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2016 (1) TMI 972 - CESTAT MUMBAI

2016 (1) TMI 972 - CESTAT MUMBAI - 2016 (42) S.T.R. 290 (Tri. - Mumbai) - Cenvat Credit - demand of 8% on value of Exempted services - Rule 6(3)(i) of the Cenvat Credit Rules, 2004 - appellants had not filed a declaration under Rule 6(3A) - It is urged that unreasonable result cannot be intended by the legislature - The appellants have already reversed the CEnvat credit of ₹ 5,06,736/- attributable to input services used in providing exempted services during the financial year 2008-09 alon .....

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enue. We further find it is an admitted fact that the assessee herein have calculated the CENVAT Credit in terms of clause (c) read with clause (h) and have deposited the amount so determined, by 30 th June in the succeeding financial year as prescribed. - There is no dispute with regard to the CENVAT Credit reworked by the assessee which is attributable to the exempted output services. Further, there is merit in the contention of the assessee that Rule 6 cannot be used as tool of oppression .....

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the exemption provided under the Section 93 of the Finance Act, 1994 cannot be negated by the Cenvat Credit Rules, which is a delegated legislation and subservient to the main Act. - Demand set aside - Decided in favor of assessee. - Appeal No. ST/419/10 & ST/92/11, ST/CO/20/11 - Final Order Nos. A/85171-85173/2016-WZB/STB - Dated:- 4-1-2016 - Anil Choudhary, Member (J) And P S Pruthi, Member (T) For the Appellant : Shri L Badrinarayan, Adv For the Respondent : Shri K S Mishra, Addl. Commis .....

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essee). 2. The issue is that the assessee provides taxable as well as exempted services and avail input service credit under Rule 3 of the Cenvat Credit Rules on common input services used in providing output services. During the relevant period i.e. April -September 2008, the value of the exempted services provided by the appellants is ₹ 20,31,62,113/-. The maintaining a separate account for input services used for taxable services and for exempted services. The appellants exercised the o .....

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te was more than ₹ 5,06,736/-. A C.A. certificate to the effect is enclosed in appeal file. Though the appellants did not reverse the proportionate credit on monthly basis, but, such credit was not utilized during the said period. 2.1 A show cause notice dated 22.10.2009 was issued to the appellants which proposed to recover an amount equal to 8% of the value of exempted services amounting to ₹ 20,31,62,113/-, i.e. ₹ 1,62,52,969/- under Rule 6(3)(i) of the Cenvat Credit Rules, .....

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notice also proposed to recover interest under section 75 of the Act, and impose penalty under section 78 of the Act. 2.2 On adjudication of the show-cause notice, the Ld. Commissioner, vide Order-in-Original No. PI/COMMR/ST/01/2010 dated 28.05.2010 confirmed the demand of ₹ 1,62,52,969/- and appropriated the amount of ₹ 5,06,736/- already paid by the appellants towards the same. The Commissioner also ordered for recovery of interest under Rule 14 of the Cenvat Credit Rules, 2004 an .....

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04 provides that the CENVAT credit shall not be allowed on such quantity of input or input service which is used in providing exempted services, except in the circumstances mentioned in sub-rule (2). Sub-rule (2) of Rule 6 of the Cenvat Credit Rules, 2004 provides that where a provider of output service avails of CENVAT credit in respect of any inputs or input services and provides such output service which are chargeable to tax as well as exempted services, then, the provider of output service .....

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6(3)(i) of the Cenvat Credit Rules gives an option to the service provider to pay an amount equal to 8% of the value of exempted services. Rule 6(3)(ii) of the CENVAT Credit Rules, 2004, as amended from 1.4.2008, gives an option to the service provider to proportionately reverse the credit obtained on inputs and input services used for providing exempted services. Rule 6(3A) lays down the procedure which is to followed while exercising the option under Rule 6(3)(ii). Rule 6 (3A)(a) provides that .....

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ying in balance as on the date of exercising the option under this condition. Further, Rule 6(3A)(b) provides that the service provider has to make the payments every month of the amount calculated according to the formula prescribed. 3.2 The Commissioner relied on the decision in the case of M/s Golden Dew Tea Factory v. CCE, Coimbatore, 2007 (219) ELT 362 (Tri - Chennai) as affirmed by the Supreme Court 2008 (221) ELT A 28(SC) to stated that the conditions which give relief from taxation canno .....

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the department which is also already available on record through other documents. It is not the case that the department is required to decide the eligibility of the appellants to avail the option under Rule 6(3)(ii), on the basis of the information provided in the declaration. Therefore the ratio of the Golden Dew Tea Factory case (supra) is inapplicable in the facts of the present case. Further a provision cannot be interpreted in such a manner that it frustrates the very objective for which i .....

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o a unit in Software Technology Parks) shall be allowed if the final product is exempt from the whole of duty of excise leviable thereon or is chargeable to Nil rate of duty." Thereafter, in view of the practical difficulties being faced by the manufacturer(s) engaged in manufacture of both the dutiable and final product, changes were made in the Budget for 1996-97, Rule 57CC was introduced which provided that in the existent system whenever the manufacturer clears the exempted final produc .....

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time of clearance of the exempted final product whether or not the inputs on which modvat credit has been taken is used or contained in the exempted final product. This was done to eliminate the problem of determination of input duty credit used or contained in the exempted final product. In the present case, the amount of input credit attributable to the exempted output service during the period is ₹ 5,06,736/- which has admittedly been reversed by making payment to the Revenue on 7.5.200 .....

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ntention to produce an unreasonable result is not to be imputed to a statute if there is some other construction available. Reliance is also placed on the ruling of the Apex Court in the case of Tirath Singh Vs Bachittar Singh - 1955 (2) SCR 457, wherein it is held as under:- "But it is a rule of interpretation well-established that, "Where the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the e .....

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ons who are not parties to the petition." It is further contended that if Rule 6 is read in such a manner that the option under Rule 6(3)(ii) shall be unavailable, unless the procedural formalities under Rule 6(3A) are complied with before exercising the option, then it would lead to an unreasonable result where an assessee would have to pay 8 of the value of exempted services even though the actual credit taken is much less. The main objective of Rule 6 is to ensure that an assessee cannot .....

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d legislation, namely, the Cenvat Credit Rules. Although Cenvat Credit Rules grant benefit of credit and it is perfectly legal to quote condition that credit of Service Tax paid on input services used or providing exempted service will not be available, but in the guise of putting such conditions, it is not open to the Revenue to state that even when the assessee is willing to forgo credit of Service Tax paid on input services used for providing exempted service, the same is not acceptable to th .....

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en inadvertently included in the value of the exempted service. 3.8 The learned Counsel also relies on the ruling of the Rajasthan High Court in the case of UOI Vs. Grasim Industries Ltd. - 2006 (204) ELT 230 (Raj), wherein the assessee have availed Modvat credit of duty paid on capital goods received in factory as per Rule 57Q of Central Excise Rules, 1944. However, declaration required to be filed under Section 57-T(1) was filed after 3 months of the receipt of the capital goods in factory and .....

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ty required to be paid thereon. Further, the capital goods must be received in and used in the manufacturing of end products in the factory. If these conditions are fulfilled then the procedural lapse on part of the assessee in making of declaration or furnishing incomplete particulars should not come in the way of assessee availing Modvat benefit. 3.9 The learned Counsel also relied on the ruling of the Apex Court in the case of CIT vs. Lakshmi Machine Works (2007) 290 ITR 668 (SC), wherein the .....

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ot; in the formula under Section 80HHC one has to give a schematic interpretation to that expression. There is one more reason for giving schematic interpretation. The various amendments to Section 80 HHC show that receipts by way of brokerage, commission, interest, rent, etc do not form part of business profits as they have no nexus with the activity of exports. If interest or rent was not regarded by the legislature as business profits, the question of treating the same as part of the total tu .....

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i), the assessee is required to follow the procedure as laid down in Cenvat Credit Rules, the learned Commissioner has erred in allowing the benefit under Rule 6(3)(ii). Further reliance is placed on the furling of the Apex Court in the case of Commissioner of C. Ex vs. Harichand Shri Gopal - 2010 (260) ELT 3 (SC), wherein the facts were that the assessee was engaged in manufacture of excisable goods namely, preparation containing Chewing Tobacco falling under Heading 2404.40 chargeable to nil r .....

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goods manufactured were consigned to M/s Gopal Zarda Industries by the assessee under the cover of 'transfer challan' describing therein the said goods as "addictive Mixtures" or "KIMAM/K". The factories of the assessee were inspected and samples drawn of the findinshed products and also statements were recorded. Other units of the assessee were also inspected and it was noticed that the Addictive Mixtures (Kimam) was manufactured at the factory at Delhi was being cla .....

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ead with Rule 4 of the Central Excise Rules, after 14.10.1996 and removal from the factory clandestinely without payment of duty in contravention of the provisions of the Act and the Rules. In such facts, it was held by the Apex Court that the law is well settled that a person who claims exemption or concession has to establish that he is entitled to exemption. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exception .....

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nce or substance of the notification granting exemption. 4.2 It is further urged that the assessee had not reversed the proportionate credit on monthly basis, but such credit was admittedly not utilized during the said period. It is further urged that the learned Commissioner has erred in not considering the fact that the condition cannot be held to be procedural and these are mandatory in nature. 4.3 Further, reliance is placed on the ruling of this Tribunal in the case of Golden Dew Tea Factor .....

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The condition given in the notification provided that the benefit of exemption from duty will commence from the date of the undertaking when the AC/DC of Central Excise, as specified in condition (b), which provided that :- The manufacturer files an undertaking, that:- (i) the green leaf used by the factory during the period on and from 10 th December, 1999 to 31 st March, 2000 shall not be purchased from any grower who has a holding exceeding ten hectares under tea cultivation. (ii) The co-oper .....

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ailure to satisfy the undertaking, the manufacturer shall be liable to pay duty of excise specified in the First Schedule to the said Central Excise Tariff Act. Admittedly the undertaking was filed after much delay, it was held by this Tribunal that although the assessee who have been held liable to pay duty on the Tea cleared by them during the initial part of the financial year 2000-01, had availed themselves of the benefit of Notification No. 41/99-C.E. in respect of the clearances made prior .....

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ed to a token amount. 6. We have given careful though to the contentions of both sides. To appreciate the facts, it is useful to reproduce the relevant Rule Rule 6. Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services.- (1) The CENVAT credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or for provision of exempted services, except in the circumstances mentioned in sub-rule (2) .....

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tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take CENVAT credit only on that quantity of input or input service which is intended for use in the manufacture of dutiab .....

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f value of the exempted services; or (ii) the manufacturer of goods or the provider of output service shall pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in, or in relation to, the manufacture of exempted goods or for provision of exempted services subject to the conditions and procedure specified in sub-rule (3A). Explanation I.- If the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall e .....

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se (b) of Rule 6(3A) provides that the manufacturer of goods or the provider of output service shall, determine and pay, provisionally for every month, the amount equivalent to CENVAT Credit attributable to inputs used for provisions of exempted service. Further clause (c) provides, the manufacturer of goods or the provider of service, shall determine finally the amount of CENVAT Credit attributable to the exempted goods or services for the whole financial year, and further clause (d) provides t .....

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e. from 30 th June till the date of payment. Further clause (h) provides that where the amount equivalent to CENVAT Credit attributable to exempted goods or exempted services cannot be determined provisionally, as prescribed in condition (b), due to reasons that no dutiable goods/taxable services were provided in the preceding financial year, then such manufacturer or provider of service is not required to determine and pay such amount provisionally for each month, but shall determine the CENVAT .....

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ing the declaration is only directory and not mandatory. Further, most of the requirements under Rule 6(3A) like, name, address and registration no. of the assessee, description of taxable services and exempted services, CENVAT Credit of inputs and input services lying in balance as on the date of exercising option, are already available in the records of the Revenue. We further find it is an admitted fact that the assessee herein have calculated the CENVAT Credit in terms of clause (c) read wit .....

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