Custom, Excise & Service Tax Tribunal
Jost S Engineering Co. Ltd vs Commissioner Of Central Excise, ... on 14 February, 2013
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. Appeal No. E/1511 & 1512/2011-Mum. (Arising out of Order-in-Original No. 11/ANS/2011-12 dated 8.7.2011 passed by the Commissioner of Central Excise, Mumbai-III ) For approval and signature: Honble Mr. S.S. Kang, Vice President Honble Mr. P.R. Chandrasekharan, Member (Technical) ============================================================
1. Whether Press Reporters may be allowed to see :
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy :
of the Order?
4. Whether Order is to be circulated to the Departmental :
authorities?
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Josts Engineering Co. Ltd.
:
Appellant
Jaiprakash Chaurasia
VS
Commissioner of Central Excise, Mumbai-III
:
Respondent
Appearance
Shri D.B. Shroff, Advocate with Vishal Agarwal, Advocate for Appellant
Shri Rakesh Goyal, Additional Commissioner (A.R) for respondent
CORAM:
Mr. S.S. Kang, Vice President
Mr. P.R. Chandrasekharan, Member (Technical)
Date of hearing : 14/02/2013
Date of decision : 14/02/2013
ORDER NO.
Per : P.R.Chandrasekharan
The appeals are directed against Order-in-Original No. 11/ANS/2011-12 dated 8.7.2011 passed by the Commissioner of Central Excise, Mumbai-III.
2. The appellant M/s. Josts Engineering Company Ltd. Thane, are manufacturers of material handling equipment. Vide Notification No. 25/208 dt. 29.4.2008 some of the products namely Jumboelectric, Jotruk, Jowalk and electrically operated vehicles were completely exempted from payment of Central Excise duty. The appellant was unaware of the exemption and continued to pay excise duty on these products at the rate of 8% Adv.till 31.7.2008. W.e.f.1.8.2008 after becoming aware of the exemption, the appellants cleared these products without payment of duty. Since the appellant was manufacturing both dutiable as well as exempted products, they maintained separate accounts for the receipt, consumption and inventory of inputs in respect of both dutiable exempted products and took credit only in respect of those inputs which were utilized in the manufacture of dutiable products. The appellant was also availing credit of service tax paid on common input services such as Courier service, Telephone service, professional charges, security service, construction service, housekeeping service, catering service, freight inward etc. The appellant did not maintain separate accounts in respect of such input services used in the manufacture of dutiable as well as exempted goods, as it was difficult for them to maintain into separate accounts. They were unaware of the provisions of Rule 6 (2) of CENVAT Credit Rules 2004 which mandated maintenance of separate accounts both in respect of inputs as well as input services used in the manufacture of dutiable goods as well as exempted goods. The appellant also submitted a letter dt. 10.11.2008 to the department wherein they informed the department of the maintenance of separate accounts for the inputs. The appellants factory was visited by excise officers in September, 2009 and it was pointed out to them that they were required to maintain separate accounts in respect of both inputs as well as input services which are commonly used for the manufacture dutiable as well as exempted products. The appellant immediately reversed the entire credit amounting to Rs.11,02,970/- taken on the input services along with interest thereon and intimated the same to the department vide letter dt. 25.9.2009. Another amounts of Rs.3,52,661/- and Rs.2,78565/- were paid by them on 1.10.2009 and 23.11.2009 towards service tax credit taken on input services which were used in the manufacture of both dutiable as well as exempted product which was also intimated to the departmen. Show cause notice dt. 15.2.2010 was issued the appellant alleging that if the appellant did not maintain separate accounts in respect of common input services used in the manufacture of both dutiable as well as exempted goods, they were required to follow the procedure under Rule 6(3) of the Cenvat Credit Rule, 2004 and pay an amount equal to 5%/10% of the value of the exempted goods at the time of clearance of the exempted goods. It was further alleged that the appellants did not opt for reversal of credit attributable to the exempted products as provided under Rule 6(3)(ii) nor did they follow the procedure prescribed under Rule 6(3A). Accordingly, the show cause notice sought to recover the amount of Rs. 1,64,30,455/- being the amount payable in respect of exempted goods cleared by them. during the period 29.4.2008 to 30.9.2009 along with interest under Rule 14 of the CENVAT Credit Rules 2004. The notice also proposed to impose penalties under Rule 15/15A of the said Rules. The notice was adjudicated vide the impugned order and the demand of Rs. 1,64,30,455/- was confirmed under Rule 14 of CENVAT Credit Rules 2004 read with Section 11A(.1) of the Central Excise Act, 1944. The recovery of interest on the said amount was also ordered under Rule 14 read with Section 11AB. The amounts paid by the appellants were appropriated towards dues. A penalty of Rs.1,64,30, 455/- was imposed on the appellant firm and another penalty of Rs.10 lakhs was imposed on Shri Jaiprakash Chaurasia, Manager (Commercial) of the appellant firm under Rule 26 of the Central Excise Rules, 2002.
3. The learned Counsel for the appellant makes the following submissions :
(1) As per the provisions of Rule 6 (2) of the Cenvat Credit Rules, when common input service are used in the manufacture of final products which are chargeable to duty as well as exempted, separate accounts are to be maintained and credit shall be taken only on that quantity of input service intended for use in the manufacture of dutiable goods. If separate accounts are not maintained, then under Rule 6(3) two options have been provided. Under Sub-Rule 3(i), manufacturer shall pay an amount equal to 5%/10% value of the exempted goods or under Sub-Rule 3(ii), the manufacturer shall pay an amount equal to the Cenvat Credit attributable to the input services used in or in relation to the manufacture of exempted goods, subject to following the procedure prescribed under sub-rule 3(A). The manufacturer is entitled for availing any of the above two provisions . In the present case they have reversed the entire input service tax credit taken during the period along with interest thereon prior to the issue of show cause notice, not only in respect of exempted products but also in respect of dutiable products. Thus the credit taken by them has been completely reversed which amounts to non taking of credit.
(2) He relied on the decision of the Honble High Court of Allahabad in the case of Hello Minerals Water (P) Ltd. Vs. Union of India 2004 (174) E.L.T. 422 (All.) wherein it was held that reversal of Modvat Credit amounts to non-taking of credit and such reversal can be made even subsequent to the clearance of the final products. A similar view was taken by the Honble Apex Court in the case of Chandrapur Magnet Wires (P) Ltd. 1996 (81) E.L.T. 3 (S.C.). The Apex Court held that when Modvat credit is reversed before removal of the exempted final products, it tantamounts to non-taking of credit. The same view was followed by the Honble High Court of Gujarat in the case of Commissioner of Central Excise Vs. Ashima Dyecot Ltd. 2008 (12) STR 071 and by this Tribunal in the case of Face Ceramics Pvt. Ltd. Vs. Commissioner of C. Ex. Rajkot 2010 (249) E.L.T.119 (Tri.-Ahmd.), and Emcure Pharmaceuticals Ltd. Vs. Commissioner of C.Ex., Pune 2010 (18) S.T.R. 609 (Tri.Mumbai). The Honble High Court of Karnataka in the case of Commissioner of C. Ex. Bangalore-III Vs. Himalaya Drug Company also held that reversal of credit proportionate to use of inputs in exempted products tantamount non availing of credit and the assessee was not required to reverse 8% of the price of the exempted goods under Rule 6(3) of the Cenvat Credit Rules 2004. Similar view was taken by the Tribunal in the case of Burn Standard Co. Ltd. Vs. Commissioner of Central Excise, Salem 2010 (262) E.L.T. 786 (Tri.Chennai).
(3) In the light of these decisions, the learned Counsel submits that inasmuch as they have reversed the entire amount of input service credit taken, it tantamounts non-availing of credit and hence the provisions of Rule 6(3) (2) of the Cenvat Credit Rules would not apply.
(4) The learned Counsel has also taken alternative plea that if they were held liable to discharge an amount @ 5%/10% the value of the exempted products, they should be allowed to take credit of the duty/tax paid on inputs/input services used in the manufacture of such exempted products. He also submits that there was no intention on their part to evade or avoid any tax and as soon as the mistake was pointed out they have reversed the credit along with interest which shows their bona fides. Therefore, the imposition of penalty on the appellant and its manager is totally un-called for.
4. The learned Additional Commissioner (A.R.) appearing for the Revenue, on the other hand strongly opposes the contentions raised by the learned Counsel for the appellant. He submits that when separate accounts are not maintained for input services used in the manufacture of both dutiable as well as exempted products, then under the provisions of Sub-Rule (3) of Rule 6 two options are available to the assessee. Under Sub rule 3 (i) the assessee can pay an amount equal to 5%/10% of the value of the exempted goods or under Sub-rule 3(ii) the assessee has to reverse the amount equivalent to the Cenvat credit attributable to inputs/input services used in or in relation to the manufacture of exempted goods subjected to the conditions and specified in Sub-rule 3(A) . Sub-rule 3(A) envisages giving an option to availed of the facility as detailed in clause (a) thereto and reversing credit on a proportionate basis every month provisionally final determination of the proportionate credit annually and payment of interest on the credit, if any taken, @ 24% p.a. and so on. In the present case, the appellant herein has not followed any of the procedures prescribed in sub-rule (3A) of Rule 6 and, therefore, the appellant would not be eligible for reversal of credit attributable to input services used in the manufacture of exempted goods under Rule 6(3) (ii). Therefore, he prays for upholding the impugned order.
5. We have carefully considered the rival submissions.
5.1 It will be relevant at this juncture to peruse the provisions of Rule 6 which is reproduced below:
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 percent. of value of the exempted services; or
(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 specifiedin 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, 5.2 In the present case it is an admitted fact the appellant did not maintain separate accounts for the input services used in or in relation to the manufacture of product dutiable as well as exempted products even though they maintained such accounts in respect of inputs. Therefore, two options were available to them, i.e., either to pay 5%/10% of value of the exempted goods or pay an amount equal to the credit attributable to the input services used in or in relation to manufacture of exempted goods subject to the provisions of Sub-rule (3A). When the mistake was pointed the appellant reversed not only the credit taken on input services used in the manufacture of exempted goods but also the credit taken on input services used in the manufacture of dutiable goods. In other words, the appellant reversed the entire credit taken along with interest thereon. Therefore, Rule 6(3) (i) will not have any application, when a credit is taken wrongly and the same is reversed along with interest as it tantamounts to non-taking of the credit. The Honble High Court of Allahabad in the Hello Minerals Water (P) Ltd. case cited supra clearly held that reversal of Modvat credit amounts to non-taking of credit on the inputs and even if such reversal was done after the clearance of the goods the said action amounts to non-availment of credit. The Honble Apex Court in the case of Chandrapur Magnet Wires (P) Ltd. (supra) also held that reversal of Modvat Credit at the time of clearance of the goods amounts to non-availing of credit. All the judgments relied upon by the appellant also confirm the above position. The Honble High Court of Karnataka in the case of Himalaya Drug Company held that the provisions of Rule 6(3) (i) of the Credit Rule 2004 would not be attracted if reversal of credit is done in respect of inputs used in the manufacture of exempted final products. In view of these decisions, we are of the considered view that the reversal of credit by the appellant on the entire service tax taken along with interest thereon both in respect of dutiable goods as well as exempted goods amounts to non-availing of credit and, therefore, the provisions of Rule 6(3) (i) are not attracted and the confirmation of demand by the adjudicating authority directing the appellant to pay an amount at the rate of 5%/10% of the value of the exempted goods is not sustainable in law. Consequently, the imposition of penalties on the appellant and appellant firm and its manager are also not sustainable in law and accordingly, they are set aside. However, the appellant has initially availed credit and only on pointing out by the department they have reversed the credit and, therefore the appellant is liable to penalty under Rule 15(3) of the Cenvat Credit Rules 2004 for contravention of the provisions of Cenvat Credit Rules. The maximum penalty imposable under the said Rule is Rs.2000/- and accordingly the appellant is liable to pay penalty of Rs.2000/- under Rule 15(3) of the Cenvat Credit Rules,2004.
6. The appeal is disposed of in the above terms.
(Pronounced in court) (S.S. Kang) Vice President (P.R. Chandrasekharan) Member (Technical) Sm ??
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