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2016 (4) TMI 933 - BOMBAY HIGH COURT

2016 (4) TMI 933 - BOMBAY HIGH COURT - 2016 (41) S.T.R. 577 (Bom.) , [2016] 90 VST 174 (Bom) - Calculating amount of the eligible cenvat credit of service tax paid on common input services margin/value - addition on trading of goods is to be considered and not entire sale price/turnover of traded goods - apportionment - Held that:- The Tribunal agrees with the Assessee that the common services are not covered by the definition of “activity” relating to business. The effect of the amendment made .....

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learned Senior Advocate appearing on behalf of the Assessee. From there onwards and then in paragraph 15, at page 99 of the paper-book, the Tribunal holds that changes made by the Explanation are substantive. The Explanations have been made in Rules by a Notification without giving it retrospective effect and though the same was issued on 1st March 2011 it came into force on 1st April 2011. Thus, it cannot have retrospective effect. The Revenue’s action in considering trading as an exempted serv .....

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goods and trading activities in respect of the imported goods. From there onwards, we find that the Tribunal has referred to the arguments of the Assessee’s Senior Advocate. - Tribunal misdirected itself completely to work out a denominator. We had put it to Mr. Bhate as to how in the teeth of such finding could the Tribunal then sustain the formula and the working of the denominator arrived at by it. The Tribunal must firstly refer to the substantive Rule and as operative prior to 1st April .....

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reof. Once the Tribunal is bound to decide the controversy in the backdrop of the object and purpose sought to be achieved but has not arrived at any conclusion bearing in mind the same, then, we are required to step in. We cannot sustain this part of the finding and conclusion. Even Mr. Bhate found it difficult to support the same. - We are of the view that as far as working of the denominator is concerned (and even the numerator, technically speaking) and to apportion the input credit, it .....

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2014 passed by the Customs, Excise & Service Tax Appellate Tribunal, Mumbai ( Tribunal ). 2. By this appellate order, the Tribunal dealt with four Appeals, being Appeal No. E/370, 456 and 385 all of 2011 and Appeal No. E/1019 of 2012. 3. It is stated that these Appeals arise out of the Orders in Original dated 30th November 2010, 30th March 2012 and 15th December 2011 of the Commissioner of Central Excise Pune-I and Commissioner of Customs (Appeals) Pune-1. 4. It would be necessary to repro .....

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vice tax credit to be reversed, in respect of input service used for trading of goods? (c) Whether the entire amount of credit of common input services mentioned I Rule 6(5) of the Cenvat Credit Rules, 2004 is available to Appellants? (d) Whether in the facts and circumstances of case, Appellate Tribunal erred in not setting aside the demand for the period prior to 31.3.2008? (e) Whether in calculating amount of the eligible cenvat credit of service tax paid on common input services margin/value .....

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10 and 26.8.2011? (i) Whether in the facts and circumstances of the case, no interest is imposable to the extent Cenvat Credit sought to be denied has not been utilized, particularly when there is no error or illegality in taking of the Cenvat Credit? (j) Whether in the facts and circumstances of the case, the Hon ble Appellate Tribunal has erred in not allowing Appeal No. E/1019/12 for the period August 2010 to March 2011 in its entirety and erred in remanding the matter back to the adjudicatin .....

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dealt with by the Tribunal, though specifically raised. 7. The findings on questions (f ), (g) and (h) as reproduced above are cryptic and there are certain inaccurate particulars incorporated by the Tribunal in its order. Hence, the request of Mr. Sridharan is that these questions, viz., (f ), (g) and (h), so also (c) and (d) be remanded back to the Tribunal for a decision afresh. 8. As far as question (e) is concerned, there are extensive arguments canvassed before us. 9. That would require s .....

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up Units ( CBU ) from the parent company, Daimler AG, Germany on payment of appropriate Customs Duties. These are imports made to meet the customer demand and expectations in India. The intent is to provide a wider choice to the customers. However, these vehicles are also sold by the Appellants through their same dealer network to the ultimate customers. The Appellants claim that they have not availed of credit of Countervailing Duty ( CVD ) paid on imported cars for sale in the domestic market. .....

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ay that they have not taken such credit and, therefore, presently they are not claiming CENVAT credit on input service exclusively relatable to activity of import and sale of cars. The credit availed of in this respect in the past is also reversed with interest. However, the contention is that there are common input services used for manufacture and sale of cars as also import and sale of cars. The Revenue states that credit of service tax paid on common input services attributable to the activi .....

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owed/reversed. The question is about the true and correct method of quantifying the said credit for reversal or disallowance. The Appellants state that total common input service must be considered and multiplied by a suitable fraction/percentage. Thereafter, common input service credit relatable to manufacturing activity and to trading activity can be arrived at. The former can be allowed while the latter must be disallowed. The question, therefore, is the basis for determining this fraction/pe .....

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mselves from April 2011. However, according to the Department, this amount should be ₹ 2,65,73,384/- based on the simple pro-rata formula of trading turnover divided by total turnover. 12. Rule 6(3A) came into effect from 1st April 2011. According to the Assessees the amendment is correct, reasonable and avoids distortions. Therefore, there is no question of any retrospectivity or applying it retrospectively. But to interpret the Rule consistent with the understanding and practice followed .....

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aw relied upon. We have a compilation before us of the Rules and it has been extensively referred during the course of the oral arguments. 14. Mr. Bhate, learned Advocate appearing on behalf of the Revenue, has also been heard and he would support the conclusion of the Tribunal. He would submit that this question not being a substantial question of law but a matter of mere computation having been considered and dealt with reasonably, the Tribunal s order is neither perverse nor vitiated by any e .....

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Tribunal s order what we have noted is that insofar as question (e) is concerned, the Tribunal commences its discussion from paragraph 8 at page 84 of the paperbook. The Tribunal determines that as a first issue, viz., whether trading activity could be considered as an exempted service. It refers to series of judgments starting from Orion Appliances Limited. 2010 (19) STR 205 In all fairness as recorded earlier, it is not disputed even by the Assessee that as far as credit of input service on c .....

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are not covered by the definition of activity relating to business. The effect of the amendment made in 2011 is then considered from paragraph 14. The argument of the Assessee s Advocate that these amendments are substantive in nature and though they are introduced in the form of an explanation, they would cover certain cases prior to the insertion or introduction of the same appears to have been rejected but in the same paragraph it is held that Rules are delegated legislation and the Governmen .....

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it cannot have retrospective effect. The Revenue s action in considering trading as an exempted service for the period from August 2010 to March 2011 and covered by Appeal No. E/1019/2012 and demanding 6% of the trading turnover is not correct. To that extent, the Tribunal agrees with the Assessee and renders a finding against the Revenue. The Revenue has not challenged the same before us. In paragraph 16 onwards after reiterating this conclusion, the Tribunal deals with the apportionment of th .....

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Meerut v Shravan Kumar Swarup & Sons. (1994) 6 SCC 623 The Tribunal in paragraph 17 comes to a conclusion that clause (c) of Explanation 1 has no application for determining the apportionment of the credit of service tax on input services. 18. For that purpose, we reproduce the relevant Rule with the Explanation which has come into force from 1st April 2011. RULE 6. [Obligation of a manufacturer or producer of final products and a [provider of output service]]. - (1) The CENVAT credit shall .....

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he ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule.] [(2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for - (a) t .....

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ion to the manufacture of dutiable final products, excluding exempted goods, and their clearance upto the place of removal; (iii) for the provision of exempted services; and (iv) for the provision of output services excluding exempted services, and shall take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of clause (a) and input services under sub-clauses (ii) and (iv) of clause (b).] [(3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the .....

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(iv)of said clause (a) and pay an amount as determined under sub-rule (3A) in respect of input services. The provisions of sub-clauses (i) and (ii) of clause (b) and sub-clauses (i) and (ii) of clause (c) of subrule (3A) shall not apply for such payment: Provided that if any duty of excise is paid on the exempted goods, the same shall be reduced from the amount payable under clause (i): Provided further that if any part of the value of a taxable service has been exempted on the condition that n .....

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ng the remaining part of the financial year. [Explanation II.- For removal of doubt, it is hereby clarified that the credit shall not be allowed on inputs used exclusively in or in relation to the manufacture of exempted goods or for provision of exempted services and on input services used exclusively in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services. Explanation III. - No CENVAT credit shall be taken on th .....

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) name, address and registration No. of the manufacturer of goods or provider of output service; (ii) date from which the option under this clause is exercised or proposed to be exercised; (iii) description of dutiable goods or [output] services; (iv) description of exempted goods or exempted services; (v) CENVAT credit of inputs and input services lying in balance as on the date of exercising the option under this condition; (b)the manufacturer of goods or the provider of output service shall, .....

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total value of [output] services provided plus the total value of exempted services provided, during the preceding financial year and D denotes total CENVAT credit taken on inputs during the month minus A; (iii) the amount attributable to input services used in or in relation to manufacture of exempted goods [and their clearance upto the place of removal] or provision of exempted services (provisional) = (E/F) multiplied by G, where E denotes total value of exempted services provided plus the t .....

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ed services for the whole financial year in the following manner, namely :- (i) the amount of CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods, on the basis of total quantity of inputs used in or in relation to manufacture of said exempted goods, denoted as H; (ii) the amount of CENVAT credit attributable to inputs used for provision of exempted services = (J/K) multiplied by L, where J denotes the total value of exempted services provided during the f .....

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ed by P, where [M] denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, 1[N] denotes total value of [output] and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and 1[P] denotes total CENVAT credit taken on input services during the financial year; (d)the manufacturer of goods or the provider of output service, shall pay an amount .....

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30th June till the date of payment, where the amount short-paid is not paid within the said due date; (f)where the amount determined as per condition (c) is less than the amount determined and paid as per condition (b), the said manufacturer of goods or the provider of output service may adjust the excess amount on his own, by taking credit of such amount; (g)the manufacturer of goods or the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within .....

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on (d), alongwith the date of payment of the amount short-paid, (iv) interest payable and paid, if any, on the amount short-paid, determined as per condition (e), and (v) credit taken on account of excess payment, if any, determined as per condition (f); (h)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 were manufactured and no [output] servi .....

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d due date, i.e., the 30th June, the manufacturer of goods or the provider of output service shall, in addition to the said amount, be liable to pay interest at the rate of twenty four per cent. per annum from the due date till the date of payment. [Explanation I to III *** ] [(3B) Notwithstanding anything contained in sub-rules (1), (2) and (3), a banking company and a financial institution including a non-banking financial company, providing financial taxable service specified in sub-clause (z .....

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t, shall pay for every month an amount equal to twenty percent of the CENVAT credit availed on inputs and input services in that month. (3D) Payment of an amount under sub-rule (3) shall be deemed to be CENVAT credit not taken for the purpose of an exemption notification wherein any exemption is granted on the condition that no CENVAT credit of inputs and input services shall be taken. [Explanation I.- Value for the purpose of sub-rules (3) and (3A), - (a) shall have the same meaning as assigned .....

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r section 66B of the Finance Act, read with an exemption notification, if any, relating to such rate, when applied for calculation of service tax results in the same amount of tax as calculated under the option availed; (c) in case of trading, shall be the difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or ten per cent. of the cost of goods sold, whichever .....

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of the goods (otherwise criterion should have been same viz. Based upon turnover or value addition). We, therefore hold that for the period under dispute the credit of service tax paid on the common input services should be apportioned in the same ratio as the turnover of the manufactured and traded cars. 20. We had put it to Mr. Bhate as to how in the teeth of such finding could the Tribunal then sustain the formula and the working of the denominator arrived at by it. The Tribunal must firstly .....

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re is no scope for interpretation or applying any principle thereof. Once the Tribunal is bound to decide the controversy in the backdrop of the object and purpose sought to be achieved but has not arrived at any conclusion bearing in mind the same, then, we are required to step in. We cannot sustain this part of the finding and conclusion. Even Mr. Bhate found it difficult to support the same. 22. We are of the view that as far as working of the denominator is concerned (and even the numerator, .....

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