Custom, Excise & Service Tax Tribunal
Bhingar Urban Co-Operative Bank Ltd vs Commissioner, Central Excise, Customs ... on 10 July, 2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. II APPEAL NO. ST/89839/14-MUM [Arising out of Order-in- Appeal No. AV(189) 189/2014 dtd. 2/9/2014 passed by the Commissioner (Appeals), Central Excise & Customs, Aurangabad] For approval and signature: Honble Mr Ramesh Nair, Member(Judicial) =======================================================
1. Whether Press Reporters may be allowed to see : No
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 Lordships wish to see the fair copy : seen
of the Order?
4. Whether Order is to be circulated to the Departmental: Yes
authorities?
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Bhingar Urban Co-operative Bank Ltd.,
:
Appellants
VS
Commissioner, Central Excise, Customs & Service Tax, Aurangabad
:
Respondent
Appearance
Shri. Sumeet C. Thole, C.A. for the Appellants
Shri. Sanjeev Nair, Examiner (A.R.) for the Respondent
CORAM:
Honble Mr. Ramesh Nair, Member (Judicial)
Date of hearing: 10/7/2015
Date of decision: 10/7/2015
ORDER NO.
Per : Ramesh Nair
This appeal is directed against Order-in- Appeal No. AV(189) 189/2014 dtd. 2/9/2014 passed by the Commissioner (Appeals), Central Excise & Customs, Aurangabad, wherein Ld. Commissioner upheld the order in original dated 23/4/2014.
2. The fact of the case is that the appellant is Cooperative Bank and engaged in providing banking and financial services. The availed Cenvat credit in respect of common input services amounting to Rs. 3,585/- during the period April 2008 to March 2009. Show cause notice dated 13/6/2013 was issued to the appellant wherein it was alleged that the appellant is engaged in various banking and other financial services out of which certain services i.e. interest on cash credit and interest on term loans are exempted services therefore, the appellant has availed Cenvat credit on common input services it has been used in taxable services as well as aforesaid exempted services. In terms of Rule 6(3)(i) of Cenvat Credit Rules, 2004, the appellant is required to pay an amount @ 8 % of the value of exempted services. Accordingly it was proposed in the show cause notice to demand an amount of Rs. 32,10,030/- which is equivalent to 8% of the Exempted Services valued at Rs. 4,01,25,374/-. The said show cause notice culminated into adjudication order dated 23/4/2014 wherein Adjudicating Authority confirmed demand of Rs. 32,10,030/- under Rule 6(3)(i) of Cenvat Credit Rules. In addition he ordered recovery of interest under Rule 14 of Cenvat Credit Rules, 2004 read with Section 75 of Finance Act, 1994. Penalty of Rs. 32,10,030/- was imposed under Seciton 78 and penalty of Rs. 5,000/- was imposed under Rule 15(a). Aggrieved by the said order in original, appellant filed appeal before the Commissioner(Appeals), who upheld the order in original. Being aggrieved by the impugned order the appellant is before me.
3. Shri. Sumeet C. Thole, Ld. C.A. appearing on behalf of the appellant submits that interest on loans was not exempted services till 16 March 2012 only w.e.f 17/3/2012 vide notification No. 11/2012-ST dated 17/3/2012, interest on loans and advances became exempted services. Therefore since interest was not an exempted service, Rule 6(3) of Cenvat Credit Rules was not applicable. He referes to Board Circular No. 334/1/2012-TRU dated 16/3/2012 wherein it was clarified that for the purpose of Rule 6(3)of Cenvat credit Rules, amount of interest shall be kept outside the value and thus not be relevant for reversal of credit under rule, 6(3) of CCR. In view of the above notification and the clarification of the board, in the present case the rule 6(3) is not at all applicable as the period involved is April, 2008 to March, 2009, during which interest was not treated as exempted service. He further submits that as regard the allegation of the Revenue that appellant has not maintained separate account as required under rule 6, it is his submission that the requirement of maintenance of separate accounts for receipt, consumption and inventory of inputs used in exempted services as well as taxable service came into effect only by Notification No. 3/2011-CE (NT) dated 1/3/2011 and prior to that there was no requirement of maintenance of separate account. Therefore the condition made effective on or after 1/3/2011 could not made applicable in the appellants case which is admittedly for the period April, 2008 to March, 2009. He further submits that in fact Rule 6(3) in any case shall not apply in the appellants case for the reason that the appellant, not only proportionate to exempted services but even entire service tax credit reversed which was total of meager amount of Rs. 3585/- alongwith interest @ 18%. It is his submission that once the entire credit has been reversed along with interest, any of the cenvat credit rules shall not apply for the reason that any of the Cenvat credit rule applied only when credit stand availed. In the present case the Cenvat credit has been reversed in toto alongwith 18% interest, it is as if no Cenvat credit was availed. Hence the provisions of Cenvat credit Rules, 2004 shall not apply. He further submits that during the period involved in the present case, there were three options available under rule 6(3) (i)(ii)(iii) and as per the Rules 6(3)(ii)(iii) the option was to pay an amount equivalent to the Cenvat credit attributable to input services used in or in relation to exempted services, subject to condition and procedure specified in subject rules (3A). It is his submission that entire provisions is to ensure that assesee pays an amount equivalent to the Cenvat credit attributable to exempted services. From the present case, the appellant admittedly not only paid service tax attributable to the exempted service but entire service tax credit has been reversed alongwith interest. As regard procedure and condition specified in sub rules (3A),he submits that it is only mechanism for calculation and payment of the amount as specified under Rule 6 (3)(iii). When the appellant has paid entire service tax amount there is no question of going into calculation and procedure as prescribed under Rule (3A) of Rule 6 therefore substantial requirement of the provisions that assessee pay amount equal to the Cenvat attributable to the exempted service has been complied with. He further submits that the appellant as stated above, reversed the entire service tax credit alongwith interest, the case is covered by retrospective amendment made vide Section 73 of Finance Act, 2010. In view of the said retrospective amendment all the cases on similar issue stood regularized on the condition that the assesee pays an amount equal to the Cenvat credit attributable to the exempted goods or services alongiwth 24% interest. The Ld. Counsel submits that in the present case, since the appellant has paid entire service tax credit alongwith interest initially @ 18% and subsequently balance 6% also paid. Therefore the payment as required retrospective amendment also stood made, therefore in view of the amendment in Rule 6 by virtue of finance Act, 2010, demand raised and confirmed for an amount of Rs. 32,10,030/- is not sustainable.
4. On the other hand, Shri. Sanjeev Nair, Ld. Examiner (A.R.) appearing on behalf of the Revenue reiterates the findings of the impugned order. He further submits that for availing options under Rule 6(3) (ii) there is procedure prescribed such as intimation to the Jurisdictional Superintendent in writing and the amount to be paid should be in accordance with Rule (3A) of Rules, 6 of CCR. The appellant have not complied with the said provisions accordingly the option available under Rule 6(3)(ii) is not available to the appellant. Since the appellant have not followed the procedure for maintaining the separate account, the only option left is to pay an amount @ 8% of the value of the exempted service. As regard the claim of the appellant on retrospective amendment made by Section 74 of Finance Act, 2010, he submits that even in this retrospective amendment for regularizing case of Rule 6 was available only on observance of certain procedure. According to the procedure prescribed, the appellant should have paid the amount of Cenvat credit attributable to the exempted service alongwith interest @ 24%. However the appellant have not complied with said procedure and did not file any application to the Commissioner for claim the amnesty scheme therefore at this stage the benefit of such scheme can not be extended to the appellant. He heavily placed reliance on the Honble Bombay High Court judgment in case of CCE, Pune Vs. Nicholas Piramal (India) [2009(244) ELT 321(Bom)]. He submits that in view of the above judgment assessee is required to follow the procedure as prescribed under Rule 57(C) of erstwhile Central Excise Rules, 1944 and Rule 6(3) of CCR, 2002. It is his submission that Honble Bombay High court has clearly held that if the separate account is not maintained then assesee is required to pay 8% or 10% amount.
5. I have carefully considered the submissions made by both sides and perused the record.
6. As regard the submission of Ld. Counsel on the issue whether the interest earned by the bank on loans and advances, whether it is exempted service or taxable service, I read Board Circular DOI No. 334/1/2012/TRU dated 16 March 2012 and the relevant paras are reproduced below:
Point 20. Rule 6 of Valuation Rules prescribed inclusions and exclusions to the taxable value. Following changes are being made here-
i. ---------
ii. In sub-rule (2) clause (iv) regarding exclusion of interest on loans is proposed for substitution with interest on (a) deposits; and (b) delayed payment of any consideration for the provisions made (service/goods). this will be keep such amounts outside the value and thus not be relevant for reversal of credit under rule 6(3) of Cenvat Credit Rule, 2004. Interest on loans will now be an exempt income rather than an exclusion from value. iii.--------
Point 26. Interest on loans, advances will now be an exempt service. This will require reversal of credit used for earning such income. For the banking and financial sector, provisions are available to reverse credit up to 50% in rule 6(3D). It is being proposed to change this formula to actual basis, the value of service being net interest earned less interest paid on deposits, subject to a minimum of 50% of interest paid on deposits. For the non-financial sector it is being proposed than they may reverse credits on gross interest basis. From the above clarification and I also read amendment notification No. 11/2012-ST dated 17/3/2012, interest, prior to 17/3/3012 was excluded from the taxable value and thereafter it was explicitly made exempted. Therefore the board has clarified that after 17/3/2012 the interest of bank loan become exempted and Rule 6(3) was applied. However the board has clarified that prior to 17/3/2012 the value of interest was not be relevant for the reversal of credit under Rule 6(3) of Cenvat credit Rules. Moreover for the banking and financial institution under Rule 6(3) (D) the provision was available for straight 50% reversal of interest. In the present case the disputed value is of interest and Cenvat credit up to 50% of credit was required to be reversed. However the appellant admittedly paid the entire service tax credit availed by them during the 2008 - 2009 alongwith interest @ 24% (18% + 6% subsequently) therefore even in view of provisions under Rule 6(3), the appellant could not be asked to pay 8% of the interest amount in terms of Rule 6(3)(ii). I found that during the period involved 2008-09, apart from provisions of Rule 6(3)(i) another option under Rule 6(3)(ii) was available to the appellant according to which the appellant was under obligation to pay an amount equal to Cenvat credit attributable to exempted service subject to certain condition and procedure. I find that appellant has paid entire service tax credit alongwith interest, therefore procedure as prescribed under sub rule (3A) of Rule 6 is not relevant for the reason that the said procedure is relevant only when the appellant undertake to pay proportionate credit attributable to the exempted service. Therefore in my considered view the appellant, since paid entire service tax alongwith interest under Rule 6(3)(ii), appellant could not asked to pay any further additional amount. I also find that there were nationwide cases against many assesees on this issue and it was observed that as against Petty amount of Cenvat credit huge amount of lacs and crores were demanded from the assessee invoking provisions of Rule 6(3). After realizing serious anomaly in the provisions the government brought retrospective amendment in Rule 57 CC, Central Excise Rules, 1944 and Rule 6 of Cenvat Credit Rules, 2002/2004. According to said retrospective amendment in all such cases option was given to the assesee that if the asesssee opt for payment of an amount of Cenvat credit attributable to the exempted goods/services alongwith interest @ 24% all the proceedings shall stand concluded and no further demand shall be made. In the present case appellant not only paid the amount required under the retrospective amendment but they paid entire Cenvat credit and also paid 24% interest. As regard the procedure prescribed under Retrospective amendment provisions, I am of the view that substantial requirement of the amendment is that assesee should pay an amount of Cenvat credit attributable to the exempted services alongwith 24% interest. Procedure such an application to the Commissioner, is only for the purpose of intimating to the Commissioner regarding the payment. The department has to only ensure the calculation of such credit and payment thereof alongwith 24% interest. No any further disposal was required at the departments end. Since the appellant discharged the payment of entire services tax credit alongwith 24% interest their case is squarely covered by the provisions of Retrospective amendment of Rule 6 made under Finance Act, 2010. As regard, reliance placed by the Ld. A.R. in case of Nicholas Piramal(supra) of Honble Bombay High Court, I am of the view that judgment was given during the previous period when neither option was available under Rule, 6(3) (i) nor retrospective amendment of Finance Act, 2010 were considered. Moreover the fact of this case that so called exempted service i.e. interest on loans and advances was not exempted services during the relevant period is also altogether different facts in the present case. For this reason also Honble Bombay High Court judgment in the case of Nicholas Piramal(supra) is not applicable in the present case, hence distinguished. In view of my above discussion, I am of the view that demand raised under Rule 6(3)(i), CCR. 2004 is not sustainable. Therefore the impugned order is set aside. Appeal is allowed.
(Operative part pronounced in court) Ramesh Nair Member (Judicial) sk 11 ST/89839/14-MUM