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2019 (7) TMI 590

..... vy of service tax are not applicable in the state of Jammu and Kashmir - HELD THAT:- It is a matter of record that though the appellant are not required to pay any service tax on the output service provided by them in the state of Jammu and Kashmir, however, under a mistaken belief that the provision of the Finance Act, 1994 are also applicable in the state of Jammu and Kashmir, the appellant paid service tax on the output services provided by them in the state of Jammu and Kashmir - This fact prove the bonafide of the appellant that firstly by the fact that they had been under the wrong impression that service tax liability is applicable in the state of Jammu and Kashmir; secondly that service tax which have been paid on the output service is much more than the input and capital input Cenvat credit availed by them. We do not agree with the finding of the Original Adjudicating Authority that “if the credit is taken for an activity which does not constitute service, payment of service tax will not amount to reversal of the credit”. demand deleted Validity of SCN - Penalty u/s 78 - HELD THAT:- If there is no suppression or collusion or willful misstatement with an intent .....

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..... , 2004 will be applicable. During the course of hearing, the learned Advocate has taken us through a chart of deactivation/activation of the CPEs for various subscribers. It can be seen from the provisions of Rule 3 (5) that the law has provided that in case the inputs or capital goods on which Cenvat credit has been availed are removed as such from the premises of the manufacturer or service provider, the manufacturer or service provider will have to reverse back the Cenvat credits equal to the amount of the credits availed by them. However, under the proviso to Rule 3 (5) it is provided that “such payment shall not be required to be made where any input or capital goods are removed outside the premises of the provider of the output service for providing the output service. It can be seen that the provider of the output service namely appellant in this case, has taken the Cenvat credit on the CPEs which are the capital goods for providing output service at the premises of the subscribers and as per the provisions of the above-mentioned proviso to Rule 3 (5) the appellant are entitled for availing the Cenvat credit on the CPEs under the capital goods credit and they can also .....

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..... t Credit Rules, 2004 have also been invoked. Under the above-mentioned show cause notice the demand of Cenvat credit has been made on following grounds : (i) a demand of ₹ 4,18,94,327/- has been made on the ground that the appellant have availed Cenvat credit on the CPEs (Consumer Premises Equipment) which were installed in the State of Jammu and Kashmir and as the provision of the Finance Act, 1994 are not applicable to the State of Jammu and Kashmir, it has been alleged that the appellant have wrongly availed Cenvat credit and accordingly reversal of the Cenvat credit has been demanded as per the provision of Rule 14 of the Cenvat Credit Rules, 2004 readwith the proviso to the Section 73 (1) of the Finance Act, 1994; (ii) the second issue on which the demand has been raised in the above-mentioned show cause notice pertains to the matter that the appellant need to reverse back the Cenvat credit on the CPEs (Consumer Premises Equipment) installed on complementary basis at the premises of certain customers/subscribers. A demand of ₹ 8,71,650/- has been raised on this issue as per the provision of Section 73 (1) of the Finance Act, 1994, (iii) a demand of ₹ 62,66,43 .....

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..... paid to Government exchequer utilizing the Cenvat credits. The appellant has submitted that they have paid service tax on the services provided in the state of Jammu & Kashmir upto January 2013 and the service tax was paid by utilizing the Cenvat credits as well as by paying in cash. The details are given here below :- Period Total Service Tax payment (Rs.) Cenvat credit utilized for payment of service tax (Rs.) Service Tax paid in cash (Rs.) Date of filing of relevant ST-3 return 2009-2010 1,216,050,209/- 1,141,968,929/- 74,081,280/- April - September 2009 - 23/10/2009 October - March 2010 - 23/07/2010 2010-2011 1,589,642,450/- 1,548,505,832/- 41,136,618/- April - September 2010 - 26/10/2010 October - March 2011 - 25/04/2011 2011-2012 1,94,57,90,608/- 1,87,55,28,002/- 7,02,62,606/- April - September 2011 - 25/12/2011 October - March 2012 - 25/04/2012 01/4/2012 to 31/01/2013 2,26,47,56,192/- 1,58,43,18,011/- 68,04,38,181/- April - June 2012 - 22/11/2012 July - September 2012 - 22/04/2013 October - March 2013 - 31/08/2013 Total 701,62,39,459/- 615,03,20,774/- 86,59,18,685/- 4. It can be seen from above chart that the appellant made payment of service tax by utilization of Cenvat .....

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..... e the CENVAT credit availed. The Gujarat High Court held that Cenvat credit cannot be denied when the assessee has paid the tax, as payment of tax amounts to reversal of credit. The court in paragraph 7 of the decision held as follows : The Tribunal is justified in holding that if the activity of the respondent - assessee does not amount to manufacture there can be no question of levy of duty, and if duty is levied, Modvat credit cannot be denied by holding that there is no manufacture. This decision was upheld by the Supreme Court by dismissing the SLP filed by the revenue. The order of dismissal is reported at 2009 (243) E.L.T. A 121. (ii) Commissioner of Central Excise, Pune - III vs. Ajinkya Enterprises - 2013 (294) E.L.T. 203 (Bom.) On similar facts, the High Court in this case dismissed the appeal of the Revenue on the ground that if duty is paid where it is not required under law to be discharged, Cenvat credit availed need not be reversed. (iii) The Mumbai Tribunal in the case of PSL Holdings Ltd. vs. Commissioner of Central Excise - 2003 (156) E.L.T. 602 (Tri. - Mum.) held : By utilization of credit for payment of duty which was not required to be paid, credit was effectiv .....

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..... ent of the capital goods namely CPEs are received on continuous basis on the purchase invoices indicating payment of excise duty. As per the standard accounting principle the credits are taken as soon as payment for purchases are made and invoices have been received. The fact that certain CPEs have not been received on or have been lost comes to light on later date. It has been also contended that the Commissioner has been provided with the details of set-top boxes which have been lost during 2010-2011 to 2011-2012 and for 2013-2014, on which Cenvat credit have already been reversed. It has further been mentioned that only for a short period of 2012-2013 by oversight the Cenvat credits have not been reversed. It has further been argued that even without any prejudice the maximum penalty could have been 50% of the credit Cenvat credit wrongly availed by them as per the provisions of 1st proviso to Section 78 of the Finance Act, 1994 and further since entire amount of wrongly availed Cenvat credit alongwith the interest and penalty have already been deposited in the form of voluntarily payment of ₹ 5 crores with the Department, the benefit of reduced penalty of 25% should have .....

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..... 2008 to 2010-2011 contending that such credit was to be reversed under Rule 3 (5B) of the Cenvat Credit Rules, as according to the Department the set-top boxes value had been written off fully in the books of accounts before being put to use. Such a demand was dropped by the Commissioner, CGST, Noida by order dated 12/01/2018 holding that the capital goods had been put to use as also the capital goods have not been fully written off. The Commissioner in that order has also noted the fact that the local Range office had objected to the denial of credit by letter dated 31/01/2013. A copy of the order passed by the Commissioner CGST, Noida dated 12/01/2018 has been filed along with the compilation of judgments to this Bench. It is further been submitted that no appeal has been preferred by the Department before CESTAT against the above-mentioned order-in-original. Thus, the Department was fully aware, prior to issuance of the present show cause notice of the appellant s practice, and when the appellants are following the same practice all throughout, without prejudice to the merits of the case, invoking the extended period of limitation and imposition of penalty contending there was m .....

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..... indicates the amount of the Cenvat credit utilization as well as payment of service tax in cash during a period from 2009-2010 to 31 January 2013 :- Period Total Service Tax payment (Rs.) Cenvat credit utilized for payment of service tax (Rs.) Service Tax paid in cash (Rs.) Date of filing of relevant ST-3 return 2009-2010 1,216,050,209/- 1,141,968,929/- 74,081,280/- April - September 2009 - 23/10/2009 October - March 2010 - 23/07/2010 2010-2011 1,589,642,450/- 1,548,505,832/- 41,136,618/- April - September 2010 - 26/10/2010 October - March 2011 - 25/04/2011 2011-2012 1,94,57,90,608/- 1,87,55,28,002/- 7,02,62,606/- April - September 2011 - 25/12/2011 October - March 2012 - 25/04/2012 01/4/2012 to 31/01/2013 2,26,47,56,192/- 1,58,43,18,011/- 68,04,38,181/- April - June 2012 - 22/11/2012 July - September 2012 - 22/04/2013 October - March 2013 - 31/08/2013 Total 701,62,39,459/- 615,03,20,774/- 86,59,18,685/- 11. Thus, it has been claimed by the appellant that though they have availed the Cenvat credit in respect of CPEs installed in the state of Jammu and Kashmir and the credit so availed had been utilized for payment of service tax in respect of service tax paid by them to the Centra .....

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..... of the Cenvat credit for payment of duty, which was not required to be paid, the credit effectively stands reversed and revenue cannot once again ask for reversal of the credits. The relevant extract of certain relevant decisions are reproduced here below :- (a) Commissioner of Central Excise & Customs, Surat - III vs. Creative Enterprises - 2009 (235) E.L.T. 785 (Guj.) In the present case, the assessee was under the impression that the activity undertaken by it amounted to manufacture and accordingly paid excise duty and also availed Cenvat credit of the inputs utilized. The department contended that as the activity of the assessee did not amount to manufacture, the assessee is liable to reverse the CENVAT credit availed. The Gujarat High Court held that Cenvat credit cannot be denied when the assessee has paid the tax, as payment of tax amounts to reversal of credit. The court in paragraph 7 of the decision held as follows : The Tribunal is justified in holding that if the activity of the respondent - assessee does not amount to manufacture there can be no question of levy of duty, and if duty is levied, Modvat credit cannot be denied by holding that there is no manufacture. .....

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..... hallan No. 173, 391 and 176 dated 30 July 2014, 1 August 2014 and 11 August 2014 respectively against the demand of Cenvat credit which was being investigated by the department at that time. 15. We also note that the appellant have kept record of all the services which have been provided by them as well as the Cenvat credit which have been availed and utilized by them during the period covering from April 2009 to March 2014. We feel that ingredients of invoking the extended time proviso under Section 73 (3) of the Finance Act, 1994, such as, fraud, mis-representation, mis-statement and willful suppression of facts with an intent to evade payment of duty are not present in this case and therefore we hold that the provisions of Section 78 of the Finance Act, 1994 cannot be invoked in given circumstances. We also find that as per the provisions of Section 73 (3) which are reproduced here below :- Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refu .....

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..... ng the fides of the conduct of the assessee are made in the show cause notice, a requirement that the show cause notice in the present case fails to meet. In Aban Loyd Chiles Offshore Limited and Ors. (supra), this Court made the following observations : 21. This Court while interpreting Section 11-A of the Central Excise Act in Collector of Central Excise v. H.M.M. Ltd. (supra) has observed that in order to attract the proviso to Section 11-A(1) it must be shown that the excise duty escaped by reason of fraud, collusion or willful misstatement of suppression of fact with intent to evade the payment of duty. It has been observed : ...Therefore, in order to attract the proviso to Section 11-A(1) it must be alleged in the show-cause notice that the duty of excise had not been levied or paid by reason of fraud, collusion or willful misstatement or suppression of fact on the part of the assessee or by reason of contravention of any of the provisions of the Act or of the Rules made thereunder with intent to evade payment of duties by such person or his agent. There is no such averment to be found in the show cause notice. There is no averment that the duty of excise had been intentional .....

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..... ost in transit or lost at the distributor s premises before same being put for use in providing the output service. The appellant have admitted the fact that during the financial year 2012-2013 they have failed to reverse back an amount of ₹ 62,66,437/- on 32,078/- CPEs which were lost either in transit or at the distributor s premises before being used or put for use for providing the output service. However, it has been contended by the appellant that they have regularly been reversing back the Cenvat credit on the lost CPEs which were not put for use for providing output service. In this regard, the following details have been provided by the learned Advocate appearing for the appellant :- Financial year No. of CPEs lost Cenvat credit availed (in Rs.) Cenvat credit already reversed (in Rs.) 2009-2010 0 0 0 2010-2011 2,261 3,07,406/- 3,07,406/- 2011-2012 1,24,276 2,27,52,634/- 2,27,52,634/- 2012-2013 32,078 62,66,437/- 0 2013-2014 74,164 1,86,89,328/- 1,86,89,328/- 19. A glance at the above table thus points out that during financial year 2010-2011, 2011-2012 and 2013-2014 a substantial amount of Cenvat credit had already been reversed by the appellant for the CPEs which we .....

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..... ment has been of the view that the capital goods which have been removed by the appellant after being used, the Cenvat credit availed initially at the time of the purchase of such capital goods required to be reversed in the manner as prescribed under Rule 3 (5) of the Cenvat Credit Rules, 2004. The basic premise on which the Cenvat credit has been asked for the reversal is that the CPEs installed at the consumer premises and where either connection has been disconnected or deactivated and as such no output service is being provided by such CPE; Secondly, as per the facts of the case, the CPEs remained in the custody of the consumer and they are not taken back by the appellant after the consumer has either stopped the subscription or the appellant himself has deactivated services to the such customers. In these circumstances, it is presumed that the CPEs has been removed from the premises of the appellant and accordingly the provisions of Rule 3 (5A) of Cenvat Credit Rules, 2004 will be applicable. During the course of hearing, the learned Advocate has taken us through a chart of deactivation/activation of the CPEs for various subscribers. The learned Advocate has tried to show tha .....

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..... at if the amount so calculated is less than the amount equal to the duty leviable on transaction value, the amount to be paid shall be equal to the duty leviable on transaction value. (b) If the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty leviable on transaction value. (5B) If the value of any, (i) Input, or (ii) Capital goods before being put to use, [on which CENVAT credit has been taken is written off fully or partially or where any provision to write off fully or partially has been made in the books of account then] the manufacturer or service provider, as the case may be, shall pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods : Provided that if the said input or capital goods is subsequently used in the manufacture of final products or the provision of [output] services, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these rules.] 22. It can be seen from the provisions of Rule 3 (5) that the law has provided that in case the i .....

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..... order-in-original is legally not sustainable as the facts involved in this case are appropriately covered by the provisions of Rule 3 (5) proviso which say that the capital goods can be removed to the subscribers premises for further provision of the output service. It is also relevant to mention here that during the course of arguments, the learned Advocate has taken us through the record of the appeal wherein it has been pointed out that certain deactivated CPEs gets activated after lapse of certain months or years and, therefore, it is also wrong to assume that the CPEs (capital goods) on which the Cenvat credit has been taken by the appellant are not being put for providing the output service. In these circumstances, we feel that the appellant have rightly availed the Cenvat credit on the CPEs which have been placed for utilization at the subscribers premises and there is no provision under Cenvat Credit Rules for reversal of the Cenvat credit on such CPEs if they are being used for providing output service. We also take note that the impugned order-in-original has wrongly confirmed the reversal of the Cenvat credit under Rule 3 (5A) of the Cenvat Credit Rules, 2004 which is pr .....

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..... and Kashmir on which no service tax has been paid by the appellant, the appellant need to reverse back the Cenvat credit amounting to ₹ 87,35,678/- as per the provisions of Section 73 (1) of the Finance Act, 1994 readwith Rule 14 of Cenvat Credit Rules, 2004 ; (II) we also uphold the reversal of Cenvat credit amounting to ₹ 62,66,437/- on set top boxes which were lost in transit or lost at the distributors premises before being put to use as per the provision of Section 73 (1) of the Finance Act, 1994 readwith Rule 14 of the Cenvat Credit Rules, 2004 ; (III) we set aside the confirmation of the reversal of Cenvat credit amounting to ₹ 9,84,62,671/- as discussed in the preceding paras on the set top boxes which were deactivated at the subscribers premises. 27. We also confirm appropriate amount of interest as per the provisions of Section 75 of the Finance Act, 1994 readwith the Cenvat Credit Rules, 2004 on the above-mentioned two amounts of the Cenvat credits as confirmed for reversal under para 26 (I) to 26 (II) above. 28. Since, the appellant have already deposited an amount of ₹ 5 crores vide challan No. 00173 dated 30 July 2014, challan No. 00391 dated .....

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