Custom, Excise & Service Tax Tribunal
Dorma India Pvt Ltd vs Chennai-Iii on 16 August, 2023
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL, CHENNAI
Excise Appeal No.412/2012
(Arising out of Order-in-Original No. 24/2012 dated 25.5.2012 passed by the
Commissioner of Central Excise, Chennai - I)
M/s. Dorma India Pvt. Ltd. Appellant
14, Patuilos Road
Chennai - 600 002,
Vs,
Commissioner of GST & Central Excise Respondent
Chennai Outer Commissionerate
Newry Towers
12" Main Road
Anna Nagar West
Chennai -- 600 040,
APPEARANCE:
Shri N, Viswanathan, Advocate for the Appellant
Ms. Sridevi Tritula, ADC (AR) for the Respondent
CORAM
Hon'ble Ms. Sulekha Beevi C.S., Member (Judicial)
Hon'ble Shri Sanjiv Srivastava, Member (Technical)
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Date of Hearing: 10.08.2022
Date of Decision: i&. a8 .mgs aN
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Per Ms. Sulekha Beevi C.S.
Brief facts are that the appellant is engaged in manufacture of
"Automatic Door Operators and Door Closures" and parts falling under
Chapter Sub-heading 83 of CETA, 1985. They are registered with the
Central Excise Department and also with Service Tax Department for
the taxable services rendered by them. They have been availing
CENVAT credit of duty paid on the inputs and input services procured
by them locally as well as imported. The appellant was aiso engaged
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in trading activity of Imported as well as locally procured components
and inputs.
2. Based on information that the appellant availed and utilized
ineligible CENVAT credit on service tax paid on common input services
attributable to trading activity also, the officers of the Headquarters of
the Preventive Unit visited the company on 15.6.2009 for verification
of accounts. After investigation, it was found that the appellant availed
and utilized credit of common input services used for trading as weil as
for manufacturing activity which is ineligible as trading activity is
neither a service nor activity of manufacture. Appellants had not
maintained separate accounts for the common input service used for
manufacturing activity and trading activity and had not reversed the
proportionate credit availed for trading activity. In view of the above,
Show Cause Notice No. 6/2011 dated 1.4.2011 was issued for the
period from March 2006 to February 2011 proposing to recover the
wrongly availed / ineligible CENVAT credit of service tax paid on input
services of Rs.2,01,40,209/-. After due process of law, the original
authority confirmed the demand along with interest and also imposed
penalties. Aggrieved by such order, the appellant is now before the
Tribunal.
3. The learned counsel Shri N. Viswanathan appeared and argued
far the appellant. He submitted that with effect from 1.4.2011, the
CENVAT Credit Rules, 2004 was amended so as to include 'trading' as
an exempted service. Prior to such amendment, trading was not
considered as an exempted service. The appellant was under bonafide
belief that as the input services were used commonly for trading as
--_
weil as manufacturing activity the credit is eligible. There was no
intention to commit any fraud, suppression of facts with intent to evade
payment of duty. The department has issued the Show Cause Notice
invoking extended period alleging that the appellant has suppressed
facts with intention to evade payment of duty which is utterly false and
baseless. He put forth detailed argument raising the ground of
limitation.
4, He submitted that the accounts and records of the appellant were
reguiarly audited by the officers of the department at periodic intervals
and the department was very well aware that the appellant was
engaged in trading activity. During the audit conducted in the year
2009, an objection was raised on the availment of input service credit
of services used for trading as well as manufacturing activity. The
appellant had then given reply to the said objection and as an abundant
caution so as to show their bonafide had immediately worked out the
proportionate common input service credit attributable to trading
based on the value of goods traded for the year 2008 - 09 and
accordingly paid Rs.35,84,540/- along with interest of Rs.2,25,194/-.
The said amount was paid under protest on 15.4.2009. Further from
1.4.2009 onwards, they started availing proportionate common credit
attributable to their manufacturing activity only. The communication
dated 4.5.2009 was sent to them by the Range Superintendent with
regard to the audit objections which would show that department was
aware of the credit availed by appellant. The appellant had replied to
such objection along with details of the input tax credit availed by
them. In spite of having full knowledge about the credit availed in
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B/4 22012
regard to trading activity, the present Show Cause Notice has been
issued for the period March 2006 to February 2011 invoking extended
period and alleging fraud and suppression with Intent to evade duty.
5. He submitted that the demand raised invoking the extended
period cannot sustain at all for the reason that the appellant had fully
disclosed the details of credit availed in their ER-1 returns and also as
and when requested by audit party. The department accepted the
payment made by the appellant on 15.4.2009 and the same has been
appropriated by the adjudicating authority which would establish that
the department was aware about the audit objection raised in the year
2009,
6. The amendment in CENVAT Credit Rules making 'trading' as an
exempted service by the Explanation added to Rule 2(e} of CENVAT
Credit Rules, 2004 came into force only with effect from 1.4.2011. Prior
to this date, the law was not clear as to whether trading is an exempted
service. The requirement for reversal of the credit and the method that
nas to be adopted when common input services have been used for
trading activity as well as manufacturing activity was under litigation
before various forums. Before the introduction of the armendment, by
adding Explanation to Rule 2(e) of CENVAT Credit Rules, 2004, there
were different judicial pronouncements holding that trading activity
cannot be said to be an exempted service. There were conflicting
decisions as to whether credit can be availed on input services used for
trading and the appellant was under belief that as trading was done in
connection with their manufacturing activity, the credit is eligible.
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7, The learned counsel submitted that the quantification of demand
is without any basis. When the audit had objected, the appellant had
reversed the credit after calculating the amount attributable to the
trading activity for the year 2008 - 09. They have thereafter availed
proportionate credit only for subsequent periods 2009 ~ 10 and 2010
- 11. However, in the notice, the demand is made for the entire period
from March 2006 to February 2011 without considering the
proportionate credit reversed by the appellant or the non-availment of
credit for the subsequent period from 2009 till 2011.
8. It is further argued by the learned counsel that the quantification
of demand is erroneous not only for the reason that the proportionate
credit reversed by the appellant was not considered But also for the
fact that the department has not considered the application of eligibility
of credit in terms of Rule 6(5) of CENVAT Credit Rules. As per this
orovision, the appellant is eligible to avail credit on certain services
though they are used commonly for exempted and taxable services.
Further, the demand has been made not on the basis of the
proportionate credit in regard to trading but on the basis of the entire
input credit availed which is against the provisions of law. He argued
that the quantification of demand is totally incorrect and not
sustainable.
9. The learned counsel! relied upon the decision of the Hon'ble
Supreme Court in the case of Jaiprakash Industries Ltd. Vs. CCE,
Chandigarh reported in 2002 (146) ELT 481 (SC) to arque that when
there are divergent views of different High Courts, the extended period
cannot be invoked when there is no evidence for fraud, collusion or
E/4i2/2012
willful mis-statement. The decision of the Hon'ble Supreme Court in
the case of CCE, Jalandhar Vs. Royal Enterprises reported in 2016
(337) ELT 482 (SC} was relied to argue that unless there is evidence
for deliberate attempt to evade duty, the invocation of extended period
is not applicable. The learned counsel relied upon the decision of the
Tribunal in the case of Medisray Laboratories Pvt. Ltd. Vs. CGST,
Kolhapur reported in 2019 (369) ELT 717 (Tri. Mum.) wherein it was
held that when audit party has examined the records and pointed out
deficiencies in respect of inadmissibility of credit, it cannot be said that
there is suppression of facts. The jurisdictional High Court in the case
of Assistant Commissioner of GST and Central Excise, Chennai Vs.
Shriram Value Services Pvt. Lid. reported in 2019 (368) ELT 928
(Mad.) has held that there were conflicting decisions during the
relevant period holding that trading activity is an exempted service and
the position prior to 1.4.2011 was doubtful. Therefore extended period
of limitation is not invocabie.
19. The learned counsel submitted that major part of the demand is
time-barred.
ii. The learned AR Ms. Sridevi Tritula supported the findings in the
impugned order. She submitted that although the amendment by
adding Explanation to Rules 2(e) of the CENVAT Credit Rules, 2004 was
introduced with effect from 1.4.2011 only, trading being neither a
service nor manufacturing activity, the appellant cannot avail credit of
services used for trading activity. During the disputed period, the
appellant has availed credit on common input services used for trading
as well as manufacturing activity. The error would not have come to
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light but for the verification done by the department. Hence the
demand raised invoking the extended period is legal and proper. She
orayed that the appeal may be dismissed.
i2. Heard both sides.
13. The learned counsel for appellant has stressed his arguments on
limitation. His first contention is that during the audit in the year 2009,
an objection was raised by the audit party that the appellant has
availed ineligible credit on services used for trading activity. The
appellant then paid an amount of Rs.35,84,540/- on 15.4.2009 along
with interest of Rs.2,25,194/-. From 1.4.2009 onwards they have
stopped taking credit in regard to trading activity and they were
availing credit of common input service that is attributable to their
manufacturing activity only. In page 85 of the appeal memo, a letter
dated 15.4.2009 issued by the appellant to the Superintendent of
Central Excise, Internal Audit Group is seen enclosed. It shows
endorsement of the Superintendent on the same day i.e. 15.4.2009.
This letter is reply to the objection raised by audit party with regard to
the avaiiment of input credit in regard to trading activity. The relevant
part is as under:-
'Please refer to your objection with regard to the avaifment of input
service fax by us even while engaged in the trading activities and the
further discussions you had with the undersigned advising orally to
reverse the proportionate passible Service Tax Credit availed in
respect of our trading activity, for the periods 2005 ~ 2006, 2006 -
2007, 2007 - 2008, 2008 ~ 2009.
aotobd ob era eet
We however state that since the issue involved is one being legally
debatable, we have decided to remit an arnournt of Rs.35,84,440/-
(Rupees thirty five lakhs eight four thousand five hundred forty only)
being the proportionate possible service tax utilized for rendering the
trading activily UNDER PROTEST as per the formula prescribed
under rule 6 of the CENVAT Credit Rules, as advised by your
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goodself without prejudice to our submissions on merits recorded
herein before. We however submit that since the lacts of the case
clearly establish no maiatide we cannoi be subject to the proviso to
Sec. 114 of the Act read with Rule 14 of the CENVAT Credit Rules,
we are restricting the payment only for the normal period that is for
the period 2008 - 2008. We further submit that our act of remitting the
amount may not be concluded to mean that we have accepted our
Hability.
As requested, we are also enclosing a draft working sheet on the
possible utilization of service tax credit for the traded activity, for the
years 208 - 2008, 2006 - 2007, 2007 - 2008 and 2008 - 2009."
14. In page 1ii, a copy of letter dated 1.11.2006 issued by the
Department fo the appellant is enclosed. Reference 5 in the said letter
indicates the decision to furnish details with regard to trading activity
and service tax input credit taken for the year 2006. The letter dated
16.1.2007 issued by the appellant shows that they have furnished
documents sought by the department as per their earlier dated
1.11.2006. A ietter dated 11.5.2009 was issued to the appellant by
the department wherein the discrepancies noted are stated to be as
under:-
"(1) Wrong input service credit availed on the input service
used in trading goods ~ Rs.4,51,83,907/-"
15. The above documents clearly show that the department was fully
aware that the appellant was availing credit in respect of common
services used for trading. They had also received details as and when
requested. However, the Show Cause Notice has been issued only on
1.4.2011 invoking the extended period. Though it is alleged that the
appellant has indulged in suppression of facts with intent to evade
duty, there is no positive evidence adduced by the department to show
that there has been any suppression of facts, A vague allegation cannot
take the place of positive evidence. The allegation of suppression of
E/4t2/2012
facts with intent to evade payment of duty being a serious one, the
department has to furnish evidence to show that the appellant has
indulged In some sort of positive act of suppression. Such evidence is
lacking in the present case. In fact, there has been full cooperation by
the appellant in furnishing necessary documents / details and also by
making payment of amount when they were intimated that they have
wrongly availed the credit.
16. The Hon'ble jurisdictional High Court in the case of Shriram Value
Services Pvt. Ltd. (supra) has considered a similar issue wherein the
demand was in respect of credit avaiied on trading activity. The Hon'ble
High Court held that extended period of limitation is not invocable as
they were conflicting decisions during the relevant period. The relevant
portion of the judgment is extracted hereunder:-
5. The Learned Tribunal, in the order impugned in the present Appeal,
has heid as under -
'S The main contention put forward by the appellant is on the ground
of limitation. The period involved is from April 2009 to March 2077
whereas the show cause notices have been issued invoking the
extended period of limitation. The Ld. Counsel for the appetlant has
submitted that there was conflicting decisions during the relevant
period holding that trading activity is an exempted service and is
eligible for credit. indeed, the position prior to 1-4-2017 was dotibtful
and there were decisions in favour of assessee as well as Revenue.
Only after 1-4-2017, the position was settled by adding Explanation
fo the definition of exempted services which made trading activity to
be a deemed exempted service. it is very much clear from the facts
of the case that the appellant have been maintaining separate
records for the common inputs used in trading and taxable output
service. This itself brings out the bona tide betief of the appellant that
they were under the impression that their activity is an exempted
_ service and would be able to avail credit by following the procedures
under Rule 6 (2) and (3). Further, they have been filing Service Tax
returns regularly and they have been subjected to periodical audit.
Even in CERA audit, the said objection was not raised on the
avaiimernt of credit on common input services used for trading and
taxable outcome service. In such circumstances, the appellant
cannot be saddled with intention to evade payment of Service Tax.
There is mo other evidence brought out by the department to
conclude that the appellant is guilty of suppression of facts with inient
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to evade payment of service tax so as to invoke extended period of
limitation. We therefore conclude that the shaw cause notice is time-
barred.
& in the result, the impugned order is set aside and the appeals are
allowed on the ground of limitation, with consequential relief, if any."
&. From the above, it is clear that ihe position was clarified by the
Govemiment by insertion of Explanation only with effect from 1-4-2077 that
fhe trading activity will be Exempted Services. The Explanation is
clarificatory in nature and can be held to be applicable even for the past
period. Thus, at the relevant period of time, viz., from April 2009 to March
£017, the Assessee was, obviously, under bona fide belief in view of the
conflicting decisions of the Tribunals during that period and taking the
trading activity as Exempted Services, availed the CENVAT Credit which is
sought fo be reversed and recovered by the Department invoking the
extended period of limitation. Such a bona fide belief cannot be heid to be
done with ulterior purpose for evading the Duty and therefore, the extended
period of limitation would not be available to the Revenue Authority in view
of the aforesaid decision rendered by the Hon'ble Supreme Court
#. The judgments relied upon by the Learned Counsel for the
Revenue viz, Gujarat High Courts decision in CCE v. Neminath
Fabrics Pvt. Lid. as well as decision of a Division Bench of this Court
in the case of M/s. King Bell Apparels (supra) are not applicable to
the facts of the present case as even without attributing any
knowledge to the Revenue Authority about such dispute, the fact
remains that in view of the Explanation inserted tater on in favour of
the Assessee for the period prior to 1-4-2011, the Revenue Authority
cannot be permitied to reverse such CENVAT Credit and recover ihe
Duty, alleged to have been evaded by the Assessee, invoking the
extended period of limitation under Section 717A of the Act.
& Therefore, the controversy stands covered by the Supreme Court
decision in Kolety Gum industries case {supra}, relied upon by the
Learned Counsel for the Assessee and the present Appeal of
Revenue is found to be devoid of any merit and the same is Hable to
be dismissed. Accordingly, it is dismissed. No costs."
i". The Hon'ble Supreme Court in the case of Jaiprakash Industries
Ltd. (supra) has observed as under:-
'8. /f this case, there was a divergent view of the various High
Courts whether crushing of bigger stones or boulders into smafifer
bieces amounis to manufacture, in view of the divergent views, of the
various High Courts, there was a bona fide doubt as to whether or
not such ar activity amounted to manufacture. This being the
position, it cannot be said that merely because the Appellants did not
lake out @ licence and did not pay the duty the provisions of Section
117A got attracted. There is no evidence or proof that the licence was
not taken out and/or duty not paid on account of any fraud, collusion,
wilful mis-siatement or suppression of fact. We, therefore, set aside
the demand under the show cause notice dated 3rd May, 1993.
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9. As regards the demand under the show cause notice dated 26th
February, 1992, Mr. Sridharan siates that the Appellant has already
paid the amount. He states that he is not pressing this Appeal in
respect of the demand under that show cause notice. Thus we see
no reason to decide the other question, viz, whether crushing of
stones amounts to manufacture and whether a new product has
come into existence. We leave this question open."
i8. In the case of Royal Enterprises (supra), the Hon'ble Supreme
Court held as follows:-
'2. in this case parties addressed only on the point of limitation, ft
was contended before the adjudicating authority as well as the
Tribunal that the department could not invoke the extended period of
limitation as aif facts were already to the knowledge of the
department. On this the Tribunal in Para 6 has recorded the following
finding :
'6. it is clear that details of the appellant's fabrication work for
Rallway Coach Factory including supply of raw material by the Coach
Factory were known to the Revenue authorities for guite some time.
As early as 1992, the appellant's contracts, sales invoices etc.
relating to his work for Railway Coach Factory had been summoned
and obtained by the Revenue authorities. All these contracts
indicated issue of raw materials by the Railway Coach Factory to the
appellant upon the appellant executing bank guarantee. The orders
for fabricating bottom side wail sheet was also on the same basis.
Order number were being indicated in the invoices under which the
goods were cleared. It would appear that a mere look at the rates for
fabrication should have alerted the excise authorities to the fact that
such @ ow rate (Rs. 590/- per set etc.) could not include the cost of
taw materials. Be that as it may, this is not a case where a charge of
suppression of facts with intent to evade payment of duty could
reasonably be made. if reasonable care had been taken by the
Revenue authorities to scrutinize the contracts and other documents
produced, they would have known in time that fabrication charges
alone was being treated as assessable vaiue. May be, Revenue was
also of the opinion that fabrication charges alone was lable to duty.
in either case, fault is not of the appellant. Relevant facts had been
disclosed."
3. This Court, in the case of Collector of Central Excise v. Chemphar
Drugs & Liniments [1989 (40) E.L.T. 276 (8. C}) has held that in
order to make the payment for duty sustainable beyond a period of
six months and up to a period of § years in view of the proviso to
Section 117A of the Act it has to be established that the duty of excise
has not been paid or levied or short-paid or short-levied or
erroneously refunded by reasons of either fraud or collusion or wilful
misstatement or suppression of facts or contravention of any
provisions of the Act or Rules made thereunder, with intent to evade
payment of duty. lf was observed :
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eevanevee Something positive other than mere inaction or failure on the
part of the manufacturer or producer or conscious or deliberate
withholding of information when the manufacturer knew otherwise, Is
required before itis saddled with any liability, before {sic beyond) the
period of six months. Whether in a particular set of facts and
circumstances there was any fraud or collusion or wilful
misstatement or suppression ar contravention of any provision of any
Act, 8 a question of fact depending upon the facts and circumsiances
Of 2 particular case. The Tribunal came to the conclusion that the
facts referred to hereinbefore do not warrant any inference of fraud.
The assessee declared the goods on the basis of their belief of the
interpretation of the provisions of the law that the exempted goods
were not required to be included and these did not include the value
of the exempted goods which they manufactured at the relevant time.
The Tribunal found that the explanation was plausible, and also
noted that the Department had full knowledge of the facts about
manulacture of ail the goods manufactured by the respondent when
ihe dectaration was filed by the respondent. The respondent did nat
include the vatue of the product other than those failing under Tariff
tiem J4E manufactured by the respondent and this was in the
knowledge, according to the Tribunal, of the authorities. These
findings of the Tribunal have not been challenged before us or before
the Tribunal itself as being based on no evidence.
G%. In that view of fhe matter and in view of the requirements of
Section 174 of the Act, the claim had to be limited for a period of six
months as the Tribunal did. We are, therefore, of the opinion that the
Tribunal was vighi in its conclusion. The appeal therefore fails and is
accordingly dismissed."
4. Similarly, in the case of Pushpam Pharmaceuticals Company v.
Collector of Central Excise, Bombay [1995 (78) E.L.T. 407 (S.C}}. it
was heid that mere omission to disclose the correct information
would not amount to suppression of facts unless there was a
deliberate atiempt made to escape the payment of duty. Where facts
are known to both the parties it cannot be held that there was
suppression of facts, it was observed in Para 4 as follows :
"4. Section TiA empowers the Department to re-open proceedings
if the levy has been short-levied or not levied within six months from
the relevant date. But the proviso carves out an exception and
pernruts the authority to exercise this power within five years from the
relevant date in the circumsiances mentioned in the proviso, one of
if being suppression of facts. The meaning of the word both in law
and even otherwise is well known. In normal understanding it is not
different that what is explained in various dictionaries unless of
course the context in which it has been used indicates otherwise. A
perusal of the proviso indicates that it has been used in company of
such strong words as fraud, collusion or wilful default. in fact st is the
mildest expression used in the proviso, Yet the surroundings in which
it has been used it has to be construed strictly. it does not mean any
omission. The act must be deliberate. in taxation, it can have only
one meaning that the correct information was not disclosed
deliberately to escape trom payment of duty. Where facis are known
fo both the parties the omission by one to do what he might have
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Ef4i2/2012
done and not that he must have done, does not render i
suppression,"
5. We agree with ihe view taken by the Tribunal that there was nc
suppression of facts on the part of the respondent-assessee and the
department was not entitled to invoke the extended period of
limitation. Accordingly, this appeal is dismissed, No costs.
19, From the facts and evidence placed before us as well as following
the ratio jaid in the above judgments, we have no hesitation to
conclude that there are no grounds to Invoke the extended period of
limitation. However, part of the demand would fall within the normal
period. The same has to be quantified.
20. From the foregoing, we set aside the demand which falls within
the extended period and remand the matter to the adjudicating
authority to requantify the demand for the normal period. In such
requantification procedure, the adjudicating authority shall consider
the contention of the appellant that they have not availed input credit
on trading activity after 1.4.2009. So also the adjudicating authority
has to verify whether the demand has been made on the entire input
credit or the common input credit only. Needless to say that the
demand has to be calculated on the basis of common input credit for
the normal period and not the entire input credit for the normal period,
The appellant is eligible for adjustment of amount that has been
already paid in the proceedings.
21. We have already discussed that there were conflicting views
during the relevant period. Moreover, in the absence of evidence of
suppression of facts, we are of the view that all the penalties imposed
are unwarranted. The same are set aside,
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E/A412/2012
22. The impugned order is modified to the extent of setting aside the
demand for the extended period and remanding the matter to the
adjudicating authority for the limited purpose of requantifying the
demand for the normai period. All the penalties imposed are set aside.
The appeal is partly allowed in the above terms with consequential
benefits, if any.
. abe OB oak.
(Pronounced in open court on see)
oh
Rh oe ae
en Se
Lede ie: oo
(SULEKHA BEEVI C.S.)
Member (Judicial)
Xo
ee v _ SE aw ad
(SANIJIV SRIVASTAVA)
Member (Technical)
Rex
Per: Santiv Srivastava
a
i. I have gone through the order prepared by learned Member
(Judicial) and express my full agreement with the issues decided in
respect of merit of the case. She has held that during the period
covered by the show cause notice and impugned order, the appellant
was required to reverse the cenvat credit availed by them in respect
oF the input services used by them towards trading activities,
However, I find it difficult to persuade myself with regard to the
findings recorded in respect of the imitation.
2. On the issue of limitation, Commissioner has in baragraph 26 of
the impugned order recorded as follows -
"26. The next issue for consideration is whether the demand is time
barred as cantended hy the Noticee. find that an Offence case had also
been registered against the assessee vide OR No.02/2010-17 dated
35.95.2010 for availing & utilizing ineligible Cenvat credit af Service Tax pald
an the common input service attributable tc frading Activity for the period
froma 03/2006 to 02/2011. The noticee contends that various facts and
documentary evidences brought in their reply clearly showed knowledge on
the part of officers with regard to their availing and utilizing the input
service tax credit on common services and the matter purely related to the
question of interpretation. [It is seen that the assessee has been availing
Cenvat credit of Service tax from March 2006 onwards although the
brovisions of allowing credit of service tax an input services came into force
fram 10.09.2004 onwards. Though the assessee has knowledge of availing
credit on input services which are aiso utilised for trading activity, they did
not make any effort ta workout and payback the progerticnate creait til!
the lapse was pointed out by Audit and subsequently got thoroughly
investigated by the Officers of the Neadauarters Preventive unit. Under self
assessment scheme, the burden of proof regarding the admissibility of the
CENVAT credit is placed upon the manufacturer or the orovider af the
Gutpur services taking such credit as envisaged under Rule 9 {6) oF the
gS ng
ox
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CENVAT Credit Rules, 2004, Further, the Monthly returns fled to not caver
all the activities especiaily trading of goods which is not covered under levy
af Excise ar Service Tax, {ft is therefore clear that the assessee suppressed
fact to the department willfully, with an intent to avail excess credit
relating to "trading activity" in order to evade reversal/payment of
Propartionate ineligible CENVAT credit of Service tex paid on the "Common
input-services" attributable to Trading activity causing floss toa the
Government and hence, the extended period of time limit under proviso ta
section 114 of Central Excise Act 1944 has been rightly invoked for
demanding the same. Since the assessee is liable for payment of the credit
wrongly availed, | also hold that they are liable for interest on such credit
under Rule 14 af the CENVAT Credit Rules, 2004 readwith Section 11ab OF
THE Central Excise Act, 1944,"
é. The limitation is a question of fact dependent upon the
existence of the various ingredients as per Section 11A of Central
Excise Act, 1944. On the basis of facts of each case, it is required to
be determined whether the case is fit for Invocation of extendes
period of limitation and the demand needs to be limited in the normal
period. As this is a question of fact, there cannot be any binding
precedence determining the facts in this case. Hence the reliance
placed on various decisions cannot be justified because precedence
can be on question of law and not on the question of determining of
facts,
3. Examining the facts of the case, ] find that as oer sub rule (3)
and (3A) of Rule 6 in terms of which the appellant is required to make
the reversal of the cenvat credit availed Sy them on the comman
input services provide a procedure for making €) a declaration to that
effect (i) reversal of the credit on provisional basis Cab finalization of
the reversals on the yearly basis by the prescribed date. Far the
period in dispute, the appellant has not shown any evidence by which
sk
E/AT2Q012
it can be said that they have made any such declaration or reversais
prescribed. Accordingly, in my view, by not following the said
procedure, they have suppressed the material facts from the
Department at the relevant time.
4, In para-14 at page 8 of the order, learned Member (Judicial)
has referred to letter dated 01.11.2006 vide which Revenue has
sought certain information from the appellants. It appears that the
text of the letter has been modified with the remark stating "Details
oF Trading, Service Tax input credits taken, B/S for py were given to
fA Team. IA during 2006". The scanned copy of letter dated
01.11.2006 is as below :
CO
Ef4t2/2012
The said remark which js in pen iS pasted on the original letter which
is the standard format issued by the Internal Audit of the Revenue.
This letter was responded by the appellants by fetter dated
i7. 11.2006, 21.11.2006, 16.01.2007. This also does not show that
the details in respect of trading services vis-a-vis Rule 6 (3) and (3A)
were furnished. There is another fetter dated 23.07.2007 of the
Department seeking certain details. However, this letter also do not
specify that these details were ever made available to the Revenue.
5. Only by the letter dated 21.07.2008 it appears after visit of the
audit party, it was noted that there were also trading activities on
certain goods in the manufacturing premises and accordingly, the
details were called for the years 2003-04, 2004-05, 2005-06, 2006-
Of and 2007-08. In my view, appellants failed to produce any
document or record to show that these facts were ever made known
to the Department. It is also worthy of noting that it is not even the
submission of the appellant that these similar detaiis were mentioned
in the E.R.-1 Returns filed by them during the material time. Neo
calumn is indicated whereby it is shown that appellant made any such
declaration on the said returns even when they were receiving the
some traded goods in their factory premises and packing them and
affixing their logas on the same and then trading them. In absence of
any evidence to this effect, I do not find any material evidence
available to show that the facts which were specifically in the
knowledge of the appellant were ever disciosed to the Department
during the materia! periodi.e. til the Audit in April 2008 and visit of
Preventive Team during June 2009. Interestingly, the appellants
20
BA} 2/2012
nave vide letter dated July ¥%, 2009, which is reproduced below,
stated as follows -
co noe,
"The Assistant Commissioner of Centra! Excise,
Chennai ff Commissionerate
MHY Complex, 692, Anna Salal,
Chennai -- 600 G35,
Dear Sir,
Sub : intimation with regard to payment of Excise Duty on Certain Removals -- Reg.
Ref 3) Visit of HQ Preventive Team to our Premises during June 7009,
ii} Visit of Audit Team on April 2009.
This Is with reference to the above, we hereby give below the Getails of out DUTY Payment along
with Interest on the following -
: 1, | Reversal of input | Payment made | Actual Amount | Interest Challan
Credit taken on | for the years : Duty Reversed Paid on no:
the Free 1) 2004-2005 such ooog2
Reglacement of | 27005-2006 Rs. 1122,555/- ; Reversal dated}ui
Materials to the | 2006-2007 Rs.393,5 y Oo,
Customers 2007-2008 94 2005
2008-2009
2. | Buty Payment: July 2008 to! Actual Amount of Interest Paid on: Challan
en Removais to | March 2005 Buty Reversed such reversal | No:00022 dated |
our DORMA Rs.244,335 : R932, 757/- Suly 06, 2009
Application é
Display Centre
3. | Duty Payment Payrnent made | Amount of Guty: Interest Paid on Challan No:
on Alarninum | for the years paid Rs.28,917/- such Duty | 00023 dated July
Scrap Sales 2006-2007 Rs.5,340/- OF 2009
1 2007-2008
a: | 2008-2009
We have remitted / reversed totally an amount of Rs.1,18,597/- being the amount
payable by us, including interest, on the above activities.
The copies of the challans are attached herewith for your reference & records.
in this connection, please note the following :
i. We have computed & reversed the actual duty credit taken / availed by US On
the removals made by us towards the Defective Replacement of materials.
2. We have been remitting / reversing the duty regularly on the removals made by
us towards dispatch of materials to our DORMA Application Centre for the
earlier years. (2004-2005, 2005-2006, 2006-2007, 2007-7008)
3. There are No (Duty avaifed) Aluminum Scrap Sales during the years prior to
2006-2007.
We have demonstrated & given the details to the department on some of the As
SUCH removals made during the year 2008-2009, that there is no revenue joss to
the Government. A copy of the same is also attached herewith for your reference.
In case you need any further information, please feel free ta revert back to us.
te
poss
Bi4} 2/2012
Thank you,
Yours truly,
For DORMA India Private Limited.
Sd/
N. Krishnan
Chief Financial Officer
Encl.: As above."
it is also noted that the payment for the concerned years need to be
reversed asper Rule 6 (3) monthiy or provisionally and needs to he
finalised on yearly basis. In absence of any such column that
provisional payments were finalized by the appellants / Range Officer
as required under the law, there cannot be any question of
application of period of limitation.
6. After introduction of self-assessment, the responsiollity on the
assesseée for making true and fair declarations have increased many
folds for the reason of the trust shown by the Government on the
assessee. Any decision which strictly was interpreting the provisions
of Section 114 for the period prior to introduction of self-assessmenit
and laying down the principles will have to be in consonance of trust
which has been shown by the Government on the assessee. In series
of judgments of this Tribunal and Supreme Court this view has been
upheid. The appellants have also not pointed out a single judgement
curing the material peried to indicate that they have not reversed
these amounts in view of conflicting decisions that have been
rendered by the Courts or Tribunal. Bonafide belief entertained by the
appellant during the relevant period on account of contrary decisions
B/A12/2012
needs to be established. In the present case, no such evidence has
been put forth.
7. Member (Judicial) has referred to the decision of Hon'ble
Madras High Court in the case of Shriram Value Services [2019 (368)
ELT 928 (Mad.)] wherein it has been held that extended period
cannot be invoked in the present case when there were conflicting
decisions. However Hon'ble High Court has in case of King Bell
Apparel [2019 (365) E.L.T. 681 (Mad.)] relying on decision of Hon'bie
Gujarat High Court in case of Neminath Fabrics [2010 (256) E.L.T.
369 (Guj.}] held as follows:
i", Next we move on ta the question as to whether the extended
period of limitation could have been invaked. This very issue has been
answered in the decision in Neminath Fabrics Pvt. Ltd. (supra) by the
High Court of Gujarat. The question which was framed for
consideration was 'whether the Tribunal was justified in importing the
cancept of Knowledge in the provisions af Section 114 of the Central
Excise Act, 1944 read with sub-section (1) and the proviso thereto'
18. Learned Counsel for the assessee before us contended that the
department had knowledge of the entire matter as early as in
December, 2003, when they had made an inspection of the factory.
However, shaw cause notice was issued only in the year 2007 and the
extended period couid not have been invoked in the instant case. The
argument advanced by the Learned Counsel for the assessee fefore
us is identical to thet of the argument which was advanced before the
Gujarat High Court in Neminath Fabrics Pvt. Lid., supra. The Court
repelled the contentions on the following lines :
23
BAS E2/2012
"1G. Section 11A of the Centra Excise Act, 1944 insofar as the same
is relevant for the present purpose reads thus :
fA, Recovery of duties not levied or Mot paid or shart-fevied or
Sshort-paid or erroneousiy refunded, -- {1} When any duty of excise
has not been levied or paid or has been short-levied or short-paid or
erroneously refunded, whether or not such non-levy or non-payment,
short-levy or short payment or erroneous refund, as the case nay be,
wes on the basis of any approval, acceptance or assessment relating
fo the rate of duty on or valuation af excisable goods under any other
provisions of this Act or the rules made thereunder, a Central Excise
Officer may, within one year from the relevant date, serve notice on
the persons chargeable with the duty which has not been levied ar
Pald or which has been short-levied or short-paid or ta whom the
refund has erroneously been made, requiring him to show cause why
he should not pay the amount specified in the notice :
Provided that where any duty of excise has not been jevied ar paid or
has been short-levied or Short-paid or erronsously refunded by
reason of fraud, collusion or any wilful misstatement or Suppression
of facts, or contravention af an y of the provisions of this Act or of the
rules made thereunder with intent to evade Dayment of duty, by such
Berson or his agent, the provisions of this sub-section shall fave
effect, as if for the words one year, the words, five years were
substituted :
Explanation. -- Where the service of the natice is stayed by an order
oF a Court, the period of such stay shal! be excluded in computing the
aforesaid period of fone year] or five years, as the case may be.
R/ALQ2012
(TA) OOKXRN,
XXKOOREX,
(3) For the purposes of this section ~-
ff} refund includes rebate of duty of excise on excisable goods
exported out of Indie or on excisable materials used in the
manufacture of goods which are experted out of India;
GD) relevant date means, -
fa} in the case of excisable goods on which duty of excise has not
been levied or paid or has been short-levied or short-paid -
(A) where under the rufes made under this Act a periodical return,
showing particulars of the duty paid on the excisabie goods removed
during the period to which the said return relates, is to be filed by a
manufacturer or a producer or a licenses of a warehouse, as the case
may be, the date on which such return is so Filed;
(8) where no periodical return as aforesaid is fied, the last date on
which such return is to be filed under the said rules;
fC} in any other case, the date an which the duty is to be paid
under this Act or the rules made thereunder;
{8} in &@ case where duty of excise is provisionally assessed under
this Act or the rules made thereunder, the date of adjustment of Guty
after the final assessment thereof:
(c) in the case of excisable goods on which duty of excise has been
erroneously refunded, the date of such refund.
ii. A plain reading of sub-section (1} of Section 11A of the Act
indicates that the provision is applicable in a case where any duty of
excise has either not been levied/paid or has been short revied/short
nh
tt
BAY 2/2079
paid, or wrongly refunded, regardless of the fact that such non levy
etc. is on the basis of any approval, acceptance oar assessment
relating to the rate of duty or valuation under any of the provisions of
the Act or Rules thereunder and at that stage it would be open to the
Central Excise Officer, in exercise of his discretion to serve the show
cause notice on the person chargeable to such duty within one year
from the relevant date.
12. The Proviso under the said sub-section stipulates that in case oF
such non-levy, etc. of duty which is by reason of fraud, collusion, or
any mis-statement or suppression of facts, or contravention of any
provisions of the Act or the rules made thereunder, the provisions of
sub-section (1) of section 114 of the Act snall have effect as if the
words one year have been substituted by the words five years.
13. The Explanation which follows stipulates that where service of
notice has been stayed by an order of a Court, the period of such stay
shall be excluded from computing the aforesaid period of one year or
five years, as the case may be.
i4. Thus the scheme that unfolds is that in case of non-levy where
there is no fraud, collusion, etc., it is open to the Central Excise
Officer to issue a show cause notice for recovery of duty of excise
which has not been levied, etc. The show cause notice for recovery
has to be served within one year from the relevant date. However,
where fraud, collusion, etc., stands established the period within
which the show cause notice has to be served stands enarged by
substitution of the words one year by the words five years . In other
words the show cause notice for recovery of such duty of excise not
levied etc., can be served within five years from the relevant date,
15. To put it differently, the proviso merely provides for a situation
whereunder the provisions of sub-section (1) are recast by the
legislature itself extending the period within which the show cause
notice far recovery of cuty of excise not levied ete. gets enlarged,
This position becomes clear when one reads the Explanation in the
Said sub-section which only says that the period stated as to service
oF natice shall be excluded in computing the aforesaid period of one
year or five years as the case may be.
iG6. The termini from which the period of one year or five years has
ta be computed is the relevant date which has been defined in sub-
section (3)(1) of Section LLA of the Act. A plain reading of the said
definition shows that the concept of knowledge by the departmental
authority is entirely absent. Hence, if one imports such concept in
sub-section (1} of Section 114 of the Act or the proviso thereunder it
would tantamount to rewriting the statutory provision and no canon
of interpretation permits such an exercise by any Court. If it is not
open to the superior court to either add or substitute words in a
Statute such right cannot be available to a statutory Tribunal.
if". The proviso cannot be read to mean that because there is
Knowledge the suppression which Stands established disappears.
Similarly the concept of reasonable period of limitation which is
sought to be read into the provision by some of the orders of the
Tribunal also cannot be permitted In law when the statute itself has
provided for a fixed period of limitation, It is equaily well-settled that
Bsa 12/9019
it is mot open to the Court while reading a provision to either rewrite
the period of limitation or curtail the prescribed period of limitation.
i8. The Proviso comes into play only when SUDBression etc. is
established or stands admitted. Tt would differ from a case where
fraud, etc. are merely alleged and are disputed by an assessee.
Hence, by no stretch of imagination the concept of knowledge can be
read into the provisions because that would tantamount to rendering
the defined term relevant date nugatory and such an interpretation is
not permissible,
ig. The language employed in the proviso to sub-section {1} of
section LIA, is clear and unambiguous and makes it abundantly clear
that moment there is non-levy or short-levy etc. of central excise
duty with intention to evade payment of duty for any of the reasons
specified thereunder, the proviso would come into operation and the
period of limitation would stand extended from one year to five years.
This is the only requirement of the provision. Once it is found that the
ingredients of the proviso are Satisfied, all that has to be seen as to
what is the relevant date and as to whether the show cause notice
has been served within a period of five years therefrom.
20. Thus, what has been prescribed under the statute is that upON
the reasons stipulated under the proviso being satisfied, the period of
limitation for service of show cause notice under sub-section (1) of
Section 11A, stands extended to five years from the relevant date,
The period cannot by reason of any decision of a Court or even by
subordinate legislation be either curtailed or ennanced, In the present
Case as well as in the decisions on which reliance has been placed by
EV4i2/2012
the Learned advocate for the respondent, the Tribunal has introduced
a novel concept of date of knowledge and has imported into the
Proviso @ new period of limitation of Six months from the date of
Knowledge. The reasoning appears to be that once knowledge has
been acquired by the department there is no SUPpression and as such
the ordinary statutory period of limitation prescribed under sub-
section (1) of Section 114 would be applicable. However, such
reasoning appears to be fallacious in as much as once the
suppression is admitted, merely because the department acquires
Knowledge of the irregularities the suppression would not be
obliterated,"
19. As pointed out in the above referred decision, the proviso cames
into play only when suppression is established or stands admitted and
ic would differ from a case where fraud, etc., are merely alleged or is
disputed by the assessee ance therefore, the concept of knowledge
cannot be read into the provisos because that would amount to
rendering the term "relevant date" negatory and such interpretation
is not permissible. The contention that once knowledge has been
acquired by the department, there is no suppression and the ordinary
statutory period of limitation prescribed under sub-section (1) of
Section 11 would be applicable was rejected as a fallacious argument
inasmuch as once the suppression is adrnitted, merely because the
department acquires knowledge of the irregularity, the suppression
would not be obliterated.
20. In the instant case, if has been established that there fas been
suppression, there has been clandestine removal of excisable goods
29
E/4 2/2012
without payment of excise duty, the assessee fa ving collected Excise
duty from the customers did not remit if to the department and the
assesses did not obtain registration from the department nor
maintained any records and obtained registration under the
provisions of the Act only on 16-5-2003. Thus, these facts wouid
Clearly establish that the extended period of limitation was invocable
in the assessee's case,"
8. Hon'bie Allahabad High Court has in case of Rathi Steel and
Power [2015 (321) E.L.T. 200 (All.)] distinguishing the other
decisions relled upon by the Member (Judicial) in her order held as
Follows:
"26. We have only to examine as to whether there has been
suppression of facts on the part of the assessee in the matter of such
wrongful availment of Cenvat credit which was legaily not permissible
OF NOL, SO as to See as to whether extended period of limitation would
be available to the department or not.
2/. It would be worthwhile to reproduce the finding recorded ay the
Cammissioner, Customs, Central Excise & Service fax, Ghaziabad in
paragraph no. 4.1.7, under his order dated 19th November, 2011, on
the said aspect of the matter after considering the explanation
furnished by the assessee to the show cause notice. The para reads
as follows :
"4.1.7 They submitted that since the admissibility of credit on stee!
items has been in dispute since long, there are number of decisions of
various forums on the same and in all such cases, it has cansistentiv
been heid that so jong as the steef items are used for the
39
H/41 2/2012
manufacture/fabrication of items which are capital goods, credit
cannot be denied. The Larger Bench of Tribunal in the case of
Vandana Globai Lid., reported in 2010 (253) ELT. 440. has denied
credit on those steel items which are used for supporting structure of
foundation of the capital goods. In the instant case since one of the
ems were used for supporting structure and/or foundation, the
credit could not be denied."
28. We find that the reasans so disciosed in the order of the
Commissioner have completely been ignored by the Tribunai only an
fhe ground that the law on the legality of the Cenvat credit on the
ftems in questions, has been declared by the Larger Bench in the year
2010 in the case of Vandana Global Lid. (supra}, therefore, na maiz
fide can be attributed to the ASSESSEE, SO as to justify the applicability
of the longer period of limitation.
29, In our opinion, the Tribunal is not Justified in recording such a
finding.
30. From the stand taken by the assessee himself before the
Commissioner, as fas been noticed in peragrapn no. 4.1.7 quoted
herein above, we find that the assessee Aad tried to suggest that the
law laid down in the case of Vandana Gioba/ Lid. (supra) was nat
applicable in the facts of his case as none of the items were used for
supporting structure of foundation and therefore, Cenvat credit could
net be denied.
31. If is apparently clear that the plea which has naw been sougint
fo be raised before the Court that the assessee had bona Ade doubts
with regard to the availability of Cenvat credit an the ems in
31
EVAY2/2012
question and that the jaw in that regard has been settied by the
Tribunal in the case of Vandana Global Ltd. (supra) is clearly an
afterthought and attempt to improve upon his explanation, as was
furnished before the Commissioner wherein the assessee fad
admitted that stee/ items fad not been used for supporting structure
of foundation in any manner.
32. We further find that under Rules, 2004, a burden is cast uDOn
fhe manufacturer to ensure that Cenvat credit is correctly claimed by
fhem and proper records are maintained in that regard.
33. The assessee, in response to the show cause notice had stated
that there is no provision in Central Excise Law to disclose the detaifs
of the credit or to sudmit the duty paying documents, which in our
opinion is false and ean attempt to deliberately contravene the
provisions of the Act, 1944 and the rules made thereunder with an
intent to evade the duty.
34. In our opinion, the fects of the present case clearly suggest
wilful suppression of material facts by the assessee as well as
contravention af the pravisions of the Act and rufes framed
thereunder with an intent to evade the demand af duty as would be
covered by Clauses IV and V of Section LIA(1) of the Act, 1944,
Therefore, the invacation of the extended period of limitation in the
facts of the present case is fully Justified.
35. Reference may be had to the judgment of the Apex Court in the
case of Usha Rectifier Corporation (f) Ltd. (supra), whereunder the
Apex Court has held that where the assessee had not disciosed the
fact of manufacturing of the goods to the department and the
Gares Foy
x"
thd
MI
EA U2/20}2
knowledge of manufacture came to be acquired by the department
only subsequently and in view of nen-disciosure of such informatian
by the assessee and suppression of relevant facts would rightly result
in invocation of extended period of limitation. (Reference Paragraph
Ao. 12},
36. Similarly in the case of Commissioner of Cantral Excise,
Vis@khapatnam v. Mehta & Company (supra), the Apex Court has
explained that where the excisable goods are removed without
payment of proper duty af excise, it is explicit that there Was an
intention on the pert of the a@5Sessee to evade the payment of duty.
(Reference paragraph no, 22).
37. The Division Bench of the Gujarat High Court in the case of
Commissioner of Central Excise vy. Neminath Fabrics Pyt. Ltd. {supra}
has explained that Proviso to Section ii comes into play only when
suppression etic. is established or Stands admitted. (Reference
Paragraph no, 18).
38 So far as the judgment of the Apex Court in the case of
Centinental Foundation Joint Venture (supra) relied upan by the
learned counsel for the assessee is concerned, the same is clearly
distinguishable in the facts of the present case, In the said case,
there were various circulars of department operating at different
points of time and there was scope for entertaining a doubt about the
views expressed by the authorities themselves. It is in phils
background that the Court had gone to hold that there had been no
deliberate suppression.
ond
ina)
BA 12/2012
39. Similarly the Judgment of the Apex Court in the case of jai
Prakash Industries Ltd. (supra) relied upon by the learned counsel for
the assesses is also clearly distinguishable in the facts of the present
case. in the said case, there were divergent views of the various High
Courts, the issue as to whether crushing of bigger stones or boulders
into smaller pieces amounts to manufacture. In these facts, it was
held that if the assessee had not faken licence ar he did not pay the
duty, the extended beriod of limitation cauld not he iavoked.,
40. For the reasons recorded above, we find that the Tribuna} under
fhe order impugned is not justified in recording a finding that the
extended period of limitation cannot be inveked, inasmuch as from
what has been recorded by us herein above, it is crysta/ clear that
there has been suppression of material fact as well as contravention
of the provisions of the Act, 1944 and the rules framed thereunder at
the hands of the assessee with an intent to évade the demand of
excise duty. Therefore, extended period of limitation had rightly Been
invoked in the facts of the present case."
9. In view of the above discussions, I am not able to persuade
myself to concur with the findings recorded to the effect that
extended period of limitation shall not be applicable. Even otherwise,
in my view, in case of any credit which is not admissible and allowed
to the appellant for the reason of limitation in making the payment is
cantrary to the principles of trust and equanimity. It creates market
imbalance as an honest tax payer suffers on account of undus
benefits accruing ta the dishonest one. If is settled orinciple in fo-y
that no one should be allowed to take the undue benefits of his own
Wrongs.
10.8 In view of the above, I respectfully hold that extended period as
held by the Commissioner should be invokable in the present case for
demanding reversal of cenvat credit in respect of the trading activities
of the appellants. NFS
(SANJIV SRIVASTAVA)
Member {Technical}
Loe]
LR
B/SL2/2012
DIFFERENCE OF OPINION
In view of the separate order recorded by brother Member (Technical),
the following questions arise for resolution of the difference of opinion
between the members
(1) Whether part of the demand is barred by limitation as held by
Member (Judicial)
Or
(i) Whether the extended period Is invocable and the entire demand
is to be confirmed as held by Member (Technical)
hoe.
8 6 If False. ant
Member Qudicial}
3
et
3
s .
>. wy
SS SE a'
(SANJIV SRIVASTAVA)
Member (Technical)
36
Per: Dr. D.M. MISRA
Heard both sides at length on 19/04/2023. Perused the
records and the written submission filed by the Revenue dated 04° May
2023 and the Appellant dated 06" May 2023.
2. The facts of the case have been narrated in the order of the
learned Member(judicial) and needs no elaboration. However, to
understand the issue, being revolves more around question of facts,
the same needs to be restated in brief.
3. The appellants are manufacturers of "Automatic Door
Operators and Door Closures" and parts falling under Chapter 83 of
Central Excise Tariff Act, 1985. Besides manufacturing activity of the
said items, the Appellant also imported and sold these items as a
trading activity. The appellants have availed cenvat credit on service tax
paid on various input services which are used both for manufacturing of
excisable goods as well as trading of their imported items. Alleging that
they have wrongly availed credit on common input services attributable
to trading activity during the period March 2006 to February 2011,
show-cause notice was issued to them on 01.4.2011 for recovery of the
inadmissible credit.
4, There is no dispute about the non-admissibility of credit on
trading activity during the said period. This, in principle, has been
accepted by the Appellant. The issue for determination is: whether the
demand for the period 2006-07 & 2007-08 is barred by limitation as the
i \
37
Appellant reversed proportionate credit for the period 2008-09 and
thereafter, as the appellant claimed to have stopped the availment after
01/04/2009..
5. it is brought on record that pursuant to the visit of Audit in
March 2019 and on raising objection on the availment of credit on
trading activity, the Appellant furnished the details of credit availed on
common input services during the period 2005-06, 2006-07, 2007-08
& 2008-09, and reversed the cenvat credit amounting to Rs.35,84,540/-
with interest of Rs.2,25,194/-for the period 2008-09 attributable to
trading activity submitting that the same falls within the narmai period,
but resisted payment for the earlier period on the ground of limitation.
After 01.04.2009, the appellant claimed to have stopped availing credit
attributable to trading activity. The Revenue made an attempt to negate
the said claim of the Appellant stating that after 01.4.2009 excess
credit was availed on common input service referring to the report dated
07.11.2014 of the Dy. Commissioner, filed during the course of hearing
of their pre-deposit waiver application.
6. The Ld. Member(Judicial) has held that the demand for the
extended period is unsustainable, and be restricted to normal period,
whereas the Ld. Member(Technical) is of the view that the extended
period of limitation has rightly invoked in confirming the demand.
7. In response to the allegation of suppression, the main
defence of the appellant rests on the plea that they have been filing
: %
-
é S \ ens om 38 annual ER-4 returns and in constant correspondence with the department from time to time, in connection with conduct of Audit of their Unit, during the said period, hence in the process disclosed all relevant facts including their activity of trading to the department; thus, it was within the knowledge of the department about their activity of trading and also availing credit on common input services. Hence, no fact was suppressed or mis-declared to the department with intent to evade payment of duty. Secondly, they have also argued that there was no clarity about the issue, that is, whether trading activity is an exempted service or otherwise; the position became clear only after the amendment to the definition of 'Input service' w.e.f 01.04.2011 and there were conflicting views on the said issue.
8. The learned Commissioner in his finding confirming the demand for extended period held that the burden of proof regarding admissibility of cenvat credit is placed upon the manufacturer as laic down under Rule 9(6) of Cenvat Credit Rules, 2004, Also, he has observed that monthly returns do not disclose all the activities specially trading of goods being not covered under levy of excise or service tax. Further, he has held the appellant suppressed the facts from the Department willfully, with intent to avail excess credit relating to trading activity and accordingly confirmed the demand for extended period.
9. Learned Member(Judicial} referring to letters dct. 01.04.2006, 01.11.2006, 16.01.2007 and 11.05.2009 held that the Department was aware that the appellant was availing credit in respect aa Quy 39 of common input services used for trading. In absence of positive evidence to show that there has been suppression of facts and following the ratio of the jurisdictional High Court in the case of Shriram Value Services Pvt. Ltd, [2019(368) ELT 928 (Mad.}] and the judgments of Hon'ble Supreme Court in the cases of Jaiprakash Industries Ltd. {2002(146} ELT 481 (SC)] and Royal Enterprises [2016(337) ELT 482 (SC)], held that there is no ground for invoking extended period of limitation and demand be restricted to normal period.
10, Learned Member(Technical), on the other hand had observed that issue of limitation is in a particular case is a question of fact; hence there is no binding precedent on the subject. He has proceeded in observing that the appellant has failed to adhere/ comply the provisions of sub-rule (3) and sub-rule (3A) of Rule 6 of the Cenvat Credit Rules, 2004 to reverse cenvat credit on common input services by making necessary declaration to the department. Further analysing the letter dt. 01.11.2006, the learned Member(Technical) expressed his doubt about the remark "Details of trading, service tax input credits taken, B/S for PY were given to IA Team. IA during 2006" observing that the said remark is In pen pasted on the original letter which is the standard format issued by the Interna! Audit of the Revenue. Also, he has referred to the letters dt. 17.11.2006, 21.11.2006 and 16.01.2007, ail these letters also do not disclose Rule 6(3) and Rule 6(3A) compliance by the appellant; only after 21.07.2008, it came to the knowledge of the Department that they were carrying out trading activities from the manufacturing premises: accordingly the details were called for sehen \ Ww 40 scrutinizing the data pertaining to the past period. He has observed that the appellants failed to produce any document on record to show that these facts were made known to the Department; no such trading activities have been shown in the ER1 returns during the material period. He has held that after introduction of self-assessment, the responsibility rests on the assessee for making true and fair declaration about availment of cenvat credit and its utilization. Also, the jearned Member(Technical) observed that not a single judgment for the relevant period has been produced by the appellant indicating that there were conflicting views on the subject. Referring to case laws on the subject viz, King Bell Apparels Vs. Commissioner [2019 (365) ELT681 {(Mad)}, Commissioner Vs. Neminath Fabrics (P) Ltd. [2010(256)ELT 369(Guj.)}] and Rathi Steel & Power Ys. Commissioner [2015 (321) ELTZO0(All)], the learned Member(Technical) held that suppression will not get obliterated merely because some facts were within the knowledge of the Department.
ii. I find that there is no dispute of the fact that the appellant during the relevant period 2006-07 to 2008-09 and thereafter continued to carry out the activity of trading of imported items along with activity of manufacturing these items. The worksheet submitted by the appellant for the said period and the Chartered Accountant certificate enclosed reveal that the proportion of trading in the total turnover hovered around 44%-55% during the said period. Analysing the defence of the appellant that the fact of carrying out trading activity and availing cenvat credit on input services common to both Ah 44 manufacturing as well as trading disclosed to the Department time and again during the period by way of submitting data for proposed audit of their records by the Department; it rests mainiy on the letter at. 01.11.2006 written by Superintendent of Central Excise, Internal Audit (Group-VIIl) to the appellant for production of list of documents. In that letter, a remark was made stating that "Details of Trading, Service Tax input credits taken, B/S for PY were given to IA Team. JA during 2006". The contents of the said letter reveal that various documents, particulars were sought for by the Department for audit of their records. The remarks purported to have been made by the Appellant visibly supper-imposed on the letter; hence the authenticity is not clear and also not free from doubt about the time of such remark. The genuineness of the said remark also throws doubt when subsequent correspondence are examined. In response to the said letter dt. 17/11/2006, the appellant enclosed 10 documents requested through letter dt. 01.11.2006; however, the said letter does not bear the remark seems to be supper-imposed in letter 01.11.2006. Aliso, another ietter was written on 21.11.2006, still the similar remark is missing. Further, the letter dt. 23.07.2007 aiso do not carry any such remarks.
12. The letter dt. 21.07.2008 addressed by the Superintendent, Range-I enquiring about the activity of trading after a visit to their unit and requested certain information from the appellant reveais the said activity came to the knowledge of the department. The said fetter was responded on 21.07.2008 by the appellant answering to the queries raised by the Range Superintendent. A reading of the said letter does wo 42 not disclose that earlier the appellant had clearly and categorically informed the Department about undertaking of trading activity along with the manufacturing activities. Reading these letters in juxtaposition, it can fairly be inferred that the trading activity by the Appellant have not been disclosed in clear terms but came to the knowledge of the Department only after a visit of the in-charge Range Superintendent to their premises on 21.07.2008.
13. There is no letter nor any communication addressed by the appellant to the Department disclosing the activity of trading before that date. In the returns filed with the department it is not disclosed that the CENVAT credit has been availed on common input services and a portion of it was attributable to trading activity, which is approximately half of their total turnover.
14. The second line of defence advanced by the appellant is that there was confusion about admissibility of credit on common input services on trading activities during the relevant period due to conflicting views. In support, the appellant has referred to the order of the learned Commissioner(Appeals), Pune.
15. However, it is pertinent to note that the appellant in none of their communication addressed to the Department during the said period, have ever made such a plea that due to confusion on the issue of admissibility of credit on common input services, the credit was (\ \ jt 43 availed pending clarity on such issues, when the revenue from the activity of trading is almost equal to the manufacturing activity.
16, The Hon'ble Delhi High Court confronted with identical circumstances in the case of Lally Automobiles Pvt. Ltd. Vs. Commissioner (Adjudication), C. Ex [2018(17) GSTL 433 (Del.}] responding to the arguments of similar nature i.e Invocation of extended period of limitation, observed as follows:-
"ES As regards the method of calculation and invecation of extended period of penalty, the assessee's contentions again, ta the Court's mind, are groundiess. fhe assessee concededly did not maintain regular separate accounts in respect of non-service tax feviable activities. Therefore, the adjudicating authority adopted the method of proportionate turnover based attribution to the assessee's liability:
"I find that it was clear in 2008 itself that no Cenvat Credit is available for services used for trading as decided by Han'ble CESTAT in the Metro shoes case. The noticee has availed the Cenvat Credit used for exempted services namely trading without reversing the proportionate credit. They have never informed the department about taking the wrong credit. This would have been undetected if the facts were not noticed during audit. M/s. Lally Automobiles Private Ltd. have failed to inform the department that they are not maintaining the separate records for input services used for taxable and exempted services, It is already noted that the law requires an assessee to maintain separate records of Cenvat credit received on taxable or non-taxable services. In case the separate records are not maintained, the Cenvat credit is to be reversed as per Rule 6(3) of the Cenvat Credit Rules, 2004;. I find that: M/s. Lally Automobiles Private Ltd. have not reversed the same by suppression of material facts. The excess credit availed utilized by them is liable to be recovered in terms of Rule 14 of Cenvat Credit Rules, 2004 read with proviso to Section 73(1) of Finance Act, 1994."
22, This Court is of opinion that the lack of any method in the rules in such cases, would only mean that a reasonable and logical principie should be applied, not ad concededly that what should and could not be claimed as input credit, (but was in fact so claimed) ought to be "left alone" because of the composite nature of the assessee's business. While any assessee has a right to organize its business in the most convenient and efficient manner, it cannot claim that that such organization is so structured that its tax liabilities cannot be clearly discerned. In this case, the adjudicating authority adapted the proportionate percentage to the turnover method approach, which in this Court's opinion, is reasonabdie.
20. This Court is also of the opinion that the invocation of the extended period of limitation was warranted in the circumstances of the case. Being conscious of its trading activity and that it was not liable to service tax (since it did not include the amounts earned from that business, in its returns) meant that the assessee was aware of what if was doing. If cannot now take shelter under the plea that non-trading activity was expressly exempt from claiming credit, in 2011. That amendment made no difference, given that trading was never taxable under the Finance Act, 1994. In these circurnstances, the Revenue was justified in invoking the extended period of limitation in this case.
The said judgment has later been upheld by the Hon'ble Supreme Court reported in 2019(24) GSTL 3115(SC).
17. The methodology of reversing proportionate credit attributable to trading activity during the relevant period has been considered as a reasonable method/option by the Hon'ble Madras High Court in Ruchika Global Interlinks Vs. CESTAT, Chennai [2017(5) GSTL 225 (Mad.}]. Their Lordships observed as follows:-
9. Clearly, during the period in issue, which we are fold, ie, 2006-2007 and 2007-2008, trading activity, which was one of the businesses, carried out by the appellant was not amenable to Service Tax.
The amendment to Rule 2(e), as correctly arqued by Mr. A.P. Srinivas, only stated the obvious that there was no liability to pay Service Tax of trading activity, during the relevant period has been accepted by Mr. Jayachandran. The argument, though, of Mr. Jayachandran is that, since, the formula of apportionment provided in Rule 6(3}){c) is applicable f~ ae 45 to exempted service, the same can only apply post 4-4-2011, as a clarification was made only on that day onwards.
2G. To our minds, such a submission cannot be accepted. If, the appellant has accepted before us that he was not paying Service Tax on an activity, then the credit of services vis-a-vis input services could only be taken on a pro rata basis, as per the formula stipulated in Rule 6(3){(c)}, as it then obtained at the relevant point in time.
noone Ea. Having regard to the rule, position and given the admitted fact that no separate accounts were maintained by the appellant, with regard to the taxable and non-taxable services, clause (c) of sub- rule (3) of Rule 6 of 2004 Rules would apply.
18. Applying the principle of reversal of cenvat credit apportioning to trading activity from the total credit availed on common input services, I am of the opinion that the appellant ought to have reversed the credit, which they have implemented by them from 01.04.2009, for the earlier period also, as activity of trading was neither a service amenable to service tax nor fall within the scope of manufacturing activity. On the contrary, they claimed to have intimated to the department through various communications, discussed above, which found to be misleading and inconsistent; indicates the intention not to reverse the proportionate credit attributable to the trading activity. No doubt the Appellant reversed the proportionate cenvat credit amounting to Rs.35,84,540/- along with interest of Rs.2,25,194/-
for the year 2008-09 pursuant to the audit objection, but that cannot (\ \ eae 4& contribute to any bona fide bellef for non-reversal proportionate credit for earlier period 2006-07 & 2007-08 for which extended period of limitation is invoked, as no evidence has been placed on record harboring such belief. Thus, in my considered opinion the extended period is invokabile in the present case. In more or similar circumstances, the Hon'ble Bombay in Responsive Industries Ltd. {Unit-iI} Vs. Commissioner of CGST and Cé, Paighar [2019-TIOL- 1229-H-MUM-CX] upheld the order of the Tribunal In confirming the demand for extended period, where the assessee failed to discharge service tax on out ward GTA service. It is observed as:
"8. Fram the record it is undisputed that Appellant had not paid the service tax as the outward transportation under the category of GTA for the period from April, 2009 ta December, 2011, this even though they had admittedly incurred expenses for the same, If is only during the course of EA 2000 audit that above non payment of service tax on the part of the Appellant was discovered by the revenue. This discovery on the part of the Revenue led the Appellant to deposit the service tax as well as interest thereon even before the show cause notice was issued by the revenue. In the above circumstances, even if the tax and the interest on the same was paid before the issue of notice, it is not open to the Appellant to take benefit of section 73 (3) of the Act as the non payment of the service tax was an account of suppression with a malafide intention to evade payrnent of service tax. Thus in view of section 73(4) of the Act, the benefit of section 73 (3) of the Act, claimed by the Appellant would not be available.
9. The contention that there was a bonafide belief that the Appellant are not Hable to pay the service tax on outward transportation of goods and the GTA is not supported by any reasonable explanation. The bonafide belief that one is not liable to pay the tax has te be based on some facts on record which led to the belief, It is not the Appellant's case that the belief based on a ruling of the some authority that it not liable to pay service tax on outward transportation. A mere statement to the effect that the Appellant was under a bonafide belief of non flability of paying tax cannot be accepted in the face of clear provision of law. Thus, it is not possible to accept the contention that the Appellant had bonafide belief of for non payment of tax, so as to invoke section 80 of the Act."47
19, Shriram Value Services Pyt. Ltd.'s case (supra), referred to in the Order, whereunder, the Hon'ble High Court observing that as conflicting decisions available during the period, April 2009 to March 2011, hence extended period cannot be invoked in demanding cenvat credit availed on common input services attributable to trading activity, in my view, is not applicable to the facts of the present case, inasmuch as the period in question was 2006-07, 2007-08, and for the said period the appellant has not produced any conflicting judgments on the issue and for the period 2008-09 they reversed the proportionate credit accepting the audit report. The Hon'ble Delhi High Court in Lally Automobiles Pvt. Ltd.'s case (supra) categorically held that cenvat credit availed on trading activity is not admissible and extended period is invocable. The said judgment has been upheld by the Hon''ble Supreme Court.
20. For the period 2009-10 and 2010-11, I find that on 15.04.2009, the appellant reversed the cenvat credit for the period 2008-09, pursuant to the audit objection and thereafter commenced reversal of proportionate credit attributable to trading activity. The Department in its report dt. 07.11.2014, in response to direction of the Tribunal during the course of hearing of the Appellant's stay application, informed that the appellant had availed excess credit between 01.04.2009 and 01.04.2011 and sought to recover the same invoking extended period of limitation. I do not see merit in the argument of the Revenue as once the audit team of the department has detected the trading activity undertaken by the appellant and in response to the said As objection the Appellant reversed proportionate credit on 15.4.2009 for 2008-09, thereafter , it is for the Department to effect recovery of any excess credit for the subsequent period within the normal period of limitation. Suppression of fact cannot be invoked for the period after detection of the fact of availment of inadmissible credit by audit. This principle has been laid down by the Hon'ble Madras High Court in the case of V.ALK. Menon & Co. Vs. CESTAT 2015 (323) ELT 524(Mad.).
21. | In view of the above, I am of the opinion that the credit availed on common inputs services attributable to the trading activity can be recoverable for the period for the period prior to 01.4.2009 invoking extended period. To this extent, I concur with the finding of the learned Member(Technical).
oN 4 PYAR oe en (D.M. MISRA) MEMBER( JUDICIAL) Raja...
E/A412/2012 MAJORITY ORDER in view of the majority order, it is held that the extended period is invocable. The demand confirmed along with interest is sustained.
Appeal is disposed accordingly.
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ry a4 ak Le QO { Rae? i a. & fw Aqedrnnnceneney Awe RAK Ae (VASA SESHAGIRI RAQ} (SULEKHA BEEVICS.) MEMBER {TECHNICAL} MEMBER (JUDICAL) BS