Custom, Excise & Service Tax Tribunal
Avo Carbon India Pvt Ltd vs Commissioner Of Gst&Cce(Chennai ... on 26 August, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. III
Excise Appeal No.40196 & 40197 of 2015
(Arising out of Order-in-Original Nos.48 & 49/2014 dated14.10.2014passed by
Commissioner of Central Excise, Chennai II)
AVO Carbon India Pvt. Ltd. .... Appellant
No.25A (NP), Sidco Industrial Estate (NP),
Ambattur, Chennai - 98.
VERSUS
Commissioner of CGST & Central Excise .... Respondent
Chennai Outer Commissionerate, Newry Towers, No.2054, I Block, II Avenue, 12th Main Road, Anna Nagar, Chennai - 600 040.
APPEARANCE :
Shri M. Karthikeyan, Advocate, for the Appellant ShriM. Selvakumar, Authorised Representative for the Respondent CORAM :
HON'BLE MS. SULEKHA BEEVI.C.S.,MEMBER (JUDICIAL) HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL) FINAL ORDER No.41131-41132/2024 DATE OF HEARING: 01.08.2024 DATE OF DECISION:26.08.2024 Per Ms. SulekhaBeevi. C.S The issue involved in above appeals arise out of the same impugned order dated 14.10.2014 which were heard together and are disposed of by this common order.
2. Brief facts are that the appellant is engaged in the manufacture of Carbon Brushes and holds Registration for operating an Export Oriented Unit (EOU). The appellant is availing the facility of Cenvat credit of duty paid on inputs, capital goods and service tax paid on input services. During the 2 verification of records of the appellant, it was noted by the department that the appellant has availed Cenvat credit on ineligible input services, has not reversed the credit in terms of Rule 3 (5B) of Cenvat Credit Rules 2004 after writing off input/capital goods on which credit was availed by them. The EOU was debonded on 12.08.2011 in to a DTA unit. After exit the unutilized credit lying in the EOU was transferred to the DTA unit which according to the department is not eligible for transfer. The department was of the opinion that Rule 10 does not allow for transfer of credit from the EOU unit which has been debonded and converted to DTA unit and that the credit so transferred has been availed without any documents.
3. Show cause notice No.45/2014 dated 07.05.2014 was issued to the appellant proposing to show cause and demand the following: -
"(i) an amount of Rs 24,82,684/- (Rupees twenty-four lakhs eighty-two thousand six hundred and eighty-four only) (Cenvat Rs.24,10,303/-, Edu Cess of Rs.48,288/- and SHE Cess of Rs.24,093/) being the credit of Input service wrongly availed on the input service such as
a) Outdoor catering,
b) Rent for another unit of the assessee,
c) Courier service used for transport of finished goods to customers worldwide,
d) Civil work Construction service,
e) Logistic services utilized for export of the goods,
f) Insurance (hospital),
g) GTA out ward,
h) Association subscription, 3
i) services not provided to the unit (Audit done for the unit in France) etc., during the period from January, 2011 to May, 2013 should not be recovered under Rule 14 of Cenvat Credit Rules 2004 read with proviso to Section 11 A of the Central Excise Act, 1944.
(ii) a sum of Cenvat Rs.6,75,625/-, Edu Cess Rs.13,613/- and SHE Cess Rs.6,756/- (totaling to Rs 6,95,994) already paid should not be appropriated against the demand made in clause (1) above
(iii) an amount of Rs.72,36,401/-, (Rupees Seventy two lakhs thirty six thousand four hundred and one only) being the amount equivalent to the Cenvat credit taken in respect of the written off inputs should not be recovered for the period 2009-10 to 2012-13 under Rule 14 of Cenvat Credit Rules 2004 for contravention of Rule 3(5)(b) of Cenvat Credit Rules 2004.
(iv) a sum of Cenvat Rs 28,06,689/- (Rs.27,24,941/-, Edu cess Rs.54,499/-, SHE cess Rs.27,249/-) already debited should not be appropriated against the demand mode in clause (iii) above:
(v) A sum of Rs. 1,50,278/- (Cenvat Rs.1,45,901, Edu Cess Rs.2,918/- and She Cess Rs.1,459/-) being the excess credit availed by them on account of common input service such as Group Audit, Internal Audit, Security, Banking and financial services, Preparation of Transfer Pricing Documentation for the year 2009-10, Consultancy services etc., which were commonly used by them 100% EOU unit situated adjacent to them for the period 2009-10 and 2010-11 should not be recovered under Rule 14 of Cenvat credit Rules 2004 read with proviso to Section 11 A of the Central Excise Act 1944.
(vi) A sum of Rs.4,33,68,282/-(Rupees Four Crores thirty three lakhs sixty eight thousand two hundred and eighty two only) (Cenvat Rs.3,37,36,520/-
E.Cess Rs.6.91,656/- SHE Cess Rs.3,12,266/- AED Rs.86,27,840/-) being the wrong credit availed by them lying in the books of debonded EOU unit to Cenvat account of DTA Unit without proper documents under Rule 9 of the Cenvat Credit Rules taken during the month of March 2013, in contravention of Rule 9 of Cenvat Credit Rule 2004 should not be recovered under Rule 14 of Cenvat Credit Rules 2004 read with proviso to Section 11A of the Central Excise Act 1944.
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(vii) Interest should not be recovered under Rule 14 of Cenvat Credit Rules. 2004 read with Section ILAA of the Central Excise Act, 1944 towards the duty/amount sought to be recovered under this notice.
(viii) Penalty should not be imposed under Rule 15 (2) of Cenvat Credit Rules, 2004 read with Section 11AC of Central Excise Act 1944 for the contraventions mentioned above".
4. Statement of demand No.29/2014 dated 07.07.2014 was also issued proposing to show cause as to why the following should not been demanded:-
"(a) A sum of Rs.3,97,029 (Rupees Three Lakhs Ninety Seven Thousand and Twenty Nine Only) (Cenvat Rs.3,85,465/- Education Cess Rs.7,709/- and SHEC Rs.3,855/-) being the credit of input service wrongly availed on certain services viz., Custom House Agent, Courier Service for export/domestic, civil work for the period June 2013 to September 20013 should not be demanded from them under Rule 14 of Cenvat Credit Rules 2004 read with Section 11A of Central Excise Act 1944;
(b) Interest should not be recovered under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11AA of the Central Excise Act, 1944 towards the duty/amount sought to be recovered as mentioned above:
(c) Penalty should not be imposed under Rule 15 (1) of Cenvat Credit Rules, 2004 for the contraventions mentioned above".
5. The show cause notice as well as the statement of demand were taken up together and after due process of law the original authority upheld the proposals and passed the common impugned order as under:-
"(i) (a) I demand an amount of Rs.24,82,684/- (Rupees twenty four lakhs eighty two thousand six hundred and eighty four only) (Cenvat Rs 24.10.303/- Edu Cess of Rs.48.288/- and SHE Cess of Rs.24.093/-) being the credit of Input service wrongly availed as stated in para 2 (1) supra during the period from January, 2011 to May, 2013 under Rule 14 of Cenvat Credit Rules 2004 read with Section 11 A of the Central Excise Act, 1944, 5
(b) I appropriate a sum of Rs,6,75,625/-Edu Cess Rs.13,613/- and SHE Cess Rs.6756/- (totaling to Rs 6,95,994) debited in cenvat account against the demand in clause (i (a)) above
(c) I demand Interest under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11AA of the Central Excise Act, 1944 towards the duty amount demanded for Rs 24,82.684/- for the period from the liability to expunge the credit to till the date of payment.
(d) I impose Penalty of Rs. 24,82,684/- under Rule 15 (2) of Cenvat Credit Rules, 2004 read with Section 11AC of Central Excise Act 1944,
(ii) (a) I demand an amount of Rs. 72,36,401/- (Rupees Seventy two lakhs thirty six thousand four hundred and one only) being the amount equivalent to the Cenvatcredit taken in respect ofthe written offinputs for the period 2009-10 2012-13under Rule 14 of Cenvat Credit Rules 2004 read with section 11 A of Central Excise Act 1944 for contravention of Rule 3(5)(b) of Cenvat Credit Rules 2004
(b) I appropriate a sum of Rs. 27,36,474/- already debited in the appropriate duty head of cenvat account against the demand of Rs.
72,36,401/-as mentioned (ii) (a) above:
(c) I demand Interest under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11AA of the Central Excise Act, 1944 towards the duty amount demanded for Rs. 72,36,401/- for the period from the liability to expunge the credit to till the date of payment.
(d) I impose Penalty of Rs. 72,36,401/- under Rule 15 (2) of Cenvat Credit Rules, 2004 read with Section 11AC of Central Excise Act 1944.
(iii) (a) I demand an amount of Rs. 1,50,278/- (Cenvat Rs.1,45,901, Edu Cess Rs.2,918/- and SHE Cess Rs.1,459/-) being the excess credit availed by them on account of common input service commonly used by M/s, AVO & M/S, AVO (EOU) for the period 2009-10 and 2010-11 under Rule 14 of Cenvat credit Rules 2004 read with Section 11 A of the Central Excise Act 1944.6
(b) I demand interest under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11AA of the Central Excise Act, 1944 towards the duty amount demanded for Rs. 1,50,278/-as mentioned in clause (iii) (a) above
(c) I impose Penalty of Rs. 1,50,278/-under Rule 15(2) of CCR 2004 read with Section 11AC of Central Excise Act 1944.
(iv) (a) I demand an amount of Rs.4,33,68,282/-(Rupees Four Crores thirty three lakhs sixty eight thousand two hundred and eighty two only) (Cenvat Rs.3,37,36,520/- E.Cess Rs.6,91,656/- SHE Cess Rs.3,12,266/- AED Rs 86,27,840/- being Cenvat the wrong credit availed by them without proper documents under Rule 14 of Credit Rules 2004 read with Section 11A of the Central Excise Act 1944.
(b) I demand Interest under Rule 14 of Cenvat Credit Rules 2004 read with Section 11 AA of the Central Excise Act 1944 towards the duty amount demandedfor Rs. 4,33,68,282/-as mentioned (iv) (a) above.
(c) I impose Penalty of Rs. 4,33,68,282/-under Rule 15 (2) of Cenvat Credit Rules, 2004 read with Section 11AC of Central Excise Act 1944.
(v) (a) I demand an amount of Rs.3,97,029 (Rupees Three Lakhs Ninety Seven Thousand and Twenty Nine Only) (Cenvat Rs.3,85,465/-Education Cess Rs 7,709/- and SHEC Rs.3,855/-) being the credit of input service wrongly availed on certain services as mentioned in SOD for the period June 2013 to September 20013 under of Cenvat Credit Rules 2004 read with Section 11A of Central Excise Act 1944;
(b) I demand Interest under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11AA of the Central Excise Act, 1944 towards the duty amount demanded for Rs. 3,97,029/- as mentioned (v) (a) above.
(c) I impose Penalty of Rs. 1,00,000/-(Rupees One lakh only) under Rule 15 (1) of Cenvat Credit Rules, 2004".
6. Aggrieved by such order the appellant is now before Tribunal.
7. The Ld. Counsel Shri. M. Karthikeyan appeared and argued for the appellant. The first issue is with regard to denial of credit alleging that 7 certain input services do not qualify to be input services under Rule 2 (l) of Cenvat Credit Rules 2004. The Ld. Counsel referred to the definition of input prior to 01.04.2011 and after which reads as under: -
Prior to 01.04.2011:
"input service" means any service, -
(i) used by a provider of taxable service for providing an output service, or
(i) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage uptothe place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal;
After 01.04.2011:
"(1) "input service" means any service,
(i) used by a provider of [output service) for providing an output service;
or
(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal, 8 and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legat services, inward transportation of inputs or capital goods and outward transportation upto the place of removal;
[but excludes), -
(A) service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for -
(a) construction or execution of works contract of a building or a civil structure or a part thereof, or
(b) laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or) [(B) [services provided by way of renting of a motor vehicle), in so far as they relate to a motor vehicle which is not a capital goods; or [(BA) service of general insurance business, servicing, repair and maintenance, in so far as they relate to a motor vehicle which is not a capital goods, except when used by-
(a) a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person; or
(b) an insurance company in respect of a motor vehicle insured or reinsured by such person; or] (C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, 9 membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee;"
8. It is submitted that the various services on which credit has been denied by department are outdoor catering services, courier service used for transportation of finished goods to customers worldwide, civil construction services, logistic services used for export of goods, insurance services for employees, outward transportation services, custom house agent services and credit availed on rent charges paid for EOU unit which was availed by the DTA unit.
8.1 It is submitted that the appellant has availed outdoor catering services for the period prior to 01.04.2011 as well as after the said date. As per the definition for the period prior to 01.04.2011, the appellant is eligible for credit on outdoor catering services. After the amendment to the definition of input services w.e.f. from 01.04.2011 the credit on outdoor catering services is not eligible. The appellant is not contesting this issue for the period post 01.04.2011.
9. The department has denied the credit availed on service tax paid on rental charges paid by the appellant for their EOU unit. It is submitted that they had two units, one being a DTA unit and the other being an EOU unit which were situated adjacent to each other. The EOU unit was debonded in August 2011. Though they had applied for the debonding of EOU during November 2010 itself, the debonding and exit from EOU status happened in August 2011 only. They were carrying out job work activity for DTA unit 10 alone in the debonded EOU. The credit of rent paid for the debonded EOU was earlier availed by the appellant in their DTA unit which according to the department is incorrect and ineligible. Taking note of the same, the appellant reversed the credit availed in the DTA unit and the same was taken by their EOU unit (debonded). As the credit has been reversed the demand cannot sustain. The appellant is not liable to pay interest as the appellant had sufficient credit balance during the relevant time. The Ld. Counsel produced the statement of credit balance of the DTA unit for the period April 2009 to March 2013 to argue that they were continuously holding credit balance of Rs.3 crores during the period from April 2009 to March 2013. For this reason, the credit availed by the DTA unit having been reversed by the appellant the appellant is not liable to pay interest also. It is submitted by the Ld. Counsel that this issue is not contested by the appellant for the reason that after reversal, the EOU unit has availed the credit and the department has not disputed the same till date.
10. The department has denied credit availed on courier services used for export of goods. The appellant had incurred courier charges for outward transportation of goods from the place of manufacture to the customer's premises. The purpose of manufacture is to enable the goods manufactured to reach the customer premises. The courier charges incurred for carrying the goods up to the customer's premises is eligible for credit. The decision in the case of Solara Active Pharma Sciences Ltd, - 2019 (7) TMI 1172 and Matrix Comsee Pvt Ltd - 2022 TIOL 322 Cestat, Ahmedabad, was relied.
11. The department has denied credit availed on GTA services used for outward transportation of goods from the factory to the customer's premises. The Ld. Counsel referred to the master circular no.97/8/2007 11 dated 23.08.2007. It is submitted that the freight incurred by them is included in the assessable value and they are paying excise duty on such assessable value. They are not collecting any freight charges separately over and above the assessable value. The decision in the case of Delta Electronics, India Pvt Ltd - 2023 (9) Centax 214 was relied by the appellant to argue that when the freight charges are included in the assessable value, the credit on outward transportation of goods should be allowed. The Interim Order No.40020/2023 dated 21.12.2023 rendered by the Larger Bench of the Tribunal in the case of Ramco Cements Ltd was adverted to by the Ld. Counsel to submit that it was held by the Larger Bench of Tribunal that if the place of removal is proved to be the customer's premises, the credit on outward transportation is eligible. The Ld. Counsel prayed that the said credit may be allowed.
12. The department has denied credit availed on civil construction services. It is submitted that the appellant had availed credit on civil works carried out for the purpose of renovation of the factory premises. The factory premises have a direct nexus with the manufacturing activities carried out by the appellant. It is submitted that the appellant is eligible for credit for the period prior to 01.04.2011. The credit availed by the appellant for the period after 01.04.2011 has been reversed by them and is not contesting the issue for the period after 01.04.2011.
13. The department has denied the credit in regard to logistic services used for export of goods. The Ld. Counsel submitted that it is settled in law that the place of removal in respect of export of goods is the port of export and all services availed till the goods are placed on board of the vessel are eligible input services. The appellant placed reliance on the decision in the 12 case of Angiplast (P) Ltd - 2012 (9) TMI 735 - Cestat Ahmedabad and Orient Craft Ltd Versus CCE Delhi - 2017 (5) TMI 876 - Cestat Chandigarh.
14. The department has denied the credit in respect of insurance services (hospital). It is submitted that the appellant has paid service tax on the insurance premium covering employee under group insurance for life and health and these are eligible input services. The Ld. Counsel adverted to the definition of input services and submitted that for the period up to 31.03.2011, the appellant would be eligible for credit. The appellant has reversed the credit availed in regard to these services post 01.04.2011 and is not contesting the issue post 01.04.2011.
15. The second issue is the demand confirmed alleging that the appellant has availed credit on common input services used for EOU unit as well as the DTA unit. The allegation of the department is that the appellant has availed Cenvat credit on services in the nature of group audit, internal audit, security, banking and financial services, preparation of transfer pricing documentation, consultancy services etc., which were commonly used by the DTA unit and the EOU unit situated adjacently. The DTA unit and EOU unit are eligible to avail Cenvat credit proportionately and this has not been disputed by the department. The only allegation is that the appellant being a DTA unit should have taken the credit proportionately and not fully. The Ld. Counsel pointed out that if the appellant (DTA unit) had taken ISD registration, they could have transferred the entire credit to the DTA unit. Merely for not following the procedure of taking ISD registration, the department has denied the credit and confirmed the demand. The decision in the case of Dashion Limited 2016 (2) TMI 183, Gujarat, High Court was relied by the Ld. Counsel.
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16. The third issue is with regard to the demand confirmed alleging that the appellant is required to reverse the credit when inputs /capital goods are written off. In paragraph 3 of the show cause notice, it is alleged that the appellant has written off the value of non-moving and slow moving stock of raw materials to the value of Rs. 301.62 lakhs, Rs.188.41 lakhs, Rs. 162.21 lakhs and Rs. 0.42 lakhs respectively during the years 2009-10 to 2012-13 in their books of account. In terms of Rule 3 (5B) of Cenvat Credit Rules, it is proposed in show cause notice that the appellant has to reverse credit to the extent of Rs. 72,36,401/-.
17. It is submitted that Rule 3 (5B) was amended with effect from 01.03.2011, which provided that the credit has to be reversed even if the inputs are partially written off. Prior to this date, the provision did not specifically state that credit has to be reversed when the goods are not fully written. It is submitted that the appellant has only partially written down the value of the non-moving stock and therefore, not liable to reverse the credit prior to 01.03.2011. Further, it is submitted that there is no machinery provision available for making such a reversal or recovery of such amounts and the same was introduced by way of explanation only with effect from 01.03.2013. Accordingly, the demands proposed for the period prior to 01.03.2011 is not sustainable. The decision in the case of GKN Driveline (India) Ltd Vs. CCE, Delhi III - 2023 (9) TMI 1131 Cestat- Chandigarh. The decision in the case of Haver Ibau India Pvt Ltd - 2023 (10) TMI 677 Cestat, Ahmedabad, Ericsson India Ltd - 2019 (3) TMI 776 Cestat, New Delhi was relied. It is submitted that the appellant has already reversed Rs.28,06,689/- for the period from 2010-11 to 2012-2013. For the period prior to 01.03.2011 to 01.03.2011 the appellant is not liable to reverse as 14 decided in the above judgements. The Ld. Counsel referred to the table in impugned order (internal page 22 of the Order-in-Original dated 14.10.2014). It is submitted that the value written off for the period 2009- 2010 (31,06,686) is fully prior to 01.03.2011. For the period 2010-2011 (19,40,623) eleven months is prior to 01.03.2011. The value for period 2011-12 (16,70,763) and for the period 2012-13 (5,18,329) has to be reversed. The total required to be reversed would only be 21,89,092/-. The appellant has reversed Rs.27,24,941/- of duty which is excess. This demand also has been raised invoking the extended period. As the appellant had sufficient credit balance in their Cenvat account during the relevant period, the appellant cannot be saddled with the guilt of intention to evade payment of duty on this allegation. It is prayed that the demand may be set aside.
18. The next issue is the demand confirmed alleging that the credit has been taken without documents. The appellant had a DTA unit and another EOU unit adjacently. Consequent to the debonding of EOU unit, the appellant decided to merge both units together and they have taken credit of Rs.4,33,68,282/- in the DTA unit being the closing credit balance available in the debonded EOU unit. It is the allegation of the department that the credit of EOU cannot be transferred to DTA and that credit has been availed without any proper document as prescribed under Rule 9 of CCR. This proposal is based on the audit objection raised during June -July 2013. The audit has taken the view that there is no provision under Rule 10 of Cenvat Credit Rules 2004 to transfer credit from EOU unit to DTA unit.
19. It is submitted that the appellant vide letter dated 13.09.2012 addressed to the Superintendent, Mugappair Division requesting permission for merging of their debonded EOU unit with the existing DTA. However, no 15 response was received from the department and then the appellant sent a reminder letter dated 10.12.2012. Still there was no response to the request made by the appellant and vide letter dated 09.04.2013 the appellant informed the department, that with effect from 01.03.2013 the debonded EOU is going to merge with the DTA unit. It was also informed that as a consequence of merging, the stock of materials and Cenvat credit balance of both units together are accounted in the DTA unit with the registration number of DTA unit.
20. The Learned Counsel submitted that since the EOU unit had already debonded and NOC granted in 2011 itself, it had continued to function only as a DTA unit. The debonded unit has taken credit of the duties paid at the time of debonding as a DTA unit. Under such circumstances, the objection raised by the audit, that there is no provision under Rule 10 for transfer of credit from EOU unit to DTA unit is erroneous. The department has denied the credit alleging that there are no documents as specified under Rule 9 of CCR 2004 for availing the credit in the DTA unit. It is argued by the Learned Counsel that when the credit is transferred, there is no requirement for any documents except debits which should be made in Cenvat credit account of the transferring unit. To support the arguments, the Learned Counsel relied upon the decision in the case of the M/s. Wipro Ltd., Vs. Commissioner of GST & CE, Chennai - 2023 (6) TMI 237 Cestat Chennai and M/s Super Auto Forge Limited Vs Commissioner of GST and Central Excise, Chennai 2023 (10) TMI 1086 - Cestat Chennai.
21. In the show cause notice it is alleged that a proceeding has been already initiated to deny credit of Rs.1,49,33,353/- taken by the debonded unit on inputs. An Order-in-Original No.16/2013 dated 10.12.2013 had been 16 passed denying such credit. Against such order, the appellant preferred an appeal before the Tribunal and vide Final Order No.40274/2017 dated 14.02.2017, the Tribunal held that the Cenvat credit of capital goods at the time of debonding is available to the appellant but the credit in respect of inputs is not eligible. The Tribunal thus denied the credit on inputs. Aggrieved by such order, the appellant preferred appeal before the Hon'ble Jurisdictional High Court vide CMA No.3023/2017. As per judgment dated 06.08.2019 reported in 2019 (29) GSTL 605, the Hon'ble High Court held that the Cenvat Credit on inputs (raw materials) is also eligible and cannot be denied. In view of the order passed by the Hon'ble High Court, this part of the demand confirmed (alleging transfer of credit from EOU to DTA) in the impugned order is not sustainable. It is submitted that the demand of interest on the amounts confirmed is not sustainable, as the appellant had sufficient credit balance during the disputed period.
22. The Ld. Counsel argued on the ground of extended period also. It is submitted that all facts were within the knowledge of the department and appellant had issued series of letters before transferring the credit. The appellant had filed regular ER1 returns for the DTA as well as the EOU. There is no positive act of suppression alleged or established against the appellant. For this reason, the invocation of extended period cannot sustain and the demand for the extended period requires to be set aside. The Ld. Counsel prayed that the appeal may be allowed.
23. The Ld. AR Shri. M. Selvakumar appeared and argued for the department. In regard to the first issue of credit availed on ineligible input services, it is submitted that the appellant has availed credit on outdoor catering services, civil construction services and insurance services which 17 are excluded from the definition of input services with effect from 01.04.2011. So, also the services in the nature of courier charges, CHA services have not been established to be having nexus with the manufacturing activity carried out by the appellant. In regard to GTA services, the Ld. AR submitted that the appellant has to establish that the buyer's premises is the place of removal. It requires to be verified whether the buyer's premises is the place of removal. For this purposes the matter may be remanded.
24. The second issue is with regard to the credit denied on the service tax paid on rental charges, the Learner AR submitted that the DTA unit has availed credit of the rental charges paid for the EOU unit. The argument of the appellant that if they had taken ISD registration, they would be able to distribute the proportionate credit cannot be accepted.
25. The next issue is with regard to the confirmation of demand for not reversing the credit on inputs which have been written off. It is argued by the Ld. AR that when the appellant has written off inputs on which credit have been availed, the credit should have been reversed. The appellant has reversed the credit only later which would show that they accept the situation that they have to reverse the credit. The appellant though has reversed certain amount is liable to pay interest till the date of reversal of credit.
26. The appellant has availed credit without proper documents as prescribed under Rule 9 of CCR 2004. This is because the appellant has transferred credit from EOU unit to DTA unit. The EOU unit was debonded on 12.08.2011 as a DTA unit. They have later transferred the credit lying in 18 the EOU unit to the DTA unit. There is no provision in the CCR 2004 for transfer of credit from EOU unit to DTA unit after debonding. The amount confirmed in this regard is legal and proper. It is submitted that part of the demand under this issue is for credit availed on inputs. The said matter had been appealed by the appellant before the Hon'ble Jurisdictional High Court. The Hon'ble High Court held that the credit availed in respect of inputs is eligible. At the time of passing impugned order, the decision was not passed by Hon'ble High Court.
27. The argument of the appellant that they are not liable to pay interest on the credit that has been reversed by them was countered by the Ld. AR by submitting that Rule 14 of CCR 2004 uses the words "taken and utilized wrongly". Though appellant may have credit balance, when they have taken credit erroneously the Rule 14 would apply. The appellant is liable to pay interest.
28. In regard to the extended period the Ld. AR submitted that the violation would not have come to light but for the verification conducted by the audit. The Ld. AR prayed that the appeal may be dismissed.
29. Heard both sides.
30. The first issue to be decided is whether the credit availed on various inputs services is eligible or not. The period of dispute is prior to 01.04.2011 as well as after. The definition of input services prior to 01.04.2011 has already been reproduced above. The said definition uses the words "activities relating to business". The definition was wide enough to include almost all services. The appellant is eligible for the credit availed on services like outdoor catering services, courier service, civil construction services, 19 logistic services, custom house agent services, insurance services availed for the period prior to 01.04.2011. All these services fall in the inclusive part of the definition of input services. We therefore find that the appellant is eligible for credit for all these services prior to 01.04.2011.
31. After 01.04.2011 the definition excludes services in the nature of outdoor catering services, insurance and civil construction services. The Ld. Counsel for appellant has submitted that they have reversed the credit for the period after 01.04.2011 with regard to these services. It is also submitted that the appellant is not contesting the issue on eligibility of credit on services like outdoor catering, civil construction, insurance (hospital) for the period after 01.04.2011. The demand confirmed for the period after 01.04.2011 on this issue is upheld.
32. So also the appellant's DTA unit has availed credit of service tax paid on rental charges for EOU. The amount has been reversed by the DTA unit and has been re-availed by the EOU. The appellant has submitted that they are not contesting this issue. For this reason, the demand in respect of rental charges is upheld.
33. The appellant has reversed the credit and had sufficient balance during the disputed period. The decision in the case of Hello Minerals Water (P) Ltd., Vs. Union of India - 2004 (174) ELT 422 - Allahabad would squarely apply. Commissioner of C. Ex & ST - LTU Bangalore Vs. Bill Forge Pvt. Ltd., 2012 - (279) ELT 209 (Kar.). The relevant part of the judgement reads as under: -
20. From the aforesaid discussion what emerges is that the credit of excise duty in the register maintained for the said purpose is only a book entry. It might be utilised later for payment of excise duty on the excisable product. It is entitled to use the credit at any time 20 thereafter when making payment of excise duty on the excisable product. It matures when the excisable product is received from the factory and the stage for payment of excise duty is reached. Actually, the credit is taken, at the time of the removal of the excisable product. It is in the nature of a set off or an adjustment. The assessee uses the credit to make payment of excise duty on excisable product. Instead of paying excise duty, the cenvat credit is utilized, thereby it is adjusted or set off against the duty payable and a debit entry is made in the register. Therefore, this is a procedure whereby the manufacturers can utilise the credit to make payment of duty to discharge his liability.
Before utilization of such credit, the entry has been reversed, it amounts to not taking credit. Reversal of cenvat credit amounts to non-taking of credit on the inputs.
21. Interest is compensatory in character, and is imposed on an assessee, who has withheld payment of any tax, as and when it is due and payable. The levy of interest is on the actual amount which is withheld and the extent of delay in paying tax on the due date. If there is no liability to pay tax, there is no liability to pay interest. Section 11AB of the Act is attracted only on delayed payment of duty i.e., where only duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, the person liable to pay duty, shall in addition to the duty is liable to pay interest. Section do not stipulate interest is payable from the date of book entry, showing entitlement of Cenvat credit. Interest cannot be claimed from the date of wrong availment of CENVAT credit and that the interest would be payable from the date CENVAT credit is taken or utilized wrongly.
Applying the decision and also taking note that appellant had sufficient credit balance, the demand of interest in this regard cannot sustain and requires to be set aside. Ordered accordingly.
34. The second issue is with regard to confirmation of demand Rs.1,50,278/- alleging that certain input services which have been used commonly for DTA unit and EOU. The Ld. Counsel has argued that if the appellant had taken ISD registration they would able to distribute the credit to DTA and EOU units as per Rule 7 of CCR, 2004. Applying the ratio laid in the decision in the case of Dashion Ltd., (supra) the demand cannot sustain. The relevant part reads as under:-
4. It is undisputed that the Rules of 2004 provide for a scheme for distribution of credit by input service distributor. Term "input service distributor" has been defined in in Rule 2(m) of the Rules of 2004 as to mean an office of the manufacturer or producer of final products or provider of output service, which receives invoices issued under Rule 4A of the Service Tax Rules, 1994 towards purchases of input services and issues invoice, bill or, as the case may be, challan for the purposes of 21 distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be.
5. Rule 7 pertains to manner of distribution of credit by input service distributor. At the relevant time, this Rule 7 permitted input service distributor to distribute Cenvat credit in respect of service tax paid on the input service to its manufacturing units or units providing output service, subject to the two conditions, viz. :-
"(a) the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon;
(b) credit of service tax attributable to service [used by one or more units] exclusively engaged in manufacture of exempted goods or providing of exempted service shall not be distributed;"
5.1 It was only later on that additional condition by way of Clause (d) to Rule 7 was added, which reads as under : -
"credit of service tax attributable to service used by more than one unit shall be distributed pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all its units, which are operational in the current year, during the said relevant period."
6. The first objection of the Department therefore that the credit from one unit was utilized for the purpose of duty liability of other unit without pro rata distribution by the input service distributor therefore would not survive in view of no previous restriction of this nature flowing from Rule 7 of the Rules of 2004. In fact, the Tribunal has seen entire situation as a Revenue neutral, since as pointed out by the assessee, it had availed only 20% of the credit for payment of service tax and the balance was paid in cash.
7. The second objection of the Revenue as noted was with respect of non-registration of the unit as input service distributor. It is true that the Government had framed Rules of 2005 for registration of input service distributors, who would have to make application to the jurisdictional Superintendent of Central Excise in terms of Rule 3 thereof. Sub-rule (2) of Rule 3 further required any provider of taxable service whose aggregate value of taxable service exceeds certain limit to make an application for registration within the time prescribed. However, there is nothing in the said Rules of 2005 or in the Rules of 2004 which would automatically and without any additional reasons disentitle an input service distributor from availing Cenvat credit unless and until such registration was applied and granted. It was in this background that the Tribunal viewed the requirement as curable. Particularly when it was found that full records were maintained and the irregularity, if at all, was procedural and when it was further found that the records were available for the Revenue to verify the correctness, the Tribunal, in our opinion, rightly did not disentitle the assessee from the entire Cenvat credit availed for payment of duty. Question No. 1 therefore shall have to be answered in favour of the respondent and against the assessee. 34.1 Relying on the above decision we are of the view that the demand cannot sustain and requires to be set aside. Order accordingly. 22
35. Third issue is with regard to the allegation that the credit is taken without documents. From the facts, it is seen that this allegation has been raised when the credit lying with debonded EOU was transferred to DTA unit.
36. The appellant requested the department permission to merge the debonded unit with the existing DTA unit as one common DTA unit. Though several letters were sent to the department, there was no response. Thereafter, the appellant merged both the units and transferred the unutilized credit lying in the Cenvat account of the debonded EOU unit to the merged DTA unit. Rule 10 of Cenvat Credit Rules 2004, provides for transfer of credit from one DTA unit to another DTA unit. The department is of the view that since the unit had availed the credit as EOU unit, even though it has been debonded and become a DTA unit, the credit cannot be transferred. The same issue has been analyzed and decided by the Tribunal in the case of M/s Wipro Limited Vs Commissioner of GST and Central Excise Chennai, 2023 (6) TMI 237 Cestat Chennai, wherein it was held that the credit carried forward to the DTA unit after de-bonding cannot be denied. The relevant part reads as under:-
11. In the case of Jubilant Life Sciences Ltd. (supra), it is held as under:
"3. At the outset, the learned Advocate for the Appellant has submitted that the Appellant, after conversion of their 100% EOU to DTA unit, continued to retain the same Central Excise registration, hence the credit lying in balance as on the date of de- bonding ought to be admissible and has been rightly transferred to the DTA unit. It is his contention that the issue of admissibility of CENVAT Credit lying in balance in the accounts of 100% EOU, on the date of its conversion to DTA unit, is no more res integra and covered by the following judgment of the Tribunal.
i) Technocraft Industries (India) Ltd Vs CCE 2018 (12) TMI 8-CESTAT, Mumbai
ii) Tecumseh Products India P.Ltd Vs CC,CE&ST, Hyderabad-IV 2016 (336) ELT 685 (Tri-Bang.)
iii) John Deere India Pvt. Ltd Vs CCE, Pune-III 2015 (326) ELT 205 (Tri-Mumbai)
iv) CCE, Thane-I Vs Sequent Scientific Ltd 2018 (4) TMI 590-CESTAT Mumbai.23
4. The learned A.R. for the Revenue reiterates the findings of the learned Commissioner (Appeals).
5. We have carefully considered the submissions advanced by both sides and perused the records. The short point involved in the present appeal for consideration is whether CENVAT Credit lying in balance in the books of account of 100% EOU as on the date of de- bonding, could be transferred to the DTA unit. We find that the issue has been considered by this Tribunal in series of judgments viz. Technocraft Industries (India) Ltd Vs CCE (supra), Tecumseh Products India P.Ltd Vs CC,CE&ST (supra), Hyderabad-IV, John Deere India Pvt. Ltd Vs CCE(supra), Pune- III and CCE, Thane-I Vs Sequent Scientific Ltd(supra). It has been consistently held by the Tribunal in all these cases that the CENVAT Credit lying in balance as on the date of de-bonding of 100% EOU and conversion to DTA unit, could be transferred to the DTA unit and be utilised by the said unit. Following the principle consistently laid down by the Tribunal in aforesaid cases, we do not find merit in the impugned order, which is contrary to the said precedents.
6. Consequently, the same is set aside and the appeal is allowed with consequential relief, if any, as per law." .
37. Following the above decision, we are of the considered opinion that the denial of credit alleging that the transferred credit has been availed without documents cannot sustain and require to be set aside. Order accordingly.
38. It also needs to be noted that part of this demand relates to credit availed in respect of inputs at the time of de-bonding. The adjudicating authority as well as the Tribunal denied the eligibility of credit on inputs availed by EOU consequent to de-bonding. The appellant preferred an appeal before the Hon'ble Jurisdictional High Court and the issue was held in favour of the appellant. Thus, the issue as to whether credit can be availed on inputs at the time of de-bonding stands settled in favor of appellant. The Hon'ble High Court in the appellant's own case reported in 2017 (4) TMI 428
- Cestat, Chennai considered the issue and held as under to conclude that the credit on inputs is eligible at the time of debonding. The relevant part reads as under:-
12. We find that the Commissioner has rejected the request for Cenvat credit on the raw material mentioned at SI. No. 1, Sl. No. 2, Sl. No. 4 and Sl. No. 5 of the Table at 24 page 6 of the OIO. The Commissioner has held that the assessee is not eligible to take Cenvat credit on imported and indigenous raw materials by rejecting the reasoning that permitting to take credit of Central Excise duty paid on indigenous capital goods would equally apply to the Cenvat credit taken on imported capital goods and raw materials. The basis for taking this view is due to the fact that proviso to Rule 3(1) of Cenvat Credit Rules, 2004 provides for only allowing Cenvat credit in respect of the amount equal to the Central Excise duty paid on the capital goods at the time of debonding of the unit in terms of para 8 of the Notification No. 22/2003-C.E.
13. The appellant has pleaded that the Central Excise duty paid on indigenous excisable raw material and additional duty of Customs paid on imported raw materials should be allowed because there is neither denial nor barring provision in the Cenvat Credit Rules, 2004 to debar the appellant from taking Cenvat credit of additional duty of Customs paid on imported raw materials and excise duty paid on indigenous raw materials.
14. We find from a plain reading of Cenvat Credit Rules, 2004 that these rules were framed under Section 37 of the Central Excise Act, 1944 to provide for the Cenvat credit of duty paid in relation to the manufacture of excisable goods. Rule 3 of these rules specifically enumerates the duty of excise on which the manufacturer is allowed to take Cenvat credit. Further, where there are restrictions on availment of Cenvat credit, the same have been spelt out in the provisos to Rule 3(1) of Cenvat Credit Rules, 2004. From a reading of these rules, it is clear that the Cenvat credit scheme is self-contained and scheme spells out inclusion, exclusion and restriction on availment as well as utilization of Cenvat credit.
15. The insertion of the proviso relating to Cenvat credit on capital goods at the time of debonding of the unit was done in 2008 by way of Notification No. 35/2008-
C.E. (N.T.) shows that the legislative intent at that time was to allow Cenvat credit to be taken in respect of the capital goods only at the time of debonding. It also implies that the benefit was not available for inputs and raw materials at the time of debonding because the Legislature in its wisdom has not included the raw material or inputs in the proviso or at any other place in Rule 3 of Cenvat Credit Rules, 2004. The specific inclusion of the proviso in respect of the capital goods meant that the Cenvat credit should be extended only to that extent and applicability of the Cenvat Credit Rules to raw materials and inputs, at the time of bonding by necessary implication stood excluded.
16. In the case law of Rajdhani Fab Pvt. Ltd. (supra) cited by the appellant, the limited question before the Tribunal was whether the Cenvat credit was admissible on duty paid indigenously procured capital goods and the Hon'ble court settled that question only. The question of admissibility to Cenvat credit on raw materials was not before the Hon'ble court. Hence, that judgment is not pertinent to the issue at hand.
17. As regards the Cenvat credit on raw materials on account of wastage involving Rs. 12,022/-, the Commissioner has rightly held that in terms of Rule 2(l) of Cenvat Credit Rules, 2004, input means all goods used in the factory for the manufacture of final products. In terms of Rule 3 of the Cenvat Credit Rules, 2004, Cenvat credit can 25 be taken on inputs used in the manufacture of the final products. In the instant case, assessee had taken credit of Rs. 12,022/- on duty paid on account of wastage of raw materials. Any waste of raw materials cannot be inputs and are not used in final product. Further Rule 2(l) specifically states input means all goods used in the factory for the manufacture of final products. Accordingly, the assessee is not eligible to take Cenvat credit on such waste.
18. Of the two case laws relied upon by the appellant, the order in the case of Anil Special Steel Industrial Area Ltd. - 2010 (262) E.L.T. 685 (Tri.-Del.) is in relation to a stay application, which is a prima facie view, and cannot be relied upon while deciding the appeal. The second case law in the case of Agarwal Indotex Ltd. - 2010 (261) E.L.T. 935 (Tri.-Del.) is not applicable to the facts of this case. In that case, the inputs on which Cenvat credit was claimed have been used in the manufacture of final products which had been exported. This is not the situation in the instant matter.
19. As regard the admissibility of Cenvat credit on imported capital goods (Sl. No. 3 of the Table at page 6 of OIO), the Commissioner has held that the assessee is eligible to take Cenvat credit of Rs. 5,67,390/- of CVD/AED paid on imported machinery and tools. He also held that TR-6 challan is a valid document to take Cenvat credit of CVD/AED in respect of the capital goods (Sl. No. 3 of the Table at page 6 of OIO). The Cenvat credit has been denied on the ground that the assessee did not produce TR-6 challan, bills of entries or invoices containing the details of duty payment. The appellants have enclosed the copies of the official correspondences stating that (pages 53 and 51 of the paper book) all the TR-6 challans in question were submitted to the department even before availing the Cenvat credit. Since production of challans and eligibility thereof for Cenvat credit on capital goods is a question of fact, which needs to be verified, the same is liable to be remanded to the adjudicating authority for verification.
20. In view of above, the order of the Commissioner is upheld in respect of duty, interest and penalty in relation to raw materials and waste (Sl. No. 1, Sl. No. 2, Sl. No. 4 and Sl. No. 5 at page 6 of O-I-O).
21. In respect of the capital goods mentioned at (Sl. No. 3 of the Table at page 6 of O-I-O), the matter is remanded back to the adjudicating authority to examine afresh the evidence produced by the appellants in support of their claim about payment of duty and to decide the matter in accordance with law after affording a reasonable opportunity to the appellants to present their case.
39. The Ld. Counsel has argued on the ground of limitation also. Show Cause Notice and Statement of demand are issued for the period 2009-10 to 2012-13. Part of the demand falls within the extended period. In the present case, the issues are mostly interpretational in nature. In respect of one issue as to the eligibility of credit on inputs at the time of debonding, 26 the appellant had approached the Hon'ble High Court. The issue with respect to credit on various input services is also interpretational in nature, as an amendment was introduced in the definition on inputs services w.e.f. 01.04.2011. Further, there is no positive act of suppression established against the appellant. Show cause notice has been issued based on the objections raised by the audit. As and when pointed out, the appellant has reversed the credit in respect of the issue of write off as well as ineligible input services post 01.04.2011.
40. The appellant had enough credit balance during the disputed period. A statement showing the details has been filed by the Ld. Counsel along with the synopsis. Taking all these aspects, we are of considered opinion that there are no grounds for invoking the extended period. The issue of limitation is answered in favour of the assessee and against the Revenue. For the same reasons, the penalties imposed are also set aside.
41. In the result the impugned order is modified as under:-
(i) the demand raised in regard to disallowing credit on input services for the period prior to 01.04.2011 is set aside entirely. The demand of interest and penalties imposed are set aside. The disallowance of credit in regard to input services such as outdoor catering, civil construction, and insurance for the period after 01.04.2011 and rental charges are upheld.
(ii) The demand in respect of the issue on write off of obsolete items is set aside for the period prior to 01.03.2011. However, the demand for the period after 01.03.2011 is sustained. The appellant has reversed the credit of Rs.27,36,474/- being after 01.03.2011. They are liable to pay duty after 01.03.2011 only. The demand confirmed on this issue is Rs.72,36,340/-.27
The amount confirmed in excess of Rs.27,36,474/- along with interest is set aside. The penalty on this issue is set aside.
(iii) The demand of Rs.1,50,278/- alleging wrongful availment of common credit for of EOU & DTA is set aside.
(iv) The demand alleging wrongful transfer of credit from EOU to DTA (which includes the credit allowed as per the order of the Hon'ble High Court) is set aside. The interest and penalties in regard to all the above demands are set aside.
42. The appeals are partly allowed in above terms with consequential reliefs, if any.
(Order pronounced in the open court on 26.08.2024)
(VASA SESHAGIRI RAO) (SULEKHA BEEVI. C.S)
Member (Technical) Member (Judicial)
psd