Custom, Excise & Service Tax Tribunal
3M India Ltd vs Bangalore-Ltu on 20 December, 2023
Central Excise Appeal No.E/623/2010
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 1
Central Excise Appeal No. 623 of 2010
(Arising out of Order-in-Original No.120/2009-LTU dt. 31/12/2009
passed by Commissioner of Central Excise (LTU), Bangalore)
M/s. 3M India Limited,
No.48-51, Hosur Road,
Electronics City,
Bangalore - 561 229. ...........................Appellant(s)
VERSUS
Commissioner of Central Excise (LTU),
JSS Towers, 100ft Ring Road,
Banashankari 3rd Stage,
Bangalore - 560085.
......................
Respondent(s) Appearance:
Mr. N. Anand, Advocate for the appellant. Mr. H. Jayathirtha, Superintendent (AR) for the respondent. Coram:
Hon'ble Dr. D.M. Misra, Member (Judicial) Hon'ble Mr. Pullela Nageswara Rao, Member (Technical) Final Order No. 21417 / 2023 Date of Hearing: 23.08.2023 Date of Decision: 20.12.2023 Per: Dr. D. M. Misra This is an appeal filed against the Order-in-Original No.120/2009-LTU dt. 31/12/2009 passed by Commissioner of Central Excise (LTU), Bangalore. Page 1 of 12
Central Excise Appeal No.E/623/2010
2. Briefly stated the facts of the case are that the appellant are engaged in the manufacture of self-adhesive tapes and also registered under Service Tax provisions under the taxable category of 'Management Consultancy Service'. During the period September 2006 to December 2007, they have availed cenvat credit amounting to Rs.1,56,29,750/- on the service tax paid on reverse charge mechanism for receiving 'Management Consultancy Service' from foreign service provider. Subsequently, on the basis of audit of their records, a show-cause notice was issued to them on 08.04.2009 for recovery of the said credit with interest and penalty; an amount of Rs.79,22,225/- paid along with interest of Rs.15,38,789/- proposed to be appropriated. On adjudication, the demand of Rs.79,22,225/- and interest of Rs.15,38,789/- attributable to trading activities and demand of Rs.15,83,168/- being credit availed at Bangalore pertaining to manufacturing units located at Ahmedabad and Pune was confirmed with a penalty of Rs.95,05,393/- without having ISD registration. Hence the present appeal.
3.1. At the outset, the learned advocate for the appellant submitted that the disallowance of cenvat credit comprises of two issues. The first issue relates to denial of cenvat credit of Rs.79,22,225/- relating to their trading activities during the period in question. He has submitted that as per the provisions of Rule 6(5) of Cenvat Credit Rules, 2004, they are entitled to avail cenvat credit on 'Management Consultancy Service' unless the said service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted service. He has further Page 2 of 12 Central Excise Appeal No.E/623/2010 submitted that even if trading activity is considered as an 'exempted service' during the relevant period, they are entitled to avail credit on the cenvat credit paid on 'Management Consultancy Service' attributable to trading activity. In support, he has referred to the following judgments:
i. CCE Vs. Metlife India Insurance Company Ltd.
[2022(67) GSTL 386 (Kar.)] ii. Super Packs Vs. CCE, Bangalore [2019(370) ELT 691 (Tri. Bang.)] iii. Franke Faber India Ltd. Vs. CCE [2017(52) STR 155 (Tri. Mum.)] iv. Marudhan Motors Vs. CCE [2017(47) STR 261 (Tri.
Del.)] v. Lemon Tree Hotels Pvt. Ltd. Vs. CST [2018(13) GSTL 305 (Tri. Che.)] vi. Lemon Tree Hotels Ltd. Vs. CCE [2018(364) ELT 1078 (Tri. Mum.)] vii. Secure Meters Ltd. Vs. CCE [2017(3) GSTL 422 (Tril. Del.)] 3.2. On the second issue, the learned advocate has submitted that cenvat credit of Rs.15,83,168/- was denied to them on the ground that the credit pertains to the units at Ahmedabad and Pune and which was availed at Bangalore Unit prior to the registration of the unit as ISD. He has submitted that the said ground for denying the credit at the Bangalore Unit in the absence of ISD registration at the time of availing credit is no more res integra being covered by the judgment of the Hon'ble Karnataka High Court in the case of CCE Vs. Hinduja Global Solutions Ltd. [2022(61) GSTL 417 (Kar.)] wherein their lordships following the decision of the Hon'ble Gujarat High Court Page 3 of 12 Central Excise Appeal No.E/623/2010 in the case of CCE Vs. Dashion Ltd. [2016(41) STR 884 (Guj.) and Hon'ble Madras High Court in the case of CCE Vs. Pricol Ltd. [2021(48) GSTL 235 (Mad.)]., held that credit is admissible. 3.3. The appellant has also submitted that the demand notice issued by the Department is barred by limitation and invoking of extended period cannot be sustained since the fact of taking of credit was disclosed and declared in the returns filed by the appellant. The entire notice has been issued only on the basis of audit of the records of the appellant and no facts have been mis declared or suppressed from the Department. Further he has submitted that the cenvat credit was taken on a bona fide interpretation of the provisions and clarifications issued by the Board from time to time. Therefore, invoking of extended period of limitation is not sustainable. In support, they have referred the following judgments:-
i. CCE Vs. Sanmar Speciality Chemicals Ltd.
[2016(43) STR 347 (Kar.)] ii. CCE Vs. Zyg Pharma Pvt. Ltd. [2017(358) ELT 101 (MP)] iii. Continental Foundation Joint Venture Vs. CCE [2007(216) ELT 177 (SC)] iv. Jaiprakash Industries Ltd. Vs. CCE [2002(146) ELT 481 (SC)]
4.1. Per contra, the learned AR for the Revenue reiterated the findings of the learned Commissioner. He has submitted that cenvat credit availed on services attributable to trading activity cannot be admissible in view of the series of judgments by Hon'ble High Courts and Tribunal on the subject. In support, he has referred to the judgment of Hon'ble Delhi High Court in the case Page 4 of 12 Central Excise Appeal No.E/623/2010 of Lally Automobiles Pvt. Ltd. Vs. CCE [2018(17) GSTL 422 (Del.)]; Aksh Optifibre Ltd. Vs. CCE, Jaipur-I [2018(10) GSTL 551 (Tri. Del.)]; CST, New Delhi Vs. AVL India Pvt. Ltd. [2017(4) GSTL 59 (Tri. Del.)]; Secure Meters Ltd. Vs. CCE, Jaipur-II [2017(3) GSTL 485 (Tri. Del.)] and Ruchika Global Interlinks Vs. CESTAT, Chennai [2017(5) GSTL 225 (Mad.)].
4.2. Further, he has submitted that the appellant has wrongly availed credit pertaining to their units at Ahmedabad and Pune without taking ISD registration at the relevant point of time at their Bangalore unit, hence credit is not admissible
5. Heard both sides and perused records
6. The issues involved in the appeal are admissibility of;
i. cenvat credit of Rs.79,22,225/- attributable to their trading activity;
ii. credit of Rs.15,83,168/- pertaining to Ahmedabad and Pune units before obtaining ISD registration at their Bangalore unit, and iii. whether extended period of limitation be invoked. 7.1. These issues are covered by the judgments of Hon'ble High Court and Delhi High Court. As far as admissibility of cenvat credit of trading activity, the Hon'ble Madras High Court in Ruchika Global Interlinks case held as follows:-
10. To our minds, such a submission cannot be accepted.
If, the appellant has accepted before us that he was not paying Service Tax on an activity, then the credit of services vis-a-vis input services could only be taken on a pro rata Page 5 of 12 Central Excise Appeal No.E/623/2010 basis, as per the formula stipulated in Rule 6(3)(c), as it then obtained at the relevant point in time. 10.1 In this context, it may also be relevant to note, how exempted services was defined in Rule 2(e) of the 2004 Rules till 31-3-2011 and thereafter.
Rule position till 31-3-2011 Rule 2(e): "exempted services" means taxable services which are exempt from the whole of the Service Tax leviable thereon, and includes services on which no Service Tax is leviable under Section 66 of the Finance Act Rule position with effect from 31-3-2011 Rule 2(e): "Exempted services" means taxable services which are exempt from the whole of the Service Tax leviable thereon, and includes services on which no Service Tax is leviable under Sec. 66 of the Finance Act; and taxable services whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken. Explanation. - For the removal of doubts, it is hereby clarified that "exempted services" includes trading. 10.2 Clearly, both before and after amendment, "exempted services" meant those taxable services, which were exempt from whole of Service Tax and, included those services on which Service Tax was not leviable, under Page 6 of 12 Central Excise Appeal No.E/623/2010 Section 66 of the Finance Act. The inclusion in Explanation to Rule 2(e) "trading" was, without doubt, only clarificatory. As accepted by Mr. Jayachandran, the appellant had not being paying Service Tax on trading activity during the relevant period.
10.3 Therefore, given the rule position, what would govern the matter would be the determination of the issue as to whether or not, a particular service is amenable to Service Tax under Section 66 of the Finance Act.
10.4 Since, the trading activity was not amenable to Service Tax at the relevant period, surely, the apportionment as provided in Rule 6(3)(c) would get triggered. This is apparent, upon a bare perusal of Rule 6(3)(c) the relevant part of which is as follows. RULE 6. Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services. -
(1) xxxx (2) xxxx (3) Notwithstanding anything contained in sub-rules (1)
and (2), the manufacturer or the provider of output service, opting not to maintain separate accounts, shall follow either of the following conditions, as applicable to him, namely:-
(a) xxxx
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Central Excise Appeal No.E/623/2010
(b) xxxx
(c) The provider of output service shall utilize credit only to extent of an amount not exceeding twenty per cent of the amount of Service Tax payable on taxable output service.
11. Having regard to the rule, position and given the admitted fact that no separate accounts were maintained by the appellant, with regard to the taxable and non-taxable services, clause (c) of sub-rule (3) of Rule 6 of 2004 Rules would apply.
12. For the foregoing reasons, we feel no interference is called for with the order of the Tribunal. Accordingly, the questions of law framed are answered in favour of the Revenue and against the assessee.
7.2. Further, the Hon'ble Delhi High Court in Lally Automobiles Pvt. Ltd. case held as under:-
17. In the present case, the assessee's argument that there is no mechanism to reverse credit, once taken, in the opinion of this Court, cannot be accepted. The assessee was well aware of the exact nature and extent of its service tax liability. It was also aware of the eligible service tax inputs.
Therefore, when it did claim successfully and unchallenged input credits in respect of activities that were not subjected to service tax levy, it was aware that the claim was excessive and could not be justified. If, for instance, input credits were claimed in respect of goods or rents, attributable to retail business, those credits were clearly impermissible. In these circumstances, this Court finds no Page 8 of 12 Central Excise Appeal No.E/623/2010 infirmity with the concurrent findings of the lower authority and the CESTAT, which concluded that show cause notice and recoveries were in order.
18. As regards the method of calculation and invocation of extended period of penalty, the assessee's contentions again, to the Court's mind, are groundless. The assessee concededly did not maintain regular separate accounts in respect of non-service tax leviable activities. Therefore, the adjudicating authority adopted the method of proportionate turnover based attribution to the assessee's liability:
"I find that it was clear in 2008 itself that no Cenvat Credit is available for services used for trading as decided by Hon'ble CESTAT in the Metro shoes case. The noticee has availed the Cenvat Credit used for exempted services namely trading without reversing the proportionate credit. They have never informed the department about taking the wrong credit. This would have been undetected if the facts were not noticed during audit. M/s. Lally Automobiles Private Ltd. have failed to inform the department that they are not maintaining the separate records for input services used for taxable and exempted services. It is already noted that the law requires an assessee to maintain separate records of Cenvat credit received on taxable or non-taxable services. In case the separate records are not maintained, the Cenvat credit is to be reversed as per Rule 6(3) of the Cenvat Credit Rules, 2004;. I find that : M/s. Lally Automobiles Private Ltd. have not reversed the same by Page 9 of 12 Central Excise Appeal No.E/623/2010 suppression of material facts. The excess credit availed utilized by them is liable to be recovered in terms of Rule 14 of Cenvat Credit Rules, 2004 read with proviso to Section 73(1) of Finance Act, 1994."
19. This Court is of opinion that the lack of any method in the rules in such cases, would only mean that a reasonable and logical principle should be applied, not concededly that what should and could not be claimed as input credit, (but was in fact so claimed) ought to be "left alone" because of the composite nature of the assessee's business. While any assessee has a right to organize its business in the most convenient and efficient manner, it cannot claim that that such organization is so structured that its tax liabilities cannot be clearly discerned. In this case, the adjudicating authority adopted the proportionate percentage to the turnover method approach, which in this Court's opinion, is reasonable.
8. On the issue of invoking extended period of limitation on similar circumstances, their lordships observed as under:-
20. This Court is also of the opinion that the invocation of the extended period of limitation was warranted in the circumstances of the case. Being conscious of its trading activity and that it was not liable to service tax (since it did not include the amounts earned from that business, in its returns) meant that the assessee was aware of what it was doing. It cannot now take shelter under the plea that non- Page 10 of 12
Central Excise Appeal No.E/623/2010 trading activity was expressly exempt from claiming credit, in 2011. That amendment made no difference, given that trading was never taxable under the Finance Act, 1994. In these circumstances, the Revenue was justified in invoking the extended period of limitation in this case. The judgment of the Hon'ble Delhi High Court has been upheld by the Hon'ble Supreme Court as reported in 2019(24) GSTL J115 (SC).
9. Thus, the confirmation of demand with interest by the learned Commissioner invoking extended period of limitation on cenvat credit availed on trading activity is upheld.
10. As far as the second issue regarding admissibility of cenvat credit of Rs.15,83,168/- availed before taking ISD registration at Bangalore unit is concerned, we find that the issue is also covered by the judgment of the Hon'ble Karnataka High Court in the case of Hinduja Global Solutions Ltd, (supra). Their Lordships following the judgment of Hon'ble Gujarat High Court and Madras High Court, held that cenvat credit cannot be denied to the assessee prior to its registration as an ISD, since the same is procedural irregularities. Para 11 of the said judgment is reproduced below:-
11. In view of the aforesaid, it is clear that the Cenvat credit claimed by the respondent-assessee on the basis of the Invoices/Debit notes issued by the head office for the months of March, July and August, 2006 prior to its registration as ISD on 21-9-2006 being procedural irregularity and the view of the Hon'ble High Court of Page 11 of 12 Central Excise Appeal No.E/623/2010 Gujarat being accepted by the Department, input tax credit cannot be denied. Accordingly, substantial questions of law are answered in favour of the assessee and against the Revenue.
Thus, the appellant is entitled to avail cenvat credit of Rs.15,83,168/-.
11. In the result, the impugned order is modified to the extent of confirming inadmissible cenvat credit of Rs.79,22,225/- attributable to trading activity and applicable interest of Rs.15,38,789/- paid on the said credit amount; since the cenvat credit and applicable interest is paid much before the issuance of show-cause notice, the appellant is entitled for the benefit of 25% of penalty imposed under Section 11AC of the Central Excise Act read with Rule 15(4) of CENVAT Credit Rules, 2004.
12. The demand of cenvat credit of Rs.15,83,168/- confirmed with interest and equivalent penalty before ISD registration is hereby set aside.
13. The appeal is disposed of accordingly.
(Pronounced in open court on 20.12.2023) (D.M. Misra) Member (Judicial) (Pullela Nageswara Rao) Member (Technical) Raja...
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