Custom, Excise & Service Tax Tribunal
Lally Motors Pvt Ltd vs Chandigarh-Ii on 20 August, 2024
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHANDIGARH
REGIONAL BENCH - COURT NO. I
Service Tax Appeal No. 55495 of 2014
[Arising out of Order-in-Appeal No. JAL-EXCUS-000-APP-103-14-15 dated
16.07.2014 passed by the Commissioner (Appeals), Chandigarh]
M/s Lally Motors Pvt Ltd ......Appellant
Rajpura Road, Bahadurgarh, Patiala -147021(Punjab)
VERSUS
Commissioner of Central Excise and ST, ......Respondent
Chandigarh-II Central Excise (Appeals), Chandigarh-II, C.R. Building, Plot No. 19,Sector 17-C, Chandigarh 160017 APPEARANCE:
Present for the Appellant: Ms. Neha Somani, CA Present for the Respondent: Shri Yashpal Singh, Authorized Representative CORAM: HON'BLE MR. S. S. GARG, MEMBER (JUDICIAL) HON'BLE MR. P. ANJANI KUMAR, MEMBER (TECHNICAL) FINAL ORDER No. 60482/2024 DATE OF HEARING: 08.08.2024 DATE OF DECISION: 20.08.2024 PER S. S. GARG The present appeal is directed against the impugned order dated 16.07.2014 passed by the Commissioner (Appeals) whereby he has upheld the Order-in-Original.
2. Briefly the facts of the present case are that the appellants were registered with the department under Registration No. 2 AAACL2760PST005 for payment of service tax under the category of Authorized Service Station' and 'Business Auxiliary Service and are availing Cenvat credit of various input services. They are also engaged in the sale of vehicles. During the period 01.04.2011 to 01.03.2012, it was observed that the appellants have availed input service credit of Rs. 10,56,464/- and out of this credit only credit of Rs. 62,775/- are of certain input services like Advertisement for service camp, parts/ accessories insurance, job work contractor, sumo service parts DMS service, contractor service etc. which were used exclusively for service of vehicles i.e. authorized station service. Remaining input service credit of Rs. 9,93,689/- was attributed to other services such as Courier. Renting, Telecommunication etc. which were used both for sale of vehicles as well as for rendering services of authorized service station. It was alleged that the appellants availed of credit of all the services utilized for providing taxable service and also utilized the same for the trading activity which was not a taxable service. During the said period, total turnover of "service Activity was Rs. 1,45,83,418/- and turnover of "Trading Activity Margin' was Rs. 55,16,454/-. It was alleged that the credit of Rs. 7,20,969/- was admissible to the appellants on proportionate basis in the light of the decision of the Hon'ble CESTAT in the case of M/s Orion Appliances Ltd. Vs CST reported as 2010(05)LCX0027. Thus, the appellants have availed inadmissible input service credit of Rs. 2, 72/720/-(Rs. 9,93,689/- Rs. 7,20,969/-) 3 2.1 Accordingly, the appellants were issued show cause notice proposing a demand of Rs. 2,72,720/- for inadmissible credit taken by the appellants, alongwith interest covering the period 2011-12, under Section 73 of the Finance Act, 1994 (for brevity "the Act') read with Rule 14 of the Cenvat Credit Rules, 2004 (for brevity 'the Credit Rules') and Section 75 of the Act respectively, besides proposing penalty under Section 76 of the Act read with Rule 15 of the Credit Rules. After following the due process, the adjudicating authority confirmed the demand of Rs. 2,70,184/- (out of total demand of Rs. 2,72,720/-, demand of Rs. 2,536/- was vacated) against the appellants alongwith interest and imposed penalty of Rs. 2,70,184/- equivalent to the demand confirmed under Rule 15 of the Cenvat Credit Rules and Rs. 100 per day or one percent per month on the demand confirmed, whichever is higher starting with the first day after due date till the date of actual payment of service tax provided that the total amount of penalty payable in terms on this account shall not exceed fifty percent of the service tax payable, under Section 76 of the Act. Aggrieved by the said order, the appellant filed before the commissioner (Appeals).
3. Heard both the parties and perused the material on record.
4. Ld. Counsel appearing on behalf of the appellant submits that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts and the law. She further submits that the show cause notice was issued by relying upon para 8 of the judgment in the case of M/s Orion Appliances Ltd 4 Vs. Commissioner of Service Tax, Ahmedabad reported as 2010 (05) LCX 0027 (equivalent to 2010-TIOL-752-CESTAT-AHM.) She further submits that as per the decision of the CESTAT, the quantum of input service tax credit attributed to trading activities was to be deducted according to standard accounting principles but the quantum of input service attributed to trading activity was not segregated in the impugned order despite the fact that they have submitted the Certificate from the Chartered Accountant who after going through the records as certified that only an amount of Rs. 2,00,455/- relates to trading activities and requires to be reversed in terms of Rules 6(3A) of the Cenvat Credit Rules, 2004. She further submits that in the appellant's own case for the previous period the Tribunal Vide its Final Order No. 62001/2018 decided on 19.03.2018 confirmed the demand of service tax for a normal period and set aside the demand for extended period and also set aside the penalty under Section 78 of the Finance act, 1994. She further submitted they are not liable to pay penalty under Section 76 as well as under Rule 15 of the Cenvat credit Rules because they did not have any intention to evade to pay service tax.
4.1 She further submits that the Certificate of Chartered Accountant produced by them in proof of the proportionate Cenvat Credit required to be reversed for the trading activities cannot be ignored in view of the various decisions passed by the Tribunal.
5. On the other hand, Ld. DR, reiterated the findings of the impugned order and submitted that for the earlier period 2007-08 to 5 2010-2011 prior to the issue of show cause notice in the instant case against which the demand of Rs. 8,50,695/- was confirmed. The same was challenged before the Hon'ble Tribunal, Chandigarh and the Hon'ble Tribunal vide Final Order No. 62001/2018 dated 19.03.2018, upheld the demand of service tax on merits for the normal period. Thus, the issue related to non eligibility of Cenvat Credit attributed to trading activities is settled and this notice being for subsequent period of the same appellant on the same issue is squarely covered by the decision of the Tribunal dated 19.03.2018. 5.1 Ld. DR further referred to the definition of the exempted services prior to 01.03.2011 and submitted that with the amendment in 2011 (Cenvat credit (Amendment) Rules, 2011 issued vide Notification No. 03/2011-CE(NT) dated 01.03.2011, the definition of exempted service has been amended to cover 'Trading activities'. He further submits that the appellant is not disputing that the Cenvat credit is not permissible on trading activities, however they relied upon the certificate issued by Chartered Accounted dated 26.10.2013 wherein share of amount related to trading activities as well as taxable activities were calculated on the basis of area occupied under both the activities.
5.2 He further submits that the adjudicating authority in para 17 of the Order has observed that in the instant case the amount of inadmissible credit is to be determined as per formula given in Rule 6(3A) of the Cenvat Credit Rules, 2004, therefore the benefit of certificate issued by the Chartered Accountant cannot be given to the 6 appellant. The Ld. DR also took us through the provisions of Rule 6(3A) of CCR, 2004; he further submits that on the basis of the formula given in Rule 6(3A) of the Cenvat credit Rules; the adjudicating authority after taking into account the value of taxable service, value of taxable goods; margin of profit of trading activities; percentage of liable inputs of taxable services and percentage of inputs exempted services as tabulated in para 16 of the Order-in- Original and calculated the recoverable amount of Cenvat credit as Rs. 2,70,184/-.
5.3 Ld. DR further submits that the adjudicating authority has rightly relied upon the decision in the case of Orion Appliances Ltd. Vs. Commissioner of Service Tax, Ahmedabad reported as 2010 (19) S.T.R. 205 (Tri. - Ahmd.). Ld. DR has also submitted that in this case, the show cause notice was issued within the normal period of limitation and therefore the appellant is also liable to pay penalty under Section 76 of the Finance Act and under Rule 15 of the Cenvat credit Rules as confirmed by the adjudicating authority.
6. After considering the submissions of both the parties and perusal of the material on record we find that in the present case the period of dispute is from 01.04.2011 to 31.03.2012 vide Notification No. 03/2011-CE dated 01.03.2011, the definition of exempted service has been amended to cover trading activities. We also find that the appellant has accepted that they are required to reverse the cenvat credit on trading activities; as per the appellant the amount to be reversed comes to Rs. 2,00,455/-, whereas, as per the 7 department, Cenvat credit required to be reversed as per the formula prescribed in rule 6(3A) amount to Rs. 2,70,184/-. In this regard, the relevant provision of Rule 6(3A) of CCR as inserted vide Notification No. 10/2008-CE (NT) dated 01.03.2008 are as under:
"(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;
(ii) description of dutiable goods or taxable services;
(iv) description of exempted goods or exempted services;
(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;8
(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 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 9 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 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 10
(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), alongwith 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) 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 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 11 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 L- "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 12 the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken."
7. On the basis of the formula as prescribed in Rule 6(3A) of the Cenvat Credit Rules the amount of proportionate credit to be reversed comes to Rs. 2,70,184/-. We do not find any infirmity in the amount of Cenvat credit to be reversed as held by both the authorities below after applying the formula given in Rule 6(3A) of Cenvat Credit Rules.
8. Further, we find that Ahmedabad Bench of the CESTAt in the case of Orion Appliances Ltd. cited (Supra) in para 8 as observed as under:
"8. Then the question arises as to whether the appellant would be eligible for the full amount of service tax credit taken by them on input services can be used for payment of service on output service provided the input services have been used for providing the output services. No doubt there is no one to one correlation required. This is the reason why provisions have been made in Cenvat Credit Rules and Service Tax Credit Rules to cover such situations where an assessee is providing both exempted and taxable services. In cases where an assessee is undertaking activities which cannot be called a service or which cannot be called manufacture, that activity goes out of the purview of both Central Excise Act as well as Finance Act, 1994. Therefore, we 13 have a situation where an assessee would not be eligible to take input Service tax credit on an output which is neither a service nor excisable goods and at the same time there is no provision to cover situations where an assessee is providing a taxable service and is undertaking another activity which is neither a service nor manufacture. In such a situation the only correct legal position appears to be that it is for the appellant to choose and segregate the quantum of input service attributable to trading activity and exclude the same from the records maintained for availment of credit. Naturally this cannot be done in advance since it may not be possible to forecast what would be the quantum of trading activity and other activity which is liable to service tax. The only obvious solution which would be legally correct appears to be to ensure that once in a quarter or once in a six months, the quantum of input service tax credit attributed to trading activities according to standard accounting principles is deducted and the balance only availed for the purpose of payment of service tax of output service. This proposition is not against the law in view of the fact that there are several decisions of various High Courts and also of the Tribunal wherein a view has been taken that subsequent reversal of credit amounts to non-availment of credit."
9. In view of the statutory provisions as prescribed in Rule 6(3A) of the Cenvat Credit Rules and the decision of the Orion Appliances Ltd. cited (Supra), we are of the considered view that 14 there is no infirmity in the impugned order which warrants interference by us and therefore we uphold the impugned order by dismissing the appeal of the appellant.
(Order pronounced in the open court on 20.08.2024) (S. S. GARG) MEMBER (JUDICIAL) (P. ANJANI KUMAR) MEMBER (TECHNICAL) Kailash