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M/s Micro Labs Ltd. Versus The Commissioner, LTU, Bangalore

2016 (11) TMI 1106 - CESTAT BANGALORE

Cenvat credit relating to common input services - Large Tax Payer Unit - Input Service Distributor - trading activity - Held that: - the Tribunal has come to the conclusion that as regards the issue as to whether trading activity can be called as a service, it is quite clear that since the trading activity is nothing but purchase and sales and is covered under sale tax law, it may not be appropriate to call it a service. Therefore, it has to be held that trading activity cannot be called a servi .....

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able to trading activity has been recently considered by the Hon’ble High Court of Madras in the case of M/s F L Smidth Pvt. Ltd. Vs. C.C.E. [2014 (12) TMI 699 - MADRAS HIGH COURT] where in it was held that On an understanding of the Rule 2(l) of the Cenvat Credit Rules, there is no manner of doubt that input service means goods which is used by the manufacturer directly or indirectly in relation to the manufacturing of final product and clearance of final product from the place of removal. In t .....

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o 1.4.2011. Further, as far as invoking extended period of limitation and imposition of mandatory penalty, I am of the considered view that since the appellants have not declared in their ST3 Returns that input service credit was used in relation to trading activity. This amounts to suppression of facts and therefore, the extended period of limitation is correctly invoked as the appellants are following the self assessment procedure and are taking credit on their own. - CENAVT credit not all .....

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), LTU, Bangalore, who upheld the Order-in-Originals and rejected the appeals of the appellants. Since in all the appeals the issue is identical, therefore all the 21 appeals are being disposed of by this common order. A statement showing the details of appeal-wise period involved, amounts of Cenvat credit, penalties and ISD penalties imposed in the matter is appended below : Appeal Nos. Period Involved Cenvat Credit Penalty ISD Penalty E/3088/2011 2008-09 1,23,489 1,23,489 5000 E/3089/2011 2008 .....

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,232 6,08,232 5000 E/2444/2012 2009-10 4,79,693 4,79,693 5000 E/27710/2013 2010-11 7,22,183 7,22,183 5000 E/27711/2013 2010-11 36,477 36,477 5000 E/27712/2013 2010-11 2,34,433 2,34,433 5000 E/27713/2013 2010-11 20,19,026 20,19,026 5000 E/27714/2013 2010-11 44,187 44,187 5000 E/27715/2013 2010-11 19,13,087 19,13,087 5000 TOTAL 107,56,104 107,56,104 1,05,000 2. Briefly, the facts of the case are that the appellant is engaged in the manufacture of pharmaceutical goods falling under Chapter 30 of th .....

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in the capacity of ISD purchased various input services which were service tax paid and also were common input services. Being an ISD, the appellant distributed the input service credit by following procedure envisaged under Rule 7 of the Cenvat Credit Rules. In the capacity of ISD, the appellant did not distribute any credit attributable to input services which were exclusively used for exempted goods. However, the appellant in the capacity of ISD distributed the credit attributable to common i .....

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ivity and that the trading activity was neither manufacturing activity nor service activity and that the appellant was not entitled to take Cenvat credit on input services attributable to trading activity. Thereafter the adjudicating authorities passed adjudication order on each one of the factories and demanded Cenvat credit relating to common input services attributable to trading activity and also imposed mandatory penalty and penalty on the appellant in the capacity as ISD under Rule 15A of .....

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appeals is for the years 2008-09, 2009-10 and 2010-11. He further submitted that the trading activity was regarded as exempted service by amending definition in Rule 2(e) only with effect from 1.4.2011 and prior to 1.4.2011, the trading activity was not construed as exempted service at all. He further submitted that the said amendment is prospective and not retrospective as the Government cannot make amendment retrospectively as held by the Hon ble Supreme Court in the case of Cannanore Spg. &a .....

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m for reversal of proportionate Cenvat credit attributable to trading activity was introduced only with effect from 1.4.2011 onwards. He also submitted that the appellant has not availed any credit of input service which is used exclusively for trading activity; rather the appellant had distributed and took credit of only those input services which were commonly used for dutiable manufactured goods in their own factories and dutiable goods manufactured through third party manufacturers. He furth .....

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ed period of limitation as the appellant has intimated about his activity to the Department in May and August 2008 itself and there was no wilful suppression or mis-statement of facts with intent to evade payment of duty. He also submitted that since the entire issue relates to bonafide interpretation of statutory provisions and there are conflicting judgments of the Tribunal on the issue and in such circumstances mandatory penalty should not have been imposed. In support of this submission he r .....

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CE [2015-TIOL-2994-CESTAT-DEL] (viii) Pushpam Pharmaceuticals Co. Vs. CCE [1995 (78) ELT 401 (SC)] (ix) Nizam Sugar Factory Vs. CCE [2006 (197) ELT 465 (SC)] (x) CCE Vs. Kolety Gum Industries [2016 (335) ELT 581 (SC)] (xi) In Re : Faber Heatkraft Industries Ltd. [2008 (232) ELT 182 (C.A.)] (xii) The Cannanore Spg & Wvg. Mills Ltd. Vs. CCE [1978 (2) ELT 325 (SC)] (xiii) ITO V. M.C. Ponnose [AIR 1970 SC 385, 388] 5. On the other hand, the learned A.R. defended the impugned orders passed by the .....

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at their head office and are registered under service tax provisions as an input service distributor and distributes the credit to their manufacturing units. There are certain goods manufactured by the loan licensees which are either exempted or non-dutiable. Appellant claims that they have neither availed any Cenvat credit on this activity nor distributed the same to any of their manufacturing unit. However, the appellant have not produced any evidence to this effect. In respect of goods manufa .....

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is in no way connected to either manufacture or providing of output service by their manufacturing units. The appellants have not disputed this fact and also admits that there are certain input services which are commonly availed at their head office in respect of both for their manufacturing as well as loan licensed units. As per Cenvat Credit Rules, 2004, duty paid on input goods/input services can be availed as Cenvat credit which is used in the manufacture of final products or for providing .....

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des services on which no service tax is leviable under Section 66 of the FA., 1944 and taxable services whose part of value is exempted on the condition that no credit of inputs and input services used for providing such taxable service, shall be taken and an explanation was also inserted to the said Rule 2(e) saying that for removal of doubts, it is hereby clarified that exempted services includes trading. The effect of the said amendment and the explanation added is that no input goods and inp .....

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of hearing held on 7.11.2016. The Madras High Court has also upheld the suppression aspect as well in such cases, which is akin to the case on hand. The Contentions of the appellant and the department s view are as follows:- i) The trading was a service which was subsequently exempted with effect from 1.04.2011. This view is not correct in as much as trading is neither a manufacturing activity nor a service as per Finance Act, 1994. Therefore, question of availing CENVAT in respect of Trading ac .....

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to trading activities in any of the records submitted by the appellants. By any stretch of imagination, the department cannot ascertain the details of Cenvat Credit attributable to their trading activity from the records furnished by the appellant. This view has also been upheld by Hon ble High Court of Madras in the case of M/s FLSmidthpvt., Ltd., Vs CCE., reported in 2014-TIOL-2186-HC- MAD-CX. In this view of the matter, the activity of TRADING is neither a manufacturing activity nor an output .....

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7. The learned A.R. submitted that various judgments cited by the learned counsel for the appellant are not directly applicable to the facts and circumstances of this case. He further submitted that the issue which is involved in the present appeals had already come before the Tribunal in the case of M/s Orion Appliances Ltd. Vs. CST, Ahmedabad [2010-TIOL-752-CESTAT-AHM] and the Tribunal in the said case has decided the following three issues : (i) Whether trading activity can be called as servi .....

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activity can be called as a service, it is quite clear that since the trading activity is nothing but purchase and sales and is covered under sale tax law, it may not be appropriate to call it a service. Therefore, it has to be held that trading activity cannot be called a service and therefore, it cannot be considered as an exempted service also. It is pertinent to note that the trading activity has been specifically covered as exempted service with effect from 1.4.2011. This amendment in the .....

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he following substantial question of law :- 1) Whether in the facts and circumstances of the case, the Tribunal was right in holding that the activity of trading to be considered as exempted service for the period prior to 1.4.2011 even though the same has been identified as an exempted activity only from 01.4.2011? 2) Whether in the facts and circumstances of the case, the Tribunal was right in giving effect to the amendment introduced to the definition of exempted service for the period prior .....

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