TMI Blog2021 (6) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the service is the difference between the buying and selling price or 10% of the traded goods whichever is higher. The adjudicating authority erred in not taking this Explanation into account while calculating the amount required to be reversed as per Rule 6(3A) and reckoning the total trading turnover as the value of the exempted services rendered. Whether only the CENVAT credit taken on common input service should be considered or the entire CENVAT credit taken should be considered for calculating the proportionate amount of CENVAT to be reversed as per Rule 6(3A)? - HELD THAT:- The appellant has taken no credit on inputs or input services used exclusively for exempted services and had taken credit only on the inputs and input services used in manufacture of dutiable goods. The only dispute is regarding the credit on common input services used in their headquarters which was transferred to the field units through ISD invoices. This credit cannot be attributed wholly to either the dutiable goods manufactured or the exempted service rendered viz., trading. This should therefore, be apportioned. Since the appellant has followed Rule 6(2) and has not taken any CENVA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmed to the tune of ₹ 7,57,07,862/- by Order-in-Original dated November 20, 2019. This order is impugned in Appeal No. E/50236/2020-DB. 5. Learned counsel for the appellant submits that this dispute first arose during audit of the appellant s records for the period 2011-12 to 2012-13 conducted during February 2013 and July 2013. The appellant manufactures the goods and also trades in them and the latter activity is undisputedly, an exempted service. They have not availed CENVAT credit on the input services used exclusively for trading. However, there are common input services such as those used in their head office in Indore which cannot be attributed wholly to either manufacture or to the exempted service (trading). Their Head office is registered as an Input Service Distributor (ISD) and passes on the CENVAT credit of the services used in the head office to various units by issuing ISD invoices. 6. Earlier, for the period 2009-10 to 2013-14, audit raised an objection that since they had availed CENVAT credit on common input services, they have to pay an amount equal to 5%/6% of the value of the traded goods, in terms of Rule 6(3)(i) of the Cenvat Rules. They respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of CENVAT credit will be irregular and, therefore, the department can issue a notice to disallow and recover the irregularly availed CENVAT credit. Even in such a case, the department cannot demand that assessee should follow a particular option under Rule 6(3) as has been held by the High Court of Telangana and Andhra Pradesh Tiara Advertising vs Union of India [2019 (10) TMI 27- Telangana and Andhra Pradesh High Court]. 12. Once the proportionate amount of CENVAT credit is reversed, it is as good as non-availment of the CENVAT credit as has been held by the Supreme Court in Chandrapur Magnets Pvt Ltd. vs CCE [1996 (810 ELT 3 (SC)]. 13. In the impugned orders, the Principal Commissioner agreed with this contention of the appellant but has re-worked the proportionate credit attributable to the exempted services and therefore, the demands confirmed are different and much smaller than the demands proposed in the show cause notices. In other words, he did not confirm the demand under Rule 6(3)(i) raised in the show cause notices but has only re-calculated the demand reversed by the appellant under Rule6 (3)(ii). This re-calculation was done by the adjudicating authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r calculating the amount to be reversed is concerned, the adjudicating authority has erroneously considered the total value of the goods traded as the value of the exempted service instead of the service element in it which should be only 10% of the goods traded or the difference between sale price and cost price as per Explanation 1(c) to Rule 6(3A). 18. Learned authorized representative of the department strongly supports the impugned orders. 19. We have considered the arguments on both sides. 20. The two show cause notices were issued demanding an amount equal to 6%/7% of the value of the exempted services which, according to the learned counsel was not required once proportionate amount of CENVAT credit of common input services attributable to the exempted services is reversed. This issue was settled in the orders of this Bench of the Tribunal for previous periods. This argument has also been accepted by the adjudicating authority in the impugned orders. Therefore, this is not a point of dispute to be decided. 21. The demands were partly confirmed only on the ground that the computation of the reversal was incorrect. The two issues which resulted in the dispute rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provision of output services excluding exempted services; and (b) the receipt and use of input services - (i) or in relation to the manufacture of exempted goods and their clearance upto the place of removal; (ii) in or in relation to the manufacture of dutiable final products, excluding exempted goods, and their clearance upto the place of removal; (iii) for the provision of exempted services; and (iv) for the provision of output services excluding exempted services, and shall take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of clause (a) and input services under sub-clauses (ii) and (iv) of clause (b). (3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow any one of the following options, as applicable to him, namely :- (i) pay an amount equal to six per cent of value of the exempted goods and seven per cent of value of the exempted services; or (ii) pay an amount as determined under sub-rule (3A); or (iii) maintain separate accounts for the receipt, consumption and inventory of inputs as provided for in cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 9[output] services; (iv) description of exempted goods or exempted services; (v) CENVAT credit of inputs and input services lying in balance as on the date of exercising the option under this condition; (b) the manufacturer of goods or the provider of output service shall, determine and pay, provisionally, for every month, - (i) the amount equivalent to CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods, denoted as A; (ii) the amount of CENVAT credit attributable to inputs used for provision of exempted services (provisional). (B/C) multiplied by D, where B denotes the total value of exempted services provided during the preceding financial year, C denotes the total value of dutiable goods manufactured and removed plus the total value of output services provided plus the total value of exempted services provided, during the preceding financial year and D denotes total CENVAT credit taken on inputs during the month minus A; (iii) the amount attributable to inpu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndition (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- paid, be liable to pay interest at the rate of twenty-four per cent. per annum from the due date, i.e., 30th June till the date of payment, where the amount short-paid is not paid within the said due date; where the amount determined as per condition (c) is less than the amount determined and paid as per condition (b), the said manufacturer of goods or the provider of output service may adjust the excess amount on his own, by taking credit of such amount; (f) where the amount determined as per condition (c) is less than the amount determined and paid as per condition (b), the said manufacturer of goods or the provider of output service may adjust the excess amount on his own, by taking credit of such amount; (g) the manufacturer of goods or the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within a period of fifteen days from the date of payment or adjustment, as per c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and (3A), - (a) shall have the same meaning as assigned to it under section 67 of the Finance Act, read with rules made thereunder or, as the case may be, the value determined under section 3, 4 or 4A of the Excise Act, read with rules made thereunder; (b) in the case of a taxable service, when the option available under sub-rules (7), (7A), (7B) or (7C) of rule 6 of the Service Tax Rules, 1994, has been availed, shall be the value on which the rate of service tax under section 66B of the Finance Ad, read with an exemption notification, if any, relating to such rate, when applied for calculation of service tax results in the same amount of tax as calculated under the option availed; (c) in case of trading, shall be the difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or ten per cent. of the cost of goods sold, whichever is more; (d) in case of trading of securities, shall be the difference between the sale price and the purchase price of the securities traded or one per cent. of the purchase price of the securities traded, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of that rule. Explanation 1 . - For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of rule 2 shall include non-excisable goods cleared for a consideration from the factory. Explanation 2 . - Value of non-excisable goods for the purposes of this rule, shall be the invoice value and where such invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made thereunder. Explanation 3. - For the purposes of this rule, exempted services as defined in clause (e) of rule 2 shall include an activity, which is not a 'service' as defined in section 65B(44) of the Finance Act, 1994 1provided that such activity has used inputs or input services. Explanation 4. - Value of such an activity as specified above in Explanation 3, shall be the invoice/agreement/contract value and where such value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Finance Act, 1994 and the rules made thereunder. (2) A manufacturer who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng exempted goods manufactured and cleared upto the place of removal; (b) exempted goods removed means the exempted goods manufactured and cleared upto the place of removal; (c) non-exempted services means the output services excluding exempted services. (3A) For determination of amount required to be paid 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) 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 number 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 inputs and input services used exclusively in or in relation to the manufacture of exempted goods removed or for provision of exempted services and description of such exempted goods removed and such exempted services provided; (iv) description of inputs and input services used exclusively in or in relation to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VAT credit attributable to ineligible common credit shall be deemed to be fifty per cent. of the common credit; (v) remainder of the common credit shall be called eligible common credit and denoted as G, where,- G=C-D; Explanation .- For the removal of doubts, it is hereby declared that out of the total credit T, which is sum total of A, B, D, and G, the manufacturer or the provider of the output service shall be able to attribute provisionally and retain credit of B and G, namely, eligible credit and eligible common credit and shall provisionally pay the amount of credit of A and D, namely, ineligible credit and ineligible common credit. (vi) where manufacturer or the provider of the output service fails to pay the amount determined under sub-clause (i) or sub-clause (iv), he shall be liable to pay the interest from the due date of payment till the date of payment of such amount, at the rate of fifteen per cent. per annum; (c) the manufacturer or the provider of output service shall determine the amount of CENVAT credit attributable to exempted goods removed and provision of exempted services for the whole of financial year, out of the total credit denoted as T ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of payment of such amount; (f) the manufacturer or the provider of output service, shall at the end of the financial year, take credit of amount equal to difference between the total of the amount of the aggregate of ineligible credit and ineligible common credit paid during the whole year and the total of the amount of annual ineligible credit and annual ineligible common credit, namely, (A+D) aggregated for the whole year) - A(Annual) t D(Annual), where the former of the two amounts is greater than the later; (g) the manufacturer of the goods or the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within a period of fifteen days from the date of payment or adjustment, as per the provisions of clauses (d), (e) and (0 , the following particulars, namely :- (i) details of credit attributed towards eligible credit, ineligible credit, eligible common credit and ineligible common credit, month-wise, for the whole financial year, determined as per the provisions of clause (b); (ii) CENVAT credit annually attributed to eligible credit, ineligible credit, eligible common credit and ineligible common credit for the whole of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be, the value determined under section 3, 4 or 4A of the Excise Act, read with rules made thereunder; (b) in the case of a taxable service, when the option available under sub-rules (7), (7A), (7B) or (7C) of rule 6 of the Service Tax Rules, 1994, has been availed, shall be the value on which the rate of service tax under section 66B of the Finance Act, read with an exemption notification, if any, relating to such rate, when applied for calculation of service tax results in the same amount of tax as calculated under the option availed; (c) in case of trading, shall be the difference between the sale price and the cost of goods sold(determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or ten per cent. of the cost of goods sold, whichever is more; (d) in case of trading of securities, shall be the difference between the sale price and the purchase price of the securities traded or one per cent. of the purchase price of the securities traded, whichever is more; (e) shall not include the value of services by way of extending deposits, loans or advances in so far as the consideration is represented ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 the 28th August, 1995; or (iva) 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. 7[12/2012-Central Excise, dated the 17th March, 2012, number GS.R. 163(E), dated the 17th March, 2012]; 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 sub-section (1) of section 3 of the said Customs Tariff Act when imported into India and are supplied, - (a) against Inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t equivalent to the CENVAT credit paid earlier in terms of sub-rule (3) to the extent it relates to such payment, on the basis of documentary evidence of the payment so received. 24. Undisputedly, trading is a form of service and no service tax is leviable on it and hence it is an exempted service. Usually the amount one pays to a service provider is the value of the services. For example, what one pays a doctor, dentist, lawyer, hair dresser, etc. represents the value of their services. Unlike other services, the amount transacted in trading represent not only the service rendered by trader but also the value of the goods delivered. The service element cannot be the total turnover of the goods traded but is only a small fraction of the turnover. This turnover represents the value of the goods plus the value of the service rendered by the trader. For example, if a trader buys a sack of rice for ₹ 4,500 and sells it for ₹ 5,000 the buyer is paying ₹ 5,000 for getting the rice at a place convenient to him and not for the service of the trader alone. The trader is only rendering the service of bringing the rice from the wholesaler and making it available to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attribution. (iv) the amount of common credit attributable towards exempted goods removed or for provision of exempted services shall be called ineligible common credit, denoted as D and calculated as follows and shall be paid, - D = (E/F) x C; where E is the sum total of - (a) value of exempted services provided; and (b) value of exempted goods removed, during the preceding financial year; where F is the sum total of - (a) value of non-exempted services provided, (b) value of exempted services provided, (c) value of non-exempted goods removed, and (d) value of exempted goods removed, during the preceding financial year 26. It is clear from the above, that the final amount to be debited as inadmissible CENVAT credit under Rule 6(3A) is D=(E/F)xC where, E represents the sum of value of exempted goods and exempted services, F represents the sum of value of exempted and dutiable goods as well as exempted and non-exempted services. C is calculated as C = T (A+B) where T is the total credit taken, A is the credit on inputs and input services used exclusively in the exempted goods and exempted services and hence ineligible and B represents the credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit taken on common input services should be considered as the total CENVAT Credit taken since that is the credit in dispute which can be disallowed in proportion to the value of the exempted services to the total turnover. 30. To appreciate this issue, Rule 6 must be read as a whole while interpreting this formula. Rule 6(1) prohibits any credit on inputs and input services used in or in relation to exempted goods or exempted services. The rationale of this provision is evident. CENVAT credit enables one to use the credit to reduce duty or tax liability on the output goods or services. If they are not chargeable to duty or tax, one cannot take credit either. However, there are those who produce both dutiable and exempted goods and taxable and exempted services. Rule 6(2) deals with such situations and requires such a person to maintain separate records and take credit only the inputs and input services which are used for manufacture of dutiable goods or provision of taxable services. However, if one produces both dutiable and exempted goods and provides both taxable and exempted services and chooses not maintain separate records, Rule 6(3) gives different options of paying an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit should not be allowed and only with this intention some mechanisms for expunging CENVAT credit attributed only to the exempted goods are provided. As per clause (b) (ii) (iv), it is clearly provided that entire credit in respect of receipt and use of inputs/ input service is allowed when such input and input service is used in dutiable final products and taxable service. However, nowhere in Rule 6 it is provided that the input or input service used in dutiable goods shall not be allowed. The Revenue is only interpreting the term total CENVAT credit provided under the formula. If the whole Rule 6(1)(2)(3) is read harmoniously and conjointly, it is clear that Total CENVAT Credit for the purpose of formula under Rule 6(3A) is only total CENVAT credit of common input service and will not include the CENVAT credit on input/ input service exclusively used for the manufacture of dutiable goods. If the interpretation of the Revenue is accepted, then the CENVAT credit of part of input service even though used in the manufacture of dutiable goods, shall stand disallowed, which is not provided under any of the Rule of CENVAT Credit Rules, 2004. (emphasis supplied) 33. Si ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
