Custom, Excise & Service Tax Tribunal
M/S. Tfl Quinn India Pvt. Ltd vs Cc&Ce, Hyderabad-Iv on 10 March, 2016
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL REGIONAL BENCH AT HYDERABAD Bench SMB Court I Appeal No.E/2912/2012 (Arising out of Order-in-Appeal No.188/2012(H-IV)CE dt. 07/08/2012 passed by CCE&C(Appeals-II), Hyderabad) 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. TFL Quinn India Pvt. Ltd. ..Appellant(s) Vs. CC&CE, Hyderabad-IV ..Respondent(s)
Appearance Shri R. Raghavendra, Advocate for the appellant.
Shri M.K. Mall, Asst. Commissioner(AR) for the respondent.
Coram:
Honble Ms. Sulekha Beevi, C.S., Member(Judicial) Date of Hearing:10/03/2016 Date of decision:10/03/2016 FINAL ORDER No._______________________ [Order per: Sulekha Beevi, C.S.] The brief facts are that appellants are engaged in manufacture of leather chemicals and are also engaged in trading of these goods. They were availing the facility of CENVAT credit on inputs, capital goods and input services. Some of the input services on which credit was availed were common to the manufacturing and trading activity. The period involved is from 2006-07 to 2010-11. The department entertained the view that trading activity is an exempted service. Thus as per Rule 6 of CENVAT Credit Rules, 2004, when common input/input services are used in exempted as well as dutiable final products / output services, the appellant has to maintain separate accounts. The appellant failed to keep such separate accounts and are liable to pay an amount equivalent to the CENVAT credit attributable to the input services used in providing trading activity i.e. exempted services.
2. A show-cause notice was issued raising the above allegation and demanding an amount of Rs.4,76,651/- being the irregularly availed credit on trading activity, along with its interest and also to impose penalty. After due process of law, the original authority confirmed the demand, interest and imposed equal amount of penalty. The appellant was of the opinion that the liability to reverse credit as per their method of computation would be Rs.2,74,122/- only. The appellant reversed an amount of Rs.2,74,122/- towards demand and Rs.1,29,221/- towards interest which was adjusted to the demand and the interest. The appellant challenged the issue in appeal and vide the order impugned herein the Commissioner(Appeals) upheld the demand of CENVAT credit availed for trading activity and directed the lower authority to re-quantify the amount. Being aggrieved, the appellant has filed this appeal.
3. The learned counsel Shri R. Raghavendra appearing for the appellant submitted his arguments both on merits of the case as well as on the ground of limitation. The counsel submitted that trading activity is deemed to be an exempted service only w.e.f. 01/04/2011. Prior to that, trading was not included in category of exempted service. The period involved in the case being prior to 01/04/2011, the activity of trading undertaken by appellant cannot be categorized as exempted service. The appellant utilized common inputs for trading activity as well as manufacture, on the belief that trading is not exempted service. That they were under bona fide belief that credit is admissible. Further that all along the department was fully aware that appellant was engaged in both manufacturing and trading activity. He contended that prior to 01/04/2011 there was confusion and doubt as to whether trading is exempted service or not. As per Rule 6 of CENVAT Credit Rules, 2004, separate accounts have to be maintained when the manufacturer is engaged in providing exempted service or exempted goods. The appellants believed that trading being not exempted service, they need not maintain separate accounts. Therefore there was no suppression or willful contravention of provisions to evade payment of duty and that the demand raised invoking extended period is not sustainable. The learned counsel drew support from the judgment laid in Krishna Auto Sales Vs. CCE, Chandigarh [2015(40) STR 1121 (Tri. Del.)].
4. In addition, the learned counsel submitted that the formula by which the department has arrived the demand/credit availed for trading activity as Rs.4,76,651/- (including cess) is highly erroneous and against law. He explained that when the explanation was added w.e.f. 01/04/2011 clarifying that exempted services includes trading, simultaneous amendment was made by introducing Clause (c) to Rule 6(3D) which deals with computation of credit attributable to trading when separate accounts are not maintained. As per this clause, in the case of trading, (value) shall be the difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or ten percent of the cost of the goods sold, whichever is more. Thus method of computation was also mentioned in the amendment brought forth. By following this computation method, the appellants would be liable to reverse only Rs.2,74,122/- along with applicable interest. That the appellants fairly reversed this amount and the interest applicable thereto. The department has computed the value by adopting the method applicable to exempted services and not that of trading. The department has taken the entire trading turn over (i.e. difference between the manufactured goods and traded goods), which is against law. That the appellant is not liable to pay Rs.4,76,651/- as demanded by department.
5. Against this, the learned AR Shri M.K. Mall supported the findings in the impugned order. He submitted that the appellant is not eligible for the credit availed on common input services which were used for trading activity. As the appellant is not eligible to avail the credit, they are liable to reverse the same. The computation method adopted by the appellant is applicable only w.e.f. 01/04/2011. The computation was done by department adopting the method that existed then, though it did not include the case of trading. Further that the extended period has been rightly invoked as the appellant suppressed the fact that common input services were used for trading activity also. He pleaded that the appeal may be dismissed.
6. I have heard both sides. One of the vehement argument put forward on behalf of the appellant is that the demand is time barred. The period involved is 2006-07 to 2010-2011. The show-cause notice is dated 01/12/2011. Part of the disputed period falls within the normal period and major portion falls within the extended period. The learned counsel for appellant submitted that the department was always aware that the appellants were engaged in trading activity also. It is seen that in 2003, appellants had issued letter seeking permission for trading of duty paid goods. Thus the contention of the appellants that the department was fully aware that appellant was engaged in trading activity also is not without force. Prior to 01/04/2011, different views existed whether trading could be categorized as exempted service or not. Rule 6 of CENVAT Credit Rules places an obligation to maintain separate accounts when manufacturer / service provider is engaged in production/providing exempted goods / exempted services also along with dutiable goods / taxable services. The department has taken the view that prior to 01/04/2011 also trading is an exempted service and that as the appellant did not maintain separate account they are liable to reverse that portion of input services used for trading activity. The contention of Revenue is that trading is an exempted service prior to 01/04/2011 is not tenable. The appellants cannot be blamed if they believed that as trading is not exempted service they need not maintain separate accounts. It is also correct that department was aware of the fact that appellant was engaged in trading activity also. The show-cause notice is issued after trading was brought under category of exempted service. It is clear that the issue was contentious, prior to 01/04/2011. In the present case, there is no evidence to establish that there was suppression of facts or willful misstatement on the part of appellants with intention to evade payment of duty. The Honble Supreme Court in the case of Continental Foundation Vs. CCE, Chandigarh reported in 2007(216) ELT 177 (SC) held that the expression suppression has been used in the proviso to Section 11A of the Act accompanied by very strong words as fraud or collusion and therefore has to be construed strictly. Mere omission to give correct information is not a suppression of facts unless it was deliberate to evade the payment of duty. In Krishna Auto Sales case (supra) relied by the appellant, the Tribunal in similar set of facts has held that the extended period is not invokable. Following the dictum laid in the above case, I hold that the part of demand which falls within the extended period is not sustainable.
7. A very small period falls within the normal period. Undisputedly the appellant has availed the input services like, telephone, internet, travels, courier and insurance both for manufacturing and trading activities also. Trading became exempted service only w.e.f. 01/04/2011. It cannot be considered even as a service prior to that. The appellant cannot take credit of input services used for trading, which was neither taxable service or exempted service prior to 01/04/2011. Hence that portion of credit availed on input services used for trading is not admissible. The question is how to arrive at the quantum used for trading when no separate accounts are maintained. The original authority has adopted the formula given in Rule 6(3A)b(iii). This provision deals in situation when there is both dutiable goods / taxable services and exempted goods / exempted services. It does not mention trading. The Commissioner(Appeals) has directed the lower authority to recompute the CENVAT credit as trading became exempted service only after 01/04/2011. Prior to 01/04/2011 the only method of computation available was the method in case of exempted services and original authority adopted such method. The computation method taken by the appellant to arrive at the figure Rs.2,74,122/- is the method for computing in case of trading w.e.f. 01/04/2011. As this is the formula / method provided by legislature for computing value in case of common inputs / input services used for trading activities when there is no separate accounts, I am of the view that application of this method to arrive at the value would be more appropriate though it was introduced w.e.f. 01/04/2011 only. Therefore, I direct the jurisdictional Superintendent to compute the value / amount of credit of common input services attributable to trading activity falling within the normal period as per the method provided in Rule 6(3D)(c) of CENVAT Credit Rules as applicable to trading. I hold that the appellant is liable to reverse such amount and interest thereon.
8. The original authority has imposed equal amount of penalty of Rs.4,76,651/-. In the present case, as there is no suppression of facts or willful misstatement, the imposition of penalty is totally unjustified. Therefore the appellant is liable to pay the recomputed amount of credit attributable to trading along with interest only. The imposition of penalty is set aside.
10. The appeal is disposed off in above term with consequential reliefs, if any.
(Operative part of this order was pronounced in court on conclusion of the hearing) SULEKHA BEEVI C.S. MEMBER(JUDICIAL) Raja.
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