Custom, Excise & Service Tax Tribunal
M/S. Mangalore Refinery & ... vs Cce, Mangalore on 21 March, 2013
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT BANGALORE
Bench Division Bench
Court I
Date of Hearing:21/03/2013
Date of decision:21/03/2013
Application No.E/Misc./25855, 25856/2013; E/Stay/214/2012
Appeal No.E/360/2012
(Arising out of Order-in-original No.15/2011 dt. 24/10/2011
passed by CCE, Mangalore)
For approval and signature:
Honble Mr. P.G. Chacko, Member(Judicial)
Honble Mr. B.S.V. Murthy, 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?
No
2.
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
Yes
3.
Whether their Lordship wish to see the fair copy of the Order?
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
Yes
M/s. Mangalore Refinery & Petrochemicals Ltd.
..Appellant(s)
Vs.
CCE, Mangalore
..Respondent(s)
Appearance Mr. Rajesh Chander Kumar, Advocate for the appellant.
Mr. Ganesh Haavanur, Addl. Commissioner(AR) for the respondent.
Coram:
Honble Mr. P.G. Chacko, Member(Judicial) Honble Mr. B.S.V. Murthy, Member(Technical) FINAL ORDER No._______________________ [Order per: P.G. Chacko] There are three applications before us, all filed by the appellant. One of the miscellaneous applications seeks to bring on record additional evidence under Rule 23 of the CESTAT (Procedure) Rules. The appellant, by this application, seeks to adduce evidence to establish a nexus between the input services and their business of manufacture of petroleum products. The second miscellaneous application, filed again under Rule 23 ibid, seeks to incorporate additional grounds in the memorandum of appeal. Through this application, the appellant seeks to raise, for the first time, a jurisdictional issue. The third application before us seeks waiver of predeposit and stay of recovery in respect of the adjudged dues. The appellant, during the period of dispute (March to October 2010), received various services under cover of invoices issued by their Delhi, Mumbai and Bangalore offices qua Input Service Distributors(ISDs). These services include advertisement service, banking and financial services, general insurance service etc. which are claimed to have been used in or in relation to the appellants business of manufacture of petroleum products. The ISDs were duly registered with the Department for the purpose of procuring the taxable services from the service providers and distributing the same to the various manufacturing units of theirs, one of which is the appellant before us (Mangalore unit). The appellant took CENVAT credit of the service tax paid on all the services received under cover of the invoices issued by the ISDs. In the relevant show-cause notice dt. 24/03/2011, the Commissioner of Central Excise, Mangalore proposed to deny the said credit amounting to Rs.4,73,88,162/- taken from March to October 2010, demanding interest thereon and proposing a penalty on them. The show-cause notice basically alleged that the invoices on the strength of which the said credit had been taken were not prescribed documents for the purpose. This allegation was raised with reference to Rule 9(g) of the CENVAT Credit Rules(CCR), 2004 and Rule 4A(2) of the Service Tax Rules, 1994. The show-cause notice alleged that the CENVAT credit had been irregularly taken on the basis of invalid documents. It also stated that the appellants eligibility to take the credit could not be ascertained in terms of Rule 3 read with Rule 2(l) of the CCR, 2004 on account of non-production of complete documents. The allegations raised in the show-cause notice were denied and the proposals made therein contested on certain grounds by the appellant. It was in adjudication of this dispute that the learned Commissioner passed the impugned order, the operative part whereof reads as follows:-
(i) The credit of Rs.1,11,27,124/- availed during March, 2010 to October, 2010 is allowed in terms of Rule 9(g) of the CENVAT Credit Rules, 1994 read with Rule 4A(2) of the Service Tax Rules, 1994.
(ii) The credit of Rs.3,62,61,032/- (Rupees threeo crore two lakh sixty one thousand thirty two only) availed during March, 2010 to October, 2010 is disallowed for not satisfying the requirements in Rule 9(g) of CCR 2004 read with Rule 4A(2) of the Service Tax Rules, 1994.
(iii) I confirm the demand of Rs.3,62,61,032/- and order the recovery of the same in terms of Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1994.
(iv) An amount of Rs.30,36,620/- reversed vide entry No.2/2011-12 is appropriated against the demand mentioned at Sl.No.(iii) above.
(iv) I confirm the demand of interest on the ineligible CENVAT credit disallowed at (ii)/(iii) above under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944.
(v) I impose the penalty of Rs.3,62,61,032/- (Rupees three crore sixty two lakh sixty one thousand thirty two only) under Rule 15 of the CENVAT Credit Rules, 2004.
2. Heard both sides. The submissions of the learned counsel can be summarized as follows:-
a. The documents on the basis of which the CENVAT credit in question was taken stand accepted by the adjudicating authority in terms of Rule 9(g) of the CCR, 2004. That authority, nevertheless, proceeded to deny the credit on the ground that the services on which the credit was taken did not qualify to be input services as defined under Rule 2(l) of the CCR, 2004.
b. The respondent had no jurisdiction to determine whether the services received by the appellant under cover of invoices issued by the ISDs were input services conforming to the definition of input service under Rule 2(l). This jurisdiction belonged to the proper officers exercising control over the ISDs. (Case law cited: CST, Ahmedabad Vs. Godfrey Philips India Pvt. Ltd. [2009(239) ELT 323 (Tri. Ahmd.)]) c. The jurisdictional objection could not be raised before the adjudicating authority inasmuch as there was no occasion for the appellant to raise it at that stage. However, the jurisdictional objection can be raised at any stage inasmuch as it goes to the root of the subject matter of the case. Therefore, such issue can be raised before this Tribunal at this stage. (Case law cited: Balwant N. Viswamitra & Ors. Vs. Yadav Sadashiv Mule & ors. [(2004) 8 SCC 706])
3. The learned Additional Commissioner(AR) has made the following submissions:
a. An ISD just distributes CENVAT credit to its manufacturing units or output service providing units subject to two conditions viz. (i) the credit distributed against a document referred to in Rule 9 does not exceed the amount of service tax paid thereon and (ii) credit of service tax attributable to services used in any unit exclusively engaged in the manufacture of exempted goods or providing of exempted services shall not be distributed. The ISD is required to file periodical returns with the proper officer of Service Tax and the latter is required to conduct a scrutiny of the returns for the limited purpose of ascertaining whether the above two conditions have been satisfied by the ISD. In this area, the ISD is not called upon to establish any nexus between the input services and the activity for which such services are going to be used, nor is it incumbent on the officer to determine any such nexus. The jurisdiction to determine such nexus belongs to the proper officer exercising control over the manufacturing unit or the service providing unit, as the case may be, which utilizes the input service passed on by the ISD under cover of the prescribed invoices. Therefore, the jurisdictional objection raised on behalf of the appellant is liable to be overruled.
b. The jurisdictional objection raised by the learned counsel is territorial in nature inasmuch as it is his submission that the power to determine nexus between a given service and the business activity for which it is claimed to have been used is vested in the proper officer of Service Tax having territorial jurisdiction over the ISD. A jurisdictional objection of this nature has to be raised before the court or authority of first instance and cannot be allowed to be raised at appellate stage. (Case law cited: Sushil Kumar Metha Vs. Gobind Ram Bohra [1990(1) SCC 193]) c. The question whether the Commissioner of Central Excise, Mangalore had jurisdiction to determine nexus between the services on which CENVAT credit was taken by the appellant and their business of manufacture of petroleum products is essentially a question of fact and, therefore, the appellant cannot be permitted to raise this question for the first time before this appellate Tribunal. They should have raised it before the Commissioner himself. They chose to submit themselves to the jurisdiction of the Commissioner. Hence they are precluded from challenging the Commissioners jurisdiction before this appellate Tribunal. (Case law cited: Kedar Shashikant Deshpande etc. Vs. Bhor Municipal Counsel & ors. [Judgement of the Honble Supreme Court dt. 10/12/2010 in Civil Appeals Nos.10452-10457 of 2010]) d. The nexus between the services on which CENVAT credit was taken by the appellant and their business activity was correctly and lawfully examined by the Commissioner and, as no nexus was found to classify such services as input services in terms of Rule 2(l) of the CCR, 2004, the CENVAT credit came to be denied to the appellant.
e. A registered ISD and a registered first stage/second stage dealer are more or less similarly placed and, therefore, the provisions of the CCR 2004, governing CENVAT credit, have to be equally applied. This legal position emerges from Rule 7A of the CCR 2004 and the same was overlooked when the learned counsel for the appellant, on the strength of Godfrey Philips India Ltd. (supra), sought to distinguish the rights and liabilities of a registered ISD from those of a registered first stage/second stage dealer. The provisions governing distribution of input services should not be read in isolation and should be read in conjunction with the general provisions governing availment and utilization of CENVAT credit. If the provisions are interpreted in this manner, it should be found that the burden of establishing nexus between a given service and the business activity for which it is claimed to have been used is on the person who has undertaken such activity (manufacturer/service provider). It would be a corollary to say that the power to determine such nexus is on the proper officer having jurisdiction over the claimant.
4. We have given careful consideration to the submissions. Having heard both sides on the jurisdictional issue, we have allowed one of the miscellaneous applications. Having regard to the contentious nature of the arguments put forth, we are of the view that the case should be sent back. Obviously, the appellant did not, or could not, raise the jurisdictional objection before the adjudicating authority either through their reply to the show-cause notice or otherwise. It has been argued by the learned Additional Commissioner(AR) that the issue cannot be allowed to be raised at the appellate stage. He has referred to three types of jurisdictional objections viz. territorial, pecuniary and subjective. It is not in dispute that an objection with regard to jurisdiction to determine a substantive dispute (like the one which has been debated before us) can be allowed to be raised at any stage of the proceedings. Both sides have argued at length on the question as to who had the jurisdiction to determine nexus between the services received by the appellant from the ISDs and the business of manufacture of excisable goods. They were debating a jurisdictional question on the very subject-matter of this case. The issue cannot be brushed aside as one pertaining to territorial jurisdiction. Therefore, in our considered view, the jurisdictional issue agitated before us by both sides is one which can be allowed to be raised before this appellate Tribunal. We have found this issue to be contentious and are of the view that this basic issue should be addressed by the Commissioner and a decision should be taken thereon after carefully considering the rival submissions and having regard to the relevant provisions of the CCR, 2004. Needless to say that the cited case law shall also be examined.
5. The learned Additional Commissioner(AR) has cited the Honble Supreme Courts judgment rendered in the case of Kedar Shashikant Deshpande etc. (supra) wherein the question whether the Additional Collector had jurisdiction to entertain and decide a substantive dispute under the provisions of the Maharashtra Land Revenue Code, 1966 was essentially a question of fact. Such a question has necessarily to be adjudicated upon by the authority of the first instance and that is why we took the view that the Commissioner should deal with the jurisdictional issue and decide thereon before proceeding to decide whether the services on which the CENVAT credit in question was taken by the appellant were used in the manufacture of petroleum products so as to qualify as input services under Rule 2(l) of the CCR, 2004.
6. The miscellaneous application filed by the appellant for permission to bring on record additional evidence need not be entertained inasmuch as we are inclined to direct the adjudicating authority to give the party a reasonable opportunity of adducing any such evidence. For the record, however, the said miscellaneous application is disposed of.
7. Now that the adjudicating authority is required to undertake de novo adjudication of the show-cause notice after determining its own jurisdiction, we dispense with predeposit and allow this appeal by way of remand after setting aside the impugned order. The learned Commissioner is requested to pass fresh order in de novo adjudication of the dispute (including jurisdictional issue) in accordance with law after giving the party a reasonable opportunity of adducing evidence and of being personally heard.
8. The miscellaneous applications and the stay application also stand disposed of.
(Pronounced and dictated in open court) (B.S.V. MURTHY) MEMBER (TECHNICAL) ( P.G. CHACKO ) MEMBER (JUDICIAL) Nr 11