Customs, Excise and Gold Tribunal - Mumbai
Metro Shoes Pvt. Ltd. vs Commissioner Of Central Excise on 8 January, 2008
Equivalent citations: 2008[10]S.T.R.382
ORDER M.V. Ravindran, Member (J)
1. This appeal is directed against Order-in-Original No. 1/M-I/2007, dated 27-2-2007, vide which the adjudicating authority has confirmed demand of Rs. 78,50,491/- including education cess and appropriated the amount deposited by the appellant, imposed penalty of equal amount under the provisions of Section 11AC of the Central Excise Act, 1944 and also ordered for demand of interest as applicable under the provision of Section 11AB of the Central Excise Act, 1944.
2. The relevant facts that arise for consideration are the appellant i.e. Metro Shoes Pvt. Ltd. (MSPL) manufactured shoes in their factory premises and cleared the same on payment of duty to their own retail outlets. For manufacture of such goods, the said MSPL availed Cenvat credit of the duty paid on the inputs and also on the input services. The scrutiny of the records filed by the appellant revealed that they had availed Cenvat credit under Rule 3 of the Cenvat Credit Rules, 2004 on input services like retail agents commission, selling agents commission, advertising expenses, clearing and forwarding charges, telephone and internet, courier and postage charges etc. It was found by the lower authorities that the Service tax paid on the services availed by the appellant were in the nature of post manufacture i.e. subsequent to the clearance of the goods from the place of removal and hence were found to be ineligible for availment of such input stage service tax credit. Show cause notice dated 6-11-2006 was issued to the appellant, requiring them to show cause as to why the Cenvat credit amounting to Rs. 78,50,491/- including education cess availed and utilized by them during the period October, 2005 to March, 2006 be not demanded and recovered under provisions of Rule 14 of Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944 and why penalty be not imposed on them under provisions of Section 11AC of the Central Excise Act, 1944 besides why interest should not be recovered under provisions of Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944. The appellant strongly contested the allegations in the show cause notice mainly on the ground that the excisable goods which are manufactured by them i.e. branded footwear, were cleared from their factory premises to the retail shops which are owned by them. It was their submission that the showrooms are their own and there is no sale at the premises where the shoes are manufactured. It was their contention before the adjudicating authority that the sales were effected for the first time from their showrooms and the clearance which took place from their manufacturing premises was only inter depot or inter showroom transfer. It was also contended that the commission charges which are paid to those people in the retail showroom were in fact commissions and Service tax was paid by such people on said commission and they have correctly availed credit of such input services. After hearing the appellant, the adjudicating authority came to the conclusion that the appellant were not eligible to avail credit of the input stage services and coming to such conclusion the adjudicating authority passed the following order:
23(a). In view of the detailed discussion above, I, hereby, disallow the inadmissible Cenvat credit, as discussed above, amounting to Rs. 78,50,491/-(Rupees seventy-eight lakhs fifty thousand four hundred and ninety-one only), comprising of Central Excise duty of Rs. 76,96,485/- and Education Cess of Rs. 1,54,006/-, availed and utilized by M/s. Metro Shoes P. Ltd. during the period October, 2005 to March, 2006 and confirm the demand of Rs. 78,50,491/- against them under SCN No. V-Adj(64)CSCN/M-l/15-8/2006, dated 6-11-2006. They should make the payment forthwith.
23(b). I hereby appropriate the amount of Rs. 13,27,497/- paid by M/s. MSPL towards Central Excise duty amounting to Rs. 13,01,468/- and Education Cess amounting to Rs. 26,029/-.
23(c). I impose a penalty of Rs. 78,50,491/- (Rupees seventy-eight lakhs fifty thousand four hundred ninety-one only) against M/s. Metro Shoes P. Ltd. under Rule 15 of Cenvat Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944.
23(d). M/s. Metro Shoes P. Ltd. shall pay all the dues along with interest as applicable under Section 11AB of Central Excise Act, 1944.
Ld. Counsel for the appellant, assailing the above order of confirmation of demand of duty submits that the reversal of the Cenvat credit as ordered by the adjudicating authority is incorrect. It is his submission that the appellant had availed input stage credit of the service tax paid by the commission agents at the retail showroom of the appellant themselves. It is his submission that the demand of the duty has been confirmed by the adjudicating authority under the following heads:
(i) Services directly and wholly attributable to goods manufactured by the appellant Rs. 62,71,473/-
(ii) Services directly and wholly attributable to trading activities Rs. 13,27,497/-
(iii) Other overhead expenses incurred for running retail outlets Rs. 2,51,581/-.
3. It is his submission that the credit of the service tax availed of the above three amounts was correct. He submits that the service tax element on all the above three heads pertains to the business auxiliary services (commission paid to commission agents), advertisement services travel agency services (including transportation), storage and warehousing and other overhead like maintenance and repair services, insurance, internet, security, postage and courier etc. It is his submission that the service tax paid for the above-said services are directly relatelable to the goods which are manufactured by the appellant. It was submitted that the appellant manufactured the goods at their factory premises and do not sell these goods to any agent or dealer. It is the submission that the goods are transported from their premises to retail showrooms which are their own showrooms, on a stock transfer memo. It is submitted that the sale of the said goods takes place for the first time from the showrooms. Hence the showrooms has to be considered as place of removal. He draws our attention to the definition of input services in the Cenvat Credit Rules to submit that all the services which are used by the manufacturer whether directly or indirectly till the place of removal are eligible as input service credit. He strongly relies upon the inclusive part of the definition under Rule 2(1) of the Cenvat Credit Rules. It is his submission that there is no dispute as regards the retail showroom being considered as a place of removal. It is his submission that denial of the service tax paid on the commissions for the services rendered by the commission agents, only on the ground that the services are provided primarily in relation to the sale of goods and thus not in or in relation to the manufacture of goods and clearance of final products. It is his submission that having admitted that the sale of goods through commission agent is a routinely adopted marketing practice, the denial of credit does not arise. He submits that the entire demand as confirmed by the adjudicating authority is liable to be set aside and prays so.
4. Ld. SDR, on the other hand, emphasized that the services utilized by the appellant from the commission agent do not in any way fit into the definition of the input services as provided under statute. It is his submission that the final products i.e. shoes are manufactured by the appellant in their factory premises. Once the shoes are fully manufactured and cleared from the factory premises, the question of utilization of services of commission agent does not arise. Any commission paid by the appellant to the commission agent, admitting even if it is for sale of goods, it would not render such services as in relation to the manufacture of the final product. He submits that the credit availed by the appellant in use of other services relating to the showrooms are also not eligible as credit as they are not at all covered by the provisions as enumerated. It is his submission that the Id. adjudicating authority has clearly brought out the reasons for denial of such credit. It is his submission that the entire definition of input services should be read as a whole and should not be fragmented in order to avail ineligible credit. He relies upon the judgment of the Tribunal in the case of Gujarat Ambuja Cements Ltd. - 2007 (6) S.T.R. 249 (Tri. - Del.) : 2007 (212) E.L.T. 410 (Tri. - Del.) to emphasize that once the clearances have taken place, the question of granting input service stage credit does not arise.
5. Considered the submissions made at length by both sides and perused the records. The issue involved in this case is regarding the denial of credit of the input services utilized by the appellant for the finished goods manufactured and cleared by them. For the proper appreciation of the said provisions we read the definition of the input services as given in Rule 2(1) of the Central Excise Rules, 2004:
(1) "input service" means any service, -
(i) used by a provider of taxable service for providing an output service; or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or on office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal;
It can be seen from the above reproduced portion that the input services definition is having three different parts. Presumably, the first part i.e. "used by provider of taxable service for providing an output service" is not an issue in this case. The second part of the definition "used by the manufacturer...from place of removal" is being strongly contested by both sides. On a plain reading of the second part of the definition, we find that any input service used by the manufacturer, whether directly or indirectly in or in relation to the manufacture of final product and clearance of final product from the place of removal, stands eligible for availing as credit. It is undisputed, in this case, that the appellant had manufactured shoes in their factory premises and cleared the same to their own showrooms situated at various places. It is also undisputed that the sale of said shoes take place from the said showrooms only and did not take place from the factory premises. If that be so, it has to be accepted that the show rooms which are belonging to the appellant herein, have to be considered as place of removal. The services utilized by the appellant till the place of removal and the service tax paid thereon are to be considered as services utilized by him for the manufacture of final product and clearance of the same from the place of removal. This would indicate that the services which are rendered by various service providers during the course of transportation of the final product from the appellant's factory premises to their own showrooms located in various place, for e.g. GTA, warehousing facilities, C & F agents, insurance, internet services, security, courier services, telecom services, pest control services, bank services etc. and service tax paid on such services would be eligible as credit being the services used by the appellant directly or indirectly in or in relation to the final product and the clearance of the same from the place of removal. As such, we find that the credit of the service tax paid by the service providers and charged to appellant till the sale of the goods from the retail showroom, the appellant is eligible to avail said credit as input service credit.
6. The duty confirmed on the service directly and wholly attributable to the goods manufactured by the appellant and the demand pertaining to the credit of the service tax on the overhead expenses for running the retail outlets are eligible for credit. But as regards the service tax credit on amount of service tax taken by the appellant for the services which are directly and wholly attributable to the trading activities would not be eligible as credit, as the definition of the input services indicates that the credit is eligible only in "respect of manufacture" of the final product and clearance of the final product form the place of removal. The question of manufacturing the final product, in the case of trading activity does not arise as it is an admitted fact that the appellant purchased these goods for the trading activities, in their retail showroom. As such, we are of the view that the credit availed on the services which are directly attributable to the trading activity is ineligible to be availed as input service credit. Accordingly, we uphold the impugned order to the extent it denies the credit of the service tax paid on the services amounting to Rs. 13,27,497/-.
7. We find that the issue involved in this case being one of interpretation of the provisions of the statute, hence the penalty under Section 11AC of Central Excise Act, 1944, would not arise. As such, penalty imposed on appellant is set aside.
8. As regards interest, we hold that the appellant is liable to pay interest on the amount of Rs. 13,27,497/- confirmed demand, which has been upheld by us. Accordingly, the appeal is allowed as indicated in the above paragraphs.
(Pronounced in court.)