Custom, Excise & Service Tax Tribunal
L G Electronics India Pvt Ltd vs Ce & Cgst Greater Noida, Gautam Buddh ... on 18 July, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Excise Appeal No.70286 of 2017
(Arising out of Order-in-Original No.57-58/COMMISSIONER/NOIDA-II/2016-
17 dated 30/01/2017 passed by Commissioner of Central Excise & Service
Tax, Noida)
M/s LG Electronics India Pvt. Ltd., .....Appellant
(51, Udyog Vihar, Surajpur-
Kasna Road, Noida-201305)
VERSUS
Commissioner of Central Excise, Noida-II ....Respondent
(Wegmans Business Park, KP-III, Greater Noida-201308)
APPEARANCE:
Shri Atul Gupta, Advocate for the Appellant
Shri A.K. Choudhary, Authorised Representative for the Respondent
CORAM: HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
HON'BLE MR. ANGAD PRASAD, MEMBER (JUDICIAL)
FINAL ORDER NO.70501/2025
DATE OF HEARING : 16 July, 2025
DATE OF PRONOUNCEMENT : 18 July, 2025
SANJIV SRIVASTAVA:
This appeal is directed against Order-In-Original No.57-58/
COMM/NOIDA-II/2016-17 dated 30.01.2017 of the
Commissioner, Central Excise, Noida-II. By the impugned order
following has been held:
―ORDER
(i) I disallow Cenvat credit amounting to Rs. 1,87, 38,42 1/-
(as per Show cause Notice dated 22-12-2015) and
Rs.36,52,391/- ( as per Show Cause Notice dated 18-10-
2016) and order its recovery, along with interest, as
applicable thereon, under the provisions of Rule 14 of
Excise Appeal No.70286 of 2017
2
Cenvat Credit Rule read with Section 11A and Section
11AA of the Central Excise Act. 1944.
(ii) I confirm the demand of Rs.1,28,08,648/- ( as per demand
raised vide SCN dated 22-12-2015) along with applicable
rate(s) of interest, under the provisions of under Rule 6(3)
of the Cenvat Credit Rules read with Rule 14 of the said
Rules and Section 1 1AA of the Central Excise Act, 1944.
(iii) The amount of Rs.38,82,360/- as also the amount of
interest for Rs.68,742/-, which have already been
deposited by the said party, i.e., M's L.G. Electronics India
Pvt. Ltd., Greater Noida, are ordered to b appropriated
against the aforesaid demands.
(iv) I impose penalty of Rs.3,51,99,460/- on the party, i.e.,M/s
L.G Electronics India Pvt. Ltd., Greater Noida, under Rule
15(2) of the Cenvat Credit Rules, 2004 read with Section
11AC of the Central Excise Act, 1944.‖
2.1 Appellant is engaged in manufacture of Washing Machines,
Air Conditioners, Refrigerators, Microwave-ovens etc. falling
under Chapter 84 & 85 of the First Schedule to the Central
Excise Tariff Act, 1985 (herein after referred to as the CETA)
and are registered with the Central Excise & Service Tax, vide
Registration Nos. AAACL1745QXM001 and AAACL1745QST003
respectively. They are availing the facility of CENVAT Credit as
per the extant rules.
2.2 They are also registered with the Department as an Input
Service Distributor under the CENVAT Credit Rules, 2004 for the
purposes of taking and distributing tax credit in respect of input
services.
2.3 During the course of audit of the records of appellant, it
was observed that they have availed and utilized inadmissible
CENVAT credit on input services, viz.
"Advertisement Services" in the name of Brand Shop
Management; and
"Technical know-how" Service, i.e., Intellectual Property
Right Services.
Excise Appeal No.70286 of 2017
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2.4 In the garb of advertising agency service appellant had
taken credit on Brand shop Management which is not admissible
in as much as
(i) The services of work viz. erection/installation and other
work have been performed at places viz. Retails show
rooms, sub-dealers show rooms which were beyond
the scope of, "Input Services"
(i) the work done in many cases is repair maintenance,
erection, commissioning and installation in nature and
therefore does not fall under the category of
advertisement ; and
(ii) Instead of taking credit of service tax on agency
commission only took the credit of entire service tax
paid on such invoices.
2.5 As input service distributor appellant distribute In-put
service credit to their various other units in India. One of the
Input services they are availing is, from their associate
enterprise namely M/s L.G. Electronics, LG Twin Towers - 20,
Yoido-Youngdungo, Seoul Korea. The service provided by LG
Korea to LG Electronics India Pvt Ltd is - "Technical know How"
where the licensor (LG Korea) has granted to the Licensee (the
party) the consent to use the Technical Information and design
and Intellectual Property Rights as defined in the Agreement
entered between the two parties on 01-07-2001. Provision of
such activity falls under the category of Intellectual Property
Services [Section 65(105)(zzr)] of the Finance Act, 1994. The
agreement entered between the two parties against the payment
of Royalty to M/s LG INC Korea. The party is paying Royally on
the sale of their products in local (domestic) sales as well as on
export sales. During the MLU audit for the year 2012-13, it has
been noticed that they did not reverse the CENVAT Credit under
Rule 6(3) of the CENVAT Credit Rules, 2004, when such services
were commonly used in respect of excisable and exempted
goods. Prior to 01-04-2011, 6(5) of the CENVAT Credit Rules,
2004 provided that on Intellectual Property Services [Section 65
(105) (zzr) ] among one of the 17 specified services, credit was
Excise Appeal No.70286 of 2017
4
available unless such services were used exclusively in or in
relation to manufacture of exempted goods or providing
exempted services. After 01-04-2011 the Rule itself has been
deleted/omitted by Notification No.03/2011-CE(N.T) dated 01-
03-2011,w.e,f. 01-04-2011. On enquiry appellant stated that
Cenvat credit availed IPR services is Rs.15,08,19,961/-. Since
they did not maintain separate account of the common services
for exempted and excisable products, an amount on to the tune
of Rs.1,28,08,648/- is to be reversed along with interest under
Rule 6(3) of Cenvat Credit Rules, 2004.
2.6 A show cause notice for the period April 2011 to
September, 2015 dated 22-12-2015 was issued to them to show
cause as to why:-
(i) Cenvat Credit amounting to Rs.1,87,38,421/- taken and
utilized by them should not be disallowed and
recovered from them along with interest, as applicable
thereon, under Rule 14 of CC Rules read with section
11A and section 11AA of the Central Excise Act, 1944.
(ii) An amount of Rs, 1,28,08,648/- along with applicable
interest there-upon should not be demanded/recovered
from them under Rule 6(3) of the CC Rules read with
Rule 14 of the Rules, ibid, and section 11A and 11AA of
the Central Excise Act, 1944 and the amount of
Rs.38,82,360/- and interest Rs.68,742/-already
deposited should not be appropriated; and
(iii) Penalty should not be imposed upon them under Rule
15(2) of the CENVAT Credit Rules read with Section
11AC of the Central Excise Act, 1944.
2.7 Statement of Demand (S.C.N.) for the period October
2015 to July, 2016, was issued asking to show cause as to why:
(i) Inadmissible Cenvat Credit of service Tax amounting to
Rs.36,52,391/- wrongly availed and utilized by them
should not be disallowed and recovered from them
under Rule 14 of the Cenvat Credit Rules, 2004;
Excise Appeal No.70286 of 2017
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(ii) Interest on wrongly availed Cenvat Credit should not be
demanded under rule 14 of the Cenvat Credit Rules
2004 read with Sec.11AA of the Central Excise Act,
1944: and
(iii) Penalty should not be imposed upon them for the
amount of credit wrongly availed and utilized by them
under rule 15 of Cenvat Credit Rules, 2004 read with
Section 11AC of the Central Excise Act, 1944.
2.8 The show cause notice and the statement of demand have
been adjudicated as per the impugned order. Aggrieved
appellant have filed this appeal.
3.1 We have heard Shri Atul Gupta, Advocate for the appellant
and Shri A K Choudhary for the revenue.
3.2 Arguing for the appellant learned counsel submits that:
Impugned order is beyond the show cause notice.
Credit on IPR Services (Technical Know How) is admissible
to the appellant.
Credit on "Advertisement and Sales Promotion Services"
(Brand Shop Management Services) arre admissible to the
Appellant.
Demand beyond the normal period of limitation is not
maintainable. Reliance in this regard is placed on the
decision of this Tribunal in the case of M/s Accurate
Chemical Industries Vs CCE, Noida 2014 (300) ELT 451
(Tri.-Del.) affirmed by Hon'ble Allahabad High Court
reported at 2014 (310) ELT 441 (All.).
Interest and penalty is also not imposable to the appellant.
3.3 Authorized representative re-iterated the findings recorded
in the impugned order.
4.1 We have considered the impugned order along with the
submissions made in appeal and during the course of arguments.
4.2 Impugned order records findings as follows:
Excise Appeal No.70286 of 2017
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―7.2 On perusal of the records of the both the case files, I
find that in the instant matter two issues need
determination :-
i) Whether the Cenvat credit of construction services
(inclusive of Erection & Installation services undertaken
at their retail show rooms, Dealer, sub- dealer
premises) termed as Brand-Shop Management under the
garb of advertisement services was wrongly availed by
the party in the light of the provisions of CC Rules,
2004? and
ii) Whether Cenvat credit availed on Intellectual Property
Rights (lPR) services was improperly distributed and
wrongly availed by the party (at Noida plant) though
such credit pertains to trading activities of the party ?
7.3 At first, I take up the issue of admissibility of credit
on construction services (inclusive of erection and
installation etc.) advertising expenses. In this context,
observe hat para 3 of the Notice dated 22-12-2015 being
the crux of the said Notice dated 22-12-2015. which read
as under -
a. Services of work viz. Erection, Installation and other
work have been performed at the places namely;
Retails show-room, Dealers or Sub-dealers which
are beyond the place of removal
b. the nature of work done in many cases is of
construction repair, maintenance, Erection,
Commissioning and Installation, in-nature, which do
not fall within the category of advertising service ;
and
c. the said party instead of taking credit of service tax
on Advertising Agency commission only, took the
credit of entire service tax paid on such invoices.
7.4 With a view to verify these allegations, I have
examined the invoices made available as case record and I
make note of the following points :-
Excise Appeal No.70286 of 2017
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7.4.1 One of the Completion Certificates
No.GIIR/EST/BS/2014-15/022 dated 26-06-2014 taken as
a sample from amongst several such certificates, raised by
M/s GIIR Communications India Pvt. Ltd.. has been issued
for Rs.11,49,961/- in respect of M/s Next Step Engineering
Pvt. Ltd. in respect of M/s Apollo Sales Paschim Vihar, New
Delhi, for fixing/fabrication/installation of wooden, racks,
walls, Podium, Inland, end-caps Mobile wall, Catalogue
stand, cash desk zone, main table, side table, back drop,
staff seating, discussion table with chairs, couch and
carpet.
7.4.2 There are a number of such Completion Certificates in
respect of above referred items of work and goods having
been prepared/ fabricated at the site by getting it
completed/ finished, and, accordingly, bills were raised for
all such items. For sample sake, details of invoices/ Bills
issued by M/s Nextstep Engg. Pvt. Ltd., Kundli, ( Friends
Colony) Distt. Sonepat ( HR) in respect of such Completion
Certificates are given below : -
(i) lnvoice No.HR/471/14-15 dated 01-09-2014 of M/s
Nextstep, Engg.P Ltd
(ii) Bill No.ASA/ST/15-16/125 dated 28-07-2015 of M/s
Nextstep, Engg.P Ltd
(iii) Bill No.ASA/ST/15-16/126 dated 28-07-20 15 of M/s
Nextstep, Engg.P Ltd
7.4.3 Invoice No.HR/092/15-16 dated 25-05-2015 was
issued by M/s Next step Engineering Pvt. Ltd., 99/23,
Village Kundli, Friends Colony, district Sonipat- 131 028
Haryana for Rs.2,29,215/- for the expenses towards
'Erection, Commissioning and installation'. It is clearly seen
that the activities undertaken were not for the advertising
services as claimed by the party
7.4.4 Bill No.ASA/ST/13-14/136 dated 17-08-2013 was for
Rs.2,59,3 18/- of M/s ASA Retail Solutions Pvt. Ltd., Plot
No,.21, 12/6, Gurukul Industrial Area, Sector 38, Faridabad
Excise Appeal No.70286 of 2017
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raised for 'Labour charges for installation of Brand-shop
display stand.' It is evident that services have been
rendered for installation of stand at Dealer/sub-dealers
premises
7.4.5 Invoice No.HR/713/14-15 dated 21-10-2014 of M/s
Next Step Engineering Pvt. Ltd. was raised for
Rs.3,40,750/- towards expenses for Erection,
Commissioning or Installation services for Electronikrft done
at B-4 Kanti Nagar Extension Jagatpuri, Main Road, Krishna
Nagar Delhi -51. It is seen that the details available with
the invoice were for the activities like providing items for
display of goods like LCD/Plasma TV Display Panel, AC
Display Panel Refrigerator Display Washing Machine
Display, Microwave Display, GSM Gandola. Catalogue
stand, Cash-zone-Counters, staff seating including table
chairs, Podiums, Projector, Security Camera etc. at the
premises of M/s Electronikraft, B-4, Kanti Nagar Extension,
Jagatpuri main Road Krishna Nagar, Delhi-51. It is clearly
seen that the above referred were activities and not services
and, thus, the same are not eligible for credit of input
services as advertising services.
7.4.6 Invoice No.HR/471/14-15 dated 01-09-2014 for
Rs.2,48,749/- towards expenses for 'Erection,
commissioning or installation services' done at Apollo Sales
Corporation, B-1 / 19-A, Pashcim Vihar, New Delhi,
7.4.7 Various Bills against 'CM-TWS COST of installation at
Electronic Craft, Delhi and also CM-TWDS Cost of Retainer-
ship Fee for Retainer- ship charges for July, 2014 to
Dec.14, Jan-Feb.14, Jan.- Feb.14. etc. The said Bills shows
that they were raised towards expenses incurred in respect
of maintenance of a number of fittings and maintenance
thereof. It is clearly seen that such activities are not eligible
for claim of credit as input service in the name of
advertising service.
Excise Appeal No.70286 of 2017
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7.5 From the above study of invoices/bills, I find that the
same were raised as whole for preparation of the show
rooms involving both civil and electrical fittings etc. for
completion of display racks for TV, Air conditioner,
Microwave oven, Washing Machines, podium for catalogue
any other items of furniture like table chair etc., furnished
with couch and carpets so on and so forth.
7.6 I further observe that a perusal of the Retainer ship
Agreement dated 30-04-2013 executed in between the
party and M/s GIIR Communications India Pvt. Ltd. shows
that the object of their contract was merely "Designing &
Supervision of the construction/ maintenance of Brand shop
/ show rooms of Dealer & sub dealers (PTP). The said
contract contained following items of work:-
Introductory Para ( of agreement):-
A. ........
GIIR is an advertising agency who are having an
expertise in design, supervision, construction,
maintenance and advertisement on such shops etc. all
over India and also product campaigning and for all other
marketing activities at any other place as desired by
LGEIL
LGEIL is desirous to appoint GIIR on Retainer-ship for
"Designing & Supervision of the construction /
maintenance of Brand shop / show rooms of Dealer & sub
dealers (PTP)
B. GIIR represents that it has expertise, experience &
Professionals in "designing & supervision of the
construction/maintenance of Brand shop/showrooms/PTP
and is willing to work as an Consultant of LGEIL for the
said purpose
C. SCOPE OF SERVICES
3.1
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A. Verification & submission of estimation quotation for
job containing full details of cost of material as well as
services to LGEIL after obtaining the same from the
Contractors on a contract to contract basis. GIIR will be
required to obtain estimation for the job from the
contractor for each individual contract and submit the
same to LGEIL
7.7 On going through the above extracts taken from above
said Agreement for the work carried out at various places, it
is worth to note that that entire work included 'construction
work' and 'cost of material'. It clearly goes to understand
that the bills were raised inclusive of the cost of materials
used and also the work relating to civil nature (i.e.,
construction work). This position is sufficient to hold that
the allegations as labeled in the instant notice at point nos.
(i), (ii) & (iii) of para 3 of the instant Notice are correct to
the extent that the bills raised for erection, commissioning
and installation of goods as also retainer-ship meant for
repair services on monthly or on annual basis. The said
agreement is also able to evince that bills also included the
cost of materials used while carrying out in preparation of
Dealer/sub-dealers premises. The above position also
depicts that the activities taken place were not within the
meaning of Advertising Agency in terms of definition, ibid.
7.8 Further, input service "means' any service used by a
manufacture whether directly indirectly in or in relation to
the manufacture of final products and clearance of final
products up to the place of removal However, in the instant
case, I note that services involving construction, erection,
and installation activities provided by M/s GIIR were
admittedly used in or in relation at a place other than the
place of manufacture. Further, it is also not in dispute that
such services were taken/ availed beyond the place of
manufacture, and such services have not been utilized in or
in relation to the manufacture of final products. It means
Excise Appeal No.70286 of 2017
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the services were performed and consumed subsequent to
removal/sale of goods
7.9 I have also noted that the party has since
themselves declared that the impugned services were
performed at the places viz. Dealers', sub-dealers or at the
LG Shoppe, so these places are, undisputedly, beyond the
place of manufacture These places are points of sales' may
be owned by other persons and are not connected with the
completion of manufacture of goods having been removed
from the factory. The said goods also have gone away from
the place of removal before performance of service and it
abundantly conveys to mean that the said service of
advertisement of goods were performed by a number of
service providers at a place other than the place of
manufacture, having no nexus directly or indirectly with the
event of completion of manufacture of final products
7.10 Having regard to the submissions advanced by the
party on this score, it is seen that the inclusion clause of
Rule 2 of CC Rules 2004 stipulates that
―and includes services used in relation to setting up,
modernization renovation or repairs of factory, premises
of out- put service or an office relating to such factory or
premises, advertisement or sales promotion market
research, storage up to the place of removal,
procurement of inputs, activities relating to business,
such as accounting, auditing, financing, recruitment and
quality, control, coaching and training, computer
networking, credit rating, share registry, and security,
inward transportation on inputs, or capital goods and
outward transportation of up to the place of removal."
7.11 Here, it is worthwhile to observe that the provisions,
as cited above, evince that impugned services are for
activities rendered by the service providers or those
consumed by the manufacturers of final product up to the
place of removal. Such services were eligible either for an
Excise Appeal No.70286 of 2017
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office relating to such factory or for the premises of a
service provider. Undisputedly, the party has not contended
that the place of removal in respect of their final products is
not their factory gate. The services were performed beyond
the factory gate. In other words, it means that the services
of advertisement has no nexus with the completion of
manufacture of final products. In the instant matter, the
inclusion clause of Rule 2 of the CC Rules,2004, do not
cover the incidences of services performed and utilized at a
place other than the place of removal. In the instant
matter, places of provision of services fall beyond the place
of removal that is the factory gate of the party.
7.12 While deciding the said issue, I place reliance on the
decision of the Hon'ble Tribunal in the case of Kohinoor
Biscuit Products Vs CCE, Noida, 2015 (37) STR 567 (Tri.
Delhi.) CESTAT, Principal Bench New Delhi, wherein the
goods viz. biscuits were assessable to duty under Sec.4A of
the Central Excise Tariff Act, 1985. The facts of the case
and the observations and findings of the Hon'ble Tribunal
are as under:-
" ...., the biscuits manufactured by them were being
delivered at their depots from where the same were being
sold. During the period of dispute, the biscuits were
notified under Section 4A of the Central Excise Act, 1944
and accordingly the duty on the biscuits cleared by the
appellant was being paid on the basis of the assessable
value determined with reference to declared MRP i.e. MRP
minus abatement. The point of dispute in this case is as
to whether the appellant would be eligible for Cenvat
credit of Service Tax paid on the GTA service availed for
transportation of the biscuits from their factory to the
depot of M/s. Parle Biscuits.... (para 1)
5. ......
Ultratech Cement Ltd. v. CCE, Raipur/Chandigarh [Final
Order Nos. A/58257-58259/2013-EX(DB), dated 18-11-
Excise Appeal No.70286 of 2017
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2013] [2014 (35) S.T.R. 751 (Tri. - Del.)], wherein it has
been held that in the cases where the duty on the finished
products is at specific rate or where the assessable value
is determined under Section 4A of the Central Excise Act,
1944 and the provisions of Section 4 are not applicable,
the definition of ―place of removal‖ in the Section 4(3)(c)
cannot be adopted for the purpose of Cenvat Credit Rules,
2004 and accordingly the place of removal would be the
factory gate i.e. the place on removal from which the
duty is liable to be paid.
8.......
"since in this case the assessable value of the goods was
being determined not under Sec.4 but under Sec.4A of
the Central Excise Act, 1944, the definition of 'place of
Removal" as given in Section 4(3)(c) cannot be adopted
for the purpose of Cenvat credit rules 2004 and
accordingly it is the factory gate which would be the
place of removal. Moreover, even if the definition of
"place of removal" is given in Section 4(3)(c) is treated
as applicable to the cases where the duty on the finished
goods is payable on the value determined under Section
4A , even then, the Depot of M/s Parle Biscuits cannot be
treated as "Place of removal" in respect of the goods
manufactured by the appellant as the, "Place of removal"
defined in Section 4(3) (c) is the place of removal for the
manufacture of the goods and in case, the manufacturer
after clearing the goods from the factory to his
tepots(clears) all the depots it is those depots which
would be the place of removal. However, when the
manufacturer clears the goods to the depots of some
other persons, those depots cannot be treated as "Place
of removal" for the manufacture, unless the sales are on
FOR basis. For this reason also, the "Place of removal" in
this case is factory of the appellant and the depot of M/ls
Parle Biscuits. .. In view of this, we hold that the Cenvat
Credit of the service tax paid on the GTA services availed
Excise Appeal No.70286 of 2017
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for transportation goods from the factory of the appellant
to the depot has been correctly denied and, as such, the
Cenvat credit demand has been correctly up-held along
with interest.
9. In view of the above discussion, we do not find any
merit in the appeal. The same is dismissed.‖
7.13 I further observe that against the above detailed
order of the Principal Bench, the appellant M/s Kohinoor
Biscuit Products preferred an appeal before the Hon'ble
Allahabad High Court. However, the appeal was dismissed
vide their order dated 07-10-2014. While dismissing the
appeal, Hon'ble High Court observed as follows:-
" In the present case, the clear finding, which has been
recorded both by the Commissioner (Appeals) and by the
Tribunal, is that the sale had not taken place on an ―FOR
Destination‖ basis. Hence, the place of removal in the
present case is the factory gate of the appellant and not
the Depot of Parle Biscuits. As a matter of fact, as held by
the Commissioner (Appeals), the liability on account of
freight is borne by Parle Biscuits. No amount was borne
by the appellant towards freight under the agreement
with Parle Biscuits. Hence, in this view of the matter, the
Tribunal was justified in coming to the conclusion that the
Cenvat credit on Service Tax paid on GTA Service availed
for the transportation of the goods from the factory of the
appellant to the Depot of Parle Biscuits, has been
correctly denied. The view which has been taken by the
Tribunal is in accordance with law.
The appeal, therefore, does not give rise to any
substantial question of law. It is, accordingly, dismissed.
7.14 Applying the ratio of the above decision of the Hon'ble
Allahabad High Court and the Tribunal to the case in hand,
I take the view that in this case the "place of removal" in
the matter cannot be accepted to be any place other than
the factory gate. In the instant matter, the party has taken
Excise Appeal No.70286 of 2017
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credit of input services rendered and consumed at the
places beyond the place of removal, that is their "factory
gate". It is pertinent to keep in mind that the goods
manufactured by the party are assessed to duty under
section 4A of the Central Excise Act, 1944, i.e., on the
basis of Retail Sale Price.
7.15 On the aspect of admissibility of input service credit
availed on the Brand shop Management in the guise of
Advertising service, the party has vehemently contended
that the same was admissible to them as the same was in
the nature of advertising service performed / consumed at
various places viz. Dealer/ sub-dealer and LG Shoppe. In
this regard, I have examined the party's plea that items
/services utilized in dispute satisfy the criteria of use in or in
relation to the manufacture of dutiable final products and
hence they are eligible for credit. I have also gone through
the case laws referred by the assessee find that the issue
has been critically examined in respect of input services the
case of Vikram Cement Vs. CCE Indore 2009(242) ELT 545,
In the said case, the Tribunal held that the definition of
input contains expressions 'used', 'in or in relation to' and
"manufacture of final product and discloses that the same
refer to products used in or integrally connected with the
process of manufacture of final product. The term 'capital
goods has been defined independently in the Rules,
therefore if the inputs were to include every product under
the sun which is somehow related to the premises wherc
the manufacturing process is carried out then there is no
need to provide a definition of the term capital goods.
Relevant extracts of the verdict are reproduced below:-
" 28. If one reads the decision of J.K. Cotton Spg. &
Wvg. Mills Co. Ltd. case, it has been clearly held therein
that the expression ―in the manufacture of goods‖ should
normally encompass the entire process carried on by the
dealer of converting raw materials into finished goods.
Where any particular process is so integrally connected
Excise Appeal No.70286 of 2017
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with the ultimate production of goods that, but for that
process, manufacture or processing of goods would be
commercially inexpedient, goods required in that process
would fall within the expression ―in the manufacture of
goods‖. This clearly disclose that the Apex Court in no
uncertain term has ruled that of those goods which form
part of the process carried out by the manufacturer for
converting the raw material into finished goods would be
the products used in the manufacture of the goods. In
another words, if the product is not integrally connected
with the process of the manufacture and which does not
results in utilization of such product directly or indirectly
into the manufacture of the finished product, then such a
product cannot be said to be the input utilized for or in
relation to manufacture of the final product. This is also
evident from the definition of the term input as found in
Rule 2(k). The definition clearly uses the word ―used‖ and
further clarity the same with the expression ―in or in
relation to― and further uses these expressions with
reference to the term ―manufacture of final products‖.
The definition disclosing the expression like ―used‖, ―in or
in relation to‖, ―the manufacture of final products‖ would
inevitably disclose, that the same refer to only those
products which are used in or integrally connected with
the process of actual manufacture of the final product and
only such product could be entitled to be classified as the
input in or in relation to the manufacture of final
products, and not otherwise. When the legislature in its
wisdom has specifically defined a term, no Court or
Tribunal under the guise of interpretation thereof is
empowered to expand the meaning of such term. If the
contention on behalf of the appellants is accepted, it
would virtually amount to expand the meaning of the
term ―input‖ beyond the scope prescribed under the
definition clause in Rule 2(k) of the Cenvat Credit Rules,
2004.
Excise Appeal No.70286 of 2017
17
29. It is also pertinent to note that the legislature in its
wisdom has independently defined the expression capital
goods under Rule 2(a) of the said rules. If the inputs were
to include every product under the sun which is somehow
related to the premises where the manufacturing process
goes on, then there is no need to provide a definition of
the term capital goods and, therefore, the acceptance of
the contention on behalf of the appellants would render
the definition of the term the capital goods to be
redundant as well as the provisions relating to extending
the benefit of Cenvat credit to the capital goods.‖
7.16 I note that the above views of the Tribunal in the
case of Vikram Cement case supra were later endorsed by
the larger bench of the Tribunal in the case of Vandana
Global (2010(253) ELT 440; where Hon'ble Tribunal held
that in the case where cement and steel items used for
laying foundation and building structural support and not
used in the course of manufacture of final product, the
same are not eligible for taking Cenvat, credit. Further. the
decision also clarified that definition of inputs cannot be
interpreted to include either capital goods or foundation
and supporting structures for such capital goods. Para 44 of
the said Judgement is reproduced below:-
"44. Another argument is that even the main definition of
input under Rule 2(k) would include cement and steel
items used for laying foundation and making supporting
structures as the expression used thereunder is wide and
includes everything ―used in or in relation to the
manufacture‖ of final products whether directly or
indirectly. The argument is that cement and steel items
so used are used in relation to the manufacture of final
products. It has also been argued that at one time the
definition of inputs excluded machines, machinery, plant,
equipment, apparatus, tools, appliances used for
producing or processing of any goods or for bringing
about any change in any substance in or in relation to the
Excise Appeal No.70286 of 2017
18
manufacture of the final products and therefore, but for
the exclusion, the expression inputs would have included
machines etc. This argument appears to us to be clearly
untenable. The exclusion provided earlier clearly appears
to have been so provided by way of abundant caution to
clarify that the inputs in any case would not include
machinery and equipment. From such a clarificatory
provision, it cannot be concluded that the expression
‗input' would include cement and steel items used for
laying foundation and making supporting structures.
Moreover, if for a moment one has to agree with the
contention that input included machinery etc. there would
have been no need for providing a separate definition for
capital goods and making a separate provision for
allowing credit on capital goods. Such an argument
cannot also be accepted as it would imply that capital
goods would be included twice in the definition under Rule
2(a) with limited scope and with unlimited scope under
Rule 2(k). Such a proposition appears to be totally absurd
as the rule-makers cannot be seen to have provided two
separate definitions to cover the same thing. There are
also other rules in the Cenvat Credit Rules namely Rule 3,
Rule 3(1), Rule 3(5), Rule 3 (5a), Rule 3 (5b), Rule 4(1),
Rule 4(2), Rule 4(3), Rule 4(4), Rule, 5, Rule 6, Rule 9,
Rule 15 which provide for different provisions for inputs
and capital goods. It is very clear from these provisions
that the rule making authority intended to deal with
capital goods separately and inputs separately and the
definition of input cannot be interpreted to include either
the capital goods, or foundation and supporting structures
for the same, as being argued by some of the
Advocates."
7.17 I also take note of the decision of the Hon'ble Apex
court in the case of Maruti Suzuki [2009 (240)ELT
641(S.C.)] wherein it has been stressed that integral
connection of the input service with final product, which
Excise Appeal No.70286 of 2017
19
includes dependence test and functionality test decide,
whether any item is eligible for Cenvat credit as input.
Applying the ratio, I find that the activities of erection,
commissioning and/or installation of items at the
Dealers/sub-dealers premises do not have any nexus with
the manufacturing activities undertaken at the factory.
While making this observation, I refer to para 14 of the said
decision :-
" 14. In the case of Collector of Central Excise, New Delhi
v. M/s. Ballarpur Industries Ltd. reported in (1989) 4 SCC
566 the difference between the expression ―used in the
manufacture‖ and ―used as input (raw material)‖ was
highlighted. In that judgment, it was held that
undoubtedly the said two expressions are distinct and
separate, but, when an ancillary process (like electricity
generation) aids the making of an end product, then, the
ancillary process gets integrally connected to the end
product. In the said judgment, this Court applied what is
called as ―the dependence test‖. It may, however, be
noted that in the definition of ―input‖ the expression
―used in or in relation to the manufacture of final product‖
is not a standalone item. It has to be read in entirety and
when so read it reads as ―used in or in relation to the
manufacture of final product whether directly or indirectly
and whether contained in the final product or not‖. These
words ―whether directly or indirectly‖ and ―whether
contained in the final product or not‖ indicates the
intention of the legislature. What the legislature intends
to say is that even if the use of input (like electricity) in
the manufacturing process is not direct but indirect still
such an item would stand covered by the definition of
―input‖. In the past, there was a controversy as to what is
the meaning of the word ―input‖, conceptually. It was
argued by the Department in a number of cases that if
the identity of the input is not contained in the final
product then such an item would not qualify as input. In
Excise Appeal No.70286 of 2017
20
order to get over this controversy in the above definition
of ―input‖, the Legislature has clarified that even if an
item is not contained in the final product still it would be
classifiable as an ―input‖ under the above definition. In
other words, it has been clarified by the definition of
―input‖ that the following considerations will not be
relevant :
(a) use of input in the manufacturing process be it direct
or indirect;
(b) even if the input is not contained in the final product,
it would still be covered by the definition.
These considerations have been made irrelevant by the
use of the expression ―goods used in or in relation to the
manufacture of final product‖ which, as stated above, is
the crucial requirement of the definition of ―input‖.
Moreover, the said expression, viz, ―used in or in relation
to the manufacture of the final product‖ in the
specific/substantive part of the definition is so wide that it
would cover innumerable items as ―input‖ and to avoid
such contingency the Legislature has incorporated the
inclusive part after the substantive part qualified by the
place of use. For example, one of the categories
mentioned in the inclusive part is ―used as packing
material‖. Packing material by itself would not suffice till
it is proved that the item is used in the course of
manufacture of final product. Mere fact that the item is a
packing material whose value is included in the
assessable value of final product will not entitle the
manufacturer to take credit. Oils and lubricants
mentioned in the definition are required for smooth
running of machines, hence they are included as they are
used in relation to manufacture of the final product. The
intention of the Legislature is that inputs falling in the
inclusive part must have nexus with the manufacture of
the final product.‖
Excise Appeal No.70286 of 2017
21
On perusal of above observations, I find the ratio of
the above case is applicable in the present matter for the
purpose of determining nexus between input services and
the manufacture of final products
7.18 On the question of inclusion clause of service of Brand
shop management under Rule 2(1) of the CC Rules 2004, I
rely on the case of Vikram Ispat Versus C.C.E., Raigad,
2009 (16) S.T.R. 195 ( Tri. Mumbai), while deciding the
said case, Hon'ble Tribunal have held that input service
should have nexus with manufacture of goods. Applying the
same ratio, I find that the defence could not adduce any
evidence to establish the nexus between installation,
erection, commissioning activities performed at
Dealers/Sub-dealers premises and the manufacturing
activities undertaken at the factory. In this context, I find
relevant to reproduced para 3, as below:-
" 3. The learned counsel further refers to each of the four
items on which the Cenvat credits in question were taken.
He submits that these items are coming within the scope
and ambit of the definition of ―input service‖ given under
Rule 2(l). The learned SDR has contested this claim. After
considering the submissions, I find that the subscription
given by the assessee to SIMA was in no way connected
with the manufacture of final products or with clearance
thereof from the factory. There is not even a remote
connection between this item and anything contained in
the definition of ―input service‖. Security services were
employed at the railway siding at Roha where the raw-
material for the factory was unloaded from railway
wagons and loaded on to the trucks which carried the
goods by road to the factory. It is said that the security
personnel were posted at that point to ensure the supply
of the goods and the unloading/loading operations. The
purpose of posting of security personnel must be
discerned from the agreement between the appellant and
security agency. But none is forthcoming. In this
Excise Appeal No.70286 of 2017
22
scenario, I am not in a position to accept the claim of the
appellant that the security personnel were doing
something, directly, or indirectly, in or in relation to the
manufacture or clearance of final product. In other words,
the claim is unsustainable. Coming to ―rent-a-cab
services‖, I am told that these services were used by
functionaries, officials and employees of the company for
purposes connected directly or indirectly with the
manufacture or clearance of the final products. To a
specific query from the Bench, the learned counsel
submits that, if the representative of the company who is
present in Court to assist him avails himself of ―rent-a-
cab service‖ for commuting between the administrative
office of the company and this Court, Cenvat credit on the
service is admissible to the appellant. This argument is
farfetched inasmuch as, if it is accepted, Cenvat credit will
have to be allowed to the assessee in respect of ―rent-a-
cab service ― availed by the counsel himself to come to
this Court to argue their case. It is understandable if the
above service was used by
functionaries/officials/employees of the company to
commute between their administrative office and the
factory for purposes connected with the manufacture
and/or clearance of the finished goods. Even for this
purpose, there must be documentary evidence. No
document is available on record. ―Mobile telephony
service‖ has already been claimed to be an ‗input service'
defined under Rule 2(l). It is within anybody's knowledge
that a mobile phone can be used by a person for
multifarious purposes. No doubt, a
functionary/official/employee of the company could use it
for purposes connected with the manufacture and/or
clearance of the final products, but the assessee has
failed to establish that the mobile phones in question
were dedicated to this purpose. The learned counsel has
referred to the Tribunal's Larger Bench decision in CCE,
Excise Appeal No.70286 of 2017
23
Mumbai-V v. GTC Industries Ltd. - 2008 (12) S.T.R. 468
(Tri.-LB), wherein outdoor catering services used for
supply of food in a factory canteen were held to be input
services. The learned counsel has cited the above decision
in support of his submission that the definition of ―input
service‖ should be construed liberally. It is his submission
that some of the items mentioned in the inclusive part of
that definition are comparable to one or the other of the
services in question and, therefore, it should be held that
the latter are also covered by the definition of ―input
service‖. I do not agree. Any service to be brought within
the ambit of definition of ―input service‖ should be one
which should specify the essential requirement contained
in the main part of the definition. This requirement is
equally applicable to the various items mentioned in the
inclusive part of the definition as well. In this view of the
matter, I am constrained to hold that the appellant is not
entitled to Cenvat credit on any of the four items of
―services‖ in question. In respect of some of the said
services, they have not adduced evidence to establish the
nexus, if any, between the ―services‖ and the
manufacture/clearance of the final products.‖
7.19 While deciding this matter, I also rely on the decision
given by the Larger Bench of the CESTAT in the case of
Tower Vision India Pvt.. Ltd. Versus CCE (Adj.) Delhi,
reported in 2016 (42) S.T.R.249 (Tri. Larger Bench). In this
case, it was held by the Hon'ble Tribunal that since there
was no nexus between duty paid inputs and the
telecommunication services hence credit was not
extendable. The larger bench observed that Cenvat credit
was not available because Telecom companies have created
infrastructure and provided such business support service to
themselves. So, infrastructure spun out to separate
companies. In such case, no distinction could be made
between telecom operators and infrastructure companies in
deciding eligibility of Cenvat credit on MS angles, channels,
Excise Appeal No.70286 of 2017
24
etc. and pre-fabricated shelters, used for fabricating
telecommunication towers into concrete platform at site.
Therefore, Rule 2() of CC Rules, 2004 does not allow credit
on such activities.
The relevant paras (21 &23 ) are reproduced below ;-
"21. Learned Counsel relied on the Hon'ble Supreme
Court's decision in CCE, Ahmedabad v. Solid & Correct
Engineering Works reported in 2010 (252) E.L.T. 481
(S.C.). The Supreme Court was examining excise duty
liability of asphalt drum hot mix plant. The Court
examined Section 3(26) of the General Classes Act with
reference to ―Immovable Property‖. The term ―attached
to the earth‖ has been examined with reference to
Section 3 of Transfer of Property Act. The Hon'ble Apex
Court concluded that any plant which is fixed by nuts and
bolts to a foundation, wherein there is no assimilation of
the machinery with a structure permanently and the civil
foundation was only necessary to provide a wobble free
operation of the machine, the test of permanency would
fail. We have carefully perused the Apex Court order in
this case. The Apex Court held that the hot mix plant
which is specifically covered under Plant and Machinery
Tariff Heading 8474 are manufactured and brought. The
point decided by the Apex Court was whether setting up
of such plant and machinery would amount to
manufacture liable to Central Excise. First of all, in the
present case we have no admitted capital goods brought
for installation or erection in the desired site. The towers
and their components cleared as angles and channels or
as set of angles in CKD condition are cleared after duty
payment by the manufacturer under Chapter 73, which is
an excluded chapter for capital goods. As such, there is
no movable capital goods which are otherwise eligible for
Cenvat credit which are being denied such credit only
applying the test of immovability.
Excise Appeal No.70286 of 2017
25
Tower Parts (MS Channels, Angles, etc.) as "Inputs"
for availing credit :- An alternate claim has been made
by the appellants to allow Cenvat credit paid on structural
parts/towers/shelters treating them as inputs in terms of
Rule 2(k)(ii) which allows credit of all goods used for
providing output services. It was argued that there is no
bar for goods which do not fall under the category of
capital goods to qualify as inputs. Reliance was placed on
the Larger Bench decision in Union Carbide India Ltd. v.
CCE, Calcutta-I reported in 1996 (86) E.L.T. 613
(Tribunal). In this ruling, Tribunal considered spare parts
of machines to be eligible for credit as inputs under
Modvat scheme. In Tata Engineering & Locomotive Co.
Ltd. v. CCE, Pune reported in 1994 (70) E.L.T. 75
(Tribunal), the Tribunal held that credit on the machines
which stand excluded is available under input category.
We have examined the appellant's plea in the light of
decided cases. In the present case, duty paid items are
MS Angles and Channels/Shelters which are brought to
the site installed/erected and further put to use for
mounting/installing telecommunication antenna and other
equipment. It is necessary to decide whether duty paid
MS angles/shelter are used by infra-companies for
providing business support service to telecom companies
or for providing telecom service by telecom operators.
This will bring us to the next question relevant to decide
this issue.
Question of nexus and Cenvat credit flow :- The duty
payment is on MS angles, channels (or towers in CKD as
claimed by the appellants) and pre-fabricated shelters.
The credit of this duty is claimed. The admitted basic
requirement for eligibility of any duty credit is that goods
on which duty is paid (credit of which is claimed) should
have a connection or nexus to the output service. The
credit availed on input is used for discharging tax on
output service. In the present case, the duty paid MS
Excise Appeal No.70286 of 2017
26
angles, channels, etc., are brought to the site, fabricated
into towers on a concrete platform. Similarly, the duty
paid pre-fabricated shelters are brought and fixed to the
ground base firmly. On such towers, the antenna or dish
are fixed and connected by cables to electronic equipment
housed in the pre-fabricated shelter on the ground. It is
apparent that these duty paid items are not used for
providing telecommunication service. The
telecommunication service is provided by using erected
and fixed towers and shelters. The inputs like MS Angles
and Channels have gone into the making of such towers
which in turn are used for providing infra-support
service/telecom service. To apply the term ―used for‖ in
the definition for inputs, there should be a nexus between
the inputs goods and the output service. In the present
case the manipulation/fabrication of raw materials
involved in erection and installation, fixing of towers and
shelters will render such nexus tenuous. If the claim of
the appellant is to be accepted, the credit can be even
extended to duty paid MS Ingots if procured by the
appellants to get the MS Angles manufactured which in
turn used for erection of tower which in turn is used for
providing telecom service. It is clear that such far remote
linkages are not within the scope of the term ―used for‖.
23. It is necessary to note that before infrastructure
companies came into the picture, telecom operators
themselves were putting up such infrastructure and using
the same to provide telecom service. In other words, in
the absence of infrastructure companies as an
intermediary, telecom companies themselves created
such infrastructure and ―provided‖ such business support
service to self. The issue of Service Tax liability in such
situation on business support service is not raised
because there are no two persons as a provider or
recipient of such service. In a sense such service was to
the self. Considering such factual matrix, we find that no
Excise Appeal No.70286 of 2017
27
distinction could be made between the telecom operators
and the infrastructure companies in deciding the eligibility
of Cenvat credit on the impugned items now under
consideration.‖
7.20 In the case of Vikram Ispat Vs CCE Raigad reported
in 2010 (19) /.20 S.T.R 52 (Tri.- Mumbai), I observe that
that Hon'ble Tribunal have held that no service may be
classified as input service unless quintessential
requirements laid down in main part of definition is not
established. In the absence of any nexus between a services
and manufacture/clearance of goods, such services may not
be termed as input services on which the assessee could
claim benefit of credit of service tax. The Hon'ble Tribunal
quoted the case of Manikgarh Cement Work Final Order No.
A/632/2009/SMB/C-IV, dated 3-11-2009 with approval and
held that
"5. I have considered the grounds of this appeal, the
written submissions of the appellant and the argument of
the learned SDR. The lower authorities have found that
the barges and tugs were used in the sea and the channel
and not in the jetty. In other words, it has been found
that these vessels were operated in the sea and channel
beyond the jetty. On the other hand, the appellant has
claimed in the memorandum of appeal that the said
vessels were used not only for bringing raw materials
from the ships anchored in the sea to their own jetty but
also for conveying the goods from the jetty to their
factory. It is claimed that the jetty is located within the
precincts of their factory. There is no evidence in support
of these claims. In other words, the aforesaid findings of
the lower authorities cannot be intertered with. Even
according to the appellant, the ships laden with iron ore
were anchored in the sea away from the jetty and the
tugs and barges were used for transporting the goods
from the ships to the jetty. The services in question were
availed in respect of these tugs and barges. One service
Excise Appeal No.70286 of 2017
28
was used for repairs and maintenance of these vessels,
another for insuring the vessels, and the third one for
inspection and certification of the vessels. The fourth one
was used for recruiting persons as crew of the vessels.
Yet another service was availed for ‗hydrographic survey
of Revdanda channel/port for dredging etc.' The question
before me is whether these services would qualify to be
‗input services' defined under Rule 2(l) of the Cenvat
Credit Rules, 2004. In the context of considering a similar
question in the case of Manikgarh Cement Work (supra), I
held that a nexus should be established between the
services in question and the manufacture/clearance of
excisable goods by the assessee for claiming the benefit
of Cenvat Credit of the service tax paid on such services.
Paras 4 to 7 of the order passed in that case are
reproduced below :
―4. The Hon'ble High Court, in the case of Coca Cola
(supra), examined the scope of the above definition. It
held that the definition could be divided into five
categories and that each category/limb of the definition
could be considered as an independent benefit or
concession/exemption. Their Lordships clarified that, if an
assessee could satisfy any one of the five
categories/limbs, credit of the service tax paid on the
relevant services would be available to him. The assessee
need not satisfy the other limb(s) of the definition.
According to the ld. counsel, the question whether Cenvat
credit of service tax paid on the aforesaid four services
rendered at the residential colony outside the factory is
admissible to the respondent is squarely covered by the
Hon'ble High Court's decision, in their favour. On the
other hand, ld. DR has heavily relied on the Hon'ble
Supreme court's decision in Maruti Suzuki case. According
to him, the Hon'ble Supreme Court's decision impliedly
overrules the High Court's decision. I agree. In the case
of Maruti Suzuki, the Supreme Court was considering the
Excise Appeal No.70286 of 2017
29
definition of ‗input' given under the CENVAT Credit Rules.
The definition reads as under :-
―(k) 'input' means -
(i) all goods, except light diesel oil, high speed diesel oil
and motor spirit, commonly known as petrol, used in or in
relation to the manufacture of final products whether
directly or indirectly and whether contained in the final
product or not and includes lubricating oils, greases,
cutting oils, coolants, accessories of the final products
cleared along with the final product, goods used as paint,
or as packing material, or as fuel, or for generation of
electricity or steam used in or in relation to manufacture
of final products or for any other purpose, within the
factory of production;
(ii) all goods, except light diesel oil, high speed diesel oil,
motor spirit, commonly known as petrol and motor
vehicles, used for providing any output service;
Their Lordships considered the above definition to be
divisible into three parts : (1) specific part (main or
substantive part); (2) inclusive part; (3) place of use.
Further discussion relevant to the instant case can be had
from para 14 of the judgment and the same reads as
under :-
―It may, however, be noted that in the definition of
―input‖ the expression ‗used in or in relation to the
manufacture of final products' is not a standalone item. It
has to be read in entirety and when so read it reads as
‗used in or in relation to the manufacture of final products
whether directly or indirectly and whether contained in
the final product or not'. These words ―whether directly or
indirectly‖ and ―whether contained in the final product or
not‖ indicates the intention of the legislature. What the
legislature intends to say is that even if the use of input
(like electricity) in the manufacturing process is not direct
but indirect still such an item would stand covered by the
Excise Appeal No.70286 of 2017
30
definition of ‗input'. In the past, there was a controversy
as to what is the meaning of the word ‗input'
conceptually. It was argued by the Department in a
number of cases that if the identity of the input is not
contained in the final product then such an item would
not qualify as input. In order to get over this controversy
in the above definition of ‗input', the Legislature has
clarified that even if an item is not contained in the final
product still it would be classifiable as an ‗input' under the
above definition. In other words, it has been clarified by
the definition of ‗input' that the following considerations
will not be relevant :
(a) use of input in the manufacturing process be it direct
or indirect;
(b) even if the input is not contained in the final product,
it would still be covered by the definition.
These considerations have been made irrelevant by the
use of the expression ―goods used in or in relation to the
manufacture of final products‖ which, as stated above, is
the crucial requirement of the definition of ‗input'.
Moreover, the said expression, viz, ―used in or in relation
to the manufacture of final products‖ in the
specific/substantive part of the definition is so wide that it
would cover innumerable items as ‗input' and to avoid
such contingency the Legislature has incorporated the
inclusive part after the substantive part qualified by the
place of use. For example, one of the categories
mentioned in the inclusive part is ‗used as packing
material'. Packing material by itself would not suffice till it
is proved that the item is used in the course of
manufacture of final product. Mere fact that the item is a
packing material whose value is included in the
assessable value of final product will not entitle the
manufacturer to take credit. Oils and lubricants
mentioned in the definition are required for smooth
Excise Appeal No.70286 of 2017
31
running of machines, hence they are included as they are
used in relation to manufacture of final product. The
intention of the Legislature is that inputs falling in the
inclusive part must have nexus with the manufacture of
the final product.‖
(emphasis supplied)
The above judgment of the Supreme court hands down
an important ruling, which it is to the effect that, where
the inclusive part of a definition provides a list of items,
any such item should also satisfy the quintessential
ingredients of the main part of the definition. In other
words, the definition has to be considered in its entirety.
The inclusive part is not independent of the main part. It
is not a ‗stand-alone' provision. This ruling is applicable to
‗input service', given the definition of this expression
under Rule 2(l) of the Cenvat Credit Rules. There is
nothing in this definition to indicate that the legislative
intent behind it is different from the one underlying the
definition of ‗input'. Accordingly, I hold that any service
which is apparently covered by the parameters of the
inclusive part of the definition of ―input service‖ should
also satisfy the quintessential requirements of the main
part of the definition and, accordingly, any person
claiming the benefit of Cenvat credit on input service in
terms of the inclusive part of the definition of ―input
service‖ should establish that such service was used,
directly or indirectly, in or in relation to the manufacture
of his final products or the clearance of such products
from his factory.
5. I am not impressed with the way the ld. counsel has
sought to distinguish Maruti Suzuki case from Coca Cola
case. He argued that the apex court's decision relating to
‗input' could not be applied to ―input service‖. This
argument is not acceptable, given the definition of ‗input'
and ―input service‖. Whether it be input or input service,
Excise Appeal No.70286 of 2017
32
the main part of the definition contains the quintessential
ingredients and the inclusive part provides a non-
exhaustive list of items each of which should satisfy the
requirements of the main part. Ld. counsel has pointed
out that, in the case of input, ―place of use‖ is a third part
of the definition, which is conspicuously absent in the
definition of ―input service‖. It has been argued that an
input service need not necessarily be rendered within the
factory premises whereas an input should normally be
used within the factory. Broadly, this distinction sounds
valid. But, again, it doesn't offer an answer to the
question whether the service (which is rendered within
the factory or outside) satisfies other essential
requirements laid down in the main part of the definition.
Even if it be held that there is no place of use in relation
to input service, the basic requirement remains to be that
anything mentioned as an input service in the inclusive
part of the definition should be shown to have been used
in or in relation to the manufacture or clearance of final
products, whether directly or indirectly.
6. In the earlier cases of the same assessee, coordinate
benches held in their favour. According to the ld. counsel,
the Hon'ble High Court's decision in Coca Cola case
should be followed as binding precedent in this case. I
find that the Hon'ble Supreme Court's ruling in Maruti
Suzuki case is to the contra and the same is
constitutionally binding on this Tribunal.
7. In the result, the view taken by the lower appellate
authority by following an earlier decision of this Tribunal
which is presently under challenge before the Hon'ble
High Court cannot be accepted. On the other hand, the
view taken by the Ld. DR on the strength of the Hon'ble
Supreme Court's ruling in Maruti Suzuki case should be
followed. Accordingly, it is held that, as the respondent
has not established nexus between any of the four
services and the manufacture or clearance of excisable
Excise Appeal No.70286 of 2017
33
goods, the benefit of Cenvat credit in respect of such
service cannot be allowed. It is ordered accordingly.
However, I think, in a case of this nature, the assessee
should not be penalised. This case involves rival
interpretations of a provision of law. In typical cases of
interpretative nature, penalties have been waived by this
Tribunal. In this view of the matter, the order-in-original
is sustained except in respect of penalty imposed by the
original authority. The appeal is disposed of accordingly.‖
6. Following the above view, I have to reject the
appellant's plea that the Hon'ble High Court's decision in
Coca Cola India Pvt. Ltd.'s case be followed in preference
to the Hon'ble Supreme Court's ruling in Maruti Suzuki
Ltd.'s case. Accordingly, in terms of the ruling of the apex
court, it is held, on the facts of this case, that none of the
services in question is liable to be classified as ―input
service‖ as defined under Rule 2(l) ibid inasmuch as the
quintessential requirements of ―input service‖ laid down in
the main part of the definition have not been established
by the appellant.
7. The appellant has claimed support from the Tribunal's
Larger Bench decision in GTC Industries' case to their
limited proposition that the definition of ―input service‖
should be construed liberally. The said definition can be
construed only as per the ruling of the apex court given in
Maruti Suzuki Ltd.'s case and that is a strict construction.'
7.21 Having given due consideration to the facts and
circumstances of the case, as discussed herein above, I
conclude that the Cenvat credit taken in respect of the
input services performed and consumed at the places like
Dealers/ Sub-dealers premises in the name of Brand Shop
Management were utilized beyond the place of removal and
not up to the place of removal, and the credit attributable to
said services was not admissible to the party. Accordingly,
Excise Appeal No.70286 of 2017
34
the demand of inadmissible credit on this account deserves
to be confirmed along with consequence thereto
8. I now proceed to the other issue, i.e. the issue of
admissibility of credit availed on IPR services having been
distributed and availed/utilized wrongly by Greater Noida
Plant despite being attributable to trading activities.
8.1 The case set up in the instant Notice, in nut-shell, inter
alia, is that the notice party wrongly availed CENVAT credit
of Service Tax attributable to trading activities in terms of
Rule 7 of CC Rules-2004, as also informed and admitted by
them vide their letters dated 29-10-2015 and 04-11-2015.
The fact of application of Rule 7 over such credit is stated
by the party itself in Annexure A to both the said letters
(RUDs 5, 4). The fact of applicability of rule 7 of CC Rules
2004, is also duly disclosed in Annexure B of RUD 5
8.2 In the context of this issue, I venture to look into the
objections raised by the Audit team vide para 2 of Part -II
of their report. The said para finds mention that the LG
Korea granted licence and consented to use technical now
how services to the for designing etc. for their products.
This was under the agreement dated 01-07-2001. The
relevant excerpts from the said agreement are available in
para 2 of this order. The audit para also says that this
service was duly covered and well defined under Section
65(105)(zzr) of the Finance Act, 1994. It also says that the
party was paying Royalty and service tax thereon also. The
party did not pay the amount CENVAT Credit as arrived at
by them under Rule 7 of the CENVAT Credit Rules, 2004,
when such services were commonly used in respect of
excisable and cxempled goods. And, 1 find that this mere
fact gave rise to the dispute in the instant matter
8.3 Having gone through the allegations contained in the
Notice dated 22-12-2015 vis-a-vis the defence submissions,
I find that following facts have already been admitted by
the party:-
Excise Appeal No.70286 of 2017
35
a. Period of dispute falls between the period from April
2011 to January 2014
b. On being pointed out by the internal Audit, Cenvat credit
amounting to Rs.38,82,360/- was voluntarily paid by
the party vide voucher dated 14-03-2014 pertaining to
the period February, 2013 to January 2014. Towards this
delayed payment an amount of intcrest for Rs.68,742/-
was also voluntarily made by the party themselves.
c. The party have discontinued to avail Cenvat credit with
effect from February 2014 onwards, without inviting any
further notice on this score
d. there is also no dispute about the payment of royalty
paid, payment of service tax on them as also availing of
credit of tax and utilization of the same by the party
8.4 It, therefore, emerges that the party have
themselves admitted to the applicability of the provisions of
said Rule 7 of CC Rules which cast an obligation upon them
to comply with the stipulations laid under Rule 6(3) of the
CC Rules. In so far as submission of evidence to establish
compliance by the instant party is concerned, I observe that
the defence reply does not specifically answer to the
allegation of non-reversal, although I find that the party has
made following submissions in this regard:-
(i) Technical-know-how received is used in both the
manufacturing operation as well for testing and
maintaining quality of the product.
(ii) It is also used for marketing and sale of the goods
manufactured by them
(iii) The technical knowhow is consumed by the party as
and when received for manufacture of the products
either at their end or at the end of various EMSs.
(iv) Technical know-how received and used by them as
well as by their EMS will not negate the fact that the
said technology was used by the party itself.
Excise Appeal No.70286 of 2017
36
(v) There is no one to one co-relation required between
the IPR service received by them and the products
and manufactured by party itself or by their EMSs.
(vi) The cost for such IPR service is borne by the party
even though the same is based on the sale price of
the product
8.5 The above submissions, in my view, are not
sufficient to establish the eligibility of input service credit
which have been found to be attributable towards the
trading activities. Moreover, although a number of case laws
have been cited by the party regarding admissibility of
Cenvat credit on the I.P.R Services, however it has not been
stated by the defence as to why the amount attributable to
trading activity as arrived at by the party themselves under
Rule 7 of the CC Rules, 2004 was not required to be
deposited/ paid back despite being pointed out by the
audit?
8.6 I find that the party have contended in their defence
that they were engaged with various manufacturers,
vendors and Electronic Manufacturing Suppliers (such EMSS
are Dixon Techno., Kapkan, Lotte, Indocount, Ambar,
Starion, E-vision, E-Durables & PG International) for getting
their products manufactured for and on their behalf. For
this purpose they provided design and drawings to
manufacturer the components of final product to various
part-manufacturers and such part manufacturers seil the
said parts to the party as well as other EMSs. In turn, the
party purchases such goods from EMSs/Vendors and
assembles them for their further selling to their
distributors/dealers. It is also an admitted fact that the
technology received by the party was transferred to EMS in
the form of text, drawings, graphing, designs etc. And after
use of technology and upon assembly/goods manufactured
by the EMS, the said products were sent to warehouse of
the party on payment of duty as applicable and then the
same were sold by the party under their brand name.
Excise Appeal No.70286 of 2017
37
Subsequent to sale of such goods, aftersale services were
also provided by the party and not by their EMS.
8.7 I also take note of the fact that the royalty was being
paid to LG Korea by the party on the basis of ex-factory
sale price and payment of service tax was made under
Reverse Charge Mechanism.
8.11 I observe that the party, in their defence submissions
itself, has admitted the fact that they have availed Cenvat
Credit for Rs.15,79,21,809/- on the input service namely
I.P.R. Out of the said amount of Rs.15,79,21,809/-,
component of IPR service attributable to trading was for
Rs.1,28,08,648/-. Out of the said amount of
Rs.1,28,08,6488/-, the party has admittedly reversed the
amount of Rs,38,82,360/ attributable to trading activity
and pertaining to the period from February 2013 to January
2014, and also discontinued to take such inadmissible
credit after January 2014. But it has not been made clear by
the party as to why inadmissible Cenvat credit amounting to
Rs.89,26,288/- attributable to the trading activity for the
period prior to February, 2013 was not paid back. The
defence submissions are not clear on this score. The party
has neither reversed the credit nor explained the reason
for not reversing the said credit for the period prior to
February 2013. I find no cogent reason for a differential
treatment to the issue of reversal of credit to the period
prior to February 2013 and as such it leaves no room for
doubt that the said credit taken in respect of trading activity
is also liable to be reversed by the party. In the case of
Pune Unit, they focused their defence to stress upon the
admissibility of Cenvat Credit on I.P.R. services in respect of
the S.C.N. dated 02-07-2015 issued by the Pune
Commissionerate. However, unlike Pune Commissionerate
case, this is not the issue in the instant case. I recall that
the moot issue in the present case pertains to wrong
availment of Cenvat credit attributable to trading activities.
Admissibility of Cenvat Credit on I.P.R. Services to the
Excise Appeal No.70286 of 2017
38
extent of eligible share of Greater Noida Unit amongst the
three segments, i.e. the Pune Unit, the Greater Noida and
the trading activity in terms of Rule 7 of was never in
dispute. Therefore, the pleas advanced before the CC Rules
2004, the Commissioner, Central Excise, Pune and
reiterated here are not relevant in the present case in any
way.
8.12 On perusal of the records, I find that the case set out
in the instant notice is germane to the observations of the
Internal Audit as contained in Para 2 of the (Departmental)
internal Audit Report. And, I find it proper to reproduce it
for the sake of clarity :-
"AS I.S.D. the corporate office at 51, Surajpur Kasna
Road, Udyog Vihar, Gautambudh Nagar distribute In-
put service credit to their various other units in
India. One of the Input services they are availing is
from their associate enterprise namely M/S L.G.
Electronics, LG Twin Towers - 20, Yoido Youngdungo,
Seoul Korea. The service provided by LG Korea to LG
Electronics India Pvt Ltd is - "Technical know How"
where licensor (LG Korea) has granted to the
Licensee (the party) the consent to use the Technical
Information and design and Industrial Property Rights as
defined in the Agreement entered between the two
parties on 01-07-2001. Provision of such activity falls
under the category of Intellectual Property Services
[Section 65(105)(zzr)] of the Finance Act, 1994. The
agreement entered between the two parties against the
payment of Royalty to M/s LG INC Korea. The party is
paying Royalty on the sale of their products in local
(domestic) sales as well as export sales. During the MLU
audit for the year 2012-13, it has been noticed that they
did not reverse under the CENVAT Credit Rule 6(3) of the
CENVA Credit Rules, 2004, when such services were
commonly used in respect of excisable and exempted
goods. Prior to 01-04-2011, 6(5) of the CENVAT Credit
Excise Appeal No.70286 of 2017
39
2004 provided that on Intellectual Property Services
Rules [Section 63 (105) (22r) ] among one of the 17
specified credit was available unless such services were
used services, exclusively in or in relation to
manufacture of exempted goods or providing exempted
services. After 01-04-2011 the Rule itself No.03/2011-CE
(N.T) has been deleted/omitted by Notification dated
01-03-2011,w.e.f. 01-04-2011. The party did not agree
with the department's contention. However, on being
asked, they have provided the details as per Annexure-
III to this para wherein, it has been stated that Cenvat
credit availed on IPR services Rs. 15,08,19,961/- from
01-04-2011 and since they did not is maintain separate
account of the common services for exempted and
excisable products, an amount to the tune of
Rs.122,95,899/- is to be reversed along with interest
under Rule 6 (3) of Cenvat Credit Rules, 2004 as
calculated at Annexure-III.
8.13 Here, it is worth observing that Rule 7 of CENVAT
Credit Rules, 2004, prescribes manner of distribution of
credit by input service distributor' and the said provision
fairly comes into play in the instant matter. It stipulates
that
"The input service distributor may distribute the CENVAT
Credit in respect of the service tax paid on the input
service to its manufacturing units or units providing
output service subject to the following conditions,
namely :-
(a) The credit distributed against a document referred to
in rule 9 does not exceed the amount of service the
tax paid thereon;
(b) Credit of service tax attributable to service (used by
one or more units) exclusively engaged in
manufacture of exempted goods or providing of
exempted services shall not be distributed;
Excise Appeal No.70286 of 2017
40
(c) Credit of service tax attributable to service (used
wholly by a unit) shall be distributed only to that unit
(d) Credit of service tax attributable to service used in
more than one unit shall be distributed pro rata on
the basis of the turnover of the concerned unit to the
sum total of the turnover of all the units to which the
service relates during the same period
8.14 From the above referred statutory provisions, it is
evident to me that as an Input Service Distributor (I.S.D.)
the party ought to have distributed service tax credit to its
Greater Noida Unit in terms of Rule 7(b) and, therefore,
Gr.Noida Unit (i.e. the party) was no eligible for CENVAT
Credit attributable to trading activity which was distributed
by its corporate office as an Input Service Distributor
(ISD). Further, in terms of Rule 7(d), only the credit
attributable to Greater Noida Plant, i.e. credit of other plant
attributable to other manufacturing plant was available to
permissible/ relatable limits.
8.15 I find that the party that they have themselves
accepted the role of Rule 7 of CC Rules, This fact is clearly
stated vide their letter dated 04-11-2015 (RUD 6). It has
stated that
―in compliance of para no.2 we like to inform that we
have already reversed the Cenvat credit on IPR services
pertaining to exempted service (Trading goods) as per
the provision of Rule-7 of CCR 2004 at the time of
conclusion for one year starting from Feb.-13 to Jan-2014
amounting to Rs.38,82,360/- against voucher
no.Z00.2014-03-13 17:40:15
Now you required the detail of non reversal of Cenvat
credit on IPR service from Apr-11 to Jan-13 under Rule-7
of Cenvat Credit Rule 2004 we like to inform you that
during the above mentioned period we have availed credit
of Rs. 10,01,95,877/- on IPR service and according to
Excise Appeal No.70286 of 2017
41
rule -7 credit attributable to exempted service will be
Rs.89,26,288/-"
8.16 In reply to the audit objection, the party has also
furnished the following figures also -
Details of Cenvat Credit availed on IPR (Royalty) from April
2011 to Jan 2013 (ANNEXURE A To RUD-6
Period (Months) Credit availed on Credit attributable Trading
Royalty activity
April 2011 to 100,195,877 8,926,288
Jan.2013
8.17 In support of their above calculation, a chart showing
month-wise details for the period April 2011 to January
2013 was annexed as Annexure A to the said letter dated
04-11-2015 and submitted to the Department. This shows
that the party agreed to the departmental Audit para (2) to
the effect and that they reversed/paid back the credit in
respect of inadmissible input service credit relating to
trading activities.
8.18 Furthermore, the said party vide their letter dated 29-
10-2015 ( RUD 5) has stated that ―Further we like to inform
you that we having centralized Registration of service tax
for all business location at Noida and also registered
ourselves as a "input service Distributor" in which credit of
services is being taken in ISD books and thereafter credit of
input services is being distributed to different unit, i.e.
Noida factory, Pune Factory and unit providing output
services as per the provision of rule-7 of Cenvat Credit Rule
2004"
8.19 Here, it is relevant to mention that the party wrongly
availed/taken credit and utilized towards the trading activity
for the period under demands. This is crystal clear from the
admitted fact that the rule 7 was applicable in their matter.
From the to RUD 5 as also Annexure N to RUD 6, it facts as
found mentioned in annexure F IS abundantly clear that
though the party had admitted the application of rule 7,
ibid. and had themselves quantified the amount attributable
Excise Appeal No.70286 of 2017
42
to trading activities and despite depositing/reversing the
said amount of Rs.38,82,360/- along with accrued interest
of Rs.68,742/-, they wrongly availed the amount of credit
pertaining to the period from April, 2011 to January, 2013.
It is pertinent to mention here that the both the RUD 5 & 6
are the letters dated 14-03-2014 and 04-11-2015
respectively submitted by the notice party itself to the
Department in compliance to the said Departmental Audit
Para and nothing new has emerged after the audit. There is
also found no scope for analyzing the applicability of Rule 7
of CC Rules, when on quantification the party have
themselves arrived at the conclusion that an amount of
Rs.89,26,288/- related to trading and it remained unpaid
out of the total sum of RS. 12,80,86,48. It is a fact that an
amount of Rs,38,82,360/- was deposited along with interest
of Rs.68,742/- by their own
8.20 For the sake of clarity, it is pertinent to reproduce the
information/details furnished by the party in Annexure- A to
their letter dated 29-10-2015:-
Summary of Credit involved on Brand Shop Management
Details of Cenvat Credit availed on Advertising Brand Shop
Management) from April, 2013 to Sept. 15 provided by the
party vide letter dated 29-10-2015 (Annexure A)
Months Credit Credit Net eligible CENVAT CENVAT
Involved in reverse CENVAT on Credit Credit
Advertiseme d u/rule advertiseme availed by transferred
nt (Brand 7 on nt (brand Noida to Pune
shop Trading shop Manufacturin Manufacturin
Management activitie Management g g
) s )
From 25737154 157134 24165811 11896634 12269177
April 4
13 to
Sept.1
5
8.21 A perusal of the above table furnished by the party as
annexure to their letter dated 29-10-2015, (R.U.D.5),
conspicuously displays the fact of taking recourse under
Rule 7 of CC Rules and to make reversals. This is also a fact
that in respect of Brand shop Management, they have
Excise Appeal No.70286 of 2017
43
admitted the application of Rule 7 in respect of credit
attributable /distributed to their Gr Noida Unit excluding the
amount of trading activity in respect of Pune unit
8.22 In addition to above, it is also worth observing that
the party has also themselves worked out their liability
under Rule 7 of CC Rules and also reversed the amount of
Rs.38,82,360/- at their own for the period February, 2013
to January 2014. This becomes clear from the fact the party
was admitting role of Rule 7 of CC Rules, however, they did
not agree to the audit objection by not reversing the same
though the same was wrongly availed as per rule 7 of the
said Rules.
Details of Reversal of Cenvat Credit ob IPR from Feb 13 to
Jan.14
Month Total Cenvat Credit on IP'R from Reversal % Reversal
Ech-13 to lan.11 as Per Rule Cenvat
7 Credit
2013 Feb. 4375875 7,26% 317688
2013-03 7190552 7.26% 522034
2013-04 7191200 6.12% A61960
2013-05 7245438 7.13% 5168 10
2013-06 4693711 6.78% 318031
2013-07 3734322 6.25% 233527
2013-08 3097730 6.01% 186174
2013-09 3850463 5.22% 201089
2013-10 6156751 6.34% 3906IS
2013-11 2088043 7.66% 236539
2013-12 2657929 7.04%a 187079
2014-01 4443919 6.99% 310813
Total 57725932 3882360
8.23 However, at this juncture, I deem it proper to make a
summary of the entire data relating to taking and
Excise Appeal No.70286 of 2017
44
distribution of Cenvat Credit on subject services by the
party for the sake of bringing explicitly on the topic
SUMMARY OF CENVAT CREDIT DISTRIBUTED BY LG AS ISD
(Input Service Distributor) To THE PARTY UNDER RULE-7
DURING THE PERIOD OF DEMAND
Total Noida Pune Trading Amount Remark
reversed
1.Brand Shop Management service 2012-13
2012- 6841786 As per
13 Annexure -A
to letter
2013- 4485409 dtd.29.10.1
14 5 (RUD-5)
2014- 5509967 out of total
15 credit of
Rs.2573715
2015- 1901259 4 the
16 assessee
Total 25737156 1189663 1226917 1571344 13840521 has availed
5 7 credit of
Rs.1189663
4 at Noida
Plant and
Rs.1226917
7/ at Pune
Plant Thus
they have
admitted
that at
Noida Plant
they were
eligible to
avail as
much
amount of
Cenvat
credit which
may be
attributed to
Noida Plant
in terms of
Rule 7 of
CCR-2004
i.e. norms of
distribution
of credit by
Input
Service
Distributor.
Total 25737156 1873842
Gross 1
2. IPR Services
Apr- 10019587 8926288 Though the
11 TO 7 assessee it
JAN.1 self
3 admitted
the
Feb- 57725932 3882360 3882360 application
13 TO of Rule7 and
JAN Interest had
paid quantified
Excise Appeal No.70286 of 2017
45
14 Rs.68742 the amount
/- attributable
to Trading
15792180 1280864 activity but
8 despite
9 reversing
the said
amount for
02/13 to
01/2014,
did not
reversed the
amount
pertaining
to earlier
period.
8.24 From the table above, it is clear that the amount of in
admissiblc amount of Rs.89,26,288/- on IPR services for the
period April 2011 to January, 2013 remained unpaid and the
wrong availment of Rs.38,83,360/- for the period
February`2013 to January, 2014 has not only been
admitted by the party but the party has also paid the same.
Thus, I find that the party have themselves admitted the
applicability of Rule 7 of the said CC Rules, 2004, by
segregating the quantum of credit attributable to both the
Units, ie. at Pune and Greater Noida, in respect of services
distributed by them as Input Service Distributor as they
have divided Cenvat Credit not only on Brand Shop
Management but also on 1.P.R.Services as is cvident from
the table, referred to above
8.25 The admissibility of input service credit involved on
IPR service has been contended by the party. But, the fact
of the matter is that the eligibility of IPR service for
availing credit has not at all been the subject matter of the
SCN. The issue related to applicability of Rule 7 of the CC
Rules for availing credit on trading was the moot point
alone.
8.26 I observe that the issue relating to admissibility of
input service Credit for trading activity has been discussed
at length by the Hon'ble High Court Bombay in the case of
Mercedes Benz India Pvt. Ltd. Vs Commissioner of C.Ex.
Pune-I [2016 (41) S.T.R.577 (Bom.)] and also by the
Hon'ble Tribunal in the case of Orion Appliances Ltd Vs
Excise Appeal No.70286 of 2017
46
Commissioner of Service Tax, Ahmedabad [2010 (19) STR
205 (Tri.- Ahmd)]. Here also in the instant matter, I find
that notice party too have admitted that amount of credit
of input service involved on IPR service was not attributable
to the extent of trading activities which they themselves
worked out and out of such admitted amount they have
reversed an amount of Rs.38,82,360/- along with interest
of Rs.68,742/- as per their letter dated 04-11-2015
discussed herein before
8.27 Another fact is also worth-noticing that in the 2"d
para of the letter dated 4-11-15 of the party have informed
that according to Rule 7, input service credit attributable to
trading activity worked out as Rs.89, 26,288/- for the
period from April 2011 to January 2013. But the party
failed to pay back the amount of credit attributable to
trading, which was wrongly availed and utilized by the
party despite having pointed to them by the Audit as well
as by the Range officer vide letter dated 08-10-2015
9.1 In the context of deciding this issue, I place reliance
on the decision of Hon'ble Tribunal given in the case of
Commissioner of Central Excise Belapur Versus Elder
Pharmaceuticals Ltd. Ltd. reported in 2015(37)S.T.R 241
(Tri. Mumbai) wherein, it has been held that though the
Assessee was entitled to avail Cenvat credit of services
referred in Rule 6(5) of Cenvat Credit Rules, 2004 for whole
of credit attributable to dutiable as well as final exempted
products and for taxable or exempted services, but they
were not entitled to the credit attributable to activity of
trading, during the relevant time, as trading activity was
neither excisable nor exempted service during that time.
The relevant portion of the said decision is reproduced
below:-
"8.1 The next issue before us is whether for the services
covered under Rule 6(5) of Cenvat Credit Rules, 2004,
the assessee is entitled to take Cenvat credit in full or in
Excise Appeal No.70286 of 2017
47
proportionate. We have to go through the Rule 6(5) as it
existed during the relevant time, which is reproduced
hereinunder :-
―(5) Notwithstanding anything contained in sub-rules
(1), (2) and (3), creddit of the whole of Service Tax paid
on taxable service as specified in sub-clauses (g), (p),
(q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg),
(zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of
Section 65 of the Finance Act shall be allowed unless such
service is used exclusively in or in relation to the
manufacture of exempted goods or providing exempted
services.‖
As per the said Rule, there is no bar to avail Cenvat credit
on the services covered under Rule 6(5) by a unit who is
engaged in the activity of manufacturing on both dutiable
as well as exempted goods and engaged in dutiable as
well as exempted services. Therefore, we hold that in this
case the assessee is entitled to take the Cenvat credit of
services referred in Rule 6(5) of Cenvat Credit Rules,
2004 for whole of the credit attributable to dutiable as
well as final exempted products and for taxable or
exempted services but the assessee is not entitled to take
Cenvat credit attributable to the activity of trading as
during the relevant time, the trading activity was neither
excisable nor an exempted service at all. Therefore, the
quantification of inadmissible Cenvat credit is required to
be done at the end of adjudicating authority to disallow
the Cenvat credit attributable to trading activity.
8.2 The next issue is that whether the learned
Commissioner has jurisdiction to reallocate the Cenvat
credit or not. We have gone through the show cause
notice wherein the allegation is that the assessee is not
entitled to take Cenvat credit referred under Rule 6(5) of
Cenvat Credit Rules, 2004 as the same are not covered in
Rule 7. Therefore we hold that the learned Commissioner
Excise Appeal No.70286 of 2017
48
has no jurisdiction to reallocate the Cenvat credit to the
assessee in question as there was no such allegation in
the show cause notice and he cannot go beyond the
allegation in the show cause notice to decide the issue.
8.3 We further find that the issue involved in this case is
whether the assessee is entitled to take Cenvat credit on
the services covered under Rule 6(5) or not and which is
debatable issue therefore, extended period of limitation is
not invokable. Therefore, the matter needs examination
at the end of the adjudicating authority to quantify
inadmissible credit for the normal period of limitation. As
the extended period of limitation is not invokable,
consequently the penalty on the assessee is not
warranted. Therefore, in result we pass the following
order :-
(a) We hold that the assessee is entitled to take Cenvat
credit on the services covered under Rule 6(5) of the
Cenvat Credit Rules, 2004 as prescribed in the manner in
the said Rule.
(b) The assessee is not entitled to take Cenvat credit on
the services mentioned in Rule 6(5) of the Cenvat Credit
Rules, 2004 which is attributable to their trading activity.‖
9.2 In view of the facts and circumstances, it is clear to
me that the party was engaged in procurement of technical
know-how services paying royalty to the LG Korea and
paying service tax to Govt. Simultaneously availing credit
having paid such tax. But the obligation, in respect of
inadmissible credit availed on IPR services in proportionate
of exempted services, as envisaged and worked out under
Rule 7 read with Rule 6(3) of the CC Rules was not fulfilled
in toto. It has been brought on record by the party
themselves that they had reversed the credit for the Period
from February 2013 to January 2014 and it has not been
made clear in their defence as to how the credit
Excise Appeal No.70286 of 2017
49
attributable to trading activities pertaining to the period of
demand was admissible to them.
9.3 I find it pertinent that it has not been contested by
the party that credit attributable to trading portion was not
admissible to them. Rather they have focused their defence
on admissibility of credit on IPR services, though it was not
the subject matter of the Show Cause Notice. They have
themselves admitted that the credit attributable to trading
was not admissible to them.
10. During the course of Personal Hearing, it was also
contended that issue of credit availed on I.P.R services
being identical in nature involved in respect of heir Pune
Unit has been adjudicated by the Commissioner, Central
Excise, Pune, vide Order-in-original No.PUN-EXCUS-004-
COM-02/16-17 Dated 14-06-2016 and since no notice of
appeal against the said Order-in-original has been received
by them till then, the same seems to have been accepted,
and, accordingly, the present SCNs on this issue should
also be dropped
10.1 With regard to above contention, it is pertinent to
note that there were two different things happened in
respect of Pune Unit. There was affirmation of fact by one
Sh. Vipin Gupta, Production Engineer, to the effect that
"there is no technology which is exclusively used for EMS
production only in as-much-as the technology platform is
almost same for the single product whereas there could be
multiple variants on account of colour, size etc. in a
particular product category
10.2 Secondly the said affirmation of facts by way of
affidavit dated 04-04-2016 were placed reliance on the
statement given by the Chartered Engineer's Certificate
dated 04-05-2016, which according to him technically
substantiated his statement.
10.3 I observe that the issue involved in the case
considered by Pune 10.3 whether 1.P.R services had not
Excise Appeal No.70286 of 2017
50
been used for manufacture Commissionerate was oF
goods in the Pune Unit else by their Vendors/EMSs. L
observe that since as I.S.D. the Corporate Office of M/s LG,
Greater Noida, has only transferred as nuch amount of
Cenvat Credit to Pune Unit which was admissible to them in
terms of Rule 7 of CC Rules, 2004 and no extra amount was
transferred to Pune Unit hence the issue present before the
Commissioner, Central Excise Pune, was materially distinct
from that considered by me. In view of the above position,
it is evident that facts of the present case are not the same
as those contained in the Notice issued to M/s
L.G.Electronics (India) Pvt.Ltd., Pune by Commissioner
Central Excise Pune. 'The facts of present case did not call
for furnishing of an Affidavit and/or Certification of those
facts by a Chartered Engineer for furnishing them in
respect of the Show Cause notice issued to the party (i.e.,
Greater Noida Unit) because the same was not relevant to
the issue involved. Thus, the issue involved in the present
case is altogether different from the issue before the
Commissioner, Central Excise, Pune as there was no such
issue before him with regard to admissibility of Cenvat
Credit on input service(s) attributable to trading activity but
availed by the manufacturing unit. Moreover, the order
passed by an authority of another Commissionerate may
not be a binding precedence for authority of equal rank
10.4 In view of the above discussion and findings in the
preceding para, I hold that the allegations of wrongly
availing the amount attributable to trading/ exempted
services, is correct and proper and, accordingly, the demand
on this count deserves to be confirmed.
11. As far as the proposal of invocation of longer period of
demand is concerned, the party has also contended that
mere detection by the department does not mean that they
suppressed the facts with intent to evade payment of duty.
In this regard, it is seen that it is a case where the scheme
of M.L.U (Multi Locational Unit) worked in the place and on
Excise Appeal No.70286 of 2017
51
the visit by the Audit Team the fact of wrong availment of
credit could be noticed during the course of such audit only
and, accordingly irregular credit taken and its utilization
was taken care of by issuance of instant notice invoking
provisions of Sec.11A read with Section 11A(4) of the
Central Excise Act, 1944. In view of this position, the
provisions are found to be rightly invoked.
12. In so far as the penal provisions contained in the
instant notices are concerned, it is seen that the facts and
circumstances as described herein before, it has been
found that the credit of input services was not rightly
availed and found 1o be wrongly availed and utilized,
therefore consequences thereto, i.e. penal provisions suo
moto follow. I further note that in the absence of any
material change in the facts of the case for subsequent
period, the findings given above are also applicable for the
Statement of Demand issued on 18-10-2016 and the same,
accordingly, stands disposed of vide this order."
4.3 We have gone through the entire contents of the impugned
order and have reproduced the same for the simple reason that
order in our view fail to consider the issues in proper
perspective. There are basically two issues involved in the
matter which have been reproduced in the para 7.2 of the
impugned order.
4.4 On the first issue we observe that appellant has availed
CENVAT Credit in respect of certain services which have been
received by them at their depot-Brand Shop. Undisputedly these
credits are in respect of the erection commissioning and
installation services received by them at the said premises. The
credit has been sought to be denied by stating that these
services are not the part of advertising agency services and were
received at premises beyond the "place of removal". Reliance
has been placed on various decisions which were deciding the
issue in respect of GTA Service received beyond the place of
removal.
Excise Appeal No.70286 of 2017
52
4.5 As per the main of clause of definition of input services as
per Rule 2 (l) of the CENVAT Credit Rules, 2004, the input
services have been defined stating that "used by a
manufacturer, whether directly or indirectly, in or in relation to
the manufacture of final products and clearance of final products
upto the place of removal", and the place of removal has been
defined by the Section 4 (3) (c) of the Central Excise Act, 1944
as follows:
―(c) ―place of removal‖ means--
(i) a factory or any other place or premises of production or
manufacture of the excisable goods;
(ii) a warehouse or any other place or premises wherein the
excisable goods have been permitted to be deposited
without payment of duty;]
(iii) a depot, premises of a consignment agent or any other place
or premises from where the excisable goods are to be sold
after their clearance from the factory, from where such
goods are removed;‖
Thus the place of removal as per the above definition can be the
depot-brand shop of the appellant.
Further we note that Hon'ble Supreme Court has in the case of
MRF Ltd [1995 (77) ELT (SC)] observed as follows:
"25. We agree that it is for each assessee to decide where
to sell his goods. He can choose to sell his goods at the
gate, i.e., at the place of removal or he may choose to sell
his goods through his selling organisation, as in the case of
Madras Rubber Factory. Where the goods are sold in the
course of wholesale trade through depots outside the place
of removal, the assessee does no doubt incur expenses not
only for transporting the goods from the place of removal to
the depots but also on maintenance and running of depots
but these expenses, according to Bombay Tyre International
are on the same par as after-sale service charges and
advertisement charges and hence cannot be deducted.
Where, however, the freight charges are equalised in the
Excise Appeal No.70286 of 2017
53
manner indicated in the preceding paragraph, such charges
can be deducted from the normal price; it is obvious that
such deduction will be common to the price at the gate and
at the depots outside the gate - because of the equalisation,
the price will equally be uniform at the gate as well as at the
depots. This aspect will become clearer once we deal with
the permissibility of the deductions claimed.
26.With respect to the alternative argument of Sri Nariman,
we must say that no direction can be given to the
authorities to adopt the price at which the assessee sells its
goods to the Government as the price in respect of its total
sales. Firstly, by virtue of proviso (i) to Section 4(1)(a), the
Government would be a class by itself and the price charged
to it would be relevant only to the goods sold to it. So far as
depot sales are concerned, they are to a different class or
classes of buyers and in respect of the goods sold to them,
the price charged to each of such class of buyers would be
the normal price. The price charged to one class of buyers
cannot, therefore, be directed to be adopted as the price in
respect of all the classes of buyers. Since the position under
the old Section 4 and new Section 4 is held to be the same,
this holding holds good for both periods.
27.For the above reasons, we are unable to give effect to
the submission of Sri Nariman. We hold that in cases where
the goods are sold in the course of wholesale trade at place
or places outside the place of removal, i.e., at depots, as in
the case of Madras Rubber Factory, the expenses incurred in
maintaining and running the said depots cannot be
deducted from the price but the cost of transportation along
with the cost of insurance on freight can be deducted as
held in Bombay Tyre International. This holding does not, of
course, prevent the assessees from representing their case
to the Government if they are so advised in this behalf and
it is for the Government to consider the same in the light of
all relevant circumstances.‖
Excise Appeal No.70286 of 2017
54
Thus as per the above decision the brand shop (depot) of
appellant will be covered by the definition of "Place Removal"
and all the expenses incurred at the depot became the part of
the assessable value for payment of excise duty. The appellant
incurred certain expenses towards the maintenance of brand
shop, and these expenses were towards services of erection,
commissioning, installation etc., which were subject to service
tax. The CENVAT credit in respect of the service tax paid in
respect of such services received by the appellant could not have
been denied. The decisions relied upon in the impugned order
are not on the issue in dispute and hence could not have been
relied upon. Thus we do not find any merits in the impugned
order to this extent.
4.6 Our view gets support from the decision of Hon'ble Madras
High Court in the case of Bata India Ltd. [2019 (24) G.S.T.L. 326
(Mad)] holding as follows:
"16. On a reading of the above paragraph, we find that
the Adjudicating Authority held that in view of clarification
given by the Board, vide letter dated 2-2-2006, the
contention of the assessee was accepted. However, the next
three sentences overturned the case of the assessee. The
Adjudicating Authority held that the Service Tax credit
distributed by the Regional Distribution Centres and the
Corporate Office as discussed supra have no nexus with the
manufacturing activity of the assessee and that the credit
availed by the assessee was not in order.
17. We find that the Tribunal also, to an extent,
accepted the case of the assessee, which could be seen
from paragraph 5.1 of the impugned order, which reads as
follows :
―In the first place, we intend to address the controversy as
to whether in case of clearance under Section 4A, the Depot
can be considered as ‗a place of removal'? In this regard,
we find that the C.B.E. & C., vide letter No. 137/3/200-C.X,
dated 2-2-2006, inter alia, had clarified as under :
Excise Appeal No.70286 of 2017
55
In view of the above, the ‗4. undersigned is directed to
state that, in case of depot sales of goods, the credit of
Service Tax paid on the transportation of goods up to such
depot would be eligible, irrespective of the fact, whether the
goods were chargeable to excise duty at specific rates or ad
valorem rates on the basis of valuation under Section 4 or
4A of the Central Excise Act.'
This being the case, there should not be any doubt that
eligible services availed upto the Depot/RDCs by the
appellant in this case would be eligible for availment of
input service credit.‖
18.The issue, which should have been decided by the
Adjudicating Authority, is as to whether the point of sale is
the RDC as contended by the assessee. In fact, the Tribunal
partly allowed the assessee's appeals on input service credit
availed in all the RDCs in respect of renting of premises,
courier, telephone, security services, etc., under Rule 2(l) of
the CCR irrespective of the amendment i.e. before and after
1-4-2008 and also set aside the penalty. However, in
respect of GTA services, the Adjudicating Authority and the
Tribunal disallowed the input credit availed by the assessee
beyond the RDCs/Corporate Office from 1-4-2008 and held
that they are not eligible for the purpose of Rule 2(l) of the
OCR as it stood after 1-4-2008.
19.To arrive at the correct conclusion, the Adjudicating
Authority should have taken note of the decision of the
Hon'ble Supreme Court in the case of CCE, Belgaum v.
Vasavadatta Cements Ltd. [reported in (2018) 52 GSTR 232
= 2018 (11) G.S.T.L. 3 (S.C.)]. The issue, which fell for
consideration before the Hon'ble Supreme Court was as to
what interpretation has to be given to input services, which
is defined in Rule 2(l) of the CCR. The appeals before the
Hon'ble Supreme Court all related to a period prior to 1-4-
2008 and the said Rule stood amended with effect from 1-4-
Excise Appeal No.70286 of 2017
56
2008. The principles laid down by the Hon'ble Supreme
Court in the said decision could be summarized as follows :
―The expression used in Rule 2(l) of the Cenvat Credit
Rules, 2004 is ‗from the place or removal'. It has to be from
the place of removal upto a certain point. Therefore, Cenvat
credit of Service Tax paid on goods transport agency service
availed of for transport of final product from the place of
removal upto the first point, whether it is a depot or the
customer's premises, has to be allowed. The amendment of
Rule 2(l) with effect from April 1, 2008 by Notification No.
10/2008-C.E. (N.T.), dated March 1, 2008, whereby the
expression ‗from the place of removal' was substituted by
‗upto the place of removal' fortifies this view. Thus, from
April 1, 2008, with the amendment, the Cenvat credit is
available only upto the place of removal whereas under the
unamended Rule, it was available from the place of removal
upto either the place of depot or the place of customer, as
the case may be.‖
20.To be noted that the subsequent decision of the
Hon'ble Supreme Court in the case of CCE & ST v. Ultra
Tech Cement Limited [reported in 2018 (2) SCC 721 = 2018
(9) G.S.T.L. 337 (S.C.)] dealt with a case where the
assessee had got finished goods (cement) from its parent
unit on stock transfer basis and sold the same in bulk form
and packed bags and during the period from January, 2010
to June, 2010 and availed CENVAT credit of Service Tax paid
on outward transportation of goods through a transport
agency from their premises to the customer's premises and
on the said facts, it was held that the CENVAT credit was
not admissible to the assessee for such transport. The
decision came to be rendered on considering amendment to
the CCR namely Rule 2(l) as effective from 1-3-2008. The
decision does not overturn the earlier decision in the case of
Vasavadatta Cements Ltd. However, the Tribunal did not
endeavour to go into the factual matrix of the case, but
Excise Appeal No.70286 of 2017
57
applied the decision in the case of Ultra Tech Cement Ltd.,
and negatived the stand taken by the assessee.
21.It has to be noted that for the period prior to 1-4-2008,
the Hon'ble Supreme Court, in the case of Vasavadatta
Cements Ltd., held that the tax paid on the transportation
of final product from the place of removal upto the first
point, whether it is the depot or the customer, has to be
allowed and we find that the issue addressed by the Hon'ble
Supreme Court in the decision in the case of Ultra Tech
Cement Ltd., pertains to the first limb of the definition
under Rule 2(1) of the CCR. In other words, the issue
involved in that decision was regarding availment of Cenvat
credit on goods transport agency service availed for
transport of goods from the place of removal to buyer's
premises. In the case of Ultra Tech Cement Ltd., the Cenvat
credit on tax paid upto the customer's premises was
disallowed, as it was found that the factory gate is to be
determined as the ‗place of removal'. Therefore, the larger
question would be as to whether the assessee would have
been non-suited based on the decision in the case of Ultra
Tech Cement Ltd. In our considered view, the assessee
should not be non-suited in the light of the said decision for
more than one reason.
22.Firstly, the modus operandi of the assessee requires to
be examined by the Adjudicating Authority i.e.
establishment of the RDCs and the WSDCs. The assessee's
specific case is that the point of sale in their case is the
RDCs. However, this issue has not been examined by the
Adjudicating Authority in the manner it was required to be
examined. We say so because the Adjudicating Authority is
the First Authority, who will record the findings of fact.
Therefore, before the legal position is applied, a thorough
exposition of the facts needs to be done. Then, law is to be
applied to the facts of the case and not vice versa.
Excise Appeal No.70286 of 2017
58
23.One more reason, which weighs in our mind, is to
state that the Adjudicating Authority could have examined
the factual background on account of a decision of the Delhi
Tribunal in the case of Pr. CCE v. Lafarge India Pvt. Ltd.
[reported in 2017 (52) S.T.R. 350 (Tri.-Del.)]. According to
the assessee, the said case was on identical facts and it was
held in that decision that the place of removal is inextricably
linked to the factum of sale. In the light of the decision of
the Delhi Tribunal, which was rendered subsequently, what
is required to be examined is as to whether the assessee
was right in contending that the goods are removed to the
RDCs without any sale and therefore, there can be no
removal at the factory gate and the retail outlet, at which,
the goods were finally sold was the place of removal.‖
4.7 Now coming to the issue in respect of the demand of
reversal of CENVAT Credit on certain services - which are in
respect of the trading activities. Undisputed fact as has been
acknowledged in the impugned order is that the appellant was
receiving IPR Services from their principals in South Korea and
paying the service tax due on the same on reverse charge basis.
The said services were common input services both exempted
trading services and for sale of the goods subjected to excise
duty. The issue in the present case is not vis a vis the
admissibility of CENVAT Credit in respect of the said service. The
demand has been made for recovery of the amount to be
reversed in terms of Rule 6 (3) of the CENVAT Credit Rules,
2004. Appellant have admitted and have reversed the amount
due for the period February 2013 to January 2014, along with
the interest. Impugned order records the said admission and
proceeds to demand for the remaining period of demand i.e. for
the period April 2011 to January 2013.
4.8 The order in original No PUN-EXCUS-004-COM-02/16-17
dated 14.06.2016 of Commissioner Central Excise Pune, is with
regards to the admissibility of the CENVAT Credit in respect of
the IPR services and do not decide the issue in hand and hence
cannot have any precedence or persuasive value.
Excise Appeal No.70286 of 2017
59
4.9 In the impugned order or in the show cause notice no
specific reason has been stated for invoking extended period of
limitation. It has not been brought on record as to what facts
lead to invocation of extended period in the present case and for
imposition of the penalties, on the appellant. In absence of any
such allegation or finding in the impugned order we are not in
position to hold that extended period of limitation could have
been invoked for making this demand. Our view is supported by
the decision of Hon'ble Supreme Court in case of Uniworth
Textiles Ltd. [2013 (288) E.L.T. 161 (S.C.)] observing as follows:
"12. We have heard both sides, Mr. R.P. Bhatt, learned
senior counsel, appearing on behalf of the appellant, and
Mr. Mukul Gupta, learned senior counsel appearing on
behalf of the Revenue. We are not convinced by the
reasoning of the Tribunal. The conclusion that mere non-
payment of duties is equivalent to collusion or willful
misstatement or suppression of facts is, in our opinion,
untenable. If that were to be true, we fail to understand
which form of non-payment would amount to ordinary
default? Construing mere non-payment as any of the three
categories contemplated by the proviso would leave no
situation for which, a limitation period of six months may
apply. In our opinion, the main body of the Section, in fact,
contemplates ordinary default in payment of duties and
leaves cases of collusion or willful misstatement or
suppression of facts, a smaller, specific and more serious
niche, to the proviso. Therefore, something more must be
shown to construe the acts of the appellant as fit for the
applicability of the proviso.
17. In fact, the Act contemplates a positive action which
betrays a negative intention of willful default. The same was
held by Easland Combines, Coimbatore v. The Collector of
Central Excise, Coimbatore - (2003) 3 SCC 410 = 2003
(152) E.L.T. 39 (S.C.) wherein this Court held :-
Excise Appeal No.70286 of 2017
60
―31. It is settled law that for invoking the extended
period of limitation duty should not have been paid, short
levied or short paid or erroneously refunded because of
either fraud, collusion, wilful misstatement, suppression
of facts or contravention of any provision or rules. This
Court has held that these ingredients postulate a positive
act and, therefore, mere failure to pay duty and/or take
out a licence which is not due to any fraud, collusion or
willful misstatement or suppression of fact or
contravention of any provision is not sufficient to attract
the extended period of limitation.‖ [Emphasis supplied]
18. We are in complete agreement with the principle
enunciated in the above decisions, in light of the proviso to
Section 11A of the Central Excise Act, 1944. However,
before extending it to the Act, we would like to point out the
niceties that separate the analogous provisions of the two,
an issue which received the indulgence of this Court in
Associated Cement Companies Ltd. v. Commissioner of
Customs - (2001) 4 SCC 593, at page 619 = 2001 (128)
E.L.T. 21 (S.C.) in the following words :-
―53... Our attention was drawn to the cases of CCE v.
Chemphar Drugs and Liniments - (1989) 2 SCC 127,
Cosmic Dye Chemical v. CCE - (1995) 6 SCC 117,
Padmini Products v. CCE - (1989) 4 SCC 275, T.N.
Housing Board v. CCE - 1995 Supp (1) SCC 50 and CCE
v. H.M.M. Ltd. (supra). In all these cases the Court was
concerned with the applicability of the proviso to Section
11-A of the Central Excise Act which, like in the case of
the Customs Act, contemplated the increase in the period
of limitation for issuing a show-cause notice in the case of
non-levy or short-levy to five years from a normal period
of six months...
54. While interpreting the said provision in each of the
aforesaid cases, it was observed by this Court that for
proviso to Section 11-A to be invoked, the intention to
Excise Appeal No.70286 of 2017
61
evade payment of duty must be shown. This has been
clearly brought out in Cosmic Dye Chemical case where
the Tribunal had held that so far as fraud, suppression or
misstatement of facts was concerned the question of
intent was immaterial. While disagreeing with the
aforesaid interpretation this Court at p. 119 observed as
follows : (SCC para 6)
‗6. Now so far as fraud and collusion are concerned, it
is evident that the requisite intent, i.e., intent to evade
duty is built into these very words. So far as
misstatement or suppression of facts are concerned,
they are clearly qualified by the word ‗wilful' preceding
the words ‗misstatement or suppression of facts' which
means with intent to evade duty. The next set of words
‗contravention of any of the provisions of this Act or
Rules' are again qualified by the immediately following
words ‗with intent to evade payment of duty'. It is,
therefore, not correct to say that there can be a
suppression or misstatement of fact, which is not wilful
and yet constitutes a permissible ground for the
purpose of the proviso to Section 11-A. Misstatement
or suppression of fact must be wilful.'
The aforesaid observations show that the words ―with
intent to evade payment of duty‖ were of utmost
relevance while construing the earlier expression
regarding the misstatement or suppression of facts
contained in the proviso. Reading the proviso as a whole
the Court held that intent to evade duty was essentially
before the proviso could be invoked.
55. Though it was sought to be contended that Section
28 of the Customs Act is in pari materia with Section 11-A
of the Excise Act, we find there is one material difference
in the language of the two provisions and that is the
words ―with intent to evade payment of duty‖ occurring in
proviso to Section 11-A of the Excise Act which are
Excise Appeal No.70286 of 2017
62
missing in Section 28(1) of the Customs Act and the
proviso in particular...
56. The proviso to Section 28 can inter alia be invoked
when any duty has not been levied or has been short-
levied by reason of collusion or any wilful misstatement or
suppression of facts by the importer or the exporter, his
agent or employee. Even if both the expressions
―misstatement‖ and ―suppression of facts‖ are to be
qualified by the word ―wilful‖, as was done in the Cosmic
Dye Chemical case while construing the proviso to Section
11-A, the making of such a wilful misstatement or
suppression of facts would attract the provisions of
Section 28 of the Customs Act. In each of these appeals it
will have to be seen as a fact whether there has been a
non-levy or short-levy and whether that has been by
reason of collusion or any wilful misstatement or
suppression of facts by the importer or his agent or
employee.‖ [Emphasis supplied]
19. Thus, Section 28 of the Act clearly contemplates two
situations, viz. inadvertent non-payment and deliberate
default. The former is canvassed in the main body of
Section 28 of the Act and is met with a limitation period of
six months, whereas the latter, finds abode in the proviso to
the section and faces a limitation period of five years. For
the operation of the proviso, the intention to deliberately
default is a mandatory prerequisite.
.....
24. Further, we are not convinced with the finding of the Tribunal which placed the onus of providing evidence in support of bona fide conduct, by observing that ―the appellants had not brought anything on record‖ to prove their claim of bona fide conduct, on the appellant. It is a cardinal postulate of law that the burden of proving any form of mala fide lies on the shoulders of the one alleging it. This Court observed in Union of India v. Ashok Kumar & Excise Appeal No.70286 of 2017 63 Ors. - (2005) 8 SCC 760 that ―it cannot be overlooked that burden of establishing mala fides is very heavy on the person who alleges it. The allegations of mala fides are often more easily made than proved, and the very seriousness of such allegations demand proof of a high order of credibility.‖
25. Moreover, this Court, through a catena of decisions, has held that the proviso to Section 28 of the Act finds application only when specific and explicit averments challenging the fides of the conduct of the assessee are made in the show cause notice, a requirement that the show cause notice in the present case fails to meet. In Aban Loyd Chiles Offshore Limited and Ors. (supra), this Court made the following observations :
―21. This Court while interpreting Section 11-A of the Central Excise Act in Collector of Central Excise v. H.M.M. Ltd. (supra) has observed that in order to attract the proviso to Section 11-A(1) it must be shown that the excise duty escaped by reason of fraud, collusion or willful misstatement of suppression of fact with intent to evade the payment of duty. It has been observed :
‗...Therefore, in order to attract the proviso to Section 11- A(1) it must be alleged in the show-cause notice that the duty of excise had not been levied or paid by reason of fraud, collusion or willful misstatement or suppression of fact on the part of the assessee or by reason of contravention of any of the provisions of the Act or of the Rules made thereunder with intent to evade payment of duties by such person or his agent. There is no such averment to be found in the show cause notice. There is no averment that the duty of excise had been intentionally evaded or that fraud or collusion had been practiced or that the assessee was guilty of wilful misstatement or suppression of fact. In the absence of any such averments in the show-cause notice it is difficult Excise Appeal No.70286 of 2017 64 to understand how the Revenue could sustain the notice under the proviso to Section 11-A(1) of the Act.' It was held that the show cause notice must put the assessee to notice which of the various omissions or commissions stated in the proviso is committed to extend the period from six months to five years. That unless the assessee is put to notice the assessee would have no opportunity to meet the case of the Department. It was held:
―...There is considerable force in this contention. If the department proposes to invoke the proviso to Section 11- A(1), the show-cause notice must put the assessee to notice which of the various commissions or omissions stated in the proviso is committed to extend the period from six months to 5 years. Unless the assessee is put to notice, the assessee would have no opportunity to meet the case of the department. The defaults enumerated in the proviso to the said sub-section are more than one and if the Excise Department places reliance on the proviso it must be specifically stated in the show-cause notice which is the allegation against the assessee falling within the four corners of the said proviso....‖ (Emphasis supplied)
26. Hence, on account of the fact that the burden of proof of proving mala fide conduct under the proviso to Section 28 of the Act lies with the Revenue; that in furtherance of the same, no specific averments find a mention in the show cause notice which is a mandatory requirement for commencement of action under the said proviso; and that nothing on record displays a willful default on the part of the appellant, we hold that the extended period of limitation under the said provision could not be invoked against the appellant.
Excise Appeal No.70286 of 2017 65 4.10 Thus in view of the above, we do not find any merits in the demand made by invoking the extended period of limitation except for the amount of CENVAT Credit for the period February 2013- January 2014 reversed by the appellant suo motto along with interest even prior to the issuance of Show Cause Notice. In terms of Section 11A (2), no show cause notice could have been issued for this amount.
4.11 As we do not find any merits in the invocation of extended period of limitation we also set aside the penalties imposed.
5.1 Appeal is allowed as indicated in para 4.5, 4.10 & 4.11.
(Order pronounced in open court on- 18 July, 2025) (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) (ANGAD PRASAD) MEMBER (JUDICIAL) akp