exempted service in terms of section 66D(e) of the Finance Act read with rule 2(e) of the Credit Rules. Thus, no proportionate reversal of CENVAT credit is required to be made. In support of this contention reliance has been placed on the following decisions:
(a) M/s. Ambuja Cements Ltd. vs.
Commissioner of Customs, Central
8
Excise & GST, Nagpur ;
(b) Ace Creative Learning Pvt. Ltd. vs.
Commissioner of Central Tax,
Bengaluru South GST
Commissionerate9;
8. 2023 (5) TMI 806- CESTAT Mumbai
9. 2021 (4) TMI 687 - CESTAT Bangalore
5
ST/53816/2018
(c) M/s. Tata Sons Ltd. vs. Commissioner of Service Tax-I, Mumbai (vice-
Versa)10; and
(d) Space Matrix Design Consultants Pvt.
Ltd. vs. Commissioner of Central Tax, Bangalore North11;
(ii) The activity of investment in mutual funds cannot be termed as a ‗service' for the purposes of the Finance Act;
(iii) Reversal of proportionate credit of common input services utilized for rendition of exempted service along with interest, in terms of rule 6(3)(ii) read with rule 6(3A) of Credit Rules, has been held to be sufficient compliance of rule 6 of the Credit Rules;
(iv) The extended period of limitation could not have been invoked; and
(v) Penalties could not be imposed nor interest could be levied.
10. Shri Sanjeev Kumar Ray, learned authorized representative appearing for the department has, however, supported the impugned order and made the following submissions:
(i) Mutual funds are securities and are covered under the definition of goods;
(ii) There was a sale of mutual funds, as is evident from the dividend income shown in the balance sheet;
(iii) The appellant availed input service credit on common input services without maintaining separate records, as mandated by rule 6 of the Credit Rules; and
10. 2022 (11) TMI 325 - CESTAT Mumbai
11. 2019 (4) TMI 1599 - CESTAT Bangalore 6 ST/53816/2018
(iv) The appellant was required to reverse/pay an amount of Rs. 3,66,92,225/- for the period 2015-16, as per rule 6(3)(ii) read with rule 6(3A) of the Credit Rules.
11. The submissions advanced by the learned counsel for the appellant and the learned authorized representative appearing for the department have been considered.
12. The issue that arises for consideration in this appeal is non- reversal of proportionate CENVAT credit availed on common input services namely chartered accountant services, telephone services and legal services, used in relation to 'redemption of mutual funds' by considering it to be 'trading of goods', which is an exempted service in terms of section 66D(e) of the Finance Act.
13. The submission advanced by learned counsel for the appellant is that subscription and redemption of liquid mutual fund units cannot be termed as 'trading of goods' and hence, do not qualify as ‗exempted services' for the reason that the term ‗trading' involves buying and selling of goods with transfer of title in property from one person to another. However, transfer of units does not take place in mutual funds because the units cease to exist i.e., they get cancelled or relinquished upon redemption. The present activity would, therefore, not be akin to the sale and purchase of shares in a stock market. Securities, on the other hand, are traded and the ownership of such securities is transferred from one person to the other.
14. It is seen that the main ingredients of ‗trading' are - (i) there should be two parties and a market to purchase and sell the goods involved; (ii) there should be transfer of right/title involved from the 7 ST/53816/2018 seller to the buyer while selling the same; and (iii) there should be a fixed price known in advance while selling or buying the said goods.
15. The activities undertaken by the appellant, namely, the activity of subscription and redemption of the units of mutual funds cannot be said to be an activity of sale and purchase of the securities. When the units of mutual funds are redeemed, the mutual funds units cease to exist. Thus, investment activities undertaken by the appellant would be different from 'trading in securities'.
16. In this connection, reference can be made to the decision of the Tribunal in Ambuja Cements. The Tribunal noticed the view of the department in paragraphs 2.3 and 2.4 and the said paragraphs are reproduced below:
―2.3 During the course of audit, from the Annual Reports of ACL for the period 2011, 2012, 2013 and 2014, it was noticed that they were engaged in 'Trading of Securities'. From ACL's cash Flow Statement it was evident that they purchase and sell current Investments viz., Mutual Funds ('Securities'), reflected intheir Annual Reports under the Schedules for Current Investments and Non Current investments.
2.4 The activity of purchase and sale, i.e., trading, of units of mutual fund schemes and equity shares by ACL is nothing but ‗trading of Securities'. Now, as 'goods' include 'Securities' and 'trading of goods' is an exempted service w.e.f. 01.07.2012 as per Section 66D of the Finance Act, 1994, the activity of purchase and sale of units of Mutual Fund Schemes in which ACL is engaged is an exempted service.‖
17. After examining the definitions of purchase, sale, trade, trading, redemption and subscription, the Tribunal observed:
―4.5 From the definitions as above, I am convinced that following are the ingredients of trading:8
ST/53816/2018 i. There should be two parties and a market to purchase and sell the good involved;
ii. There should be transfer of right/title involved from the seller to the buyer, while selling the same;
iii. There should be a fixed price known in advance while selling or buying the said good etc. If we test the activities undertaken by the appellant, against the above criteria the activity of subscription and redemption of the units of the mutual fund is not an activity of sale and purchase of the securities. When the units of mutual fund are redeemed, the units cease to exist i.e., gets cancelled or relinquished, It does not get transferred to the third party. Thus investment activities undertaken by the appellants is totally different from 'trading in securities'.‖ (emphasis supplied)
18. After referring to the decisions of the Tribunal in Ace Creative Learning, Tata Sons and Space Matrix Design Consultants, the Tribunal further observed:
―4.7 From the above since I find that the activity of redemption and subscription of mutual fund is akin to management of investments and not trading in services, it cannot be held as exempted service, for seeking the reversal as per provisions of Rule 6 of CENVAT Credit Rules, 2004. In the impugned order, reliance has been placed on the decision in the case of Roca Bathroom Products Pvt. Ltd. [2017 (51) S.T.R. 432(Tri.- Del.)]. The said decision is distinguishable as it is in respect of the trading of goods and not in the case where the Education Guide itself clarifies that buying and selling of the unit of mutual funds is not service itself.‖ (emphasis supplied) 9 ST/53816/2018
19. In view of the aforesaid decisions of the Tribunal, it has to be held that the activity of subscription and redemption of the units of mutual funds cannot be said to be an activity of sale and purchase of the securities. It would, therefore, not be an activity relating to trading and securities. The activity undertaken by the appellant would, therefore, not be an exempted service in terms of section 66D(e) of the Finance Act and proportionate reversal of credit was not required to be made.
20. Even otherwise, the activity of investment in mutual fund cannot be termed as ‗service' under the Finance Act. For an activity to fall under the ambit of ‗exempted service' under rule 2(e) of the Credit Rules, the activity has to first qualify as a ‗service'. Section 65B(44) of the Finance Act stipulates that ‗service' means any activity carried out by a person for another for consideration, and includes a declared service, but excludes a transfer of title in goods or immovable property by way of sale or gift. Thus, there has to be a service provider who provides a service to the recipient in lieu of consideration. The department has failed to substantiate that investment in mutual fund by the appellant involves a ‗service' rendered by a service provider to a service recipient. Thus, the activity undertaken by the appellant would not amount to ‗service' under section 65B(44) of the Finance Act.
21. It would, therefore, not be necessary to examine the alternative submissions raised by learned counsel for the appellant that reversal of proportionate credit of common input services utilized for rendition of exempted service along with interest, in terms of rule 6(3)(ii) read 10 ST/53816/2018 with rule 6(3A) of Credit Rules would be sufficient compliance of rule 6 of the Credit Rules.
22. The contention raised by learned counsel for the appellant that the extended period of limitation could not have been invoked in the facts and circumstances of the case, deserves to be accepted.
23. It is seen from the show cause notice dated 19.04.2018 out of which the present proceedings arise that the demand was raised for the period from April 2015-16 by invoking the extended period of limitation under the proviso to section 73(1) of the Finance Act. The entire demand falls beyond the normal limit of eighteen months as can be seen from the table below:
Year Relevant date Date of issuance of show (Actual date of cause notice within normal filing of return) period of limitation, beyond which extended period of limitation will apply April 2015 21.10.2015 21.04.2017 to September 2015 October 2015 23.04.2016 23.10.2017 to March 2016
24. The allegation relating to suppression of facts has been levelled against the appellant on the ground that details came to the knowledge of the department only through an audit.
25. According to the appellant, it was under a bona fide belief that the activity of investment of mutual funds was not akin to 'trading of goods' and such was not 'exempted service' under section 66(D) of the Finance Act read with rule 2(e) of the Credit Rules.
26. In order to appreciate whether the extended period of limitation was correctly invoked, it would appropriate to reproduce section 73(1) of the Finance Act as it stood at the relevant time. This section 11 ST/53816/2018 deals with recovery of service tax not levied or paid or short levied or short paid or erroneously refunded. It is as follows;
―73.(1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within eighteen months from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:
PROVIDED that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of-
(a) fraud; or
(b) collusion; or
(c) wilful mis-statement; or
(d) suppression of facts; or
(e) contravention of any of the provisions of this
Chapter or of the rules made thereunder with intent to evade payment of service tax, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words ―eighteen months‖, the words ―five years‖ had been substituted.‖
27. It would be seen from a perusal of sub-section (1) of section 73 of the Finance Act that where any service tax has not been levied or paid, the Central Excise Officer may, within eighteen months from the relevant date, serve a notice on the person chargeable with the service tax which has not been levied or paid, requiring him to show cause why he should not pay amount specified in the notice.
28. The proviso to section 73(1) of the Finance Act stipulates that where any service tax has not been levied or paid by reason of fraud or collusion or wilful mis-statement or suppression of facts or 12 ST/53816/2018 contravention of any of the provisions of the Chapter or the Rules made there under with intent to evade payment of service tax, by the person chargeable with the service tax, the provisions of the said section shall have effect as if, for the word ―eighteen months‖, the word ―five years‖ has been substituted.
29. In Pushpam Pharmaceuticals Company vs. Collector of Central Excise, Bombay12, the Supreme Court examined whether the Department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to section 11A of the Excise Act. The proviso to section 11A of the Excise Act carved out an exception to the provisions that permitted the Department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso, one of which was suppression of facts. It is in this context that the Supreme Court observed that since ―suppression of facts‟ has been used in the company of strong words such as fraud, collusion, or wilful default, suppression of facts must be deliberate and with an intent to escape payment of duty. The observations are as follows;
―4. Section 11A empowers the Department to re- open proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the word both in law and even otherwise is well known. In normal
12. 1995 (78) E.L.T. 401 (S.C.) 13 ST/53816/2018 understanding it is not different that what is explained in various dictionaries unless of court the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression.‖ (emphasis supplied)
30. The burden of proving that the appellant had suppressed facts with an intent to evade payment of service tax was clearly upon the department. It was necessary for the department to illustrate any positive act on the part of the appellant. According to the appellant, it was under a bonafide belief that it was not liable to pay service tax and the matter also involved interpretation of various provisions of the Finance Act as well as the services rendered to the SEZ Units and to the STPI Units. The appellant had been filing the service tax returns and an audit of the records of the appellant had also been conducted in 2010 for the period 2006-07 to 2009-10. The show cause notice was, however, issued on 19.10.2011 after a substantial lapse of time.
31. In this connection, it would be pertinent to refer to the judgment of the Supreme Court in Commissioner of C. Ex. & 14 ST/53816/2018 Customs vs. Reliance Industries Ltd.13. The Supreme Court held that if an assessee bonafide believes that it was correctly discharging duty, then merely because the belief is ultimately found to be wrong by a judgment would not render such a belief of the assessee to be malafide. If a dispute relates to interpretation of legal provisions, it would be totally unjustified to invoke the extended period of limitation. The Supreme Court further held that in any scheme of self- assessment, it the responsibility of the assessee to determine the liability correctly and this determination is required to be made on the basis of his own judgment and in a bonafide manner. The relevant portion of the judgment is reproduced below:
―23. We are in full agreement with the finding of the Tribunal that during the period in dispute it was holding a bona fide belief that it was correctly discharging its duty liability. The mere fact that the belief was ultimately found to be wrong by the judgment of this Court does not render such belief of the assessee a mala fide belief particularly when such a belief was emanating from the view taken by a Division Bench of Tribunal. We note that the issue of valuation involved in this particular matter is indeed one were two plausible views could co- exist. In such cases of disputes of interpretation of legal provisions, it would be totally unjustified to invoke the extended period of limitation by considering the assessee's view to be lacking bona fides. In any scheme of self-assessment it becomes the responsibility of the assessee to determine his liability of duty correctly. This determination is required to be made on the basis of his own judgment and in a bona fide manner.
24. The extent of disclosure that an assessee makes is also linked to his belief as to the
13. 2023 (385) E.L.T. 481 (S.C.) 15 ST/53816/2018 requirements of law. xxxxxxxxxxx. On the question of disclosure of facts, as we have already noticed above the assessee had disclosed to the department its pricing policy by giving separate letters. It is also not disputed that the returns which were required to be filed were indeed filed. In these returns, as we noticed earlier there was no separate column for disclosing details of the deemed export clearances. Separate disclosures were required to be made only for exports under bond and not for deemed exports, which are a class of domestic clearances, entitled to certain benefits available otherwise on exports. There was therefore nothing wrong with the assessee's action of including the value of deemed exports within the value of domestic clearances."
(emphasis supplied)
32. The impugned order holds that it is because of the audit that the correct facts came to the notice of the department and so the extended period of limitation can be invoked.
33. It is not possible to accept this contention as such a contention was repelled by the Tribunal in M/s. GD Goenka Private Limited vs. Commissioner of Central Goods and Services Tax, Delhi South14. The relevant portions of the order are reproduced below:
―19. It has also been pointed out that but for the audit, the allegedly irregularly availed CENVAT credit would not have come to light. It is incorrect to say that but for the audit, the alleged irregular availment of CENVAT credit would not have come to light. It is undisputed that the appellant has been selfassessing service tax and filing ST-3 Returns. Unlike the officers, the assessee is not an expert in taxation and can only be expected to pay service tax and file returns as per its understanding of the law. The remedy against any potential wrong assessment of service tax by the assessee is the scrutiny of the Return and best judgment assessment
14. 2023 (8) TMI 995 - CESTAT New Delhi 16 ST/53816/2018 by the Central Excise Officer under section 72. This section reads as follows:
―72. Best judgment assessment. If any person, liable to pay service tax,--
(a) fails to furnish the return under section 70;
(b) having made a return, fails to assess the tax in accordance with the provisions of this Chapter or rules made thereunder, the Central Excise Officer, may require the person to produce such accounts, documents or other evidence as he may deem necessary and after taking into account all the relevant material which is available or which he has gathered, shall by an order in writing, after giving the person an opportunity of being heard, make the assessment of the value of taxable service to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment.‖
20. Thus, ‗the central excise officer' has an obligation to make his best judgment if either the assessee fails to furnish the return or, having filed the return, fails to assess tax in accordance with the Act and Rules. To determine if the assessee had failed to correctly assess the service tax, the central excise officer has to scrutinize the returns. Thus, although all assessees self-assess tax, the responsibility of taking action if they do not assess and pay the tax correctly squarely rests on the central excise officer, i.e., the officer with whom the Returns are filed. For this purpose, the officer may require the assessee to produce accounts, documents and other evidence he may deem necessary. Thus, in the scheme of the Finance Act, 1994, the officer has been given wide powers to call for information and has been entrusted the responsibility of making the correct assessment as per his best judgment. If the officer fails to scrutinise the returns and make the best judgment assessment and some tax escapes assessment which is discovered after the normal period of limitation is over, the responsibility for 17 ST/53816/2018 such loss of Revenue rests squarely on the shoulders of the officer. It is incorrect to say that had the audit not been conducted, the allegedly ineligible CENVAT credit would not have come to light. It would have come to light if the central excise officer had discharged his responsibility under section 72.
21. This legal position that the primary responsibility for ensuring that correct amount of service tax is paid rests on the officer even in a regime of self-assessment was clarified by the Central Board of Excise and Customs15 in its Manual for Scrutiny of Service Tax Returns the relevant portion of which is as follows:
1.2.1A The importance of scrutiny of returns was also highlighted by Dr. Kelkar in his report on Indirect Taxation16. The observation made in the context of Central Excise but also found to be relevant to Service Tax is reproduced below:
It is the view that assessment should be the primary function of the Central Excise Officers. Self assessment on the part of the taxpayer is only a facility and cannot and must not be treated as a dilution of the statutory responsibility of the Central Excise Officers in ensuring correctness of duty payment. No doubt, audit and anti-evasion have their roles to play, but assessment or confirmation of assessment should remain the primary responsibility of the Central Excise Officers.
(emphasis supplied)
22. Therefore, to say that had the audit not been conducted, the incorrect availment of CENVAT credit would not have come to light is neither legally correct nor is it consistent with the CBEC's own instructions to its officers.
(emphasis supplied)
15. CBEC
16. Report of the Task Force on Indirect Taxation 2002, Central Board of Excise and Service Tax, Government of India. 18
ST/53816/2018
34. The impugned order, therefore, cannot be sustained. It is, accordingly, set aside and the appeal is allowed.
(Order pronounced on 01.10.2024) (JUSTICE DILIP GUPTA) PRESIDENT (HEMAMBIKA R. PRIYA) MEMBER (TECHNICAL) Jyoti