Custom, Excise & Service Tax Tribunal
Aavantika Gas Ltd vs Commissioner, Cgst-Indore on 6 December, 2022
Author: Dilip Gupta
Bench: Dilip Gupta
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO. 1
Excise Appeal No. 50779 of 2020
(Arising out of Order-in-Appeal No. IND-EXCUS-000-APP-219-19-20 dated 20.02.2020
passed by the Commissioner (Appeals), Customs, CGST & Central Excise, Indore
(M.P.))
Aavantika Gas Ltd ...... Appellant
nd
202-B, 2 Floor, NRK Business
Park, Vijay Nagar Square,
A.B. Raod, Indore M.P.-452010
VERSUS
Commissioner, CGST- Indore ......Respondent
Manik Bagh Palace, Post Box. No. 10, Indore, Madhya Pradesh-452001 APPEARANCE:
Shri Dhruv Tiwari, Advocate for the Appellant Shri Sanjay Kumar Singh , Authorized Representatives of the Department CORAM :
HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT HON'BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL) DATE OF HEARING/DATE OF DECISION: December 06, 2022 FINAL ORDER NO. 51186 / 2022 JUSTICE DILIP GUPTA:
This appeal has been filed by Aavantika Gas Ltd1 to challenge the order dated 20.02.2020 passed by the Commissioner (Appeals) to the extent it upholds the confirmation of the demand attributed to input services used in clearances of exempted products under rule 6(3A)(b) (iii) of the CENVAT Credit Rules, 1 the appellant 2 E/50779/2020 20042 with interest and penalty. It needs to be noted that the Commissioner (Appeals) set aside the confirmation of demand of central excise duty with penalty and interest on account of incorrect valuation of goods sold to related persons for the period 2014-2015 to 2018-2019.
2. The appellant, which is a joint venture between GAIL (India) Ltd3 and Hindustan Petroleum Corporation Ltd4, is engaged in the manufacture of Compressed Natural Gas5. For this purpose, the appellant procures natural gas from GAIL through pipelines. Part of this gas is used by the appellant for producing CNG at various CNG stations. CNG is also cleared by the appellant on payment of central excise duty. The appellant claims that the remaining natural gas is supplied to other users as Piped Natural Gas6, which activity according to the appellant should be considered as exempted service under the 2004 Credit Rules:
3. The appellant availed and utilized credit on input services which are exclusively used in the manufacture of CNG, and which are common to both the manufacture of CNG and trading of PNG in terms of the provisions of the 2004 Credit Rules. The appellant claims that it has not availed credit on input services which are exclusively used in trading of PNG.
2 the 2004 Credit Rules 3 GAIL 4 HPCL 5 CNG 6 PNG 3 E/50779/2020
4. During the course of audit for the Financial Years 2014-15 to 2016-17, it was observed by Department that the appellant was clearing CNG to HPCL which was liable to be assessed in terms of rule 9 of the Central Excise Valuation Rules, 2000, as the appellant is a joint venture of GAIL and HPCL, and the transaction between the parties qualifies as 'goods sold to related persons.' Thus, the duty was to be re-quantified and the differential duty along with interest and penalty was payable according to the Audit.
5. During the internal audit, it was also observed by Department that while reversing proportionate credit under rule 6(3A) (b) (iii) of the 2004 Credit Rules, the appellant only considered the amount of credit attributable to common input services used both in taxable (i.e., CNG) as well as trading of PNG (an exempted service), instead of accounting the total CENVAT credit taken on all input services including the common input services for the purpose of such reversal. Thus, it was alleged that such computation adopted by the appellant resulted in short reversal of the amount determined under rule 6(3A) (b) (iii) of the 2004 Credit Rules, which would be recoverable along with interest and penalty."
6. Accordingly, a show cause notice dated 20.03.2019 was issued to the appellant proposing to recover central excise duty with interest after invoking the extended period of limitation contemplated under section 11(A)(4) for the Central Excise Act, 4 E/50779/2020 1944 on the incorrect valuation adopted for sale of CNG to HPCL. The show cause notice further proposed recovery of short reversed proportionate CENVAT credit under rule 6 of the 2004 Credit Rules with interest. The appellant filed a reply to the show cause notice but the Joint Commissioner passed an order dated 03.10.2019 confirming the demand proposed in the show cause notice. Being aggrieved, the appellant filed an appeal before the Commissioner (Appeals) who by order dated 20.02.2020 confirmed the demand only on the input services used in clearance of exempted products. This appeal has, accordingly, been filed to assail this part of the order dated 20.02.2020 passed by the Commissioner (Appeals).
7. The issue involved in this appeal is regarding computation of proportionate credit determined under rule 6(3A) of the 2004 Credit Rules by taking the value of common input services used in both taxable and exempted services OR total credit taken on all input services, including the common input services.
8. Shri Dhruv Tiwari, learned counsel appearing for the appellant, submitted that the issue involved in this appeal is covered by the earlier decision of the Tribunal in M/s National Steel & Agro Industries Limited Vs. Principal Commissioner, Central Goods & Service Tax & Central Excise-Ujjain7 which is in respect of two periods namely before 2016 and after 2016, though this appeal relates only the period prior to 2016. 7 2021 (6) TMI 60-CESTAT NEW DELHI 5 E/50779/2020
9. Shri Sanjay Kumar Singh, learned authorised representative appearing for the department has, however, supported the impugned order.
10. The submissions advanced by learned counsel for the appellant and the learned authorized representative appearing for the department. The Tribunal, after referring to their relevant provisions of rule 6 (3A) of the 2004 Credit Rules, as it stood at the relevant time, observed in Natural Steel and Agro Industries as follows:
" 30. To appreciate this issue, Rule 6 must be read as a whole while interpreting this formula. Rule 6(1) prohibits any credit on inputs and input services used in or in relation to exempted goods or exempted services. The rationale of this provision is evident. CENVAT credit enables one to use the credit to reduce duty or tax liability on the output goods or services. If they are not chargeable to duty or tax, one cannot take credit either. However, there are those who produce both dutiable and exempted goods and taxable and exempted services. Rule 6(2) deals with such situations and requires such a person to maintain separate records and take credit only the inputs and input services which are used for manufacture of dutiable goods or provision of taxable services. However, if one produces both dutiable and exempted goods and provides both taxable and exempted services and chooses not maintain separate records, Rule 6(3) gives different options of paying an amount as a percentage of the value of the exempted goods and services or reversing an amount of credit taken. In the factual matrix of this case, the appellant has followed Rule 6(2) and maintained separate records and has not taken credit on the inputs and input services used in provision of exempted service viz., trading and has taken credit only on the inputs and input services used in manufacture of dutiable goods.
6 E/50779/2020
31. However, there are some services used in the headquarters office of the appellant which cannot be attributed completely to either the manufacture of dutiable goods or to the provision of exempted services viz., trading. The only option in respect of such services is to divide the credit on such input services in proportion to the value of the dutiable goods and exempted services and deny credit to the extent it is attributable to the exempted services using the formula under Rule 6(3A). Therefore the total credit taken in the formula under Rule 6(3A) can only refer to such credit as is not covered by Rule 6(2). We do not find anything in the CENVAT Rules which prohibits an assessee from following Rule 6(2) in respect of the inputs and input services where it is feasible to maintain separate records and follow Rule 6(3A) in case of such inputs or input services where it is not feasible to do so. It would have been a different situation if the appellant had not followed Rule 6(2) at all and took credit on all the inputs and input services regardless of whether they are attributable to the manufacture of dutiable goods or provision of exempted services. Then the total CENVAT credit taken during a year would have included all the CENVAT credit taken."
11. After placing reliance on the decision of the Ahmadabad Bench of this Tribunal in CCE & ST, Rajkot vs. Reliance Industries Ltd8, the Tribunal further observed as follows:
"33. Since the appellant has followed Rule 6(2) and has not taken any CENVAT credit on the input services which were used exclusively for providing exempted services, the formula under Rule 6(3A) can only be extent it is attributable to the exempted service viz., trading during the periods relevant to both appeals, viz., 2015-16 and April 2016 to June 2017.
34. To sum up, the main basis on which the demands were raised in both the Show Cause Notices have already been dropped by the adjudicating authority since the appellant had 8 2019 (3) TMI 784-CESTAT Ahmadabad 7 E/50779/2020 reversed proportionate authority has erred in (a) taking the total turnover of traded goods as the value of trading service instead of following Explanation 1(c) to Rule 6 to calculate the value of trading service; (b) For the periods credit on common input services in calculating the amount of credit required to be reversed. The impugned orders, therefore, cannot be sustained."
12. It needs to be noted that in the present case also, the appellant has not taken credit on the input and input services used in provision of exempted services. Thus, the aforesaid decision of the Tribunal in Natural Steel and Agro Industries rendered for the period prior to 2016 will apply to the facts to the present case.
13. The order dated 20.02.2020 passed by the Commissioner (Appeals), therefore, deserves to be set aside to the extent it has confirmed the demand attributed to input services used in clearance of exempted products with penalty, and is set aside. The appeal is, accordingly, allowed with consequential benefit.
(Order dictated and pronounced in the open court) (JUSTICE DILIP GUPTA) PRESIDENT (P.V. SUBBA RAO) MEMBER (TECHNICAL) sb