Custom, Excise & Service Tax Tribunal
Indian Institute Of Technology vs Commissioner Of Service Tax Mumbai-Ii on 16 May, 2019
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, MUMBAI
WEST ZONAL BENCH
Appeal No. ST/86069/2014
(Arising out of Order-in-Original No. 07-08/ST (Adjudication)/RP/2013-
14 dated 20.12.2013 passed by Commissioner of Service Tax
(Adjudication), Mumbai)
Indian Institute of Technology Appellant
Main Building,
Adi Shankaracharya Marg,
IIT Powai,
Mumbai 400 076.
Vs.
Commissioner of Service Tax, Respondent
Mumbai-II 4th floor, New Central Excise Bldg., M.K. Road, Churchgate, Mumbai 400 020.
WITH Appeal No. ST/86070/2014 (Arising out of Order-in-Original No. 07-08/ST (Adjudication)/RP/2013- 14 dated 20.12.2013 passed by Commissioner of Service Tax (Adjudication), Mumbai) Indian Institute of Technology Appellant Main Building, Adi Shankaracharya Marg, IIT Powai, Mumbai 400 076.
Vs. Commissioner of Service Tax, Respondent Mumbai-II 4th floor, New Central Excise Bldg., M.K. Road, Churchgate, Mumbai 400 020.
AND Appeal No. ST/86612/2017 (Arising out of Order-in-Appeal No. MUM-SVTAX-002-APP-738-16-17 dated 24.02.2017 passed by Commissioner of Service Tax-II (Appeals), Mumbai-II) Indian Institute of Technology Appellant Main Building, Adi Shankaracharya Marg, IIT Powai, Mumbai 400 076.
ST/86069,86070,86612/2014 2 Vs. Commissioner of Service Tax, Respondent Mumbai-II 4th floor, New Central Excise Bldg., M.K. Road, Churchgate, Mumbai 400 020.
Appearance:
Shri R.G. Sheth, Advocate for the Appellant Shri Dilip Shinde, Authorised Representative for the Respondent CORAM:
Hon'ble Mr. S.K. Mohanty, Member (Judicial) Hon'ble Mr. Sanjiv Srivastava, Member (Technical) FINAL ORDER NO. A/85906-85908/2019 Date of Hearing: 13.02.2019 Date of Decision: 16.05.2019 PER: SANJIV SRIVASTAVA Details of appeals are indicated below:
Appeal Impugned Order SCN Period
No Date
Number Date
ST/8606 07-08/ST 20.12.1 18.10.1 Apr 10 - Sep
9, (Adjudication)/RP 3 1 10
86070/1 /2013-14 14.03.1 Oct 10 - Sep
4 2 11
ST/8661 MUM-SVTAX-001- 24.02.1 08.04.1 Oct 09 -Mar
2/17 APP-738-16-17 7 1 10
1.2 Since the issues involved in these appeals are
identical they are taken up for disposal together.
2.1 Appellants are a Institute of repute and are rendering taxable services under the category of "Technical Consultancy Service" as defined by Section 65(105)(za) of Finance Act, 1994. They are also providing non taxable/ exempted services (education services).
2.2 Appellants while providing the services took the CENVAT Credit of Service Tax paid various input services.
These input services were used for providing both taxable and non taxable/ exempted services. Since appellant were ST/86069,86070,86612/2014 3 not maintaining the separate account for input services used for providing taxable and non taxable/ exempted services as mandated by Rule 6(2) of CENVAT Credit Rules, 2004, they were required to follow the procedure as prescribe rule 6(3) ibid and reverse the credit attributable to the input services used for providing non taxable/ exempted services.
2.3 Show Cause Notice dated 08.04.2011, 18.10.2011 and 14.03.2012 have been issued to the appellant, seeking to deny them the credit of common input services taken by them during the periods October 09 to March 10, April 10 to September 10 & October 10 to March 11.
2.4 These show cause notices have been adjudicated. The show cause notice dated 08.04.2011 was adjudicated by the Additional Commissioner Service Tax Mumbai- II an taken in appeal before by the Appellants before Commissioner Service Tax (Appeal), who by the impugned order before us dated 03.03.2017 dismissed the appeals filed by the appellant. Other two show cause notices were adjudicated by the Commissioner Service Tax (Adjudication) Mumbai.
2.5 Aggrieved by the order of Commissioner and Commissioner (Appeal) appellants have filed these appeals.
3.1 We have heard Shri R G Sheth, Advocate with Ms. Puloma Dalai, C.A. for the appellants and Shri Dilip Shinde, Assistant Commissioner Authorized Representative for the revenue.
3.2 Arguing for the appellants learned Counsel submitted:-
i. During the period April 10 to September 11 covered by the order in original of Commissioner, they had already reversed/ paid CENVAT Credit of Rs 2,45,73, 292/- under Rule 6(3) of the CENVAT Credit Rules 2004 out of the gross CENVAT Credit availed of Rs ST/86069,86070,86612/2014 4 3,38,16,665/-. The amount paid by them is much more than the amount of Rs 94,23,398/- demanded and confirmed by the impugned order of Commissioner. The payments made have been completely ignored by the Commissioner while passing the order.
ii. The demand of service tax with cess of Rs 94,23,398/- is confirmed based on the CENVAT credit utilized for payment of service tax whereas Rule 6(3) ibid refers to availment of CENVAT credit. iii. The admissibility to CENVAT Credit is to be determined in terms of Rule 3 and Rule 6 merely prescribes the procedure for availment/ determination of CENVAT Credit in case assessee provides both taxable as well as exempt services. CENVAT Credit admissible as per Rule 3 cannot be disallowed by a provision which is procedural in nature as has been held in Foods, Fats & Fertilizers Ltd [2011 (22) STR 484 (T)].
iv. Impugned order also ignores the Order in Original No 9-12/STC-II/KKS/2011 dated 31st March 2011, wherein for post 1st April 2008, the Option ii under Rule 6(3A) was granted to them. The said order also grants CENVAT Credit under Rule 6(5) of the said rules. This order has allowed credit in respect of 10 out of the 16 input services.
v. They had in their submissions before the adjudicating authority submitted as to how these input services have been used for providing the output taxable services. Ignoring all such contentions the credit in respect of the input services has been disallowed stating that the input services were not used for providing the output services. vi. The aforesaid input services are directly or indirectly used in providing the output services and as per the principles laid down by Hon'ble Bombay High Court in case of Coca Cola India Pvt Ltd [2009 (242) ELT ST/86069,86070,86612/2014 5 168 (BOM)} and various other decisions the credit should not have be disallowed.
vii. A large portion (Rs 73,29,468/- out of Rs 92,43,375/-) of the credit disallowed is in respect of services specified in Rule 65) and is eligible to be considered as input services as long as they are not used in admittedly exempted output services. viii. On application of principles underlined in Rule 6(3A)-
Option II, the CENVAT Credit taken by them meets or comes within the parameters of the said Rule and impugned proceedings need to be set aside. ix. Since the issue is a bonafide interpretational issue penalties are required to be set aside by invoking Section 80.
3.3 Arguing for the revenue learned authorized representative while reiterating the impugned order submitted that appellants are having service tax registration since quite some time, and are well aware of Service Tax Law CENVAT Credit Rules, 2004. They have as per para 5 of the show cause notice taken credit in respect of those services which were not used for providing the taxable output services. The services mentioned in para 5 interalia are Custom House Agent Services, Advertising Agency Services, Architect Services, BAS, BSS, Interior Decorator Services, Design Services, Cleaning Services, Construction of Residential Complex Services, Pandal and Shamiyana Services, Rent a Cab, Maintenance & Repair Services, Photography, Sound Recording Services, Air Travel Agent Services, Cable Operator Services, General Insurance Services, Transport of Goods by Road Services etc. These services were not used for providing the taxable output services viz "Scientific and Technical Consultancy Services" hence CENVAT Credit in respect of these services should not be admissible to them. Further in para 6 of the show cause notice it is stated that "The noticee availed CENVAT Credit on various services as mentioned by them these services were common in nature i.e. those services ST/86069,86070,86612/2014 6 were used both for imparting education and for providing technical consultancy services. Since the Institutes primary job is to impart education and carry out research, which is exempted service, they should have either maintained separate accounts of inputs service credit availed by them as required under Rule 6(2) of CENVAT Credit Rules, 2004 (herein after called "CCR",2004) or availed as per provisions of Rule 6(3) of CCR, 2004. Since they had not followed any of these Rules, the entire CENVAT Credit availed by them merits rejection. This view is upheld by Commissioner Service Tax Mumbai II vide Order in Original No 09-12/ST-II/KKS dated 31.06.2011 issued vide F NO V/Adj/ST-II/IIT/15-17/2010."On the basis of the above the allegations Credit has been sought to be denied to the appellant. Since appellants have been willfully defying the law, and even after issuance of continuous show cause notices still did not came forward and start following the procedure as per Rule 6(3) ibid, the benefit of the same cannot be allowed to them at this stage. For wilful defiance of law penalties have been rightly imposed on the appellant. He concluded stating that appeals merit rejection.
4.1 We have considered the impugned orders, appeal and the submissions made during the course of arguments of appeal.
4.2 Issue for consideration before us can be summarized as follows:
i. Whether the CENVAT Credit in respect of various input services availed by the appellant is admissible to them?
ii. Whether the appellants can be allowed the benefit of Rule 6(3) Option II, when they have not followed the procedure as laid down by the said rule.
iii. Whether penalties under Section 76 and Section 77 of The Finance Act, 1994 justified upon the appellants?
ST/86069,86070,86612/2014 7 4.3 Undisputed facts are that Appellants are reputed Technical Institute, engaged in providing technical education. Apart from providing technical education they are engaged in research and also are providing technical consultancy services. While the services of education and research are "non taxable"/ exempted from payment of service tax, technical consultancy services are taxable and are covered by the definition as provided by Section 65 (105)(za) of Finance Act, 1994. Appellants are registered as provider for the said taxable services. They are paying the service tax in respect of the services provided by them under the said taxable category. They are also availing the CENVAT Credit in respect of various input services received by them.
4.4 Rule 2(l) of Cenvat Credit Rules, 2004 define the input services as follows:
"Rule 2(l) "input service' means any service -
(i) used by a provider of taxable service for providing an output service; or
(ii) used by a manufacturer, .........
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 upto the 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;"
4.5 Appellants are providing taxable services under the category of "Scientific and Technical Consultancy Services." For provision of the said service they had taken credit in respect of various services as detailed in table 1. The reasons why they claim that service tax in respect of ST/86069,86070,86612/2014 8 these services is admissible to them is also indicated in the table.
Sr. Nature of service Our comments
No.
1. Architect's This service is used by the Noticee
Services for preparation, designing and
construction of convention centre,
Bio science building, new computer
centre building, lecture hall complex and other related work such as obtaining approvals from municipal authorities etc. Since these buildings are used for academic activity as well as consultancy activity and the specific service being covered by Rule 6(5) of the CCR the service is considered input service within the meaning of Rule 2(l).
2. Banking Charges Service tax on bank's services was paid while opening letters of credit for importing equipment. As explained above, the equipments being crucial part of consultation services the said services are directly used for providing output services.
The credit taken relates mainly to service tax paid on commitment charges recovered by State Bank of India.
3. Consulting This Service is also used in relation to Engineer's Service construction of buildings and therefore is a service in relation to infrastructure for the purpose of providing scientific consultation service and as such, is regarded as input service. The category is also covered under Rule 6(5).
4. Maintenance or These services are required by the Repair Services Noticee for the upkeep and maintenance of various equipments including computer hardware, software, other various technical equipments, laboratory equipments & instruments as well as the infrastructure such as elevators, EPABX systems in various buildings and again a service being covered under Rule 6(5) qualified to be input service.
5. Management Some of these services were Consultancy obtained for patent registration of Service products designed by R&D division of IIT. The other part of services relate ST/86069,86070,86612/2014 9 to services obtained for design and implementation of software for the institute. These services were provided by Tata Consultancy Services. The service being of infrastructural nature is covered by Rule 6(5) and is eligible to be considered input services.
6. Scientific & These services were obtained for Technical execution of the project undertaken Consultancy by IIT and as such, is directly Services forming part of the output service and therefore is an input service.
7. Technical While providing consultancy services, Inspection & various tests are required to be Certification conducted and services of vendors services providing technical tests are typically required. As such these services are directly used for providing output services of technical consultation and therefore, they are undoubtedly considered input services.
8. Advertising These services are used for the Agency's Services purpose of inviting tenders, the institute being conducted on lines of any Government department.
Similarly, for recruitment of faculties or research personnel or other staff, also, the said services are used.
Since the faculty is directly connected with consultancy provided by IIT and any other administrative expense is a part of business activity, this service is an input service.
9. Air Travel Agent's This service is used for travelling of Services faculties. Faculties need to travel for meetings in relation to execution of projects and/or academic activity like attending suppliers, workshops etc. to sharpen and update their knowledge. As such, this is used directly for providing output service.
10. Business Auxiliary These services are used for carrying Services out various jobs on the campus. The (Manpower Supply invoices are issued by suppliers of Services) labour for various jobs on the campus. Since the said labour is used for various general purposes and IIT being a Government agency being debarred from employing Class IV employees on its own payroll, the services of skilled and unskilled labour is obtained through contractors. The said services being indirectly used for business activity of ST/86069,86070,86612/2014 10 the Institute, it is input service.
11. Chartered These services are obtained for audit Accountant and other tax advisories. The Services illustration of these services being part of the definition of Rule 2(l), the service is undoubtedly used for the business purpose and therefore are input services.
12. Event Management The faculties of the Institute often Services participate in various seminars, workshops or conferences. This being a constant process for all academicians and researchers. It is an essential input service. For imparting its consultancy services, they are treated as input services.
13. Courier Service Courier services are obtained on recurring basis to carry out business and academic communication and being used commonly for the entire institution, they are input services being part of the business activity of the Institute.
14. Cargo Handling The Institute Imports various Service equipments from abroad for its research activities and this being the core function base on which extensive consultation is provided, they are treated as input services for output services.
15. Online Information This service is obtained for getting Data Services Bandwidth/accessing internet services and it being an infrastructural need of the business activity of the Institute, it is an input service for output service. The vendors of this service are Reliance, VSNL and Verizone.
16. Rent-a-Cab Often cared are hired by faculties for Scheme Operator's their official assignments of Services consultancy and academic purposes.
As such, they are directly related to output service activity and therefore are input services.
17. Telecommunication These services are essential part of Services business, academic and administrative work of the Institute and as such, a business expenditure of the Institute and therefore qualify to be input service.
ST/86069,86070,86612/2014 11 4.6 Commissioner has in her order in para 24 and 24.1 held as follows, for holding that the services against which the appellants have claimed the CENVAT Credit are not eligible input services for availing the credit.
"24. It goes without saying that for any item to be eligible for Cenvat Credit it must first qualify to be an input in terms of Section 2(l) of the CCR, 2004. It is alleged that it appeared from the nature of the input services mentioned in the records and in the statement of credit utilized, annexed with the returns, that they were not being used for providing the output service viz. STC. The Noticee has therefore availed Cenvat Credit in contravention of Rule 2(l) of CCR 2004. M/s. IIT in their reply has dwelt in length and cited several case laws in respect of the input services being within the scope of the definition of 'input service' under Rule 2(l). Upon a plain reading of Rule 2(l) of CCR, 2004 as given above, it is seen that Cenvat Credit is allowable to a manufacturer of final product irrespective of whether input service is used directly or indirectly in or in relation to the manufacture of final product. But in case of a service provider credit is allowable only on those input services which are used for providing a taxable output service as is apparent from a combined reading of Rule 6(1) of CCR, 2004 with Rule 2(e). Thus where the input and output are both services i.e. input service is used for providing output service there has to be a direct nexus between the two for claiming Cenvat Credit. Thus in the case of the Noticee for input services to be eligible as inputs under Rule 2(l) of CCR, 2004 it needs to be established that they have been used for the provision of the taxable output service viz. STC.
24.1 Relying upon the words "in relation" to appearing in the latter part of the definition of input service which is the inclusive part of the definition, the Noticee has contended that the input services used in their main activity of providing education service are also indirectly used in ST/86069,86070,86612/2014 12 relation to providing taxable service. However, it is seen that this part of the definition does not have universal application and is applicable only to situation as have be3en stated after the words, "in relation to". Thus, to a provider of output service as is the case of M/s. IIT who is not manufacturer of final product, the credit would be allowed on input services used "in relation to" only if such use is in relation to setting up, modernization, renovation or repairs of the premises of provider of output service or an office relating to such premises, advertisement, market research, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry. As can be seen, whereas setting up, modernization etc., of the premises of a service provider is covered in the inclusive portion of the definition of input service, other activities/services like say, original construction of complex, is not covered by input service as construction of complex is not claimed as having any nexus to provisions of Scientific and Technical Consultancy Service. This would be so even if these are used for providing education and this education comes into indirect use while providing taxable service. Moreover, I find that the host of judgments referred to by the Noticee in support of their claim that the input services in which credit is claimed as eligible under Rule 2(l) of the CCR, 2004 are not directly applicable to the facts and circumstances of the present case. Thus the Noticee has not been able to establish that the inputs on which CENVAT is claimed for rendering the taxable service of STC were input services within the scope of the definition of inputs under Rule 2(l) of CCR, 2004."
4.7 As recorded earlier undisputedly appellants are providing both taxable and exempt service. Rule 6 of the CENVAT Credit Rule, 2004 as it existed then is reproduced below:
ST/86069,86070,86612/2014 13 "Rule 6. Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services.-
(1) The CENVAT credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or for provision of exempted services, except in the circumstances mentioned in sub-rule (2).
Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule.
(2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services, and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take CENVAT credit only on that quantity of input or input service which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax is payable.
(3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow either of the following options, as applicable to him, namely:-
(i) the manufacturer of goods shall pay an amount equal to five per cent. of value of the exempted goods and the provider of output service shall pay an amount equal to six per cent. of value of the exempted services; or ST/86069,86070,86612/2014 14
(ii) the manufacturer of goods or the provider of output service shall pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in, or in relation to, the manufacture of exempted goods or for provision of exempted services subject to the conditions and procedure specified in sub-rule (3A).
Explanation I.- If the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year.
Explanation II.-For removal of doubt, it is hereby clarified that the credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted goods or provision of exempted service.
(3A) For determination and payment of amount payable under clause (ii) of sub-rule (3), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely:-
(a) while exercising this option, the manufacturer of goods or the provider of output service shall intimate in writing to the Superintendent of Central Excise giving the following particulars, namely:-
(i) name, address and registration No. of the manufacturer of goods or provider of output service;
(ii) date from which the option under this clause is exercised or proposed to be exercised;
(iii) description of dutiable goods or taxable services;
(iv) description of exempted goods or exempted services;
ST/86069,86070,86612/2014 15
(v) CENVAT credit of inputs and input services lying in balance as on the date of exercising the option under this condition;
(b) the manufacturer of goods or the provider of output service shall, determine and pay, provisionally, for every month,-
(i) the amount equivalent to CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods, denoted as A;
(ii) the amount of CENVAT credit attributable to inputs used for provision of exempted services (provisional)= (B/C) multiplied by D, where B denotes the total value of exempted services provided during the preceding financial year, C denotes the total value of dutiable goods manufactured and removed plus the total value of taxable services provided plus the total value of exempted services provided, during the preceding financial year and D denotes total CENVAT credit taken on inputs during the month minus A;
(iii) the amount attributable to input services used in or in relation to manufacture of exempted goods or provision of exempted services (provisional) = (E/F) multiplied by G, where E denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the preceding financial year, F denotes total value of taxable and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the preceding financial year, and G denotes total CENVAT credit taken on input services during the month;
(c) the manufacturer of goods or the provider of output service, shall determine finally the amount of CENVAT credit attributable to exempted goods and exempted ST/86069,86070,86612/2014 16 services for the whole financial year in the following manner, namely:-
(i) the amount of CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods, on the basis of total quantity of inputs used in or in relation to manufacture of said exempted goods, denoted as H;
(ii) the amount of CENVAT credit attributable to inputs used for provision of exempted services = (J/K) multiplied by L, where J denotes the total value of exempted services provided during the financial year, K denotes the total value of dutiable goods manufactured and removed plus the total value of taxable services provided plus the total value of exempted services provided, during the financial year and L denotes total CENVAT credit taken on inputs during the financial year minus H;
(iii) the amount attributable to input services used in or in relation to manufacture of exempted goods or provision of exempted services = (M/N) multiplied by P, where L denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, M denotes total value of taxable and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and N denotes total CENVAT credit taken on input services during the financial year;
(d) the manufacturer of goods or the provider of output service, shall pay an amount equal to the difference between the aggregate amount determined as per condition (c) and the aggregate amount determined and paid as per condition (b), on or before the 30th June of the ST/86069,86070,86612/2014 17 succeeding financial year, where the amount determined as per condition (c) is more than the amount paid;
(e) the manufacturer of goods or the provider of output service, shall, in addition to the amount short-paid, be liable to pay interest at the rate of twenty-four per cent.
per annum from the due date, i.e., 30th June till the date of payment, where the amount short-paid is not paid within the said due date;
(f) where the amount determined as per condition (c) is less than the amount determined and paid as per condition
(b), the said manufacturer of goods or the provider of output service may adjust the excess amount on his own, by taking credit of such amount;
(g) the manufacturer of goods or the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within a period of fifteen days from the date of payment or adjustment, as per condition (d) and
(f) respectively, the following particulars, namely:-
(i) details of CENVAT credit attributable to exempted goods and exempted services, monthwise, for the whole financial year, determined provisionally as per condition (b),
(ii) CENVAT credit attributable to exempted goods and exempted services for the whole financial year, determined as per condition (c),
(iii) amount short paid determined as per condition
(d), along with the date of payment of the amount short-paid,
(iv) interest payable and paid, if any, on the amount short-paid, determined as per condition (e), and
(v) (v) credit taken on account of excess payment, if any, determined as per condition (f);
(h) where the amount equivalent to CENVAT credit attributable to exempted goods or exempted services cannot be determined provisionally, as prescribed in ST/86069,86070,86612/2014 18 condition (b), due to reasons that no dutiable goods were manufactured and no taxable service was provided in the preceding financial year, then the manufacturer of goods or the provider of output service is not required to determine and pay such amount provisionally for each month, but shall determine the CENVAT credit attributable to exempted goods or exempted services for the whole year as prescribed in condition (c) and pay the amount so calculated on or before 30th June of the succeeding financial year.
(i) where the amount determined under condition (h) is not paid within the said due date, i.e., the 30th June, the manufacturer of goods or the provider of output service shall, in addition to the said amount, be liable to pay interest at the rate of twenty four per cent. per annum from the due date till the date of payment.
Explanation I.- "Value" for the purpose of sub-rules (3) and (3A) shall have the same meaning assigned to it under section 67 of the Finance Act, 1994 read with rules made thereunder or, as the case may be, the value determined under section 4 or 4A of the Central Excise Act, 1944 read with rules made thereunder.
Explanation II.-The amount mentioned in sub-rules (3) and (3A), unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, when such payment shall be made on or before the 31st day of the month of March.
Explanation III.- If the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rule (3) or as the case may be sub-rule (3A), it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken.'.
(4) No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted ST/86069,86070,86612/2014 19 goods or in providing exempted services, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year.
(5) Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clause (g), (p), (q), (r),
(v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services."
4.8 Commissioner has in para 22.3, 22.4 & 22.5 recorded as follows:
"22.3 Rule 6 of the CCR, 2004 lays down the obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services. According to this rule Cenvat Credit shall not be allowed on such quantity of input services which is used for providing exempted services except in the circumstances which are provider for in sub-rule 2 or 3. Sub-rule 2 provides that if a service provider is providing both taxable and exempted services then he can avail of Cenvat Credit on the input services used for providing both exempted and non- exempted services provided he shall maintain separate accounts for receipt, consumption and inventory of input and input services meant for use in output services which are exempted and taxable. The service provider shall however take Cenvat Credit only on that quantity of input service which is intended for use in providing service on which service tax is payable.
22.3.1 The service provider opting not to maintain separate accounts shall either pay an amount equal to 6% of the value of exempted services or shall pay an amount equal to the Cenvat Credit attributable to input services ST/86069,86070,86612/2014 20 used in or in relation for provision of exempted services subject to the conditions and procedures as specified in sub-rule 3(a). The service provider can exercise this option only once during the financial year. Sub-rule 3(a) lays down the procedure and conditions to be followed in case any of the options under sub-rule 3 are exercised. These conditions interalia include intimating the Range Superintendent all the details of the provider of input service, date from which such option is to be exercised, description of exempted and taxable services, Cenvat Credit lying in balance on the date of exercising option.
22.3.2 The service provider shall also determine and pay provisionally on a monthly basis, the amount equivalent to the Cenvat Credit attributable to the inputs used in exempted services as per formula laid down in the Rule. The final credit attributable to exempted services for the whole financial year is also to be determined as per laid down formula and the differential amount if any paid on or before 30th of the succeeding financial year along with the prescribed rate of interest if paid beyond the prescribed date. Alternatively the service provider may adjust the excess amount on his own by taking credit of such amount. In either case the service provider shall intimate the details to the jurisdictional Superintendent within a period of 15 days from the date of such adjustment. The amounts mentioned in sub-rule 3 & 3(a) unless specified otherwise are payable on or before the 5th of the following month except for the month of March when the due date is 31st March. If the service provider fails to pay the amount, it is recoverable in the manner as provided in Rule 14 of CCR, 2004.
22.4 There have been some changes with effect from 01.04.2011 as far as the above provisions are concerned. In case of a service provider providing both exempted and dutiable services, the service provider has four option with effect from 01.04.2011:
ST/86069,86070,86612/2014 21
(a) Maintain separate inventory and accounts of receipt and use of inputs and input services used for exempted goods/exempted output services - Rule 6(2) of Cenvat Credit Rules.
(b) Pay amount equal to 5% of value of exempted goods and exempted services - Rule 6(3)(i).
(c) Pay an 'amount' equal to proportionate Cenvat credit attributable to exempted final product/exempted output services, as provided in rule 6(3A) - Rule 6(3)(ii) of Cenvat Credit Rules.
(d) Maintain separate accounts for inputs and pay 'amount' as determined under rule 6(3A) in respect of input services - Rule 6(3)(iii) of Cenvat Credit Rules.
22.5 In this connection, the relevant portion of the Board's Circular No.868/6/2008-CX., dated 9.5.2008, regarding amendments in CCR, 2004 w.e.f. 01/04/2008 are also reproduced.
"In the budget 2008-09, certain amendments have been carried out in the CENVAT Credit Rules, 2004. Rule 6 of CENVAT Credit Rules, 2004 pertains to an assessee who manufactures dutiable and exempted goods and provision of taxable and exempted services. As a general principle, CENVAT credit is not allowed on input or input service used for the manufacture of exempted goods or provision of exempted services [refer Rule 6(1)]. Exception to Rule 6(1) is contained in rules 6(3), 6(5) and 6(6).
Rule 6(2): Provides facility to an assessee to maintain separate Cenvat credit account for dutiable and exempted goods or services (hereinafter referred to as outputs) and take credit only on inputs and input services meant for use in dutiable outputs.
Rule 6(3): Pertains to an assessee opting not to maintain separate Cenvat credit accounts for dutiable and exempted ST/86069,86070,86612/2014 22 outputs. Such assessee has to opt for one of the following two options :
(i) Pay an amount equal to 10% of the value of the exempted goods or 8% of the value of the exempted services. Exempted service includes non-taxable service also.
OR
(ii) Pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in or in relation to manufacture of exempted goods or for provision of exempted services. Rule 6(3A) prescribes the conditions and procedure to determine the amount of CENVAT credit attributable to exempted outputs."
4.9 After recording as above in para 22.5.1 she observes "Schemes under rule 6(3) are optional and each individual scheme is comprehensive and self contained. An assessee can exercise the option in relation to all his activities as an assessee and the option is not available only in relation to a part of his activity and the option once exercised cannot be withdrawn during the said financial year."
4.10 Commissioner has in para 25.1 observed that Appellants have failed to comply with the legal obligations casted stating as follows:
"25.1 Therefore, in spite of being aware of the legal requirements (as they have been receiving SCN's since 2008), the Noticee has failed to meet its obligation as under:
The Noticee has not exercised any option under Rule 6(3A) of The CENVAT Credit Rules, 2004, by intimating in writing to the jurisdictional superintendent giving the particulars as specified under the aforesaid rule nor have stated any date from which the option under said rule was exercised or was proposed to be exercised.
ST/86069,86070,86612/2014 23 The Noticee has not given details of CENVAT Credit on input services lying in balance as on date of exercising the option, for the obvious reason that the Noticee failed to exercise the option.
The Noticee failed to determine and pay, provisionally, for every month, the amount attributable to input services used for provision of exempted services and determine finally the amount of CENVAT credit attributable to exempted service for the whole financial year in the manner specified in the said rule.
The Noticee, on account of the aforesaid failures, also failed to pay an amount equal to the difference between the amount provisionally paid from time to time and the aggregate amount determined as payable by 30th June of the succeeding year or later along with interest at the rate of 24% per annum from the due date (30th June) till the date of payment or adjustment.
In view of the above, the Noticee also failed to intimate to the jurisdictional Superintendent within a period of 15 days from the date of payment or adjustment aforesaid, the particulars as specified in the said rule. Even from the worksheet (Annexure A1) submitted by them does not explain as to how the net credit as claimed by them has been arrived at with the help of the prescribed formulae."
4.11 However after observing so Commissioner has in para 27 of her order stated "Though the Noticee has explained that they are eligible to the cenvat credit in respect of the input services being within the scope of the input services as per Rule 2(l) of CCR, 2004, the basic question here remains as to whether this input credit is admissible in absence of any compliance to the relevant Cenvat credit provisions in this regard. The noticee has failed to appreciate that they are carrying out two activities ST/86069,86070,86612/2014 24 simultaneously one, their main non taxable main and pre- dominant activity of imparting education and the second, the taxable activity of Scientific and Technical Consultancy Services and accordingly are required to follow the relevant cenvat provisions as per Rule 6 bid for claiming the Cenvat credit. Further, they have not produced any documentary and substantive evidence input which can justify their claim for eligibility of Cenvat Credit. In this connection, it may be stated that the aforesaid sub-rules of Rule 6 ibid, are not the enabling provisions for availment and utilization of Cenvat Credit. These sub-rules contain supplementary conditions in tandem with the definition of "Input Service" given under Rule 2(l), the credit enabling provisions under Rule 3 and the restriction on availment of credit imposed under Rule 6(1) of the said rules. When the Noticee has not bothered to maintain any separate account or give any option or reverse any credit from time to time as specified in the Cenvat Credit Rules, they cannot unilaterally stake claim to any amount of credit as being eligible to them under Rule 6(3) and Rule 6(5) of the Cenvat Credit Rules, 2004. They were first of all required to show that the credit has been taken of service tax paid on services which qualify to be input services as per definition provided under the said Rules. Thereafter, the question of claiming any credit in terms of Rule 6(3) would arise only when they maintain separate record in respect of input services used for providing non- taxable services and also show to the department at least now, that they have not taken credit on such input services. The other option regarding reversal of credit attributable to input services used for providing exempted/ non-taxable services is also not available to the Noticee as they have miserably failed even remotely showing compliance to the provisions of Rule 6(3A). As regards their claim of credit under Rule 6(5) ibid too, they have not been to show that input services of the categories specified under this sub-rule have not been exclusively used for ST/86069,86070,86612/2014 25 providing non taxable/ exempted services. The requirements of CCR are substantive in nature and Cenvat Credit availed by not complying with legal obligations entails attendant consequences. The Apex Court in the case of Indian Aluminium Company Ltd Vs Thane Municipal Corporation 1991 (55) ELT 454 (SC) has clearly held that non observance of even a procedural condition not be condoned if it is likely to facilitate commission of fraud and introduce administrative inconvenience."
4.12 CENVAT Credit Rules, 2004 are rules prescribing the procedure for payment to Central Excise duty/ Service Tax on the finished products/ output taxable services. These rules are self contained and provide for the mechanism to avoid tax pyramiding/ cascading effect of the tax paid on input/ input services. We do not agree with the approach of the commissioner that just because appellants had failed to comply with certain procedural requirements, the entire credit should be denied to them. The purpose of adjudication in such cases is to find out the truth and determine the actual credit that is admissible. When Commissioner says in her order that "Noticee has explained that they are eligible to the cenvat credit in respect of the input services being within the scope of input services as per Rule 2 (l) of CCR, 2004, the basic question remains as to whether this input credit is admissible in the absence of any compliance to the relevant cenvat credit provisions in this regard." In our view there is no doubt in respect of eligibility to taxable services received by the appellant getting qualified as "input services" under Rule 2(l) ibid. That being so next question that needs to be examined is vis a vis Rule 6 of CENVAT Credit Rules, 2004, as the major service provided by the appellant i.e. providing/ imparting education is exempted service.
4.13 Undisputedly appellants have not followed the procedure prescribed for availing the options provided ST/86069,86070,86612/2014 26 under Rule 6(3A) of the CENVAT Credit Rules, 2004, to the extent that they have not filed any intimation to the Range Superintendent, with the prescribed particulars for availing the second option of reversal of the credit determined on proportionate basis. However appellants have claimed that during the relevant period they had reversed the CENVAT Credit attributable to exempted services. During the course of argument they had submitted following charts showing the reversal of credit by them:
Particulars Credit taken on input Credit Credit Total Ratio of services Reversed availed on CENVAT amount Specified Other than under services Credit paid under 6(5) 6(3)(ii) not availed under 6(5) specified 6(3) (ii) under 6(5) A B C D E=C-D F=B+E G=D/C* 100 Apr-Sep 2793809 3748793 3523865 2,24,928 30,18,737 94.00 10 Oct-Mar 4535659 10701646 10154426 5,47,220 50,82,879 94.89 11 Apr-Sep 0 12036760 10895001 11,41,759 11,41,759 90.51 11 Total 7329468 26487199 24573292 19,13,907 92,43,375 4.14 During the course of arguments appellants submitted that they had been reversing the CENVAT Credit attributable to input services other than those specified under Rule 6(5) regularly in their books of account.
However the fact of reversal under 6(3) was not correctly recorded in ST-3 returns. They also produced charts reproduced below showing the erroneous depiction made by them in their ST-3 return.
ST/86069,86070,86612/2014 27 ST/86069,86070,86612/2014 28 ST/86069,86070,86612/2014 29 4.15 From the perusal of the said charts the errors/ mistakes in depicting the amounts reversed while filing the ST-3 returns appear to b quite obvious. However we are not in position to verify the correction of the same. If it is factually the case of appellant that they had been reversing the credit under Rule 6(3)(ii) but had erroneously not shown the said bifurcation in the ST-3 returns, the failure of the appellants just not to claim the said option at the start of Financial Year by filing the intimation about availing the said option with the range superintendent is nothing but a procedural violation and needs to be condoned. However in case it is not so, and the appellants have not been reversing the credit in their book of account as required under Rule 6(3)(ii) then the appellants have failed to comply with the substantial requirements of the said rules. Commissioner has not recorded any findings in this regards in her order.
4.16 In our view the matter needs to be remitted back to the Commissioner to record his findings in this respect and pass a speaking order after causing due verification from the book of accounts and ST-3 returns for the relevant period.
4.17 Since the issue is being remanded back in respect of verification of the claim that they had reversed the CENVAT Credit as required under Rule 6(3)(ii) of CENVAT Credit Rules, 2004 we are not recording any findings on the issues of imposition of penalty and interest. These issues too should be decided by the Commissioner after recording his findings after verification of ST-3 returns. In Commissioner finds that Appellants have in fact not reversed the credit as claimed by them, the demands need to be confirmed and penalties imposed under Section 76 and 77 of the Finance Act, 1994 on the appellants along with the interest as provided by Section 75 of Finance Act, 1994.
ST/86069,86070,86612/2014 30 4.18 Appeal No ST/86612/17, is against the order of Commissioner (Appeal) for different period as the order in original in this case was passed by the Additional Commissioner. Since the issue involved are identical in this appeal we remand this matter also to the original authority for causing similar verifications in this case too.
5.0 In view of discussions we allow both the appeals and remand the matters to Adjudicating authority for passing a fresh order after verifying the fact of reversal of credit vis a vis the book of accounts and ST-3 return. Needless to say that since the matters are quite old adjudicating authorities should dispose of the matters in remand proceedings with four months of the receipt of this order after following the principles of natural justice.
(Order pronounced in the open court on 16.05.2019) (S.K. Mohanty) Member (Judicial) (Sanjiv Srivastava) Member (Technical) tvu