Custom, Excise & Service Tax Tribunal
M/S. Blue Star Limited vs The Commissioner Of Central Excise, ... on 15 November, 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Appeals (s) Involved: ST/21693/2015 [Arising out of Order-in-Appeal No.COC-EXCUS-000-APP-410&411-14-15 dated 23.03.2015 passed by the Commissioner of Excise, Customs & Service Tax (Appeals), Cochin.] M/s. Blue Star Limited 34/614, Millenium Plaza Allinchuvadu, MKK Nair Road Cochin 682 024. Appellant(s) Versus The Commissioner of Central Excise, Customs & Service Tax Cochin. Respondent(s)
Appearance:
Mr. S. Sarkar, CA For the Appellant Mrs. Kavitha Podwal, AR For the Respondent Date of Hearing: 21.07.2017 Date of Decision: 15.11.2017 CORAM:
HON'BLE SHRI S.S. GARG, JUDICIAL MEMBER Final Order No. __22793_ / 2017 Per : S.S. GARG The present appeal is directed against the impugned order dated 23.3.2015 passed by the Commissioner (A), whereby the Commissioner (A) has modified the Order-in-Original and denied the CENVAT credit used for providing services to Special Economic Zone (SEZ) amounting to Rs.1,70,754/- and as also denied the credit on C & F Agent on the ground that it has been entirely used for trading activity to the tune of Rs.3,35,703/-.
2. Briefly the facts of the present case are that the appellants are engaged in providing service to the customers under the category Erection, Commissioning and Installation Service, Management Maintenance or Repair Service, Business Auxiliary Service, Transport of Goods by Road. They are availing exemption under Notification No.4/2004-ST dated 31.3.2004 for the services provided to the units under SEZ. The appellants were availing CENVAT Credit on input services used for providing taxable services, such as telephone, courier, advertisement, maintenance and repair, C & F agents, etc. The input services on which, the CENVAT credit taken have not exclusively been used for providing taxable output service. It was also observed that the appellant had taken CENVAT credit of service tax paid on clearing and forwarding service provided to AFL Pvt. Ltd. who are only dealing with the trading of goods of the appellant. They had not maintained separate accounts of the input service meant for consumption in relation to taxable and exempted services provided by them. It was held by the original authority that as per Rule 6(3) (C) of CENVAT Credit Rules, 2004, the appellant shall utilise credit only to the extent of an amount not exceeding 20% of the amount payable on taxable output services. The C & F service provided by the appellant is used in relation to trading activity being an exempted service and hence the credit taken was held as inadmissible. Based on the above findings, the excess credit availed and utilised by them was disallowed and demand confirmed with appropriate interest. Penalty under Rule 15(3) of the CENVAT Credit Rules, 2004 and under Section 76 and 78 of the Finance Act, 1994 have also been imposed. Aggrieved by the Order-in-Original, appellant filed appeal before the Commissioner (A), who modified the order and hence, the present appeal.
3. Heard both the parties and perused the records.
4. Learned CA for the appellant submitted that the impugned order is not sustainable in law as the same has been passed by ignoring the judicial precedent and the provisions of the law. He further submitted that the services provided to a Unit in SEZ are export service and not an exempted service. He also submitted that as per Section 51 of SEZ Act, 2005 the provisions of the Act shall have effect not withstanding anything inconsistent therewith contained in any law for the time being in force or in any instrument having effect by virtue of any law by this Act. Thus, SEZ has an overriding effect on provisions contained in any other Act. He also submitted that as per the Notification No.3/2011 dated 1.3.2011, Rule 6 of CENVAT Credit Rules was amended and after Rule 6(6) of CENVAT Credit Rules, the following sub Rule (6A) was inserted:
(6A) the provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the taxable services are provided, without payment of service tax, to a unit in a Special Economic Zone or to a Developer of a Special Economic Zone for their authorised operations. 4.1 He also submitted that this issue has been considered by various Benches of the Tribunal and it has been consistently held that there is no need to reverse any CENVAT credit of input and input services used in relation to providing of services to SEZ Unit/Developer of SEZ. In support of his submission, he relied upon the following decisions:
* Tata Consulting Engineers Ltd. vs. CST, Mumbai: 2014 (33) STR 655 (Tri.-Mum.) * Sobha Developers Ltd. vs. CCE, Bangalore : 2012 (276) ELT 214 4.2 He also referred to Larger Bench decision in the case of Sterlite Industries (I) Ltd. vs. CCE: 2005 (183) ELT 353 (Tri.-LB) which was upheld by the Honble Bombay High Court reported in 2009 (244) ELT A89.
5. Therefore, by following the ratios of the above said decisions wherein it has been held that there is no requirement of reversal of CENVAT credit in relation to services provided to SEZ unit, I hold that denial of CENVAT credit to the tune of RS.1,70,754/- is set aside.
6. Further with regard to trading activities carried out by the appellant, CENVAT credit of service tax has been denied in respect of C & F Agent service. In this regard, the argument of the learned CA for the appellant is that trading activity is not an exempted activity and instead it is an activity related to the business of the manufacturer for which CENVAT credit is available to the manufacturer and it cannot be denied. He further submitted that the service of AFL Pvt. Ltd. is also used for storage of spare parts which are used / consumed during rendering of repairs and maintenance service by the appellant. He also submitted that the position of law prevailing during the relevant period and that changes in the same was introduced with effect from 1.4.2011 whereas the Original Authority has proceeded on the ground that the trading activity is an exempted service and by applying Rule 6 of CENVAT Credit Rules, proportionate credit is required to be reversed/recovered. He also submitted that trading was not classifiable as an exempted service as given under Rule 2(e) of CENVAT Credit Rules and hence, the provisions of Rule 6 of CENVAT Credit Rules cannot be applied. In support of his submission, he relied upon the decision in the case of Vijayanand Roadlines Ltd. vs. CCE reported in 2007 (7) STR 219 (Tri.-Bang.) and Krishna Auto Sales vs. CCE: 2015 (40) STR 1121. He also submitted that there is no methodology prescribed for computation/restriction of credit when trading is an activity carried out by same entity which provided taxable service. He also submitted that the trading activity cannot be equated with exempted goods or exempted services used in the manufacture or providing the output service.
6.1 On the other hand, the learned AR submitted that trading is not a service at all and for the trading activity, the appellant is not entitled to CENVAT credit of service tax. He further submitted that this issue has been settled by various decisions of the Court. In support of his submission, he relied upon the following decisions:
* M/s. FL Smidth Pvt. Ltd. vs. CCE: 2014-TIOL-2186-HC-MAD-CX * M/s. FL Smidth Pvt. Ltd.: 2014-TIOL-1439-CESTAT-MAD.
* Synise Technologies Ltd. : 2015-TIOL-1036-CESTAT-MUM.
* SKL India Ltd.: 2014 (41) STR 737 (Tri.-Mum.) 6.2 After going through the judgments relied upon by the learned AR, I find that the Honble High Court of Madras in the case of M/s. Ruchika Global Interlinks vs. CESTAT & CCE: 2017-TIOL-1235-HC-MAD-ST has clearly held that for trading activity, appellant is not entitled to the CENVAT credit of service tax. Therefore, by following the ratios of the above said decisions, I deny the CENVAT credit of service tax paid on trading activity carried out by the appellant.
7. As far as demand of interest and penalty is concerned, I find that the appellant has not paid or short-paid the service tax by reason of collusion, wilful misstatement, suppression of fact or contravention of the provisions of Rule with intend to evade payment of service tax and they have been filing the returns regularly. He learned CA also submitted that penalty cannot be imposed when there is an interpretational issue and in this case with regard to trading, the law was not clear and there has been judgments on both sides and therefore, I hold that no penalty is imposable on the appellant under Section 78 of the Finance Act because the condition for imposing the penalty under Section 78 is not present in this case and it was an interpretational issue and therefore, I drop the penalty under Section 78 on the appellant.
8. In view of my above discussions, the appeal is partially allowed to the extent of Rs.1,70,754/- and rejected with regard to trading activity to the tune of Rs.3,35,703/-.
(Order was pronounced in open court on 15.11.2017.) S.S. GARG JUDICIAL MEMBER rv 8 1