TMI Blog2019 (9) TMI 1532X X X X Extracts X X X X X X X X Extracts X X X X ..... STRIES LTD. THROUGH ITS SECRETARY [ 2018 (5) TMI 915 - SUPREME COURT] are seminal enough to warrant, for our purpose, mere reference without alluding to the significant portions. Propriety notwithstanding, and tempting though it may even be to the executive branch of government, the cascading effect of such measure on business, and the ultimate consumer, compelled the incorporation of some neutralizing mechanism - The scheme of CENVAT credit restricts the actual collection to the value of contribution to the product emanating or service offering from the assessed entity which is the unambiguous intent of the charging provision. From the one-on-one correspondence of pro forma credit to the general pooling of CENVAT credit, the thread of continuity lies in this bridging intent. Among the various perspectives of CENVAT credit, the two which predominate, and have coloured, the disputes are, in the eyes of the tax advisors, that it is a mirror of, and substitute for, the account current and, from the standpoint of the tax administrator, that it is an exemption scheme. In our opinion, such constricted appreciation is akin to describing the Taj Mahal as a spiffy looking tomb; not only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders-in-appeal, a narration of the facts, which are common to all the proceedings, will not be out of place. The assessee is a manufacturer of footwear , leviable to duties of central excise under heading no. 6401 19 of the First Schedule to Central Excise Tariff Act, 1985, at different locations among which the one at Dehradun is privileged with area-based exemption on clearance of the resultant product. The retail distribution of these manufactured goods, originating from all their facilities, as well as branded footwear of other manufacturers is catered from stores of the assessee at different locations. This salmagundi of sources of footwear sold in retail is one of the roots of the dispute in the impugned orders. Besides the registration of the two manufacturing facilities in Uttarakhand and at Mumbai under Central Excise Rules, 2000, the head office of M/s Metro Shoes Pvt Ltd, as input service provider , defined in rule 2 of CENVAT Credit Rules, 2004, with separate registration under Service Tax Rules, 1994 distributes credit of tax paid on services procured against invoices issued to them for adding to the CENVAT credit account of eligible manufacturing units and prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es cover situations where assessees provide both exempted and taxable services. Wherever someone undertakes activities that cannot be called a service or which is not manufacture , that activity goes out of the purview of both Central Excise Act as well as Finance Act, 1994. In such cases, an assessee would be ineligible for claiming input-service tax credit on an output which is neither a service nor excisable goods. There is no provision to cover situations where an assessee is providing a taxable service and is undertaking another activity which is neither a service nor manufacture. In such a situation, the only correct legal position appears to be that it is for the assessee to segregate the quantum of input service attributable to trading activity and exclude the same from the records maintained for availing credit. This cannot be done in advance as it may not be possible to foretell the quantum of trading activity as compared with taxable activity. The obvious solution would be to ensure that once in a quarter or once in a six months, the quantum of input service tax credit attributed to trading activities according to standard accounting principles is deducted and the balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em is liable to be recovered in terms of Rule 14 of Cenvat Credit Rules, 2004 read with proviso to Section 73(1) of Finance Act, 1994. 19. This Court is of opinion that the lack of any method in the rules in such cases, would only mean that a reasonable and logical principle should be applied, not concededly that what should and could not be claimed as input credit, (but was in fact so claimed) ought to be left alone because of the composite nature of the assessee s business. While any assessee has a right to organize its business in the most convenient and efficient manner, it cannot claim that that such organization is so structured that its tax liabilities cannot be clearly discerned. In this case, the adjudicating authority adopted the proportionate percentage to the turnover method approach, which in this Court s opinion, is reasonable. and affords further insight into the negation of credit of tax paid on services that are utilized in manufacture of ineligible output/rendering of ineligible output services. 3. In the case of the assessee referred to in the decision supra, the Tribunal had discarded the plea of inappropriateness of retrospective applicability o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to buttress his contention of lack of jurisdictional competence by relying on the decisions of the Tribunal in Castrol India Ltd v. Commissioner of Central Excise, Vapi [2013 (291) ELT 469 (Tribunal)], in Gulf Oil Corporation Ltd v. Commissioner of Central Excise Service Tax, Vapi [2016 (43) STR 220 (Tribunal)] and in Commissioner of Service Tax, Ahmedabad v. Godfrey Phillips India Ltd [2009 (239) ELT 323 (Tribunal)]. Learned Special Counsel for Revenue argues that hair-splitting cannot obliterate the legal oneness of the recipient of credit and distributor of credit. According to him, the assessee is both manufacturer of the impugned goods and provider of output service rendering them liable to respective obligations, as the case may be, and, thereby, precluded from claiming compartmentalized obligation. That is unarguably correct; however, statutes that not only acknowledge but also insist on such legal separateness is rife with scope for confusion in enforcing tax recoveries and susceptible to executive whim in which the assumption of unity may practically result in glossing over the broken links in the chain that purportedly leads from assumption of privilege by an asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , intended by rule 14 of CENVAT Credit Rules, 2004, must be resorted to when credit taken is established as ineligible. 7. We entertain no doubt that the proceedings for recovery of duties that are not paid or short-paid or for recovery of refunds erroneously sanctioned is to be preceded by notice and the issue of such notice is consequent upon investigation which encompasses intelligence/information/reasonable cause for suspicion of the event contemplated in the recovery provision, isolation of the transgression leading to the event and, finally, identification of the person against whom the proceedings must lie. This sequence has to be stood on its head in the adjudication process as the proceedings can advance only against the person designated by law to be subject to such recovery. Denial of credit and recovery are indistinguishable as cause and effect. Therein lies the nub of jurisdiction. 8. Our discomfiture with subordinate legislation that, bowing to the inevitability of catering to a niche for ensuring integrity of the scheme of credit, provides for special procedures distinguishable from the ordinary default but, prima facie, is silent on the onus for establishing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y position canvassed on behalf of the appellant, in re Castrol India Ltd, was considered by a Division Bench of the Tribunal, again with reference to rule 2 (m) of CENVAT Credit Rules, 2004, defining input service distributor , and to rule 7 therein, authorizing such distribution of credit, to hold the entitlement to be subject only to 4 following conditions, namely; the credit distributed against the documents referred to in Rule 9 does not exceed an amount to service tax paid thereof or; credit of service tax applicable to service used for unit exclusively in the manufacture of exempted goods or providing of exempted services shall not be distributed. xxxx 6. We find considerable force in the arguments advanced by the learned counsel. It has not been alleged in the show cause notice nor there is finding that the credit distributed against the documents is more than the amount to service tax paid and in any case, this can be verified only at the end of ISD. It is also not the case of the Department that credit has been received by the assessee in respect of services/goods which are totally exempted. Under these circumstances, on this ground alone, probably the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght a clarification from the Board as to who should issue the SCN in case of incorrect distribution of cenvat credit by an input service distributor (ISD) .. 2. Attention is drawn to Rule 14 of the Cenvat Credit Rules, 2004 which stipulates that Where the cenvat credit has been taken and utilised wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer of the provider of the output service and the provisions of section 11A and 11AA of the Excise Act or Section 73 and 75 of the Finance Act shall apply mutatis mutandis for effecting such recoveries. 3. Since there is no other provision for recovery, it is evident that recovery can be made only from the manufacturer or service provider. There is no provision in the Cenvat Credit Rules, 2004 for issuing SCN's to ISD's. This position is unambiguous and hence could have been pointed out by the jurisdictional Commissionerates, without asking the CBEC to restate the provision in the Cenvat Credit Rules. 4. The Chief Commissioners have also pointed out varying case law on the subject. A detailed examination of these case laws has revealed that each one of them c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be noted that input service distributor is not an assessee under the Service Tax Law. He is only a distributor. ISD neither provides any service nor pays any service tax as provider of output service and, therefore, there is no question of assessment or self-assessment. No doubt ISD is required to file a half-yearly return. That return only gives the details of credit received and distributed . cannot be called as a self-assessment by the ISD. In fact, it is to be noted that this return is common to the service tax payee as also the ISD and so called as declaration are common for the provider of output service and for the ISD. Concept of self-assessment is relevant for service taxpayer alone. Since there is no assessment, the contention of the learned counsel is required to be rejected outright ..In the present case, neither there is any self-assessment nor any assessment is required to be made under any provision of the Service Tax Law. and subjecting each of the disputed services to scrutiny for attribution. 11. We find that the later decision in re Mahindra and Mahindra (2018) has followed the one supra and that the latter has relied upon the decision in re Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tifications has to be judged not by the object which the rule making authority had in mind but by the words which it has employed to effectuate the legislative intent. 13. Furthermore, even if the proposition in the circular were to be considered as kindergarten steps, as yet to be tried in the crucible of judicial interpretation, it lacks the rigour of jurisprudential interpretation, as laid down by Kelsen, which was taken note of by the Hon ble Supreme Court in Punjab Land Development and Reclamation Corporation Ltd v. Presiding Officer, Labour Court Chandigarh [1990 SCR (3) 111]. And, unquestionably, it must give way to judicial interpretation which, even by taking both streams of decisions in its stride, demonstrates a gap, whether intended to be so or by oversight, that cannot be filled by either. The remedial text, if at all, must lie in the legislative sphere. As noted in the same decision of the Hon ble Supreme Court, with reference to the postulate in RBI v. Peerless General Finance [(1987) 2 SCR 1] that The interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. we ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and have coloured, the disputes are, in the eyes of the tax advisors, that it is a mirror of, and substitute for, the account current and, from the standpoint of the tax administrator, that it is an exemption scheme. In our opinion, such constricted appreciation is akin to describing the Taj Mahal as a spiffy looking tomb; not only is such perspective flawed in capturing the spirit of neutralization but also fails the test of statutory calibration. Even if the accumulated credit is acknowledged as an instrument for discharge of duty liability, it lacks the flexibility of the account current as a pool of money. The scheme is notified under the general rule making powers conferred by the taxing statute on the Central Government and not by recourse to the specific power of exemption in the respective statutes. Hence, the literal interpretation mandated by the Hon ble Supreme Court in Commissioner of Customs (Import), Mumbai v. Dilip Kumar Company [2018 (361) ELT 577 (SC)] does not find application in resolving this dispute which turns on the lack of clarity in pinpointing a recovery mechanism for distributed credit. 17. Notwithstanding the inapplicability of the decision in re D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. There is evident confusion arising from the evident dichotomy in the availment of ineligible credit and the utilization of pooled, distributed credit for discharge of tax liability which may, thereby, be correctly described as short-paid. The impugned proceedings have failed to take note of this gap and to apply itself to filling that gap. The consequence of short-payment, if any, is not enforceable in the light of this unfilled gap. 20. Tax administrators, understandably, incline towards maximizing revenue collection through the account current and are likely to take recourse to rule 14 of CENVAT Credit Rules, 2004 without much encouragement. The existence of such a provision is no authority to deny credit without the pre-requisite of procedure established by law. Nor is there a presumption of ineligibility in the Rules that warrants the evidencing of claim for credit beyond the threshold stipulation in rule 3, conditional stipulation in rule 4 and documentary stipulation in rule 9 of CENVAT Credit Rules, 2004. 21. Even if the input service distributor was unable to establish its claim to avail the credit of tax paid on the different services and, thereby, to depri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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