Custom, Excise & Service Tax Tribunal
Raj Petro Specialists P Ltd vs Commissioner Of Gst&Amp;Cce(Chennai ... on 28 January, 2019
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IN THE CUSTOMS, EXCISE AND SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
[COURT : Single Member 3 B1]
Appeal No.: E/40317/2018
[Arising out of Order-in-Appeal No. 391/2017 (CTA-I)
dated 22.11.2017 passed by the Commissioner of G.S.T. &
Central Excise (Appeals-I), Chennai]
M/s. Raj Petro Specialities Pvt. Ltd., : Appellant
73/B Vaikaadu Village, Manali,
Chennai - 600 103
Versus
The Principal Commissioner of G.S.T. & C.Ex., : Respondent
Chennai North Commissionerate.
Appearance:-
Shri. V. Ravindran, Advocate for the Appellant Shri. L. Nandakumar, AC (AR) for the Respondent CORAM:
Hon'ble Ms. Sulekha Beevi C.S., Member (Judicial) Date of Hearing: 07.01.2019 Date of Pronouncement: 28.01.2019 Final Order No. 40169 / 2019 The appellants are aggrieved by the rejection of refund claim of Rs. 8,38,752/-.
2.1 Brief facts are that the appellants are engaged in the manufacture of petroleum products. They are availing the facility of CENVAT Credit on inputs and input services. In addition to their manufacturing activity, the appellants had entered into High Sea 2 Sale transactions of imported Base Oil which is sold before it enters Indian waters and the sale transactions are carried out with the buyer on High Sea Sale basis.
2.2 According to the Department, the said activity of High Sea Sale is a trading activity and is covered under the scope of exempted service under Rule 2(e) of the CENVAT Credit Rules (CCR), 2004. Since the appellant had not maintained separate accounts for the manufacture of dutiable products and trading activity (exempted services), they were intimated to follow Rule 6 of CCR, 2004. The appellant voluntarily calculated the amount as per Rule 6(3A)(c) of CCR, 2004 and reversed Credit of Rs. 6,21,222/- for the period 2011- 12 and Rs. 5,04,316/- being the amount for the year 2012-13. They intimated the same to the Department on 28.06.2013. Subsequently, they came to realize that they had calculated the amount wrongly and they had to actually reverse only an amount of Rs. 2,86,785/- and had reversed an excess amount of Rs. 8,38,752/-. The appellants then filed refund claim for refund of the excess reversed amount of Rs. 8,38,752/-.
2.3 Show Cause Notice No. 09/2014 dated 23.09.2014 was issued proposing to reject the refund claim. After due process of law, the 3 Original Authority rejected the refund claim. In appeal, the Commissioner (Appeals) upheld the same. Hence, this appeal. 3.1 On behalf of the appellant, Ld. Counsel Shri. V. Ravindran appeared and argued the matter. He submitted that the appellant was using imported inputs. In some cases inputs namely, Base Oil was sold on High Sea Sale basis. These transactions are on High Sea Sale basis only. It is the responsibility of the buyer to clear the goods and the appellants did not avail CENVAT Credit on any inputs or input services related to such High Sea Sale transactions. The appellant has no other trading activity.
3.2 It is submitted by him that there is no common input service relating to manufacturing activity and the alleged trading activity. The goods are sold before it lands in India and all expenses related to the goods are borne and paid by the High Sea Buyer/importer. On being pointed out by the audit, in order to buy peace with the Department and to avoid litigation, the appellant opted to reverse the Credit. However, while calculating the amount attributable to trading (exempted service) that has to be reversed, as per Rule 6(3A)(c), they had erroneously taken the value of entire sales instead of adopting the difference between the cost value and the sale value 4 of the goods sold. They had thus reversed Rs. 11,25,538/- instead of reversing only Rs. 2,86,785/-.
3.3 He submitted that the Original Authority has rejected the refund claim stating that the appellant has not exercised the option prescribed under Sub-rule (3) of Rule 6(3A) of CCR, 2004; that therefore appellant has to pay an amount at the rate of 6% of the value of the traded goods. Another reason for rejecting the refund claim is that a Show Cause Notice No. 11/2016 dated 24.02.2016 which was subsequently issued by the Department demanding an amount of Rs. 84,05,685/- towards the reversal of Credit on exempted services (High Sea Sales) for the periods 2011-12 and 2012-13 is pending. In such Show Cause Notice, the adjudicating authority has proposed to appropriate the amount already reversed by the appellant. These are not sufficient grounds to reject the refund claim. The appellants claimed refund as they reversed excess amount. Merely because the appellant has not intimated the option to reverse the Credit under Rule 6(3A) ibid., it cannot be said that the appellant has to pay an amount at the rate of 6% of the value of the traded goods. If at all, it is only a procedural error and may be condoned.
54.1 Ld. AR Shri. L. Nandakumar appearing on behalf of the respondent supported the findings in the impugned Order. He submitted that the appellant was engaged in High Sea Sales and therefore, was engaged in trading activity which is an exempted service. They did not maintain separate accounts for the common inputs/input services used for trading activity and manufacture of dutiable products. The appellant voluntarily calculated the amount and reversed the same as per Rule 6(3A)(c) of the CCR, 2004. Thus, they had reversed an amount of Rs. 11,25,538/- for the periods 2011- 12 and 2012-13. Since the appellant did not intimate the Department to exercise the option as provided under Rule 6(3A), they are not eligible to reverse the Credit attributable to trading. When no option has been exercised, the appellant ought to have paid an amount at the rate of 6% of the value of traded goods as provided in Rule 6(3)(i) of CCR, 2004. The appellant's reversal on pro rata basis cannot be accepted.
4.2 Further, a Show Cause Notice dated 24.02.2016 has been issued demanding the amount quantified under Rule 6(3)(i) of the CCR, 2004 for the said periods. Therefore, during the pendency of adjudication of such Show Cause Notice, the claim of the appellant 6 that they are eligible for the refund cannot sustain. The authorities below have rightly rejected the refund.
5. Heard both sides.
6. The appellant is aggrieved by the rejection of refund claim. The allegation of the Department is that the appellant is engaged in manufacturing as well as trading activity and that common inputs/ input services have been used for the manufacturing activity as well as trading activity. Since they did not maintain proper accounts they have to follow the procedure in Rule 6(3). As the appellant did not exercise option to reverse proportionate Credit, they have to pay an amount equal to 6% of the value of exempted services. The High Sea Sale transactions are considered by the Department to be trading activity falling within Rule 2(e) of CCR, 2004. The area beyond 200 nautical miles from the shore is called 'High Sea'. The transaction of sale in such cases commences outside the territory of India and is also concluded outside the territory of India. If a buyer (importer) wants to sell the consignment to a third party before arrival of such goods, but after sailing of the vessel from load port, such sale is generally High Sea Sale. In other words, the ownership of goods is transferred when goods are in transit. It is thus the sale of goods which happens by way of transfer of document of title after the 7 goods cross the Customs Barriers of the foreign nation but before they cross (enter) the Customs frontiers of India. Hence, when High Sea Sales take place outside the territorial waters, I do not understand how such sales can be considered as an exempted service (trading) so as to fall within the ambit of Rule 2(e) of the CENVAT Credit Rules, 2004.
7. In any case, the appellants have emphasized that they have not availed CENVAT Credit on any common inputs or input services in relation to such High Sea Sales transactions. In spite of that, the audit has raised objection that their activity of High Sea Sales is a trading activity falling under the scope of exempted service as defined under Rule 2(e) of the CCR, 2004 and that therefore, they have to follow the procedures contained in Rule 6(3) of CCR, 2004. There is no evidence to show that common input services have been used for such High Sea Sales. Further, possibly to buy peace with the Department, the appellant had reversed the CENVAT Credit voluntarily and is now contesting only the rejection of refund claim. I therefore confine the discussions in this order as to the reasons for rejection of refund claim of Rs. 8,38,752/-. 8
8. The authorities below have rejected the refund claim on two grounds :
(i) Firstly, that the appellant did not exercise the option of reversing the proportionate Credit; and
(ii) Secondly, that another Show Cause Notice No. 11/2016 dated 24.02.2016 has already been issued to the appellant demanding the recovery of Credit as quantified under Rule 6(3)(i) of the CCR, 2004 for the very same disputed periods.
9.1 The appellant has reversed the Credit as calculated under Rule 6(3A)(c). While doing so, they had taken the total value of High Sea Sales instead of adopting the difference between the sale price and the cost of goods sold by them. This is very much clear from the amount reversed by the appellant. The Department does not have a case that when the formula is correctly applied, the amount reversed is not excess. The rejection is stating that they have not exercised the option. If the formula is correctly applied, the amount to be reversed by the appellant would only be Rs. 2,86,785/-. Thus, it is clear that the appellant, as per the provision, reversed an excess amount of Rs. 8,38,752/-. This being so, the Department cannot reject the refund claim stating that they have not exercised any option. The conduct of reversing proportionate Credit is sufficient to show 9 the intention of the appellant to exercise the option provided under Rule 6(3) ibid. The pro rata reversal of CENVAT Credit is supported by a plethora of decisions, which are as under :
C.C., Puducherry Vs. CESTAT, Chennai - 2015 (323) E.L.T. 323 (Mad.); Cranes & Structural Engineers Vs. C.C.E., Bangalore-I - 2017 (347) E.L.T. 112 (Tri. - Bang.); and Star Coolers & Condensers (P) Ltd. Vs. C.C.E., Nasik - 2017 (352) E.L.T. 77 (Tri. - Mum.).
9.2 The second ground for rejection is that a further Show Cause Notice dated 24.02.2016 has been issued to the appellant. Ld. Counsel has submitted that the said Show Cause Notice was challenged by them before the Hon'ble High Court of Madras vide Writ Petition No. 27001 of 2016 and the Writ Petition was disposed vide Order dated 31.08.2016. Merely because a Show Cause Notice has been issued or is pending adjudication, it cannot be said that any other appeal proceedings has to be kept in abeyance by the Commissioner (Appeals) or this Tribunal. This contention of the Department for rejecting the refund claim is without any legal basis.
10. From the above discussions, I hold that the impugned Order rejecting the refund claim cannot sustain and requires to be set aside, which I hereby do.10
11. The appeal is allowed with consequential reliefs, if any, as per law.
(Pronounced in open court on 28.01.2019) (Sulekha Beevi C.S.) Member (Judicial) Sdd