Custom, Excise & Service Tax Tribunal
Vodafone South Ltd vs Commissioner Of Service Tax Mumbai-I on 5 March, 2020
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
WEST ZONAL BENCH
SERVICE TAX APPEAL NO: 85306 of 2015
[Arising out of Order-in-Original No: 63/ST/RN/Vodafone/M II/13-14
dated 17th October 2014 passed by the Commissioner of Central Excise,
Mumbai - II.]
Vodafone South Limited ... Appellant
th
Indiabuls Finance Centre, Tower 2&3, 7 Floor
Elphinstone (West), Mumbai - 400 013
Versus
Commissioner of Service Tax - I ...Respondent
5th Floor, New Central Excise Building, 115 MK Road Churchgate, Mumbai - 400 020 APPEARANCE:
Shri JC Patel with Ms Shamita Patel, Advocates for the appellant Ms P Vinitha Sekhar, Additional Commissioner (AR) for the respondent CORAM:
HON'BLE MR C J MATHEW, MEMBER (TECHNICAL) HON'BLE DR SUVENDU KUMAR PATI, MEMBER (JUDICIAL) FINAL ORDER NO: A/ 85481 / 2020 DATE OF HEARING: 31/07/2019 DATE OF DECISION: 05/03/2020 PER: C J MATHEW The order-in-original no. 63/ST/RN/Vodafone/M II/13-14 dated 17th October 2014 of Commissioner of Central Excise, Mumbai-II ST/85306/2015 2 impugned before us by M/s Vodafone South Limited has disposed off two show cause notices of 20th September 2012 for the period from April 2007 to March 2011 and of 19th October 2012 for 2011-12 for recovery of ₹ 44,54,45,891 and ₹ 1,85,54,274 respectively. As we proceed further, it will become abundantly clear that the dispute lies within the narrow compass of liability to pay interest and to be imposed with a penalty for availment of CENVAT credit that stood, either adjusted or reversed, before completion of the adjudication process. We, therefore, need to state, albeit briefly, the facts.
2. The show cause notices were issued pursuant to audit of the records of the appellant pertaining to availment of credit under rule 3 of CENVAT Credit Rules, 2004, in circumstances of being brought within the tax net, with incorporation of section 65(105)(zzzx) of Finance Act, 1994 applicable to providers of 'telecommunication services' with effect from 1st June 2007. The appellant had been rendering 'inter-connection usage', on authority of license for operating 'national long-distance' and 'international long distance' issued by the Government of India in Department of Telecommunications, to other similarly placed licensees from much earlier but discharging their obligation since the incorporation of the taxable service in Finance Act, 1994. Common to both notices was the allegation of delayed payment of tax, primarily by debit of CENVAT credit, for which recovery of such amounts, along with interest, was proposed and the allegation of ST/85306/2015 3 availment of credit against debit notes issued by their divisions and branches. The assessee had reversed such credit and the adjudicating authority, taking note of discharge of tax liability though belatedly, dropped the proposal demanding the tax dues and limited the recovery to appropriate interest besides imposing penalty for wrongful availment. The other three issues raised in the first show cause notice pertain to upfront availment of duty paid on 'capital goods' instead of bifurcation over the first and second years, availment of credit of tax on 'input services' and duties on 'capital goods' that were utilised for providing 'inter-connection usage' before the usage charges were made liable to tax under Finance Act, 1994, and credit having been taken more than once against the same document. In the adjudication order of Commissioner of Central Excise, Mumbai-II, interest liability of ₹ 1,28,80,551 and ₹ 12,21,933 for the two periods was confirmed, and the recourse to debit notes, insofar as ₹ 1,02,80,347 out of ₹ 1,50,92,416 pertaining to capital goods was held to be eligible, with denial restricted to ₹ 48,12,069 and ₹ 2,51,05,390 which were ordered to be recovered along with interest thereon. The credit availed on 'capital goods' in excess in the year of procurement was, though denied to the extent of ₹20,15,25,253, allowed to be adjusted as credit of the following year and, thereby, the recovery was limited to interest liability of ₹1,27,46,540 and penalty, equivalent to the excess credit, imposed under rule 15 of CENVAT Credit Rules, 2004. Credit of ₹ 4,49,26,318 ST/85306/2015 4 held to be attributable to 'capital goods' received before the service provided by appellant was made taxable and to tax of ₹ 9,42,17,819 paid, under a ten year agreement with M/s VSNL on 13 th November 2006 for procuring 'indefeasible right to use bandwidth capacity', availed as credit of 'input services' were denied. The impugned order, acknowledging that the credit of ₹11,55,352, erroneously availed on multiple occasions against the same document, had been paid along with interest, restricted the recovery to penalty of like amount under rule 15 of CENVAT Credit Rules, 2004.
3. Claiming that the availment of CENVAT credit on capital goods at one go had been declared in the returns, it was submitted by Learned Counsel that the bar of limitation operating on recovery was equally a restriction on recovery of interest liability under section 75 of Finance Act, 1994. According to him, the affirmation by the Hon'ble Supreme Court of the order of the Tribunal in TVS Whirlpool Ltd v. Commissioner of Customs, Madras [1996 (86) ELT 144 (Tribunal), opining that 'It is only reasonable that the period of limitation that applies to a claim for the principal amount should also apply to the claim for interest thereon. We find no merit in the appeals and they are dismissed with costs', while dismissing the appeal of Revenue and the decision of the Hon'ble High Court of Delhi in Kwality Ice Cream Company v. Union of India [2012 (27) STR 8 (Del)], enjoining that ST/85306/2015 5 'It is, therefore, clear that the principle adopted by the Supreme Court was that the period of limitation, unless otherwise stipulated by the statute, which applies to a claim for the principal amount should also apply to the claim for interest thereon.' are abundantly clear in supporting his contention. He submits that the adjudicating authority had failed to render a finding on this critical aspect. Furthermore, the availability of credit for carrying forward the ineligible amount to the following year is a clear indication of the lack of any of the ingredients that warrant invoking of the extended period in section 11 A of Central Excise Act, 1944 and this, according to him, is another aspect that appears to have been ignored by the original authority.
4. Relying on the decision of the Hon'ble High Court of Madras in Shah Yarn Tex (P) Ltd v. Commissioner (Appeals), Coimbatore [2016- TIOL-351-HC-MAD -CX] and that of the Tribunal in Oil and Natural Gas Corporation Limited v. Commissioner of Central Excise and Service Tax, Surat [2015 (1) TMI 41-CESTAT Ahmedabad] holding that '5...... It has to be thus held that interest is not payable with respect to duty required to be debited in the CENVAT Credit Account provided sufficient balance was available in the CENVAT Credit Account. Nothing has been brought on record that such a credit was not available in the CENVAT Account during the relevant period for debit.', Learned Counsel questions the legality of levy of interest for the alleged delay in payment of tax liability.
ST/85306/2015 6
5. Further, it was claimed that CENVAT credit on 'capital goods' procured when 'interconnection usage charge' was not liable to tax could not be denied as the subsequent incorporation of 'telecommunication service', as well as the utilisation of the same by other divisions of the appellant in providing service to subscribers, was not countered in the adjudication order. Furthermore, according to him, even if the 'input service' was contracted for when tax liability did not arise on 'interconnection usage charge', the introduction of the levy soon after ensures eligibility for CENVAT credit, at least in proportion. Reliance has been placed on the decision of the Hon'ble High Court of Karnataka in Commissioner of Central Excise, Bangalore v. Kailash Auto Builders Ltd [2011-TIOL-974-HC-KAR-CX] holding that '5....... when admittedly the capital goods are used for manufacture of both excisable goods and exempt goods, merely because in the beginning the capital goods were used in the manufacture of exempted goods, the assessee cannot be denied the benefit of Cenvat credit when they started manufacturing excisable goods and clearing the said goods. There is no period of limitation prescribed for availing the Cenvat credit. Once the duty is paid on the capital goods, the assessee would get right to avail the Cenvat credit if and when they have to pay duty on excisable goods.' and on the decision of the Hon'ble High Court of Madras in Kaleesuwari Refinery Pvt Ltd v. CESTAT, Chennai [2016 (340) ELT 632 (Mad)] holding that '26....... The Rule simply states that Cenvat credit shall be availed in respect of capital goods received in a factory at any point of time in a given financial year. In other words, if a factory is manufacturing goods which are dutiable, the date on which a person ST/85306/2015 7 receiving capital goods is entitled to claim Cenvat credit, is left to his choice. He is entitled to take any date within the financial year subject only to the 1st condition imposed under Rule 6 (4), namely that on the date on which he avails credit, the goods to be manufactured out of them should not be exempted goods. This is the proper manner of construction of Rules 4(2)(a) and 6(4).'
6. On the issue of multiple availment of CENVAT credit and availment against debit notes issued by branches/divisions pertaining to 'capital goods' and 'input service' received by them, it is contended by Learned Counsel that the reversal, wherever carried out, and the eligibility of the appellant, as assessee, for all inflows and outflows of the corporate enterprise had been overlooked by the adjudicating authority. Reliance has been placed on the decision of the Tribunal in Vodafone Mobile Services Ltd v. Commissioner, Service Tax Commissionerate, Pune [2016-TIOL-3164-CESTAT-MUM] holding that '5.......Moreover when the mistake was pointed out by the audit party, appellant are promptly pay the entire service tax with interest. In a case was service tax along with interest is paid voluntarily without any contest, immunity is available under Section 73 (3).... In the order of the lower authorities it is not disputed that the double entry was made inadvertently....' Relying upon the decision of the Hon'ble High Court of Bombay in Commissioner of Central Excise, Pune-III v. Ajinkya Enterprises [2013 (294) ELT 203 (Bom)] holding that '10...... In these circumstances, the CESTAT following its decision in the case of Ashok Enterprises-2008 (221) ELT 586 (T), Super Forgings-2007 (217) ELT 559 (T), SAIL-2007 (220) ELT 520 (T) = 2009 (15) STR 640 (Tribunal), MP Telelinks Limited-2004 (178) ELT 167 (T) and a decision of the Gujarat High Court in the case of CCE v. Creative Enterprises reported in 2009 (235) ELT 785 (Guj) has held that once the duty on final products has been accepted by the Department, CENVAT credit availed need not be reversed even if the activity does not amount to manufacture. Admittedly, similar ST/85306/2015 8 view taken by the Gujarat High Court in the case of Creative Enterprises has been upheld by the Apex Court [see 2009 (243) ELT A121] by dismissing the SLP filed by the Revenue.' and on the decision of the Hon'ble High Court of Punjab & Haryana in Commissioner of Central Excise v. Rane NSK Steering Systems Ltd [2007 (218) ELT 354 (P&H)] holding that '2....... Once the assessee-respondent has paid the excise duty then he is naturally entitled to avail Cenvat credit. The net result is that there is no prejudice cost to the revenue and the entries have been cancelled by each other....', it was contended that the denial of credit against debit notes of divisions/branches was in error.
7. It appears from the submissions supra, and from a perusal of the impugned order, that the contentions of the appellant have not been examined by the adjudicating authority. This is grievous remiss that can be rectified only in fresh proceedings.
8. However, before ordering such, there is an aspect of the submissions made by Learned Authorised Representative that requires consideration by us. According to him, the decision of the Hon'ble Supreme Court in Union of India v. Ind-Swift Laboratories Ltd [2011 (265) ELT 3 (SC)] has rendered a finality to the leviability of interest on CENVAT credit without subjecting the credit to test of utilization and that the findings in the adjudication order, based on circular no. 942/3/2011-CX dated 14th March 2011 of Central Board of Excise & ST/85306/2015 9 Customs, should not be discarded. There is no doubt that subsequent decisions of the Tribunal, in Balmer Lawrie & Co Ltd v. Commissioner of Central Excise, Belapur [2017 (49) STR 331 (Tri-Mumbai)], and of the Hon'ble High Court of Chhattisgarh in Commissioner of Central Excise & Customs, Raipur v. Vandana Vidyut Ltd [2016 (331) ELT 231 (Chhattisgarh)] and of the Hon'ble High Court of Bombay in Commissioner of Central Excise, Pune-I v. GL & V India Pvt Ltd [2015 (321) ELT 611 (Bom)] have followed this decision while distinguished a contrary view adopted by the Hon'ble High Court of Karnataka in Commissioner of Central Excise & Service Tax, LTU , Bangalore v. Bill Forge Pvt Ltd [2012 (279) ELT 209 (Kar)]. Learned Counsel drew our attention to the decision of the Tribunal in Commissioner of Central Excise, Pune-III v. Vodafone Essar Cellular Ltd [2016 (12) TMI 101- CESTAT MUMBAI] which, while taking note of the subsequent amendment in rule 14 of CENVAT Credit Rules, 2004, did go on to state that '12. In the matter of delayed payments, we take note of the submission that the credit was indeed available even on due date. This was also argued before the original authority who has not recorded a finding thereon or even considered the submission. This is a fact that needs verification.....'
9. Before adverting to the implications of these decisions, it may be worthwhile to recall the provisions of 'Rule 14. Recovery of CENVAT credit wrongly taken or erroneously refunded.- Where the CENVAT credit has been taken ST/85306/2015 10 or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or provider of the output service and the provisions of sections 11A and 11AB of the Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.' before its amendment with effect from 1st April 2012 as 'Rule 14. Recovery of CENVAT credit wrongly taken or erroneously refunded.- Where the CENVAT credit has been taken and utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or provider of the output service and the provisions of sections 11A and 11AB of the Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.'
10. The Hon'ble Supreme Court, unambiguously, disapproved of the conscious substitution, by the Hon'ble High Court of Punjab & Haryana, of 'and' in place of 'or' in rule 14 of CENVAT Credit Rules, 2004 (as it was before the amendment) in the face of specific construction therein. However, the context of the disavowal is no less important for it went on to state that '20. Therefore, the attempt of the High Court could lead down the provision by way of substituting the word "OR" by an "AND" so as to give relief to the assessee is found to be erroneous. In that regard the submission of the counsel for the appellant is well-founded that once the said credit is taken the beneficiary is at liberty to utilize the same, immediately thereafter, subject to the Credit rules.' to place the decision in perspective. It would appear that more than the substitution, the Hon'ble Supreme Court was concerned about an unintended benefit flowing to the assessee and, presumably, one that ST/85306/2015 11 was enabled to use such wrongly taken credit without intrusive supervision. The writ remedy, under Article 226 of the Constitution of India, was sought by the assessee consequent upon the disregard of clarification sought by them on an order emanating from the Settlement Commission initiated by them for ascertainment of the date of commencement and date of conclusion for purposes of computation of interest and the Hon'ble Supreme Court was constrained to note that any such proceeding was beyond statutory jurisdiction and that the statutory settlement could only have been based on the contents of the show cause notice which, inter alia, proposed recovery of interest, that, by reason of application before the said Commission, could not be validated, or otherwise, in adjudication proceedings.
11. From the above circumstances, it would appear that the Hon'ble Supreme Court was concerned, not with the outcome of such proposed recovery in adjudication but with the basis of pre-adjudicatory 'settlement' that could not be interfered with, and, hence, the ruling therein may not be universally applicable in all disputes pertaining to recovery of CENVAT credit. The original legislative intent is also palpably apparent from the alacrity with which the Central Government chose to forgo the happy consequences of the decision of the Hon'ble Supreme Court.
12. This is not to suggest that the subsequent decisions of the ST/85306/2015 12 Hon'ble High Court of Chhattisgarh and of the Hon'ble High Court of Bombay as well as that of the Tribunal should not be followed by us; however, it may be worthwhile to peruse the circumstances in which that dispute was carried in appeal thereto. The issue in re Vandana Vidyut Ltd was the relegation of credit taken as 'mere paper entries' which, according to the Tribunal, was not the same as utilization and the Hon'ble High Court held the liability to interest after taking note that such a reversal was rectified only after issue of show cause notice. In re GL & V India Pvt Ltd, the question of law was framed by Hon'ble High Court of Bombay after taking note of credit having been taken suo motu by the assessee that, by itself, was unauthorized. In re Balmer Lawrie & Co Ltd, the impugned goods were received at the premises of the assessee merely for storage, and entirely unrelated to the activities conferring eligibility to credit, which was held to be beyond the pale of CENVAT Credit Rules, 2004. Thus, we see an unbroken thread connecting the decision of the Hon'ble Supreme Court and the decisions that followed thereon in which the utilization was not a matter of consideration. With this proposition of case to case application as precedent, the subsequent decisions are precedents to be followed in disputes that are similarly placed.
13. In the dispute before us, the reversal of credit before issue of show cause notice renders the taking of credit to have been erased ab initio. There is not even a whiff of allegation that the credit reversed ST/85306/2015 13 had been utilized, or could have been utilized, to the detriment of the exchequer. The renunciation of jurisdiction to adjudicate upon the claim for exclusion from interest liability does not appear to have been sanctioned by the decision of the Hon'ble Supreme Court.
14. From a perusal of rule 14 of CENVAT Credit Rules, 2004 and, in particular, of the disjunctive collation of 'taken', 'utilized' and 'erroneously refunded' with the expression 'wrongly' qualifying, not all three but only two of these, it would appear that the assumption of credit and a refund of credit, if wrong, would have to pay the price in the form of 'interest.' However, it is unusual for 'utilization' to be qualified with 'ineligibility' on its own as 'utilization' is solely for the purpose of discharge of tax/duty liability which, even if not warranted, does not, by any stretch of usage, behove description as 'wrongly.' Such transfer of epithet, borne out of drafting frailty, can only reasonably mean 'utilization' after having been wrongly taken and, therefore, ineligible. When the allegation of ineligibility is sought with fastened on the taking of the credit, demonstration by the assessee of the superfluity of such disputed credit to the integrity of its accountal, and acceptance thereof, stands on an entirely different footing from that resolved by the Hon'ble Supreme Court and the decisions that followed therefrom referred to supra. In determining the submissions of the appellant herein in de-novo proceedings, the adjudicating authority is also directed to bear in mind the limits of applicability of the referred ST/85306/2015 14 decisions.
15. Accordingly, we set aside the impugned order and allow the appeal by way of remand to determine the interest liability, as well as the penal consequences, in the light of the submissions that were not considered by the adjudicating authority in the impugned order.
(Order pronounced in the open court on 05/03/2020) (C J Mathew) Member (Technical) (Dr. Suvendu Kumar Pati) Member (Judicial) */as