Custom, Excise & Service Tax Tribunal
Nissan Motor India Private Limited vs Commissioner Of Gst&Amp;Cce(Chennai ... on 21 February, 2019
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH
CHENNAI
S.No. Appeal No. Appellant Respondent
1. ST/42260/2013 Nissan Motor India Commissioner of Private Ltd. Service Tax, Chennai Arising out of Order-in-Original No.22/2013 dt. 28.02.2013 passed by Commissioner of Service Tax, Chennai
2. E/42153/2014 Nissan Motor India Commissioner of Private Ltd. Service Tax, Chennai Arising out of Order-in-Original No.13/2014 dt. 24.06.2014 passed by Commissioner of Central Excise, Chennai-IV Appearance :
Shri N.V.S. Ramani, Consultant For the Appellant Shri K. Veerabhadra Reddy, ADC (AR) For the Respondent CORAM :
Hon'ble Ms. Sulekha Beevi, C.S., Member (Judicial) Hon'ble Shri Madhu Mohan Damodhar, Member (Technical) Date of Hearing : 31.01.2019 Date of Pronouncement : 21.02.2019 FINAL ORDER No. 40344-40345 / 2019 Per Bench The facts of the case are that M/s.Nissan Motor India Pvt. Ltd., the appellants herein are engaged in manufacture of various models of motor vehicles. They had entered into a Manufacturing Licensing Agreement with Nissan Motor Co. Ltd., Japan (hereinafter referred to as NML). Pursuant to investigations conducted by the department, it appeared that appellants had availed the right to use trade mark licence and technical information and 2 Appeal Nos.ST/42260/2013 E/42153/2014 technological assistance data for the manufacture and or assembly and certain models of cars and its spares. It further emerged that as per the terms of the agreement, ( ) NML grants appellants exclusive rights and privileges to manufacture and/or assemble, in the territory, automobiles using technical information disclosed to appellant; and non-exclusive rights and privileges to apply, use or affix trademarks to or on automobiles, local components and local spare parts in connection with manufacture and assembly of the same;
(i) " consideration" for right to manufacture using technical information involves an amount equivalent to a. 2.7% on the export sales of the automobiles, local components and local spares parts manufactured pursuant to the agreement; and b. 2.7% on the domestic sales of the automobiles and local spares parts manufactured pursuant to the agreement, and the " Consideration" for Trade mark license involves an amount equivalent to:
a. 0.3% on the export sales of the Automobiles and as the case may be local components and local spare parts manufactured pursuant to the agreement; and b. 0.3% on the domestic sales of the automobiles and as the case may be local spare parts manufactured pursuant to the agreement. From the investigations, it appeared appellants had made provisions in their books of account towards royalty payment to NML for the period from July 2010 and March 2011, but had not discharged service tax liability as a recipient of service. It also emerged that the appellants had also not assessed their own liability and disclosed in statutory returns filed by them. Hence a show cause notice dt. 13.01.2012 was issued inter alia proposing demand of service tax liability of Rs.6,21,24,362/- with interest thereon and imposition of penalties under 3 Appeal Nos.ST/42260/2013 E/42153/2014 various provisions of law. In adjudication, the Commissioner vide impugned order dt.28.02.2013 inter alia confirmed the proposed demand with interest thereon, appropriated amount of Rs.6,21,24,362/- paid up by appellant on 2.5.2011 and imposed equal penalty under Section 78 of the Finance Act, 1994.
Penalty was also imposed under Section 77ibid. Hence appeal ST/42260/2013.
2. Another show cause notice dt. 09.01.2014 was also issued to appellants. The said notice after making reference to earlier SCN dt. 13.1.2012 had inter alia demanded Rs.6,21,24,362/- alleging that availment of cenvat credit of the very same amount was in contravention of Rule 9 of Cenvat Credit Rules which bars taking of credit of duty / tax recoverable on account of non payment by reason of fraud or collusion etc. On these grounds, the SCN proposed recovery of allegedly wrongly availed credit of Rs.6,21,24,362/- with interest thereon as also imposition of penalty. In adjudication proceedings, the Commissioner vide impugned order dt. 24.06.2014 confirmed the demand as proposed in the SCN and also imposed equal penalty under Rule 15 (2) of the CCR 2004 read with section11AC ibid. Hence appeal E/42153/2014.
3. This matter was heard on 30.01.2019 wherein the Ld. Consultants Shri Rajaram and Shri Ramani made a number of submissions which can be broadly summarized as under :
(i) Demand of Rs.6,21,24,362/- comprises demand in respect of Technical Assistance fees paid to NML and Rs.62,12,436/- paid in respect of Trade mark fees.4
Appeal Nos.ST/42260/2013 E/42153/2014
(ii) Receipt of manufacturing rights and privileges under the agreement which constitutes a tax demand of Rs.5,59,11,926/- is not liable to service tax under Intellectual Property Service.
(ii) Demand of tax is not payable in the light of settled judicial precedence in the following case laws :
1) Avtec Ltd. Vs CCE & ST Chennai - 2017 (8) TMI 1054-CESTAT CHENNAI
2) Whirlpool of India Ltd. Vs CCE & ST New Delhi - 2016 (1) TMI 821-
CESTAT NEW DELHI
3) Chambal Fertilizers & Chemicals Ltd. Vs CCE Jaipur 2016 (45) STR 118 (Tri.-Del.)
4) Rochem Separation Systems (India) Pvt. Ltd. Vs CST Mumbai 2015 (1) TMI 1052- CESTAT MUMBAI
5) Asea Brown Boveri Ltd. Vs CCE & ST, LTU - 2016 (7) TMI 559 - CESTAT BANGALORE
6) Saint-Gobain Gyproc India Ltd. Vs CCE Rohtak - 2014 (4) TMI 955- CESTAT NEW DELHI
(iv) The larger period of limitation ought not to have been invoked as situation is revenue-neutral. Further, the findings in the Order-in-Original are baseless as credit was availed only tax paid on goods which suffered duty.
(v) Without prejudice, trading was not exempted activity during the impugned period.
(vi) There can be no demand of interest and penalty when the situation is revenue-neutral.
(vii) Ld. Consultant further submits that notwithstanding their above contentions as they have already discharged demand in entirety, they do not intend to contest the same. However, appellant has already conveyed in the 5 Appeal Nos.ST/42260/2013 E/42153/2014 previous date of hearing on 10.01.2018 that their appeal is now restricted only to interest and penalty.
(viii) In respect of Appeal ST/42153/2014, he submitted that invocation of Rule 9 (1) (bb) of Cenvat Credit Rules, 2004 is not sustainable in their case since no suppression can be involved in the demand of Rs.6,21,24,362/- made in the earlier SCN dt. 13.1.2012 as since as already pointed out, they were all along making provision of the service tax payable in their books of accounts. Ld. consultant also pointed out that they had only made provision in their books of accounts but actual payment for the entire year was effected only on 02.05.2011.
(viii) Ld. Consultant further points out that on reworking tax liability, appellants have realized that they should have discharged only Rs.5,79,21,902/- as against demanded tax of Rs.6,21,24,362/- since they have paid up liability in entirety they have paid excess amount of Rs.42,02,460/-. Ld. Consultant submits that this was flagged at the stage of adjudication in their reply to SCN dt. 29.2.2012. It is also taken note of by the adjudicating authority in para 7.1 of the order. Ld. Consultant requests that for this limited purpose, the matter may be remanded to enable reworking of the tax liability.
4. For the reasons mentioned in our interim order dt. 30.01.2019 hearing could not be continued on 30.01.2019 and had to be taken today i.e. on 31.1.2019.
5. On behalf of the appellants, Ld.Consultant, Shri Ramani submitted that they had nothing more to add in their arguments. He further submitted the copies of following cases laws in support of their stand that Rule 9 (1) (bb) of the 6 Appeal Nos.ST/42260/2013 E/42153/2014 CCR is not applicable in a situation where the credit is availed under reverse charge mechanism under Rule 9 (1) (e) ibid :
(i) M/s.99 Games Online Pvt. Ltd. and Other Vs CCE &
Central Tax, Mangalore - 2019 (1) TMI 1237-CESTAT
BANGALORE
(ii) Polygenta Technologies Ltd. Vs CCE Nasik -
2018 (2) TMI 804 CESTAT MUMBAI
6.1 Representing Revenue, Shri K. Veerabhadra Reddy who made various
submissions which can be broadly summarized as under :
(a) In respect of Appeal ST/42260/2013, it is submitted by Ld. A.R that during the period of dispute even when the appellant had made provision for royalty payments whether or not actually paid to the service provider (reverse charge basis), they were required to discharge service tax liability thereof. Hence although they may have made provision in the books of accounts they have not discharged service tax liability which they were required to do so.
(b) Further appellants did not indicate all such amounts in the returns filed by them.
(c) As the appellants have already paid up the demand in entirety interest thereof will also be required to be paid by them.
(d) Penalty will also follow as a natural consequence.
(e) Ld.A.R reiterates the conclusions of the original authority in paras 9.1 to 9.3 and 10 of the impugned order dt. 28.02.2013 in respect of revenue-neutral and penalty.
6.2 In respect of Appeal E/42153/2014, it is submitted by Ld. A.R submitted that his very argument would also be applicable to this matter. 7
Appeal Nos.ST/42260/2013 E/42153/2014 6.3 When the appellants have paid up the amount demanded in entirety, it follows natural consequence that the very cenvat credit could not have been availed by them and would require to be reversed in terms of availed by them as correctly decided by the adjudicating authority.
7. Heard both sides and have gone through the facts of the case. 8.1. In Appeal ST/42266/2013 the dispute concerns exigibility of service tax with respect to the provisions made in the books of account towards payment of royalty for the period from July 2010 to March 2011 amounting to Rs.60,31,49,154/-. During the course of hearing, Ld. Consultant has submitted that the tax liability demanded in the impugned order dt. 28.02.2013 of Rs.6,21,24,362/- is not contested by the appellant and is contesting the interest and penalty liability. This being so, we do not interfere with that portion of the impugned order demanding the said tax liability. So ordered. 8.2 Ld. Consultant has submitted that out of the total demand of Rs.6,21,24,362/- an amount of Rs.5,59,11,926/- relates to service tax on technical assistance fees which the appellants paid up although no tax was payable in the light of judicial precedents. The remaining liability of Rs.62,12,436/- relates to service tax on trade mark fees which also was deposited before issue of the SCN. Ld. consultant submits that though appellants are not contesting liability on merits, however, they are required to have discharged only Rs.5,79,21,902/- against the demand of Rs.6,21,24,362/- and excess amount of Rs.42,02,460/- has been paid. The Ld. Consultant has made a prayer for remand of the matter for the limited purpose of enabling reworking of the tax liability. 8.3 We note that this is a fair request and is therefore acceded to. 8
Appeal Nos.ST/42260/2013 E/42153/2014 8.4 Coming to the issue of interest, we are not able to appreciate the prayer of the appellants, particularly that interest will not become leviable when they have already paid the tax liability before issue of SCN. In our opinion this is a misconceived and misplaced interpretation of law. Section 73 (3) of the Finance Act, 1994 provides for very similar situation where the assessee can pay up the tax liability short paid on the basis of his own assessment or being pointed by the proper officer before issue of notice on him. However Explanation (1) to sub- section clearly indicates that interest under Section 75 ibid shall also be payable on the amount so paid by the person under Section 73 (3). This being so, there is no escape from interest even when the appellants had paid up the entire tax liability before issue of SCN.
9.1 On the plea of penalty, however, we do find some merit in the contention of the Ld. Consultant. We do note that the tax demand around 90% of the tax demand of Rs.5,59,11,926/-, relates to technical assistance fees. Ld. Consultant has drawn our attention to the decision of Tribunal in Saint Gobain Gyproc India Ltd. Vs CCE Rohtak - 2015 (38) STR 1092 (Tri.-Del.) where it was inter alia held that fees paid for technical know-how would not fall under IPR service and will not suffer service tax liability.
9.2 All the same, the appellants are not contesting the demand made in this aspect. As discussed earlier, they are only flagging the issue of excess tax liability of Rs.42,02,460/- which has been paid by them in excess. It is also to be kept in mind that while the tax demands do relate to entries made in the provisional entries made in the books of account towards royalty and technical knowhow etc., however, no actual payment was remitted abroad on monthly 9 Appeal Nos.ST/42260/2013 E/42153/2014 basis and was only done at the end of the year. The change in law effected w.e.f. 10.5.2008, however required that tax liability should be discharged even on such books of account adjustment made with regard to associated enterprises. We also find that on being pointed out, have immediately appellants paid up the entire tax liability. We find that these are all mitigating factors. The very fact that appellants had been meticulously making provision and only providing in the books of accounts also indicates that they had no intention to hide facts that they are required to pay royalties hence it would not be proper to saddle them with the charge of suppression of facts with intention to evade payment of duty. In the circumstances, we are of the considered opinion that imposition of penalty of Rs.6,21,24,362/- under Section 78 ibid is an over kill and unjustified and hence cannot be sustained. Penalty under Section 78 is therefore set aside and the appeal in this regard is allowed. However no interference is made with respect to the penalty imposed under Section 77 ibid. So ordered.
10. In Appeal E/42153/2014 the dispute relates to denial of cenvat credit invoking Rule (9) (1) (bb) and concerns alleged availment of ineligible input service of Rs.6,12,42,362/- wherein IPR become recoverable from appellants on account of SCN dt. 13.01.2012 issued to them demanding the equal service tax under Section 73 (1) ibid. The adjudicating authority in the impugned order has confirmed demand of the said amount availed by the appellants as being ineligible input service tax credit taken by them. We find that entire demand relates to Rule 9 (bb) of the CCR 2004 which reads as under :
"A supplementary invoice, bill or challan issued by a provider of output service, in terms of provisions of service tax rules, 1994 except where the additional amount of tax became recoverable from the provider of service on account of non- 10
Appeal Nos.ST/42260/2013 E/42153/2014 levy or non-payment or short-levy or short-payment by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the finance act or the rules made there under with the intent to evade payment of tax."
Since the tax amount of Rs.6,21,24,362/- has been paid by them under reverse charge mechanism which specifically fits under Section 9 (e) ibid, the credit has therefore been availed by the appellants not under Rule 9 (bb) but under Rule 9
(e) of the CCR 2004. We find this contention to be correct in law. There is no doubt that the demand of Rs.6,21,24,362/- was made under the premise that the same was required to be paid under reverse charge basis. This being so, such payment will only within the ambit of Rule 9(e) ibid and not Rule 9 (bb) of the CCR 2004. We also find that the decision relied upon in Essar Oil Ltd. Vs CCE Rajkot - 2014 (303) ELT 255 (Tri.-Ahmd.) is applicable on all fours to the issue at hand. The relevant portion of the said decision is reproduced as under :
5.3 From the above prescription, it is evident that for the preparation of an invoice, there has to be a buyer to whom goods are sold. Further, Rule 11(7) of the Central Excise Rules, 2002 prescribe the following :
Goods to be "Rule 11. removed on invoice. -
The provisions of this rule (7) shall apply mutatis mutandis to goods supplied by a first stage dealer or a second stage dealer : Provided that in case of the first stage dealer receiving imported goods under an invoice bearing an indication that the credit of additional duty of customs levied on the said goods under sub-section (5) of Section 3 of the Customs Tariff Act, 1975 (51 of 1975) shall not be admissible, the said dealer shall on the resale of the said imported goods, indicate on the invoice issued by him that no credit of the additional duty levied under sub-section (5) of Section 3 of the Customs Tariff Act, 1975 shall be admissible;
Provided further that in case of the second stage dealer receiving imported goods under an invoice bearing an indication that the credit of additional duty of customs levied on the said goods under sub-section (5) of Section 3 of the Customs Tariff Act, 1975 (51 of 1975) shall not be admissible, the said dealer shall on the resale of such imported goods, indicate on the invoice issued by him that no credit of the additional duty levied under sub-section (5) of Section 3 of the Customs Tariff Act, 1975 shall be admissible.11
Appeal Nos.ST/42260/2013 E/42153/2014 Explanation. - For the purposes of this rule, "first stage dealer" and "second stage dealer" shall have the meanings assigned to them in Cenvat Credit Rules, 2002."
A combined reading of Rule 11(3), Rule 11(7) of Central Excise Rules, 2002 and Rule 9(a)(ii) of the Cenvat Credit Rules, 2004 will convey that in case of sale of imported goods by a first stage dealer or second stage dealer also the credit is admissible on the basis of such a sale invoice. A similar situation will exist for supplementary invoice issued by a first stage dealer/second stage dealer under Rule 9(1)(b) of Cenvat Credit Rules, 2004. The word „Challan‟ and „any other similar document‟ evidencing payment of additional CVD, mentioned in Explanation to Rule 9(1)(B), will thus mean these situations where duty is paid under a „challan‟ by an importer/dealer of imported goods who has sold the cenvatable goods. This provision relating to issue of supplementary invoice will not be applicable to the goods imported by the appellant which are not sold. This interpretation has been upheld by Karnataka High Court in the case of Karnataka Soaps & Detergent Ltd. v. CCE, Mysore [2010 (258) E.L.T. 62 (Kar.)]. The argument of the ld. A.R. that the „Explanation‟ added to Rule 9(1)(b) of the Cenvat Credit Rules, 2004 was not existing when Karnataka High Court delivered the above judgment is not tenable because an „Explanation‟ introduced in the Rule can only clarify the provisions of Rule 9(1)(b), which involve sale of goods and cannot elaborate the scope of Rule 9(1)(b) of the Cenvat Credit Rules, 2004. In the case of import, assessment of duty is always paid by an importer under the challans and endorsement to that effect is made on the body of Bill of Entry. In the present facts and conditions of the case, it has to be held that payment of differential duty was paid as a result of re-assessments with respect to imported capital goods as per law laid down by Delhi CESTAT in the case of Birla Jute Manufacturing Co. Ltd. v. CC, Calcutta (supra). In Para 7 of this judgment, inter alia, it was held that refund claims and demands under Section 27 & Section 28 of the Customs Act, 1962 do involve re-assessment of the duty originally assessed. Further, as per the judgment of CCE, Raipur v. Ambuja Cement Eastern Ltd. (supra) Cenvat credit will be admissible on duty paying TR-6 challan when it is not disputed that goods were used in the manufacture of excisable goods to be cleared on payment of duty. Further, in Para 40 of the judgment of Karnataka High Court in the case of Karnataka Soaps & Detergent Ltd. v. CCE, Mysore (supra) it is held that documents specified in Rule 7 (present Rule 9 of Cenvat Credit Rules, 2004) of the earlier Cenvat Credit Rules is only illustrative in nature and cannot bar taking of Cenvat credit under Rule 3 of Cenvat Credit Rules. When additional duty is paid under reassessment or on being pointed out by the Revenue then the credit of such duty paid will be admissible as Cenvat credit to the appellant under Rule 9(1)(c) of the Cenvat Credit Rules, 2004. In view of the above settled position of law, the credit was rightly availed by the appellant and accordingly the appeal filed by the appellant is required to be allowed. Once on merits the issue is decided in favour of the appellant, there is no question of imposing penalty and confiscation of capital goods as adjudicated by the lower authority."
11. In the light of the discussions herein above, we hold that no suppression can be foisted on the appellant in respect of tax liability of Rs.6,21,24,362/- which has been paid after being pointed out to them, before issue of SCN . Hence, the 12 Appeal Nos.ST/42260/2013 E/42153/2014 impugned order cannot be sustained and will require to be set aside, which we hereby do.
To sum up: (A) in respect of Appeal ST/42260/2013 (1) With respect to the quantum of tax demanded, the matter is remanded to the adjudicating authority for the limited purpose of examining the appellant's contention that amount of Rs.42,02,460/- has been paid in excess.
(2) Interest on the tax liability that may be revised upon such readjudication is required to be paid by the appellants as applicable. (3) Penalty imposed under Section 78 ibid is set aside.
(4) Penalty under Section 77 is upheld.
(5) Appeal partly allowed on above terms.
(B) In respect of Appeal E/42153/2014:
The impugned order is set aside and appeal allowed with consequential benefits, if any, as per law.
(order pronounced in court on 21.02.2019)
(Madhu Mohan Damodhar) (Sulekha Beevi, C.S)
Member (Technical) Member (Judicial)
gs
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Appeal Nos.ST/42260/2013
E/42153/2014