TMI Blog2016 (9) TMI 1539X X X X Extracts X X X X X X X X Extracts X X X X ..... er Rule 6(3) of CENVAT Credit Rules, 2004. The explanation III to Rule 6 ibid provides that the amount payable under Rule 6(3) ibid shall be recovered under provisions of Rule 14 ibid. Upon referring to Rule 14 of CENVAT Credit Rules, 2004 I find that it stipulates that it shall be recoverable under Section 11A of Central Excise Act, 1944 along with interest under Section 11AA ibid. Thus the question carved at Para 13 (i) is answered in affirmation. The fact of trading activity came to the knowledge of the department only during the course of audit. Prior to that Noticee has not intimated anything to the department Thus the Noticee has willfully suppressed the fact with an intention to evade the payment of amount under Rule 6(3) of CENVAT Credit Rules, 2004 and have availed and utilized ineligible CENVAT credit. Therefore, the extended period has been rightly invoked under Section 11A(5) of Central Excise Act, 1944. The Noticee are liable for penalty equal to 50% of the amount under Rule 15 of CENVAT Credit Rules, 2004 read with Section 11A(5) of Central Excise Rules, 2002 read with Section 11AC(1)(b) ibid. Thus, the point is answered in affirmation. - ORDER IN ORIGINAL NO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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) the receipt, consumption and inventory- of inputs used (i) in or in relation to the manufacture of exempted goods: (ii) in or in relation to the manufacture of dutiable final products excluding exempted goods: (iii) for the provision of exempted services;. (iv) for the provision of output services excluding exempted services: and (b) the receipt and use of input services - (i) in or in relation to the manufacture of exempted goods and their clearance up to the place of removal: (ii) in or in relation to the manufacture of dutiable final products, excluding exempted goods, and their clearance up to the pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Period Purchase Value of trading goods Sales Value of trading goods Diff. of Col. 3-2 10% 3612% of Sales Value i.e. Co1.3 Value of Exempted Service Higher of Co1.4 85 5 Rate Amount 1 2 3 4 5 6 7 9 01-04-11 To 16-03-12 67457109 69925500 2468391 6992550 6992550 5% 3,49,627.50 17-03-12 to 31-03-12 18460495 18835110 374615 1883511 1883511 6% 1,13,010.66 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Notice No: V.84/AR-Veraval/RJT/DVN-II/ADC(PAV)/159/2015-2016 dated 29-01-2016 wherein it was proposed to demand and recover the amount of ₹ 27,72,837/- (Rupees Twenty Seven Lakhs, Seventy Two Thousand, Eight Hundred and Thirty Seven only) from Noticee payable by them under Rule 6(3) of the Cenvat Credit Rules, 2004 under Rule 14 of CENVAT Credit Rules, 2004 read with proviso to Section 11A(5) of Central Excise Act, 1944. It was further proposed to charge and recover interest under Rule 14 ibid read with Section 11AA ibid on the said amount payable under Rule 6(3) ibid. Further, it was also proposed to impose penalty under Rule 15 ibid read with Section 11AC ibid. Personal Hearing 11. Personal hearing in the matter was fixed on 18-05-2016 however the same was not attended by the Noticee. However, in subsequent hearing held on 02-08-2016, Shri Archit Kotwal, Consultant appeared on behalf of the Noticee and filed written submissions. He also placed reliance on the various case laws cited in their submissions. Submissions file by the Noticee 12.1 The Noticee in their submitted the exempted service , amended with effect from 20.6.2012 vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been listed as common input services in the show cause notice; that against this amount a huge demand of ₹ 27,72,837/- has been raised which is against the spirit of the law; that the basic purpose of Rule 6 of the Cenvat Credit Rules, 2004 is to ensure that the CENVAT credit on inputs or input services used in exempted goods or services is not availed since the same is against the spirit of the CENVAT scheme; that demanding an amount of ₹ 27,72,837/- against a total credit taken of ₹ 4,41,844/- would defeat the very purpose of the CENVAT scheme and would amount to levy of duty on traded goods which is not legally correct and placed reliance on the case laws of M/s Maize Products reported at 2009 (234) ELT 431 (Guj), M/s Anil Starch Ltd. reported at 2010 (260) ELT 54 (Guj) and M/s Maan Pharmaceuticals Ltd. reported at 2011 (263) ELT 661 (Guj). 12.6 The Noticee therefore argued that the matter is no longer res integra and in such cases they would be required to reverse the proportionate cenvat credit used in exempted service viz. trading activity. 12.7 The Noticee also referred to the Union Budget 2016 wherein Rule 6 of the Cenvat Credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f correct determination of the proportionate CENVAT credit, the formula given under the amended Rule 6(3A) of the Cenvat Credit Rules, 2004 is most accurate and they be permitted to reverse the proportionate CENVAT credit in terms of the said calculation along with interest by application of the annual formula for the period under consideration 12.11 The Noticee while summing up their submissions stated that the demand for the period from 20.6.2012 may be set aside on since the show cause notice proposes to make the charges on the basis of a nonexistent piece of legislation; that alternately, they requested to allow them to debit the proportionate credit attributable to the trading activity and they will submit the month-wise working of the CENVAT credit required to be reversed in terms of the above provisions and pay the same alongwith interest on receipt of approval. Discussion and findings: 13. I have carefully gone through the entire case records and the submissions made orally as well as in written form. I find that following issue needs to be decided in the present proceedings. (i) Whether the Noticee is liable to pay an amount along wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation .- For the removal of doubts, it is hereby clarified that exempted services includes trading Thus, as per above definition trading is a exempted service. 14.4.2 I further find that vide Notification No: 28/2012-CE(NT) dated 20-06-2012 w.e.f. 01-07-2012, the definition of exempted services given under Rule 2(e) was amended, which reads as under: exempted service means a- (1) taxable service which is exempt from the whole of the service tax leviable thereon; or (2) service, on which no service tax is leviable under section 66B of the Finance Act; or (3) taxable service 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; but shall not include a service which is exported in terms of rule 6A of the Service Tax Rules, 1994 14.4.3 I find that vide Finance Act, 2012 new Section 66D, which specifies Negative list of services, has been inserted into the Finance Act, 1994 and have been notified to be effective from 01-07-2012 vide Notification No: 19/2012-Service Tax dated 05-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve no applicability in the present proceedings. 14.8 Thus, I hold that the Noticee are liable to pay an amount of ₹ 27,72,837/-, as worked out in Show Cause Notice, under Rule 6(3) of CENVAT Credit Rules, 2004 read with Rule 14 ibid. 15.1 I find that Noticee has placed another set of argument that they have availed CENVAT credit of ₹ 42,687/- on banking services utilized for trading activity; that they have not made any international call for trading activity with reference to CENVAT credit availed on telephone services; that during the period from 01.04.2011 to 31.07.2013 they have availed total CENVAT credit of ₹ 4,41,884/- on telephone services, banking services and internet services, which are common input services and against this the huge demand of ₹ 27,72,837/- is against the spirit of law and cited case laws in their support. 15.2 I find that Supreme Court I their judgment in the case of Commissioner of Central Excise V/s. Gujarat Narmada Fertilizers Company Limited - 2009 (240) ELT 661 (SC) has clearly held the plenary and restates the principle in-built in the very structure of CENVAT scheme that credit is not admissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue in depth. Their Lordship have clearly held, with reference to CENVAT Credit Rules, 2004, that Rule 6(2) ibid mandatorily applicable once dutiable and exempted final products manufactured from common inputs and credit can be availed only in terms of Rule 6(3) ibid. It has been further held that Court cannot read in rule something different or render otiose the words therein and following sub-rule (2) ibid is the only method when CENVAT credit sought to be availed on inputs used in exempted goods. Also the language in Rule 6(1) ibid does not grant credit except in circumstances mentioned in sub-rule (2) ibid which is mandatory and not directory. Once law itself laid down the circumstances under which credit can be availed, it is that method by which the credit can be availed and it is not open to an assessee to contend that because they have chosen not to maintain the records as required, revenue authorities, even against the grain of the language of the rule, must estimate the inputs used in the manufacture of final dutiable products and accordingly, pass necessary orders. It is also not possible to accept the contention that because they are familiar with the procedure of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, 1944 and CENVAT Credit Rules, 2002 whereas the dispute on hand is pertaining to CENVAT Credit Rules, 2004, which provides very clear directions to deal with the cases where no separate accounts are maintained. Therefore, I find that the cited case laws of Gujarat High Court are not having any binding precedent therefore the same are not applicable. Hence, I find that there is no violation of law laid down by the Supreme Court in the case of Kamalakshi Finance Corporation Limited - 1991 (55) ELT 433 (SC). 17.1 The Noticee has argued that they have been filing periodical returns which contains all the details required under the option to be filed under Rule 6(3) therefore it cannot be said that they have not filed any option. I find that at that material time the option to file was available. However, the option required various details which are not made available in the statutory returns. Further, when rules specifically provide an act on the part of the assessee mere filing of returns and that too not containing any details as required cannot be allowed to be used as shield against the violation of provisions. 17.2 In the relied upon case law of Mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of extended period the Noticee has not made any submissions. But it is also a fact that the facts were noticed by the department only during the audit. Therefore, the extended period is rightly invoked. Thus, the point raised at Para 13(ii) is also answered in affirmation. 20.1 Now I proceed to decide the last point raised at Para 13 (iii) i.e. whether penalty under Rule 15 of CENVAT Credit Rules, 2004 read with Section 1 lAC of Central Excise Act, 1944 is liable to imposed on the Noticee or otherwise. 20.2 I find that in the instant case there is element of willful suppression of the fact with an intention to evade payment of duty therefore the provisions of Rule 15(2) of CENVAT Credit Rules, 2004 are applicable which stipulates that: 2) In a case, where the CENVAT credit in respect of input or capital goods or input services has been.. taken or utilized wrongly by reason of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of the Excise Act, or of the rules made thereunder with intent to evade payment of duty, then, the manufacturer shall also be liable to pay penalty in terms of the pr ..... 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