Custom, Excise & Service Tax Tribunal
Agrawal Metal Works Pvt Ltd vs Commissioner, Cgst -Alwar on 19 July, 2022
Author: Dilip Gupta
Bench: Dilip Gupta
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI.
PRINCIPAL BENCH, COURT NO. 1
SERVICE TAX APPEAL NO. 50200 OF 2020
[Arising out of the Order-in-Appeal No. 277 (CRM) CE/JPR/2019 dated
07/10/2019 passed by Commissioner (Appeals), Central Excise & CGST,
Jaipur.]
M/s Agrawal Metal Works Pvt. Ltd., ...Appellant
SPL-144, RIICO Industrial Area, Phase - I,
Bhiwadi - 301 109, District : Alwar (Raj.).
Versus
Commissioner of Central Goods ...Respondent
and Service Tax,
A Block, Surya Nagar,
Alwar - 301 001.
APPEARANCE:
Shri T.R. Rustagi, Advocate for the appellant.
Shri Ravi Kapoor, Authorized Representative for the Department
CORAM:
HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL)
FINAL ORDER NO. 50625/2022
DATE OF HEARING : 07.07.2022
DATE OF DECISION: 19.07.2022
P.V. SUBBA RAO
M/s Agrawal Metal Works Pvt. Ltd.1 has filed this appeal
assailing the order-in-original dated 07.10.20192 passed by the
Commissioner (Appeals), Central Excise & CGST, Jaipur, whereby
he rejected the appellant's appeal against the order-in-original
dated 21.02.2019 passed by the Additional Commissioner.
1
appellant
2
impugned order
2 ST/50200 OF 2020
2. The appellant is registered with the Central Excise
Department and manufactures Copper Wire, Brass Wire, Copper
Sheet and Brass Sheet and has been paying central excise duty,
as appropriate. In addition, the appellant also undertakes for
other firms job work of converting copper and copper alloys. In
respect of the job work, the appellant availed exemption from
central excise duty under Notification No. 214/86-CE dated
25.03.1986. As per the scheme of this notification, the appellant
would clear intermediate goods to the supplier of the raw
material who would complete the manufacturing process and pay
excise duty on the final product at his end. It is undisputed that
this job work has been taking place for a long time and that the
appellant has been claiming the benefit of the aforesaid
exemption of notification. On 18.06.2018, a show cause notice3
was issued by the Additional Commissioner, CGST (Audit), Jaipur
stating that the job work carried out by the appellant is "an
exempted service" and since the appellant had not maintained
separate records in respect of the common inputs and input
services used for manufacture of its dutiable final products and
for providing this exempted service, it was required to pay an
amount as per Rule 6(3) of the Cenvat Credit Rules, 20044.
Accordingly, a demand was made on the appellant for an amount
under Rule 6 (3), equal to 7% of the value of the exempted
services. In the SCN, the appellant was called upon to explain, as
to why:
3
SCN
4
CCR
3 ST/50200 OF 2020
"(i) An amount of Rs. 1,67,85,366/- not paid by them in
terms of Rule 6 (3) (i) of CCR, 2004, as they were required
to pay 7% of value of exempted service, should not be
demanded and recovered from them under the provisions
of Rule 14 of the CENVAT Credit Rules, 2004 read with
proviso to Section 73 (1) of the Finance Act, 1994.
(ii) Interest under provisions of Rule 14 of the CENVAT
Credit Rules, 2004 read with Section 75 of the Finance Act,
1994 should not be demanded and recovered from them on
the above amount so not paid, since due, and
(iii) Penalty under Rule 15 of the CENVAT Credit Rules,
2004 read with Section 78 of the Finance Act, 1994, should
not be imposed upon them".
3. The appellant contested the SCN on the ground that it was
not rendering any service, but was manufacturing goods on job
work basis for the principal and has been availing the benefit of
Central Excise Notification No. 214/86-CE dated 25.03.1986. The
Department was well aware of this fact. Since its activity
amounts to manufacture it cannot also simultaneously become a
service. Therefore, no demand can be raised for reversal of an
amount equal to 7% of the value of the job work under Rule 6
(3) of Cenvat Credit Rules.
4. Not agreeing with the submissions, the Original Authority
has passed the following order :-
"(i) I confirm the demand of amounting to Rs.
1,67,85,366/- (Rupees One Crore Sixty Seven Lakhs Eighty
Five Thousand Three Hundred and Sixty Six only) payable
under Rule 6 (3) (i) of the CENVAT Credit Rules, 2004 and
order to recover the same from M/s Agrawal Metal Works
Pvt. Ltd., SP-144, RIICO Industrial Area, Phase-I, Bhiwadi
Distt. Alwar, Rajasthan under Rule 14 (1) (ii) of the
CENVAT Credit Rules, 2004 read with proviso to Section 73
(1) of the Finance Act, 1994.
4 ST/50200 OF 2020
(ii) I confirm demand of interest to be charged at the
applicable rate on the above confirmed amount of Rs.
1,67,85,366/- (Rupees One Crore Sixty Seven Lakhs Eighty
Five Thousand Three Hundred and Sixty Six only) and order
to recover the same from M/s Agrawal Metal Works Pvt.
Ltd., SP-144, RIICO Industrial Area, Phase-I, Bhiwadi Distt.
Alwar, Rajasthan under Rule 14 (1) (ii) of the CENVAT
Credit Rules, 2004 read with proviso to Section 75 of the
Finance Act, 1994.
(iii) I impose a penalty of Rs. 1,67,85,366/- (Rupees One
Crore Sixty Seven Lakhs Eighty Five Thousand Three
Hundred and Sixty Six only) on M/s Agrawal Metal Works
Pvt. Ltd., SP-144, RIICO Industrial Area, Phase-I, Bhiwadi
Distt. Alwar, Rajasthan and order to recover the same from
them under Rule 15 (3) (ii) of the CENVAT Credit Rules,
2004 read with proviso to Section 78 (1) of the Finance
Act, 1994. However, M/s Agrawal Metal Works Pvt. Ltd.,
SP-144, RIICO Industrial Area, Phase-I, Bhiwadi Distt.
Alwar, Rajasthan, has liberty to pay reduced amount of
penalty as laid down in the clause (ii) of second Proviso to
Section 78 (1) of the Finance Act, 1994, if the amount of
demand confirmed at (i) above and interest leviable
thereon is paid within a period of thirty days of the date of
receipt of this order, the penalty shall be twenty-five per
cent of the demand confirmed in this order subject to the
condition that such reduced penalty is also paid within such
period".
5. This order was upheld by the Commissioner (Appeals) by
the impugned order and, hence, this appeal.
6. Learned Counsel for the appellant has submitted as
follows:-
(1) The appellant has been doing job work for several
years and has been availing the benefit of Central
Excise exemption Notification No. 214/86-CE
dated 25.03.1986 which the Department was
aware of. This exemption notification only defers
the payment of central excise duty as it is paid by
the supplier of raw materials after manufacturing
the finished product and not paid by the appellant
only manufactures the intermediate product. At
5 ST/50200 OF 2020
no point of time, has the Department in the past
contended that the appellant was not
manufacturing at all and its job work does not
amount to manufacture. In the SCN, the
Department has contended that the activity of job
work is an exempted service as defined in clause
(e) of Rule 2 of CCR as by virtue of Clause (f) of
Section 66D of the Finance Act, 1994, any process
amounting to manufacture of production of goods
is covered under the negative list. As the
appellant was only rendering the service and was
not manufacturing goods, the appellant has taken
credit of common input services used in dutiable
goods and exempted service, and hence was
liable to pay an amount equal to 7% of the value
of exempted service as job work in terms of Rule
6 (3) of CCR.
(2) The Department's interpretation is not correct
since the appellant was manufacturing
intermediate goods and were not rendering any
service. The same activity cannot be both a
manufacture (which falls under the Central Excise
Act) and service (which falls under Chapter V of
the Finance Act, 1994). The goods manufactured
and removed under exemption Notification No.
214/86-CE dated 25.03.1986 are not exempted
goods, but only goods where the payment of duty
is deferred. Therefore, they were manufacturing
dutiable goods on job work basis and were not
rendering any exemption service. Reliance is
placed on the following case laws :-
(a) Bentley & Remington Pvt. Ltd. Versus
Commissioner of Central Excise,
Bangalore5
5
2016 (46) S.T.R. 671 (Tri. - Bang.)
6 ST/50200 OF 2020
(b) Aurangabad Auto Engineering Pvt. Ltd.
Versus Commissioner of Central Excise,
Aurangabad6
(c) Western India Forging P. Ltd. Versus
Commissioner of Central Excise, Pune7
(d) Polycab Industries versus
Commissioner of Central Excise,
Daman8
7. It is on the basis of the aforesaid submissions that the
learned Counsel submitted that the demand is not sustainable on
merits. Learned Counsel further submitted that the notice is
time-barred as all facts of the appellant activities are within the
knowledge of the Department. Further, as the demand itself is
not sustainable on merits the question of imposition of penalty
also does not arise. It has, therefore, been submitted that the
appeal may be allowed and the impugned order may be set
aside.
8. On behalf of the Revenue, learned Authorized
Representative reiterated the findings of the impugned order and
the order-in-original. He further placed reliance on the judgment
of the Supreme Court in the case of Commissioner of Customs
(Import), Mumbai versus M/s Dilip Kumar and Company &
Ors.9 He prayed that the appeal may be dismissed.
6
2015 (40) S.T.R. 776 (Tri. - Mumbai)
7
2014 (36) S.T.R. 637 (Tri. - Mumbai)
8
2010 (19) S.T.R. 585 (Tri. - Ahmd.)
9
2018 (361) E.L.T. 577 (S.C.)
7 ST/50200 OF 2020
9. We have considered the submissions on both sides and
perused the records.
10. It is undisputed that the appellant has been manufacturing
goods on job work basis and has been clearing them without
paying duty as per the Notification No. 214/86-CE dated
25.03.1986. If the activity amounted to manufacture- which has
not been disputed by the Revenue at all in the past- it cannot
also simultaneously become a service. If the processes
undertaken by the appellant on job work did not amount to
manufacture and was only a service, Revenue should have said
so while assessing its central excise returns. Revenue should
have informed that the appellant that it was not liable to pay any
central excise duty at all and there was no need to claim the
benefit of exemption Notification No. 214/86-CE dated
25.03.1986. Having accepted the excise returns claiming the
process to be manufacture and knowing that the appellant was
claiming the exemption notification from Excise duty, Revenue
cannot at the same time take a stand that the processes amount
to rendering a service and that such service was an exempted
service. If Revenue was of the opinion that it's original position
was not correct and no manufacture was involved at all in the
process undertaken by the appellant it should have brought out
cogent reasons for holding so. Therefore, there is no basis for the
allegation in the show cause notice that the appellant was
rendering an exemption service when it was manufacturing
dutiable goods.
8 ST/50200 OF 2020
11. Further, we find that the demand has been made under
Rule 6 (3) of CCR, 2004. It has been held by the Hon'ble High
Court of Andhra Pradesh and Telangana in the case of Tiara
Advertising versus Union of India10 that the various options
under Rule 6 are options given to the assessee and the Revenue
cannot choose one of the options and force it upon the assessee.
Even if the assessee is rendering exempted services or
manufacturing exempted goods and using common input services
no demand can be sustained under Rule 6 (3) as this is only one
of its options available to assessee to fulfill its objection. Relevant
portion of the judgment of Hon'ble High Court are reproduced
below :-
"7. Rule 6 of the Cenvat Credit Rules, 2004 deals with the
obligations of a provider of taxable and exempted services.
Rule 6(1) states that Cenvat Credit shall not be allowed on
inputs/input services exclusively used for providing exempted
services. Rule 6(2) provides that if inputs or input services are
used for provision of output services which are chargeable to
duty or tax as well as exempted services, then separate
accounts are to be maintained for receipt, consumption and
inventory of inputs and receipt and use of input services and
the provider shall take credit only on inputs used for dutiable
output services. Rule 6(3) of the Cenvat Credit Rules, 2004 is
relevant for the purpose of this case and states to the effect
that a provider of output services who opts not to maintain
separate accounts, as required under Rule 6(2), should follow
any one of the options provided under Clauses (i) to (iii)
thereunder, as applicable to him. Clause (i) provides for the
option of paying an amount equal to 5% of the value of the
exempted services. Pursuant to Notification No. 18/2012,
dated 17-3-2012, the amount to be paid under Clause (i) was
increased to 6% with effect from 1-4-2012.
*****
9. It may be noted that there is no controversy with regard to the entitlement of the petitioner to avail Cenvat Credit but for this disputed amount of Rs. 17,15,489/- out of the total extent of Rs.
102019 (30) G.S.T.L. 474 (Telangana) 9 ST/50200 OF 2020 1,41,51,903/-. While so, the second respondent issued show cause notice dated 19-4-2016 to the petitioner proposing to choose the option under the aforestated Rule 6(3)(i) on its behalf and calling upon it to explain as to why it should not be directed to pay an amount of 5%, upto 31-3-2012, and 6%, from 1-4-2012, of the value of the exempted services, aggregating to Rs. 3,52,65,241/-. In its reply dated 16-5-2016, the petitioner contended that it was wholly unreasonable on the part of the authorities to expect it to pay over Rs. 3.50 Crore when the total Cenvat Credit availed by it was less than Rs. 1.50 Crore and the actual dispute boiled down to a mere Rs. 17,15,489/-. It relied on case law to support its contention that such an unreasonable result could not be allowed to follow by application of the law. The impugned Order-in-Original however reflects that the second respondent did not even advert to the case law cited before him.
14. Further, we may reiterate that Rule 6(3) of the Cenvat Credit Rules, 2004, merely offers options to an output service provider who does not maintain separate accounts in relation to receipt, consumption and inventory of inputs/input services used for provision of output services which are chargeable to duty/tax as well as exempted services. If such options are not exercised by the service provider, the provision does not contemplate that the Service Tax authorities can choose one of the options on behalf of the service provider. As rightly pointed out by Sri S. Ravi, Learned Senior Counsel, if the petitioner did not abide by the provisions of Rule 6(3) of the Cenvat Credit Rules, 2004, it was open to the authorities to reject its claim as regards the disputed Cenvat Credit of Rs. 17,15,489/-.
15. We may also note that in the event the petitioner was found to have availed Cenvat Credit wrongly, Rule 14 of the Cenvat Credit Rules, 2004 empowered the authorities to recover such credit which had been taken or utilised wrongly along with interest. However, the second respondent did not choose to exercise power under this Rule but relied upon Rule 6(3)(i) and made the choice of the option thereunder for the petitioner, viz., to pay 5%/6% of the value of the exempted services. The statutory scheme did not vest the second respondent with the power of making such a choice on behalf of the petitioner. The Order-in-Original, to the extent that it proceeded on these lines, therefore cannot be countenanced".
12. Thus, the demand of an amount under Rule 6(3) of CCR cannot be sustained even if the appellant was rendering exempted services and had taken CENVAT credit on common inputs/input services. The impugned order, therefore, cannot be sustained and is liable to set aside.
10 ST/50200 OF 2020
13. The impugned order is, accordingly set aside and the appeal is allowed with consequential relief, if any.
(Order pronounced in open court on 19/07/2022.) (JUSTICE DILIP GUPTA) PRESIDENT (P.V. SUBBA RAO) MEMBER (TECHNICAL) PK