Custom, Excise & Service Tax Tribunal
Ponni Sugars Erode Ltd vs Salem on 24 April, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, CHENNAI
Excise Appeal No.41487 of 2017
(Arising out of Order-in-Original No.21/2017-CE dated
29.03.2017 passed by the Commissioner of Central Excise and
Service Tax-Salem, No.1, Foulkes Compound, Anaimedu,
Salem, Tamil Nadu 636001)
M/s.Ponni Sugars Erode Ltd. ...Appellant
Odapalli,
Cauvery R.S., P.O
Erode - 638 007.
Vs.
The Commissioner of GST &
Central Excise ... Respondent
No.1, Foulkes Compound, Anaimedu, Salem - 636 001.
And Excise Appeal No.40384 of 2020 (Arising out of Order-in-Appeal No.23/2020-CE dated 24.02.2020 passed by the Commissioner of Central Excise and Service Tax-Salem, No.1, Foulkes Compound, Anaimedu, Salem, Tamil Nadu 636001) M/s.Ponni Sugars Erode Ltd. ...Appellant Odapalli, Cauvery R.S., P.O Erode - 638 007.
Vs. The Commissioner of GST & Central Excise ... Respondent No.1, Foulkes Compound, Anaimedu, Salem - 636 001. APPEARANCE:
Shri M.N.Bharathi, Advocate, for the Appellant Shri M.Selvakumar, AC (AR) for the Respondent CORAM:
Hon'ble Shri P. Dinesha, Member (Judicial) Hon'ble Shri M. Ajit Kumar, Member (Technical) 2 E/41487/2017 & E/40384/2020 Final Order No.40497-40498/2024 Date of Hearing : 01.04.2024 Date of Decision: 24.04.2024 Per P. Dinesha The period of dispute in this appeal is 01.04.2010 to 30.09.2014.
Brief and relevant facts that emerge from the impugned orders are that the appellant is a manufacturer of Sugar, during the course of which they have admittedly used inputs like Phosphoric Acid, Sulphur, Caustic Soda Flakes, Magnofloc etc., and they were also availing Cenvat credit on all such inputs and also on input services like Goods Transport Agency services, Repairs and maintenance services, Security services, Courier services, etc. That apart, it appeared to the revenue that the appellant had made investment in shares and securities from which they would get dividends, such investment would only be an activity outside the definition of service, since it is a transaction in money. This made the revenue to assume that the appellant had not maintained separate records for the receipt, storage/inventory and disposal of input/input services for the manufacture of dutiable, final products, namely Sugar, Molasses and Bagasse & Press mud. Since, Bagasse and other wastes emerging during the course of manufacture of Sugar, were either exempted or attracted 'nil' rate of 3 E/41487/2017 & E/40384/2020 duty. It was the further the case of the revenue that bio compost is manufactured by treating Press mud with some chemicals and hence, both Bagasse and Press mud were marketable, as being covered under the definition of excisable goods under section 2(d) of the Excise Act, 1944. Revenue therefore assumed that the appellant had contravened the provisions of Rule (6) of CENVAT credit rules as they had not maintained separate accounts for receipt, consumption and inventory. This prompted the revenue to issue statements of demand dated 01.09.2017 and 06.07.2018, proposing to recover 6% of the value of exempted goods with applicable interest and penalty. After due process and after considering the explanation filed by the appellant in response to both the statements of demand, Order-in-Original was passed, where it was held that up to 2014-15 Bagasse and Press mud could be treated as waste and not excisable goods. In view of the Supreme Court ruling in the case of DSCL Sugar Limited and vide Order-in- Original No.12/2018-CE (ADC) dated 21.12.2018, ordered appropriation of the amounts paid by the appellant and also imposed equal penalty under rule 15 of CCR read with section 11 AC of the Central Excise Act. Seriously aggrieved by the same, the appellant appears to have filed an appeal before the first appellate authority.
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E/41487/2017 & E/40384/2020
2. The first appellate authority in its order, has considered the Supreme Court decision, wherein it has been held that the Bagasse is an emergence of resultant waste and residue of agricultural produce being itself, not a result of any process, is not excisable and hence, provisions of Rule (6) ibid was not applicable. The first appellate authority, thus concluded vide impugned Order-in-Appeal No. 23/2020-CE dated 24.02.2020 that the impugned demand cannot survive for the period up to 01.03.2015, but would survive for the period thereafter, in view of the explanation inserted in Rule 6(3) ibid which demand thus came to be confirmed by the original authority. Further, he has also considered the Allahabad High Court ruling in Balrampur Chini Mills, which has struck down the Circular dated 25.4.2016 with regard to Bagasse even after the insertion of explanation ibid, which, however, according to the first appellate authority, did not cover Press mud.
3. On the issue of earning dividend income from the investment in shares and securities, and whether appropriate credit was required to be reversed by treating such investment as exempted Service, the first authority has held that it was proper for him to remand the issue back to the file of the Original authority to verify from the records if the appellant was involved in trading activity of shares and 5 E/41487/2017 & E/40384/2020 securities other than their own concern or was it done for third parties or subsidy concerns. It is against this order that the present appeal has been filed before this forum. The first appellate authority having observed that the bagasse is not an exempted, but is just an agricultural waste, has however, upheld the liability on the part of the appellant to maintain separate accounts in terms of rule 6(3) of CCR, failure to do so which would attract duty liability equal to 6% of the value of the exempted products/services.
4. In the second appeal, Order-in-Original No. 21/2017-CE dated 29.03.2017 passed by the Commissioner of Central Excise & Service Tax, Salem has been challenged, wherein, the Ld. Authority has confirmed the demand being 6% of the value of exempted service.
5. We find that common facts and issues are involved, both the appeals are being considered for common disposal. Based on the facts as contended, the following issues are to be decided by us:
"(i). Whether the investment in shares is an exempted service, requiring the reversal of credit? And
(ii). Whether Press mud is waste product like Bagasse?". Further, since the issue involves the exigibility of goods/service tax, it is for the Revenue to prove their case conclusively.
6. We are tempted to consider the second issue to start with, since it was contended by the Ld. Advocate 6 E/41487/2017 & E/40384/2020 for the appellant that the same is covered by the decision of Hon'ble Supreme Court in the case of DSCL Sugar Limited [2015 (322) E.L.T. 769 (S.C.)], wherein it has been held that waste product such as Bagasse is not an excisable goods. The said decision has thereafter been followed by the Hon'ble Allahabad High court in the case of Balrampur Chini Mills Ltd. Vs. Union of India [2019 (368) ELT 276 (All.)].
7. Once the Supreme Court decision is applied, it would only mean that the waste product is not a manufactured product to be considered as a final product for the purpose of Cenvat Credit Rules. Consequently, no credit is required to be reversed. Rule (6) of Cenvat Credit Rules as it stood then, could be invoked only in case of products which were excisable in nature, which are manufactured and not waste products that emerge on account of the process of manufacture of a different product.
8. He would also rely on an order of Chennai Bench of CESTAT in their own case for a different period, wherein a similar issue has been considered and decided in their favour, following the decision of Allahabad High court (supra). He would thus pray for allowing the appeal.
9. Per contra, Shri M.Selvakumar, Ld. Asst. Commissioner relied on the findings of lower authorities.
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E/41487/2017 & E/40384/2020
10. We have heard the rival contentions and carefully perused the orders of lower authorities, documents placed on record and gone through the order of co-ordinate bench in the case of the very same appellant which was relied upon heavily by the Ld. Advocate. We find that the Bench has considered the decision of Hon'ble Allahabad High Court in the case of Balarampur (supra), wherein it has been held as under:
"27. After the aforesaid judgment which has clearly held Bagasse not to be a manufactured product, and therefore Rule 6 of the Cenvat Credit Rules, 2004 shall have no application, Section 6(1) has been amended by inserting the 2 Explanations, which the respondent contends is sufficient to include Bagasse within the fold of Section 6, and further to justify the stand for a reversal of Cenvat Credit Rules, 2004.
28. A perusal of the Explanation 1 to Rule 6 would indicate that it provides that the exempted goods and final product as defined in Clauses (d) & (h) of Rule 2 shall include non- excisable goods cleared for a consideration from the factory.
29. Explanation 1, talks about the inclusion of non- excisable goods cleared for consideration from the factory within the category of exempted goods or final products while the Circular dated 25-4-2016 proceeds on the basis that Bagasse is a non-excisable goods and is now to be treated like exempted goods for the purpose of a reversal of input and Input service.
30. As noted by the Hon'ble Supreme Court in the case of Union of India and Others v. M/s. DSCL Sugar Ltd. and Others (supra) specifically in the contest of Bagasse, Rule 6 applies only when there is a manufacture of final products or of exempted products, and if there is no manufacture, Rule 6 of the Cenvat Credit Rules, 2004, has no application.
31. This amendment may have the effect of treating Bagasse to be an exempted goods, but cannot result in Bagasse being manufactured goods, as the nature of Bagasse remains that of an agricultural waste and residue and is not in effect a product. This aspect and character of Bagasse remains unaltered by insertion of Explanation 1.
32. In absence of Bagasse being a manufactured final product, the obligation of a reversal of Cenvat period under Rule 6(1) of the Cenvat Credit Rules, 2004 is not attracted. It has also been noticed that Bagasse has always been an "exempted goods" under Rule 2(d) of the Cenvat Credit 8 E/41487/2017 & E/40384/2020 Rules, 2004. It has been mentioned in Central Excise Tariff Heading 2303 20 000 and was subjected to NIL rate of duty. It therefore, fell within the definition of "exempted goods" as defined under Rule 2(d) and is not a non-excisable goods, as mentioned in the impugned circular.
33. That the Circular dated 25-4-2016 interpreting Explanation 1 to Rule 6 has provided that "consequently, Bagasse, dross and skimmings of non-ferrous metal or any such by-product of waste, which are non-excisable goods and are cleared for consideration from the factory need to be treated like exempted goods for purpose of reversal of credit of input and input services, in terms of Rule 6 of the Cenvat Credit Rules, 2004. The circular therefore treating Bagasse to be a non-excisable goods, is clearly erroneous, and for this reason also the Circular dated 25-4-2016 is liable to be quashed with regard to Bagasse.
34. In light of the above we are of the considered opinion that in absence of Bagasse being a manufactured final product, the obligation of reversal of Cenvat Credit under Rule (1) of the Cenvat Credit Rules, 2004 is not attracted, and the ratio laid down in the judgment of the Hon'ble Supreme Court in the case of Union of India and others v M/s. DSCL Sugar Ltd and Others (supra) still holds the field. Rule 6 of the Cenvat Credit Rules would have no application for reversal of Cenvat Credit in relation to Bagasse. The Circular No. 1027/15/2016-CX, dated 25-4-2016, contained in Annexure-1 to the writ petition to the extent that it includes Bagasse under the purview of the reversal of credit of input services in terms of Rule 6 of the Cenvat Credit Rules, 2004, as well as the impugned show cause notice dated 24-3-2017 contained in Annexure-2, are hereby quashed."
11. In view of the ratio of the Hon'ble High Court which has been followed by the CESTAT Bench in their own case, although for a different period, we are also of the clear view that the impugned demand cannot sustain since Press mud is no different from Bagasse, which is also a waste product, which is also a result of the manufacturing process of a different product and, consequently, the impugned demand cannot sustain.
12. Insofar as first issue is concerned, we find that the appellant had invested in shares/securities that were giving dividend income but, however, we fail to understand as to what was 'service' element involved 9 E/41487/2017 & E/40384/2020 in such investment. The revenue has only fastened the liability on surmises and without there being any positive findings in this regard. It was for the revenue to prove that 'investment' itself was a service, in order to demand service tax. Rather, the first appellant authority himself has at paragraph No.14.01 observed that "... such investment would be an activity outside the definition of service, being a mere transaction in money" but, however, has concluded in the same para that activity of investment in shares and derivative trade satisfy the definition exempted services under Cenvat Credit Rules, 2004.
13. We fail to understand the logic in treating the mere 'investment' as an exempted service because, the revenue has not specifically alleged if there is any 'service' in the first place. Secondly, up to 01.07.2012, even if it is assumed to be an exempted service, then the same was not taxable. With the introduction of negative list w.e.f. 01.07.2012, S. 66B of the Finance Act empowers the levy of service tax on the value of all services other than those in the negative list, which are provided or agreed to be provided, by one person to another. Exempted service, although 'exempted', nevertheless should satisfy the ingredients of 'service' in the first place.
14. It is clear from Rule 6(1) of the Cenvat Credit Rules, that reversal of CENVAT Credit is warranted 10 E/41487/2017 & E/40384/2020 only where the output is an 'exempted service'. In this regard, it is important to note that for an activity to qualify as 'exempted service', it should first be a 'service'. Prior to the negative list tax, was leviable not on any service but only on a 'taxable service', as referred by the Finance Act, 1994. With the introduction of the negative list 'service' was defined under Section 65 B(44). Section 65B (44) of the Finance Act, is reproduced hereunder for ready reference:
"Section 65B. Interpretation-
In this Chapter, unless the context otherwise requires:-
...(44) "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include-
(a) an activity which constitutes merely,-
(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner..."
15. In this case, by making an investment the appellant does not do any activity for another for a consideration. Further, specific exclusion from the definition of 'service' is given to transactions involving 'transfer of title in goods or immovable property by the way of sale', since trading in security involves transfer of title in goods, the activity of 'trading in securities' cannot therefore be said to be a service.
16. In the light of our discussion above, we hold that:
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(a) investment in shares/security does not per se tantamount to 'trading in securities',
(b) inputs/ input services cannot be said to be used in or in relation to 'trading in securities', and
(c) 'trading in securities' is not a service, let alone an 'exempted service'.
17. We thus hold that the authorities below have grossly erred in demanding the tax on the 'investment' made, by treating the same as 'service' although exempted and consequently, we set aside the impugned order.
18. Resultantly, the appeal is allowed with consequential benefits, if any, as per law.
(Pronounced in open court on 24.04.2024) sd/- sd/-
(M. AJIT KUMAR) (P. DINESHA) Member (Technical) Member (Judicial) pr