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Mercedes Benz India Private Limited Versus The Commissioner of Central Excise, Pune 1

2016 (4) TMI 933 - BOMBAY HIGH COURT

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 in 2011 is then considered from paragraph 14. The argument of the Assessee’s Advocate that thes .....

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agraph 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 service for the period from August 2010 to March 2011 and covered by Appeal and demanding 6% of the .....

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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 2011 and then arrive at a conclusion in relation to the Explanation introduced with sub-clause .....

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rpose 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 would be appropriate to send the matter back to the Tribunal. - Central Excise Appeal No. 255 O .....

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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 reproduce the questions which the Appellants/Assessees term as substantial questions of law. They re .....

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her 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 addition on trading of goods is to be considered and not entire sale price/turnover of traded .....

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ble 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 adjudicating authority to recompute the demand based on a completely different basis, not proposed in the .....

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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 some reference to the facts. The facts in a nutshell are that: the Appellants are manufacturers .....

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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. The details of such imported CBUs on payment of CVD are set out in a table at page 5. The Appe .....

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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 activity of import and sale of cars is not available but the same can be availed of only in respect o .....

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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/percentage. 11. Mr. Sridharan, learned Senior Advocate submitted in so far as question (e) is con .....

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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 throughout that it would have to be held that merely because this substantive portion is inser .....

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ed 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 error of law apparent on the face of the record. 15. To be fair to both Advocates in so far as o .....

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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 cars which are imported from the parent company and traded, that is inadmissible. Therefore, as .....

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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 Government has no power to amend them with retrospective effect. To that extent, the Tribunal agrees wit .....

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d 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 the credit of the common input service where such input services have been used both in relation .....

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o 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 not be allowed on such quantity of [input used in or in relation to the manufacture of exempted .....

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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) the receipt, consumption and inventory of inputs used - (i) in or in relation to the manufacture .....

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e 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 provider of output service, opting not to maintain separate accounts, shall follow [any one] o .....

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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 no CENVAT credit of inputs and input services used for providing such taxable service, shall be .....

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by 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 the duty or tax paid on any goods and services that are not inputs or input services.] (3A) For d .....

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; (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, determine and pay, provisionally, for every month, - (i) the amount equivalent to CENVAT credit .....

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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 total value of exempted goods manufactured and removed during the preceding financial year, F de .....

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ENVAT 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 financial year, K denotes the total value of dutiable goods manufactured and removed plus the to .....

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empted 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 equal to the difference between the aggregate amount determined as per condition (c) and the a .....

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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 a period of fifteen days from the date of payment or adjustment, as per condition (d) and (f) r .....

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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] service was provided in the preceding financial year, then the manufacturer of goods or the provider .....

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all, 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 (zm) of clause (105) of section 65 of the Finance Act, [engaged in providing services by way of e .....

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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 to it under section 67 of the Finance Act, read with rules made thereunder or, as the case may .....

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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 is more; 19. The Tribunal gives a illustration and tries to work out a denominator. However, in .....

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ion). 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 refer to the substantive Rule and as operative prior to 1st April 2011 and then arrive at a con .....

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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, technically speaking) and to apportion the input credit, it would be appropriate to send the m .....

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