Custom, Excise & Service Tax Tribunal
Covestro India Pvt Ltd vs Commissioner Of Gst & Cce-Commissioner ... on 31 January, 2023
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT NO. I
Excise Appeal No. 40481 of 2022
(Arising out of Order-in-Appeal No. 03/2022-TRY (CX) dated 13.07.2022 passed by the
Commissioner of Customs and Central Excise (Appeals), No. 1, Williams Road,
Cantonment, Tiruchirappalli - 620 001)
M/s. Covestro (India) Private Limited : Appellant
Semmanukuppam, Cuddalore,
Tamil Nadu - 607 005
VERSUS
The Commissioner of G.S.T. and Central Excise : Respondent
Tiruchirappalli Commissionerate No. 1, Williams Road, Cantonment, Tiruchirappalli - 620 001 APPEARANCE:
Shri Vinay Kansara, Learned Advocate for the Appellant Shri R. Rajaraman, Learned Assistant Commissioner for the Respondent CORAM:
HON'BLE MR. P. DINESHA, MEMBER (JUDICIAL) FINAL ORDER NO. 40021 / 2023 DATE OF HEARING: 12.01.2023 DATE OF DECISION: 31.01.2023 Order :
This appeal is filed by the assessee against the impugned Order-in-Appeal No. 03/2022-TRY (CX) dated 13.07.2022 passed by the Commissioner of Customs and Central Excise (Appeals), Tiruchirappalli whereby, inter alia, the disallowance of input credit and recovery of the same came to be upheld.
2. Heard Shri Vinay Kansara, Learned Advocate for the appellant and Shri R. Rajaraman, Learned Assistant Commissioner for the Revenue. After hearing both sides, I find that the only issue that has to be decided is: whether 2 Appeal. No.: E/40481/2022-SM the disallowance of credit in the hands of the appellant was correct or not?
3. Facts are not in dispute; the appellant is engaged in the manufacture of excisable goods and are availing credit of inputs and capital goods, input services and Input Service Distributor ('ISD' for short) credit under the CENVAT Credit Rules ('CCR' for short), 2004. The Head Office of the appellant is located in Thane, which is registered for ISD, for the distribution of ISD credit. There was an audit in respect of the Head Office-Thane Unit wherein it appears that the audit team of the Department observed that the distributor had distributed common credit amongst its three manufacturing units without considering the ISD unit (self), alleging that the Head Office-ISD Unit was also a service provider unit and this, according to the Revenue, had resulted in transfer of excess common CENVAT Credit to the other three units.
4. Consequent to the above, a Show Cause Notice (dated 24.06.2020) was issued to the appellant herein, which is one of the three units, alleging inter alia that the appellant had availed excess amount of ineligible CENVAT Credit of Rs.9,83,069/- which was distributed by its ISD unit during April 2015 to June 2017; that the above was in contravention of the provisions of Rules 3 and 7 of the CCR, 2004; that by availing excess CENVAT Credit, as above, the appellant had suppressed wilfully the above fact with an intention to evade payment of Central Excise Duty and that therefore, a proposal was made to recover the above excess credit.
5. The appellant seriously disputed the allegations levelled in the Show Cause Notice qua a letter dated 14.07.2020, contending, inter alia, that the excess credit alleged to have been availed could not be recovered from the recipient unit; that it is the case of a revenue neutral situation; that the service provider unit at Head Office/ISD had Service Tax liability every year, which was paid by it 3 Appeal. No.: E/40481/2022-SM in cash; that the distribution of credit was not done to Head Office since the entire tax was paid in cash every time rather than paying through CENVAT Credit and that, in any event, the Show Cause Notice was issued by invoking the extended period of limitation and therefore, the proposed recovery was not proper. The appellant also relied on the following decisions:-
(i) M/s. Sanvijay Rolling & Engineering Ltd. v. Commissioner of Central Excise, Nagpur [2018-VIL-60-BOM-CE];
(ii) M/s. Rallis India Ltd. v. Commissioner of Central Excise, Belapur [2016-VIL-459-CESTAT-MUM-CE];
(iii) M/s. Cadbury India Ltd. v. Commissioner of Service Tax, Mumbai-I [2017-VIL-118-CESTAT-MUM-ST]; and
(iv) M/s. Titan Industries Ltd. v. Commissioner of Central Excise & Service Tax, Chennai [2019-TIOL-2525-CESTAT-
MAD]
5. The Adjudicating Authority vide Order-in-Original No. 11/2020-(C.Ex.) dated 17.11.2020 has, however, not only not accepted the contentions of the appellant, but did not also consider it relevant to at least look into the ratio laid down in the above judgements / orders and thus, confirmed the proposals made in the Show Cause Notice. The appellant preferred an appeal before the First Appellate Authority by urging all legal contentions with due support of the decisions (supra), but however, even the First Appellate Authority vide impugned Order-in-Appeal has ignored the ratio laid down in the above decisions / orders and upheld the disallowance and recovery by placing reliance on an order of the Chennai Bench of the CESTAT in the case of M/s. Lotte India Corporation v. Commissioner of Central Excise, Pondicherry [2014 (2) TMI 482 - CESTAT (Chennai)], which has resulted in the present appeal before this forum.
4Appeal. No.: E/40481/2022-SM
6. I have perused the documents placed on record and have also gone, very carefully, through the decisions / orders referred to during the course of arguments.
7.1 The lower authorities have pressed into service Rules 3 and 7 of the CCR, 2004 to disallow and recover the CENVAT Credit availed by the recipient-appellant unit, but however, when the audit took place at the Head Office unit, which is the ISD unit, nothing is placed on record as to whether any Show Cause Notice was issued to the said unit which chose to distribute (to which Rule 7 of the CCR applies) alleging that the distribution by the ISD was wrong. There is also nothing brought out on record if the appellant, being a recipient unit, had any role or influence in the manner of distribution so that a case of wilful suppression with an intention to evade payment of duty, etc., could be justified. When the appellant took consistent stand inter alia that its Head office-ISD unit was regularly filing its ER-1 return, that the service provider unit at Head Office had Service Tax liability every year, which was paid in cash and that the entire tax liability was paid in cash every year rather than paying through the CENVAT Credit, the lower authorities have not denied anywhere the above facts. There is also no denial by the lower authorities that the amount of tax paid in cash by the Head Office unit was much more than the amount of credit that should have been distributed to the Head Office unit, which fact stood duly verified even during the audit. This is, therefore, clearly a revenue neutral situation since there is no Revenue loss at all to the Government and hence, the question of wilful suppression, that too with an intent to evade payment of tax, etc., would never arise.
7.2 I find that the co-ordinate Mumbai Bench of the CESTAT in the case of M/s. Oerlikon Balzers Coating India Pvt. Ltd. v. Commissioner of Central Excise, Pune-II [2017 (4) G.S.T.L. 62 (Tri. - Mumbai)] in its Final Order has, under similar circumstances, held as under:-
5Appeal. No.: E/40481/2022-SM "5. We find that the services on which Cenvat credit has been availed are being used for providing output services is not in dispute. If at all Pune unit of the appellant distributes this credit to various other units on pro rata basis Cenvat credit was available to the other units also and it is also not in dispute that during the period the other units were also discharging service tax liability in cash also. Therefore, the entire exercise would have been revenue neutral. Hence we hold that rejecting the claim of Cenvat credit of the appellant is unsustainable and liable to be set aside and we do so."
The Hon'ble Bombay High Court, thereafter, vide its judgement against the above order of CESTAT Mumbai [2019 (366) E.L.T. 624 (Bom.)], has upheld the above order of the Tribunal and the Hon'ble Court has also looked into the amended Rule 7 of the CCR.
8. Further, I also find that in the following cases, it has been held that recovery / demand cannot be raised at the recipient's end:-
(i) M/s. V.G. Steel Industry v. Commissioner of Central Excise [2011 (271) E.L.T. 508 (P & H)];
(ii) M/s. Titan Industries Ltd. v. Commissioner of Central Excise & Service Tax, Chennai [2019-TIOL-2525-CESTAT-
MAD]
9. It is also the settled position of law that the Show Cause Notice in the case on hand has been served beyond the normal period, for which the only allegation levelled is wilful suppression with an intent to evade tax, but however, no supporting document/evidence is placed on record to justify suppression by the appellant, who is only a recipient, and consequently, the demand also cannot sustain being hit by time-bar. The following judgements / orders support my above view:-
(i) Commissioner of Central Excise v. M/s. Dashion Ltd.
[2016 (41) S.T.R. 884 (Guj.)];
(ii) M/s. Titan Industries Ltd. v. Commissioner of Central Excise & Service Tax, Chennai [2019-TIOL-2525-CESTAT- MAD] 6 Appeal. No.: E/40481/2022-SM
10. It is clear from the facts as borne out of the records and also as forthcoming from the orders of lower authorities that a mere allegation has been made as to the wilful suppression with an intent to evade tax which, if considered for the sake of arguments, may at the most justify invoking the extended period of limitation. But in any case that alone is not sufficient since the Department has to prove that there is a revenue loss to the exchequer. The above arguments would remain so because the Department was aware of both sides of the coin, that is to say, they came to know of input service distribution by the ISD unit in the particular manner when they conducted audit there. This means that they are aware of the distribution of input credit in the particular manner. When this is the situation, then there is no question of suppression, much less of any receipt of the input credit by the appellant.
11. In view of the above discussions, I am of the clear view that the disallowance of CENVAT Credit in the hands of the recipient-appellant, as confirmed in the impugned order, is incorrect and not sustainable in the eye of law, for which reason the impugned order is set aside.
12. Consequently, the appeal is allowed with consequential benefits, if any, as per law.
(Order pronounced in the open court on 31.01.2023) Sd/-
(P. DINESHA) MEMBER (JUDICIAL) Sdd