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TMI Blog2016 (9) TMI 1539X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the manufacture of excisable goods and have also done trading of Plastic Granules value of which according to balance sheet is Rs. 8,87,60,610/-. The explanation to the Rule 2(e) of CENVAT Credit Rules, 2004 stipulates that 'exempted service' includes trading. Thus, the Noticee was involved in manufacturing of excisable goods as well as in providing exempted services. However, upon scrutiny of the Cenvat record it was found that they were availing Cenvat credit on common input services such as Telephone Services, Banking Services, Internet Service etc. 3. Rule 6 of the Cenvat Credit Rules, 2004 which stipulates obligation for manufacturers engaged in manufacturing of dutiable as well as exempted goods and providing taxable as well as exempted service, as it existed at material time, reads as under:- 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 goods or for provision of exempted services, or input service used in or in relation to the manufacture of exempted goods and their clearance up to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n inputs under sub-clauses (ii) and (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 sub-rule (3A) shall not apply for such payment. 4. Thus, as per provisions of CENVAT Credit Rules, 2004, in case, where assessee is manufacturing excisable goods and providing exempted service i.e. trading and taking credit on common input services then he shall liable to comply with either rule 6(2) ibid or any of the provision of rule 6(3) ibid. 5. However, it appeared that the Noticee has not complied with the provisions of Rule 6(2) of CENVAT Credit Rules, 2004 in as much as as they have not maintained separate accounts for input services in respect of excisable goods and exempted services i:e. 'trading', and therefore, they were left with no option other than to comply with either of the provision of Rule 6(3) ibid. It also appeared that the Noticee has exercised the option under Rule 6 (3A) ibid before jurisdictional Superintendent for paying proportionate amount, hence they were required to comply with Rule 6(3)(i) of ibid. 6. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have rendered themselves liable for penal action under Rule 15 of CENVAT Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944. 10. The above observations culminated into issuance of Show Cause 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taken CENVAT credit totally amounting to Rs. 4,41,844/- on Telephone Services, Banking Services and Internet service which have been listed as common 'input services' in the show cause notice; that against this amount a huge demand of Rs. 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 Rs. 27,72,837/- against a total credit taken of Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0) STR 381 (T) 12.10 The Noticee stated that for the purpose of 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 liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oval 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 05-06-2012: A negative list of services implies two things: (1) a list of services which will not be subject to serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 Rs. 4,41,884/- on telephone services, banking services and internet services, which are common input services and against this the huge demand of Rs. 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 admissible on inputs if it is used in manufacture of exempted products. It has been further held that Legal effect of sub-rule (1) has to be applied to all inputs, for which one has to maintain separate account or in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bid. 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 ascertaining the amount of credit, that by itself makes rule 6(3)(b) directory. 15.7 I also find that the Noticee has argued that against the total availed CENVAT credit of Rs. 4,41,844/- the demand of Rs. 27,72,837/- is defeating the purpose of CENVAT credit scheme a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Mercedes Benz India (P) Limited - 2015 (40) S.T.R. 381 (Tri. Born) I find that in the instant case the option under Rule 6(3A) of CENVAT Credit Rules, 2004 was filed. Therefore the case was decided in the favour of assessee. However, in the instant case presumptive option under Rule 6(3A) of CENVAT Credit Rules, 2004 cannot be accepted in lack ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NVAT 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 provisions of section 11 AC of the Excise Act. Thus, I find that the Noticee are liable for penalty as stipulated under Section 11AC of Central Excise Act, 1944. 20.3 Upon further referring to Section 11AC(1)(b) of the Central Excise Act, 1944, as it stood during relevant time, I find that it read as under: (b) where details of any transaction available in the specified records, reveal that any duty of excis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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