Custom, Excise & Service Tax Tribunal
M/S. Aster Pvt. Ltd vs Cc&Ce, Hyderabad-Iii on 21 January, 2016
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL REGIONAL BENCH AT HYDERABAD Bench SMB Court II Appeal No.E/3072/2011 (Arising out of Order-in-original No.74/2011(H-III)CE dt. 26/07/2011 passed by CC&CE, Hyderabad-III) For approval and signature: Honble Ms. Sulekha Beevi, C.S., Member(Judicial) 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 Lordship wish to see the fair copy of the Order? 4. Whether Order is to be circulated to the Departmental authorities? M/s. Aster Pvt. Ltd. ..Appellant(s) Vs. CC&CE, Hyderabad-III ..Respondent(s)
Appearance Shri Karan Talwar, Advocate for the appellant.
Shri Ajay Saxena, Authorised representative for the respondent.
Coram:
Honble Ms. Sulekha Beevi, C.S., Member(Judicial) Date of Hearing:17/12/2015 Date of decision: FINAL ORDER No._______________________ [Order per: Sulekha Beevi, C.S.] Brief facts:-
The appellants are engaged in manufacture of M.S. galvanized towers & tower parts. They had supplied tower and tower parts to M/s. RRB Energy Ltd. Which are used as parts of Wind Operated Electricity Generator (WOEG) and claimed exemption of duty under Sl.No.84 of the Notification No.6/2006-CE dt. 01/03/2006 (Sl.No.13 of the list No.5). The department took the view that towers and tower parts cleared by appellants to M/s. RRB Energy Ltd. are not parts or components of WOEG and issued a show-cause notice proposing to deny the benefit of exemption under Notification No.6/2006-CE dt. 01/03/2006. After adjudication, the order-in-original dt. 27/01/2011 was passed where the proceedings were dropped.
2. In continuation, the department then issued another show-cause notice dt. 08/04/2010 alleging that the appellants though used common inputs and input services in the manufacture of finished goods cleared at nil rate of duty under exemption notification No.6/2006-CE dt. 01/03/2006 did not maintain separate accounts and thereby are liable to pay 10% / 5% of sale price of exempted goods as provided in Rule 6(3)(i) of CENVAT Credit Rules, 2004. The demand raised in the show-cause notice was Rs.26,55,364/- being the amount payable on goods valued at Rs.3,81,58,865/- cleared during the period March 2009 to September 2009, along with interest and penalty. After adjudication the adjudicating authority confirmed the demand, interest and imposed penalty of Rs.5,00,000 under Rule 15 of CENVAT Credit Rules, 2004. The appellants carried the issue in appeal and vide the order impugned herein the Commissioner(Appeals) upheld the same. Being aggrieved the appellant has preferred the appeal.
3. The learned advocate appearing for the appellant submitted that appellants did not maintain separate accounts for dutiable and exempted products and that it is impossible for them to maintain separate accounts due to the complex manufacturing activity. The appellants are galvanizing the towers by immersing them in huge containers of molten zinc. It is not practical or economically viable to maintain two set of tanks, and galvanize the towers meant for exempted clearances and towers meant for dutiable clearances separately. That even with regard to input services such as telephone services, security services, and transportation of goods by road, the maintenance of separate accounts is not possible, as all goods are cleared from their premises in consignments and these services are used commonly. Under Rule 6(3) there are two options available to an assessee manufacturing dutiable and exempted products and not maintaining separate accounts for commonly used inputs / input services. The two options are (i) payment of 5% / 10% of amount on the sale price of the exempted goods or on the value of exempted services and (ii) proportionate reversal of credit on inputs and input services attributable to exempted goods / exempted services as per the formula prescribed under Rule 6(3A). The amount/duty payable by appellant under second option is Rs.3,70,612/- as calculated by appellants. Whereas the amount payable under the first option will come to Rs.24,55,364/-. The appellants chose the second option and reversed the proportionate credit of Rs.3,70,612/-. The learned counsel argued that the demand is raised merely on the ground that appellants failed to comply the procedure of exercising the option by intimating in writing to the department. He argued that Rule 6(3A) provides for the procedure for determining the payment of amount under Rule 6(3)(ii). Though it is stated that manufacturer has to intimate the department about the exercise of option, merely because of failure to intimate the exercise of option, it cannot be said that Rule 6(3)(i) would automatically apply. Further, that since the appellant had duly reversed the proportionate credit it was implied that they had opted for the reversal of proportionate credit as under Rule 6(3)(ii) and not payment of 5% / 10% as under Rule 6(3)(i). The failure to intimate the option exercised would in case be only a technical breach. In addition, it is submitted that till date they did not utilize the CENVAT credit availed during the period March 2009 to September 2009 on the inputs used in the manufacture of exempted goods. They furnished a statement showing CENVAT credit balance during this period before the authorities. That non-utilisation of credit amounts to not availing of credit and therefore demand of interest and penalty is not sustainable.
4. Against this the learned AR Shri Ajay Saxena supported the findings in the impugned order. He urged that in case the appellants wanted to exercise the second option of reversal of proportionate credit as provided under rule 6(3)(ii) it was mandatory for them to intimate the department about their option. He alerted that the section uses the word shall and therefore the requirement to intimate the department in writing cannot be construed as directory. Without intimating the department about the option and not maintaining separate account, the appellants have chosen to reverse the credit and are now trying to take shelter contending that it is only a procedural lapse. That as the appellants have not intimated the department about their exercise of option they are bound to pay the duty amount as calculated under first option, Rule 6(3)(i), and that the demand of duty interest and penalty has been rightly confirmed by the Commissioner. He also put forward a submission that in case the appellants are allowed to reverse the credit, the matter has to be remanded for quantification of the proportionate credit.
5. I have heard both sides and perused the appeal papers. Rule 6 of the CENVAT Credit rules, 2004, speaks about obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services. Sub-rule (1) of Rule 6 states that CENVAT credit shall not be allowed on such quantity of input or input services which is used in the manufacture of exempted goods or for providing exempted services. Sub-rule (2) of Rule 6 states that in case the manufacturer or service provider uses common inputs/ input services, then such manufacturer or service provider has to maintain separate accounts and credit is to be taken only on that quantity of input or input service which is intended for manufacture of dutiable goods or providing exempted services. Sub-rule (3) of Rule 6 speaks about the situation when such manufacturer or service provider does not maintain separate accounts. The rule provides for two options. This rule was amended vide Notification no.10/2008-CE(NT) dt. 01/03/2008 w.e.f. 01/04/2008. As per the new Rule, the manufacturer / service provider opting not to maintain separate account has to follow either of the following two options:-
a) a manufacturer shall pay 10% (5% w.e.f. 07/07/2009) of sale price of the exempted goods and an output service provider shall pay 8% (6% w.e.f. 07/07/2009) of the value of the exempted services; or
b) reverse the credit on inputs and input services pertaining to exempted goods and exempted services as per the procedure and conditions prescribed in Rule 6(3A), and it also prescribes the formula for calculation of the proportionate credit to be reversed.
6. For better appreciation, relevant part of Rule 6(3A) is reproduced as under:-
Rule 6(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;
(v) CENVAT credit of inputs and input services lying in balance as on the date of exercising the option under this condition;
The above Rule 6(3A) states that while exercising the option, the manufacturer of goods or the provider of output service shall intimate in writing the department regarding the option exercised. In the present case, admittedly there is no intimation given by the appellant informing his exercise of option. The contention of the department is that when the appellant has not intimated his option in writing then the appellant is bound to pay the duty amount calculated under the first option. I am afraid I cannot endorse this contention. The said rule does not say that on failure to intimate, the manufacturer / service provider would lose his choice to avail second option of reversing the proportionate credit. Rule 6(3A), as seen expressly stated is nothing but a procedure contemplated for application of Rule 6(3). Therefore, the argument of the Revenue that the requirement to intimate the department about the option exercised, is mandatory and that on failure, the appellant has no other option but to accept and comply Rule 6(3)(i) and make payment of 5% / 10% of sale price of exempted goods / value of exempted services is not acceptable or convincing. The Rule does not lay down any such restriction. The procedure and conditions laid in Rule 6(3A) is intended to make Rule 6(3) workable and not to take away the option available to the assessee. In any case, at no stretch of imagination can it be said that on failure to intimate the department, Rule 6(3)(i) would automatically come into application.
7. In support of their arguments, the appellants have placed reliance on the judgment passed by co-ordinate Bench of CESTAT in Mercedes Benz India (P) Ltd. Vs. CCE, Pune-I [2015-TIOL-1550-CESTAT-MUM]. The issue under consideration is squarely covered by the said judgment. In Rathi Daga Vs. CCE, Nashik [2015(38) STR 213 (Tri. Mum.)] and Foods, Fats & Fertilisers Ltd. Vs. CCE, Guntur [2009(247) ELT 209 (Tri. Bang.)], it has been held that the condition in Rule 6(3A) to intimate the department is only a procedural one and that such procedural lapse is condonable and denial of substantive right for such procedural failure is unjustified. Taking into account the facts, evidence and following the precedents cited above, I am of the view that the demand raised is not legal and proper.
8. I may now address the alternate plea raised by Revenue to remand the matter for verification / quantification of the proportionate credit that has to be reversed on exercising option Rule 6(3)(ii). It is brought out from records that the appellants have stated in their reply to the show-cause notice that they have calculated the proportionate credit to be reversed as Rs.3,70,612/- and they have accordingly reversed Rs.1,04,510/- in the month of April 2009 and Rs.2,66,102/- in the month of April 2011. They also paid Rs.55,284/- towards interest for delay in reversal. The Revenue has never disputed these figures. All along the view of the department has been that on failure to intimate the department the appellants are not entitled to exercise option under Rule 6(3)(ii). In such circumstances, I do not think there is any ground to remand the matter.
9. From the foregoing discussions and following the decisions cited supra, I find that the demand is not sustainable.
10. In the result, the impugned order is set aside and the appeal is allowed with consequential reliefs, if any.
(Pronounced in open court on ) SULEKHA BEEVI C.S. MEMBER(JUDICIAL) Raja.
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