TMI Blog2020 (3) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. Therefore, the input services on which CENVAT Credit availed in the present case mentioned under sub-rule (5) of Rule 6 of the CENVAT Credit Rules, 2004 would be admissible, even if the same are used both for exempted services as well as taxable output services giving due effect to the non-obstante clause mentioned under the said Sub-rule. There is fundamental fallacy in the approach and would be at the cost ofmis-interpretation of the said rules. No doubt, CENVAT Credit on input services would be allowed only when it is used in the taxable output services and/or dutiable manufactured goods; but when common input services are used in both taxable and exempted services or non-taxable services, the appropriate rule prescribed under CENVAT Credit Rules is Rule 6 of the CENVAT Credit Rules, 2004 - It prescribes a procedure/mechanism to separate the inadmissible quantum of cenvat credit used in the exempted services and/or exempted goods. To simplify the procedure further in case of input service credit, sub-rule(5) lays down a fiction whereby services mentioned under the said Rule deemed to have been used in providing only taxable service, and consequently the rigour of Sub-Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mal period of limitation. The Appeals filed by the assessee are disposed of by way of remand to the adjudicating authority. - Excise Appeal No.370 of 2011, 385 of 2012, 1019 of 2012, 456 of 2011, Excise Cross Objection No. 35 of 2011 - A/85162-85165/2020 - Dated:- 31-1-2020 - HON BLE DR. D.M. MISRA, MEMBER (JUDICIAL) AND HON BLE MR. P. ANJANI KUMAR, MEMBER (TECHNICAL) For Appellant: Shri V. Sridharan, Sr. Advocate For Respondent: Shri Bidhan Chandra, ADC (AR) ORDER PER: DR.D.M. MISRA Out of the four Appeals filed against respective orders passed by Commissioner of Central Excise, Pune, three are by the Assessee and one by the Revenue. 2. Appeal No. E/372/2011, E/385/2012, E/1019/2012 are filed by the Assessee and Appeal No.456/2011 is filed by the Revenue. Cross Objection No. E/Cross/35/2011 is filed by Assessee in Appeal No.456/2011. Since the issues are common, all these appeals are taken up together for hearing and disposal. 3. Briefly stated the facts common to all the case are that the Appellants are engaged in the manufacture of Motor Vehicles and parts thereof. On the said manufactured goods, they had discharged appropriate excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest and penalty, which was confirmed by the Adjudicating Authority by Order dt.19.08.2011, which was also challenged before this Tribunal and Assessee s appeal E/385/2012 was also dismissed by Order dt.20.02.2014. Fourth Show Cause Notice was issued to the Appellant on 26.08.2011 for the period from August 2010 to March 2011, for recovery of the amount of ₹ 25,62,01,608/- with interest and penalty, was adjudicated on 30.03.2012. The Tribunal by Order dt.20.02.2014, remanded the matter for re-computation of the demand on pro-rata basis. Aggrieved by the order of the Tribunal dt.20.02.2014, the Assessee preferred an appeal before the Hon ble High Court. Hon ble High Court by Order dt.11.01.2016 remanded the matter to the Tribunal to re-decide the issue. While remanding the matter for re-computation, the Hon ble High Court observed that the relief granted in Appeal No.1019/2012 by the Tribunal relating to demand of 6% of the value of the trading turnover since not challenged by the Revenue should not be reopened. Thus, all the aforesaid matters came to be remanded by Hon ble High Court to Tribunal to decide the issues raised by the Appellant. 4. The learned Senior Advo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit Rules, 2004, he has submitted that the value for the purpose of sub-rule (3) and (3A) in the case of service on trading of goods it shall be the difference between the sale price and the cost of the goods sold, or 10% of the cost of the goods sold whichever is more. 4.3 He has further submitted that Rule 3(1) of CENVAT Credit Rules, 2004 enumerates the types of duties/taxes available as CENVAT Credit and Rule 3(4) prescribes the manner of utilization of CENVAT Credit. Rule 6(1) states that no CENVAT Credit would be available for the quantity used in exempted goods or services. He has vehemently argued that all these fundamental provisions continue to remain un-altered by an amendment made in April 2011. Therefore, the amendment and the formula prescribed w.e.f. 01.04.2011 achieve the same object enacted under Rule 6(1) i.e. CENVAT Credit of input/input services will not be allowed when used in exempted goods/services. It is his contention that thus applying the said explanation in the formula prescribed under Rule 6(3A)(c)(ii) of CENVAT Credit Rules, 2004, the reversal of credit formula for trading would be numerator consisting of margin of trading, denominator consistin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... included in the denominator while computing the reversal of credit under Rule 6 of CENVAT Credit Rules, 2004. 4.6 Further, they have submitted that the Show Cause Notice dt.18.03.2009 issued for recovery of the credit for the period 01.03.2005 to 31.03.2009 is barred by limitation. It is their contention that the fact of importing and selling of CBUs were disclosed to the Department. Permission was sought for import and sale of the said vehicles and necessary permission was granted by the Department on 04.06.2001 and extended later on 02.08.2002. Further, he has submitted that the learned Commissioner (Appeals) in the case of Faber Heatkraft Industries Ltd - 2008 (232) ELT 182, while dealing with the similar issue, observed that the credit of service tax paid on input services is admissible as long as they are not exclusively used for trading. The Appellant s letter dt. 29.10.2009 indicated department s acceptance of the aforesaid Orderof the learned Commissioner (Appeals) and also the same reply was furnished during his statement on 08.10.2009 by Shri Anantharaman, GM. It is their contention that therefore, the issue of reversal of CENVAT Credit on traded goods since involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormula for determination of CENVAT Credit attributable to exempted service. It is his contention that all these formulae take into account the total value of the exempted services which necessitates the method to determine the value of service concerned with activity of trading. Referring to the explanation (I), he has submitted that the value for the purpose of sub-rule (3) and (3A) of 01.04.2011 has been explained, which was not in the statute book prior to 01.04.2011 and the activity of trading itself was not recognized as service. Therefore, applying the definition for the earlier period, is incorrect in view of the judgment in the case of Kasturi Sons Ltd Vs UOI 2011 (22) STR 129 (Mad), D.P. Jain Company Infrastructure P Ltd Vs UOI - 2016 (43) STR 507 (Bom). He has submitted that appropriate formula could be adopted for ascertaining the value of exempted service is under Rule 6(3A)(c)(ii) of CCR,2004. It is his contention that the said explanation stipulates the method of computing value for services like trading, which cannot be made applicable prior to 01.04.2011 for the reason that it is substantive in nature and affects the quantum of tax liability, hence, not retr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of Rule 6 would arise. Therefore, Rule 6(5) of CENVAT Credit Rules, 2004 must be read and understood in the context of admissibility of credit and scheme of CENVAT Credit Rules and in respect to the activities of manufacture and provision of output services. The dispute in the present case between the trading activity and manufacturing activity and during the relevant period, the trading was not considered as provision of service at all, therefore, contention of eligibility to Rule 6(5) ought to be rejected in totality. In support, he has referred to the judgment of this Tribunal in the case of M/s SKF India Ltd 2016 (41) STR 737 (Tri-Bom.). 6. Heard both sides and perused the records. 7. The undisputed facts relevant to determine the issues are that during the relevant period 2005-06 to 2010-11, the appellants are engaged in the manufacture and sale of cars and also import and sale of cars. The sales turnover of imported cars had been around 5% to 19% of the total sales turnover of the Appellant during the said period. The appellant had availed CENVAT Credit on inputs, capital goods and input services during the relevant period. The appellant had not availed CEN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he manufacturing of the goods (otherwise criterion should have been same viz. Based upon turnover or value addition). 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 conclusion in relation to the Explanation introduced with sub-clauses with effect from 1st April, 2011. On its introduction and even prior thereto, we do not find any justification then to hold that the Parliament intended to encourage trading of goods rather than manufacturing of the same. 21. The Parliamentary intent has to be gathered from the language used. If the words are plain, simple and clear, there is no scope for interpretation or applying any principle thereof. Once the Tribunal is bound to decide the controversy in the backdrop of the object and purpose sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; secondly in the formula-prescribed under Rule 6(3A) of CCR,2004, it is only the margin of value addition of the traded cars be considered or otherwise. 11. With regard to the first issue, the contention of the learned Advocate is that since sub-rule (5) of Rule 6 of CENVAT Credit Rules, 2004 begins with non-obstante clause, therefore, the services prescribed in the said sub-rule could not be subjected to the provisions contained in sub-rule (1), (2), (3), (4) of the CENVAT Credit Rules, 2004. The said provision read as follows: - 5.Notwithstanding anything contained in sub-rules (1), (2) (3), credit of the whole of service tax paid on taxable service as specified in sub-clause (g), (p), (q), (r), (v), (w),(za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of Section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services. 12. On a plain reading of the said sub-rule, it is clear that credit on whole of Service Tax paid on taxable input services mentioned in the said sub-rule(5) shall be allowed unless such service is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility of sub-rule (3A) of Rule 6 of the CENVAT Credit Rules, 2004 in apportioning the CENVAT Credit availed on common input services used in providing taxable output services as well as manufactured goods cleared on payment of duty and also in the sale of imported cars, the contention of the learned Advocate for the appellant that it is the trade margin or value addition on imported cars on its sale in India should be the factor in the numerator and denominator of the formula prescribed under the said sub-rule. Alternatively, it is their argument that in any case the total turnover of the traded goods which includes, the value of the cars, cannot be considered as the value of the traded goods in the numerator and denominator of the formula to apportion the credit attributable to the sale of imported cars. The contention of the Revenue on the other hand is that the total turnover of the sale of the cars including the cost of the imported cars ought to be considered for determination of the amount of credit required to be reversed when common input services used in taxable and non-taxable or exempted services. 14. To appreciate the argument advanced by both sides, it is necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty; (v) newsprint, in rolls or sheets, falling within heading No.48.01 of the said First Schedule; (vi) final products falling within Chapters 50 or 63 of the said First Schedule; (vii) goods supplied to defence personnel or for defence projects or to the Ministry of Defence for official purposes, under any of the following notifications of the Government of India in the Ministry of Finance (Department of Revenue), namely :- (1) No.70/92-Central Excise, dated the 17th June, 1992, G.S.R. 595 (E), dated the 17th June, 1992; (2) No.62/95-Central Excise, dated the 16th March, 1995, G.S.R. 254 (E), dated the 16th March, 1995; (3) No.63/95-Central Excise, dated the 16th March, 1995, G.S.R. 255 (E), dated the 16th March, 1995; (4) No.64/95-Central Excise, dated the 16th March, 1995, G.S.R. 256 (E), dated the 16th March, 1995; (viii) Liquefied Petroleum Gas (LPG) falling under tariff items 2711 12 00, 2711 13 00 and 2711 19 00 of the said First Schedule; (ix) Kerosene falling within heading 2710 of the First Schedule, for ultimate sale through public distribution system. the manufacturer shall pay an amount equivalent to the CENVAT Credit attributabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undred per cent export-oriented undertaking; or (iii) cleared to a unit in an Electronic Hardware Technology Park or Software Technology Park; or (iv) supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No.108/95-Central Excise, dated the 28th August, 1995, number G.S.R. 602 (E), dated 28th August, 1995; or (v) cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002; or (vi) gold or silver falling within Chapter 71 of the said First Schedule, arising in the course of manufacture of copper or zinc by smelting; or (vii) all goods which are exempt from the duties of customs leviable-under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty leviable under Section 3 of the said Customs Tariff Act when imported into India and supplied against International Competitive Bidding in terms of notification No.6/2002-Central Excise dated the 1st March, 2002 or Notification No.6/2006-Central Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year. Explanation II. For removal of doubt, it is hereby clarified that the credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted goods or provision of exempted service. (3A) For determination and payment of amount payable under clause (ii) of sub-rule (3), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely :- (a) while exercising this option, the manufacturer of goods or the provider of output service shall intimate in writing to the Superintendent of Central Excise giving the following particulars, namely :- (i) name, address and registration No. of the manufacturer of goods or provider of output service; (ii) date from which the option under this clause is exercised or proposed to be exercised; (iii) description of dutiable goods or taxable services; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempted services provided, during the financial year and L denotes total CENVAT Credit taken on inputs during the financial year minus H; (iii) the amount attributable to input services used in or in relation to manufacture of exempted goods or provision of exempted services = (M/N) multiplied by P, where M denotes that total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, N denotes total value of taxable and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and 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 aggregate amount determined and paid as per condition (b) , on or before the 30th June of the succeeding financial year, where the amount determined as per condition (c) is more than the amount paid; (e) the manufacturer of goods or the provider of output service, shall, in addition to the amount short ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation I. - Value for the purpose of sub-rules (3) and (3A), shall have the same meaning as assigned to it under Section 67 of the Finance Act, 1994 read with rules made thereunder or, as the case may be, the value determined under Section 4 or 4A of the Central Excise Act, 1944 read with rules made thereunder; Explanation II. - The amount mentioned in sub-rules (3), (3A), unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT Credit or otherwise on or before the 5th day of the following month except for the month of March, when such payment shall be made on or before the 31st day of the month of March. Explanation III. - If the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rule (3) or as the case may be sub-rule (3A), it shall be recovered, in the manner as provided in Rule 14, for recovery of CENVAT Credit wrongly taken. (4) No CENVAT Credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt from the whole of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 upto the place of removal or for provision of exempted services, except in the circumstances mentioned in sub-rule (2). Provided that the CENVAT Credit on inputs shall not be denied to job worker referred to in Rule 12AA of the Central Excise Rules, 2002, on the ground 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 exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation II. For removal of doubt, it is hereby 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 determination and payment of amount payable under clause (ii) of sub-rule (3), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely :- (a) while exercising this option, the manufacturer of goods or the provider of output service shall intimate in writing to the Superintendent of Central Excise giving the following particulars, namely :- (i) name, address and registration No. of the manufacturer of goods or provider of output service; (ii) date from which the option under this clause is exercised or proposed to be exercised; (iii) description of dutiabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oved plus the total value of taxable services provided plus the total value of exempted services provided, during the financial year and L denotes total CENVAT Credit taken on inputs during the financial year minus H; (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 = (M/N) multiplied by P, where M denotes that total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, N denotes total value of taxable and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and 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 aggregate amount determined and paid as per condition (b) , on or before the 30th June of the succeeding financial year, where the amount determined as per condition (c) is more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be liable to pay interest at the rate of twenty four per cent per annum from the due date till the date of payment. (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 taxable service specified in sub-clause (zm) of clause (105) of section 65 of the Finance Act, shall pay for every month an amount equal to fifty per cent of the CENVAT Credit availed on inputs and input services in that month. (3C) Notwithstanding anything contained in sub-rules (1), (2), (3) and (3B), a provider of output service providing taxable services as specified in subclauses (zx) and (zzzzf) of clause (105) of section 65 of the Finance Act, shall pay for every month an amount equal to twenty per cent of the CENVAT Credit availed on 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value or quantity of clearances made in a financial year. (5) Omitted (w.e.f. 1.4.2011) by Notification No.3/2011-CE(NT), dt.01.03.2011. (6) The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case of the excisable goods removed without payment of duty are either - (i) cleared to a unit in a special economic zone or to a developer of a special economic zone for their authorized operations; or (ii) cleared to a hundred per cent exported-oriented undertaking; or (iii) cleared to a unit in an Electronic Hardware Technology Park or Software Technology Park; or (iv) supplied to the United Nations or an international organization for their official use or supplied to projects funds by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No.108/95-Central Excise, dated the 28th August, 1995, number G.S.R. 602 (E), dated the 28th August, 1995; or (iv-a) supplied for the use of foreign diplomatic missions or consular missions or career consular offices or diplomatic agents in terms of the provisions of notification No.6/2006-Central Excise dated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned in the said sub-rule for taxable and non-taxable service be equivalent to as defined under Section 67 of the Finance Act, 1994 and the Rules made thereunder. 16. The Explanation-I to sub-rule 3A, has been amended by issuance of Notification no.3/2011-CE(NT) dt.01.3.2011 proposed to be effective from 01.04.2011. In Explanation-I the scope of value in case of trading has been prescribed for the first time by inserting clause (c) laying down that in case of trading the value shall be the difference between the sale price and the purchase price of the goods traded. However, it is immediately substituted by Notification No. 13/2011-CE (NT) dated 31.3.2011 before being brought into force from 01.4.2011, prescribing that it shall be the difference between the sale price and the cost of goods (determined as per generally accepted accounting principles without including the expenses incurred towards purchase) sold or 10% of the cost of the goods sold, whichever is more. Learned Advocate for the appellant though challenged the said meaning of value for traded goods, alternatively argued that in apportioning the quantum of credit that has been utilized in providing trading service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of such service. (4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed. Explanation. - For the purposes of this section, - (a) consideration includes any amount that is payable for the taxable services provided or to be provided; (b) money includes any currency, cheque, promissory note, letter of credit, draft, pay order, travelers cheque, money order, postal, remittance and other similar instruments but doe not include currency that is held for its numismatic value * * * * ] (c) gross amount charged includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and [book adjustment, and any amount credited or debited, as the case may be, to any account, whether called Suspense account or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise.] 19. A plain reading of Section 67 of Finance Act,1994 along with Service Tax (Determination of Value) Rules, 2006, and principles of law settled in this regard, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. 23. Learned Advocate has also assailed the confirmation of demand against the first Show Cause Notice for the period 01.03.2005 to 31.03.2008 on the ground that the same is barred by limitation. He has submitted that the appellant had obtained trading permission from the Department which was granted to them way back on 04.06.2001 and extended thereafter. Also, the Learned Commissioner (Appeals), Pune-III, in the case of Faber Feedcraft Industries 2008(232) ELT 182 observed that the credit on service tax paid on common input services can be availed if the same are used for manufacturing and also in trading activity. Therefore, their contention is that the issue since relates to interpretation of law and judgments on the issue are also in favour of the assessee during the relevant period, credit on common input services was taken under a bonfide belief, hence extended period of limitation is not attracted. We find force in the contention of the learned Advocate for the appellant. At the first instance there is no suppression as the fact of trading was communicated much earlier to the department i.e. in 2001 and necessary permission was granted to them. Also, the issue whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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