Custom, Excise & Service Tax Tribunal
Pepsico (I) Holdings Pvt. Ltd vs Commissioner Of Central Excise, ... on 8 November, 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNALSOUTH ZONAL BENCH CHENNAI Appeal No.E/41619/2017 1.[Arising out of Order-in-Appeal No.148/2017(CXA-II) dt.20.3.2017 passed by the Commissioner of Central Excise (Appeals-II),Chennai] Pepsico (I) Holdings Pvt. Ltd Appellant Versus Commissioner of Central Excise, Pudhcherry Respondent
Appearance:
Shri Raghavan Ramabadran, Advocate For the Appellant Shri A Cletus, ADC (AR) For the Respondent in Appeal No.E/41619/2017 Appeal No.E/41533/2017
2.[Arising out of Order-in-Appeal No.91/2017 (CXA-I) dt.28.3.2017 passed by the Commissioner of Central Excise (Appeals-I), Chennai] Honda Motor India Pvt. Ltd Appellant Versus Commissioner of Central Excise, Chennai I Respondent Appearance:
Shri Raghavan Ramabadran, Advocate For the Appellant Shri K.P.Muralidharan, AC (AR) For the Respondent in Appeal No.E/41533/2017 CORAM :
HonbleMs. Sulekha Beevi C.S. Member (Judicial) Date of hearing : 24.10.2017 Date of Pronouncement :08.11.2017 FINAL ORDER No. 42826-42827 / 2017 The issue for consideration in these appeals being the same they are disposed by this common order.
1.1 Brief facts in E/41619/2017:
The appellants are engaged in manufacture of aerated water, beverages and fruit pulp based drinks. They are availing Cenvat credit on inputs / input services. During verification of records it was noticed that for the period from 12/2012 to 3/2014 the appellants have not reversed the correct amount of credit as required under Rule 6 (3A) of Cenvat Credit Rules, 2004. The appellants were using common input services for manufacturing activity as well as trading activity and did not maintain separate accounts. Trading being an exempted service with effect from 1.4.2011, the input services commonly used for manufacture of dutiable and trading activity is not fully eligible and the appellant has to reverse credit applying the formula laid in Rule 6 (3A)(c). According to department, appellant though ought to reverse Rs.6,25,072/- had reversed only lesser amount. Show Cause Notice was issued proposing to recover the differential amount of Rs.4,95,973/- alongwith interest and also for imposing penalty. After due process of law, the original authority confirmed the demand and imposed penalty of Rs.49,597/-. In appeal, the Commissioner (Appeals) upheld the same. The appellant is thus before the Tribunal.
2. The gist of the contention in the appeal is that for applying the formula in Rule 6 (3A) (c) (iii) the department has taken the total credit availed on input services, whereas, only the total common credit should have been taken.
1.2 Brief facts in E/41533/2017 :
The appellant is engaged in the manufacture of parts of motor vehicles (scooters and cars). The Appellant is also engaged in trading of two wheeler accessories (seat cover, floor mat, etc.), parts and components of generator sets, etc. purchased from third parties. Appellant availed cenvat credit on various input services such as renting of warehouse, telephone services, GTA, legal consultancy, etc. which are common to the manufacturing activity as well as trading activity. The appellant did not avail credit on services used exclusively for trading activity. The total credit on input services availed during the impugned period is Rs.8,57,66,916/- (Rs.4,07,18,840/- in 2013-14 + Rs.4,50,48,435/- in 2014-15) and the credit availed on common input services is Rs.2,29,07,558/- (Rs.1,14,41,784/- in 2013-14 + Rs.1,14,65,774/- in 2014-15).
2. Since the appellant availed credit on common input services, the appellant reversed proportionate credit attributable to trading of goods as per the formula prescribed under Rule 6 (3A) of the Cenvat Credit Rules. The reversal was made as per the following calculation :
Value of Trading Turnover __________________________________x Cenvat credit taken on common input services Total Turnover (Manufacture + Trading)
3. The department was of the view that in the formula, the total credit availed on input services has to be applied and not the total common credit on input services. Thus Show Cause Notice for the periods 4/2013 to 3/2014 and 4/2014 to 3/2015 were issued proposing to recover the differential amount alongwith interest and also proposing to impose penalties. After due process of law, the original authority confirmed the demand of Rs.40,22,773/- (Rs.12,07,125/- + Rs.28,15,648/- for the two different periods) alongwith interest and imposed penalties. In appeal, the Commissioner (Appeals) upheld the demand and interest thereon, however set aside the penalties imposed. The appellant is thus before the Tribunal.
4. On behalf of the appellant in both appeals, Ld.Counsel, Shri R Ramabadran appeared. He argued that the appellant has rightly applied the formula and availed credit. He adverted to Rule 6 of Cenvat Credit Rules, 2004 and submitted that the said Rule provides for procedure of availing credit when common inputs/input services is used for dutiable and exempted products/services. Thus the law laid in Rule 6 talks about common credit and therefore P mentioned in Rule 6 (3A) (c) (iii) has to be taken as total common credit input services and not as total credit availed on input services. According to appellant, inclusion of that portion of credit used exclusively in dutiable goods to reckon the value of P would restrict their eligibility and that this is not the intention of the law. He argued that the Commissioner (Appeals) has wrongly placed reliance on the decision in the case of M/s.Thyssenkrupp Industries (I) Pvt. Ltd., 2014 (310) ELT 317 (Tri-Mumbai) which is only a stay order. It is also added by the Ld.Counsel that Rule 6 was amended with effect from 1.3.2016 vide Notification No.13/2016 and that this amendment should be made retrospectively applicable. Further from such amendment, the intention of the government is clear that total credit used in the formula means total common credit.
5. Against this, the Ld.AR, Shri A.Cletusand Shri K.P.Muralidharan reiterated the findings in the impugned order. It was submitted that as per the said Rule, P denotes total cenvat credit. Nothing can be read into the law. There is no ambiguity and therefore the contention of appellant cannot be accepted.
6. Heard both sides.
7. For better appreciation Rule 6 is reproduced as under :
Rule 6. Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services.-
(1) The CENVAT credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or for provision of exempted services, except in the circumstances mentioned in sub-rule (2).
Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule.
(2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services, and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then the manufacturer or provider of output service shall maintain separate accounts for receipt consumption and inventory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take CENVAT credit only on that quantity of input or input service which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax is payable.
(3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow either of the following options, as applicable to him, namely :-
(i) the manufacturer of goods shall pay an amount equal to five per cent of value of the exempted goods and the provider of output service shall pay an amount equal to six percent of value of the exempted services; or
(ii) the manufacturer of goods or the provider of output service shall pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in, or in relation to, the manufacture of exempted goods or for provision of exempted services subject to the conditions and procedure specified in sub-rule (3A) Explanation I. If the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or as the case may be, all exempted services provided by him and such option shall not be withdrawn during the remaining part of the financial year.
Explanation II. For removal of doubt, it is hereby clarified that the credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted goods or provision of exempted service.
(3 A) For determination and payment of amount payable under clause (ii) of sub-rule (3), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions namely :-
(a).
(b)
(c) the manufacturer of goods or the provider of output service, shall determine finally the amount of CENVAT credit attributable to exempted goods and exempted services for the whole financial year in the following manner, namely :-
(iii) the amount attributable to input services used in or in relation to manufacture of exempted goods or provision of exempted services = (M/N) multiplied by P, where M denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, N denotes total value of taxable and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and P denotes total CENVAT credit taken on input services during the financial year :
8. The above Rule stipulates that Cenvat credit shall not be allowed on inputs / input services used in the manufacture of exempted goods or exempted services. The appellant is manufacturing dutiable goods and is also engaged in trading. Trading is deemed to be an exempted service as per the explanation introduced with effect from 1.4.2011 to the definition of exempted service. The appellant is using input services exclusively for dutiable goods and are availing entire credit on such input services. They are also availing certain other input services which are used commonly for manufacture of dutiable goods and trading (exempted service). They are not maintaining separate accounts. The first contention of the appellant is that Rule 6 provides for the procedure to avail credit when common inputs/input services are used and therefore this entire Rule i.e., Rule 6, has to be interpreted so as to pertain to areas where common credit is availed. I am not able to agree with this argument of the Ld.Counsel for appellant. The Rule provides for obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services. Therefore a manufacturer who manufactures both dutiable goods and exempted goods and provider who provides taxable and exempted service would come within the ambit of the said Rule. The appellant has sought to be outside the purview of Rule (6) for the input services used exclusively for dutiable goods, and then seeks to apply the formula prescribed in sub-rule (3A) in respect of common input services used for dutiable and exempted service (trading). In sub clause (iii) of Rule 6 (3A) (c), it is stated that P denotes total Cenvat credit taken on input services during the financial year. There is no ambiguity in the words or in the formula prescribed therein. The rule uses the words total credit on input services and the same cannot be stretched to read as total common credit on input services. The Tribunal in the case of Thyssenkrupp Industries (I) Pvt. Ltd., though a stay order has discussed the very same issue and observed that P denotes total credit and not total common credit. When law prescribes a formula and explains the indications of the formula, in my view, no indentment is to be allowed in these indications, as it will distort the formula itself.
9. From the above discussions, I find the issue in favour of the Revenue and against the assessee. The appeals are dismissed.
(Order pronounced in open court on 08.11.2017) (Sulekha Beevi C.S) Member (Judicial) vsr 2 1