TMI Blog2022 (8) TMI 639X X X X Extracts X X X X X X X X Extracts X X X X ..... THAT:- In the light of judicial pronouncements it is clear that (i). Rule 6 lays down the obligations of the manufacturer of dutiable and exempted goods and provider of taxable, and exempted services; Rule 6 (1) and (2) Provide for different situations; (ii). Rule (3) starts with a non estante clause; it begins with the words notwithstanding and refers to Sub-Rules (1) and (2) of Rule 6 of CCR, 2004; once the conditions stipulated in Sub-Rule (3) are complied with, the provisions of Sub-Rule (1) and (2) will not be applicable; sub-Rule (3) clearly provides that if the provider of output service does not opt to maintain separate accounts, he should comply with the provision of Rule 6(3)(c) of the said Rules; (iii). Reversal amounts to non availment of credit; (iv). It is not open for the revenue to thrust upon the assessee the choices available under Sub-Rule (3); (v). It is not the intention of the legislature to demand huge amounts of credit disproportionate to the credit availed on exempted goods. Validity of reliability on judgment of Mumbai High Court in the case of COMMISSIONER OF C. EX., THANE-I VERSUS NICHOLAS PIRAMAL (INDIA) LTD. [ 2009 (8) TMI 224 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le as well as exempted goods - it is not open to the Department to brush aside the submissions of the appellants without a proper enquiry and reason. In the absence of a systematic study and negation of the appellant s submissions, the findings of the learned adjudicating authority are not legally tenable. Validity of acceptance of Chartered Accountant s certificates without giving any reasons thereof - HELD THAT:- It is not a case of the Department that the said Chartered Accountant has been examined. Learned Commissioner was within his rights to call the said Chartered Accountants and examine him to find out and establish the veracity or otherwise of the certificates issued by them. Interestingly, one more argument taken by the learned adjudicating authority is that the certificates given by the Manpower Recruitment Agency in respect of Axiom Cordages Ltd are verbatim to the end and do not disclose any details - in the absence of any enquiry, verification or examination of the persons concerned, the conclusion drawn by the learned adjudicating authority do not sustain the scrutiny of law. The impugned orders are not sustainable. The learned adjudicating authority mainly r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sified under Chapter 39 and coated cotton fabrics classified under Chapter 59 of the First Scheduled to the Central Excise Tariff Act, 1985; the Appellants also manufactured and cleared coated cotton fabrics (deluxe) falling under Chapter 5903 without payment of Central Excise duty by availing benefit of Notification No. 30/2004 dated 9.7.2004. 2.1. During the course of EA-2000 Audit it was observed that the appellants had availed CENVAT credit of Rs.76, 71,294, on inputs such as Furnace Oil, Lubricating Oil, Kraft paper and Safex Fire Equipment and credit of Rs. 20,51,421 on various common inputs services like management consultancy service, exhibition, tours and travels, fixing vinyl flooring at lavasa, construction services, advertising, courier service, GTA Services, etc, used/ consumed for manufacture of both dutiable as well as exempted goods, during the period from November, 2010 to December, 2011. Vide letter dated 31.01.2012, department raised objections that, the Appellants have not maintained separate accounts for the manufacture of dutiable and exempted goods; they are required to pay an amount which is equal to 5%/6% of the value of exempted goods under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty by availing benefit of Notification No. 30/2004 dated 9.7.2004. Department conducted an audit of the appellants and informed the appellants vide letter dated 13.04.2012 the observation that the appellants availed Cenvat credit on various common inputs services like tours and travels, CHA, Annual Maintenance Contract, GTA Services, Insurance Services, Bank Charges etc; they have taken service tax credit of Rs.1,39,99,363; they did not maintain separate accounts for the manufacture of dutiable and exempted goods; hence, they are required to pay 5%/6% of the value of exempted goods under Rule 6(3) (i) of the Cenvat Credit Rules, 2004; 3.1. The Appellants vide their letter dated 19.05.2012 replied that out of Rs. 1, 39,99,363, credit of Rs. 1,30,62,963/- pertains to manufacture of dutiable finished goods; Cenvat credit of Rs.8,57,324/- availed on common input services had already been reversed by them with interest.; further credit of Rs.79,076 incorrectly availed by them has also been reversed. Subsequently, department raised objection on similar ground that they have incorrectly taken credit of Rs.16,34,144/- on the common inputs services for both dutiable and exempted goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) has been introduced in the Cenvat Credit Rules to avoid undesired interpretation of the Cenvat Credit Rules; the Commissioner erred in confirming the amount under Rule 6 (3) (ii) of Cenvat Credit Rules, 2004 instead of invoking Rule 6 (3) (i) of Cenvat Credit Rules. She relies on ratio the following. (i). CCE, Mumbai-I Vs Bombay Dyeing Mfg. Co. Ltd., 2007 (215) ELT 3 (SC) (ii). CCE, Thane-I Vs Nicholas Piramal (India) Ltd., 2009 (244) ELT 321 (Bom.) (iii). Jost s Engineering Co. Ltd Vs CCE, Mumbai-III, 2015 (320) ELT 157 (Tri. - Mumbai) (iv). Reliance Life Insurance Co. Ltd. Vs CCE, Mumbai, 2018 (363) ELT 1050 (Tri. - Mumbai) (v). Star Agriwarehousing Collateral Management Ltd. Vs CCE S.T., jaipur, 2021 GSTL 271 (Tri. - Del.) 6. Learned Counsel submits further that in the view of the above, they have not availed Cenvat credit on the input services which were commonly used in the manufacture of dutiable as well as exempted finished goods as taking credit on inputs/input services and reversing them amounts to not taking of the credit; therefore Rule 6 is not applicable to present case; without prejudice to the above, the demand raised is dis- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orised Representative, appearing for the revenue reiterates the findings of OIO and submits on the appeal E/88822/2013 and E/88676/2015 filed by M/s responsive Industries Ltd that it is not in dispute that the Appellants manufactured dutiable as well as exempted goods.; SCN alleges that the Appellants manufactured Cotton Coated Fabrics, part of which was cleared on payment of duty and part without payment of duty by claiming exemption under notification No.30/2004, dated 09.07.2004; SCN further alleges that inputs such as Furnace Oil, Lube oil, Kraft paper and Safex Fire Equipment on which Cenvat was availed, was used in the manufacture of both dutiable and exempted products mentioned above; no separate accounts were maintained for the receipt, consumption, inventory and use of these inputs with respect to dutiable and exempted final products. He submits that the appellant s claim of maintaining separate accounts in respect of inputs for dutiable and exempted products is not backed by any evidence; no evidence is produced during the course of audit and during the current proceedings either. He submits that non maintenance of separate records is evidenced by the assertion of the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempted goods has not been denied; it is even sworn in a notarized affidavit; there is no averment either in the written reply dated 13.11.2013 or the affidavit dated 17.05.2014 that the reversal made was as per Rule 6(3A) of the Cenvat Credit Rules, 2004. Rule 6(3) (ii) and Rule 6(3A) of, which provide for substantive monthly and yearly declarations and payments, were not followed; ratio of Bombay Dyeing is not applicable. He submits that the learned Adjudicating Authority has rightly held that a fact, when sought to be averred, needs to be to be proved with circumscribing and definitive facts; in the matter of record based facts, an oath before a notary is no substitute for evidence that flows from records; this is particularly essential when benefit is claimed to an exception, as provided in the Cenvat Credit Rules, 2004, and where the onus lies solely on the claimant; letters of the three alleged Manpower suppliers, namely, M/s Jivdani Enterprises, Boisar, M/s Sainath Enterprises, Palghar, and M/s Prathmesh Enterprises, Palghar are ad verbatim to the last word and their credibility is negated from the bills and do not corroborate any facts; no evidence is submitted on the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts; conditions of Rule 14 of the CCR, 2004 read with Section 11A of the Central Excise Act, 1944 satisfied; hence, extended period of limitation was rightly invoked. 14. Heard both sides and perused the records of the case. Brief issues that require our consideration are as to whether the appellants have availed credit of common inputs and input services used in the manufacture of exempted and dutiable goods; the appellants maintained separate accounts of the same in terms of provisions clause (i) of sub- rule (3) of Rule 6 of the Cenvat Credit Rules, 2004; the appellants incorrectly availed and utilised CENVAT credit; the reversal of credit claimed by the appellants would suffice in the facts and circumstances of the case; the appellants are liable to pay the amounts demanded along with interest and penalty whether the extended period is invokable. 15. In respect of Appeal No. E/88822/2013 and E/88676/2015 it was alleged that the appellant, M/s Responsive Industries Ltd were manufacturing, inter alia, Coated Cotton Fabrics (delux) which they cleared without payment of duty by availing exemption under notification No 30/2004-CE dated 09.07.2004; they had availed Cenvat cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per were not used in the manufacture of exempted finished goods i.e., coated cotton fabrics; safex equipment was also used in the manufacture of dutiable final product only; that in any case, they had reversed the Cenvat credit of Rs.22,455/- on safex equipment under dispute; department alleges that the Cenvat credit taken on the common input services was Rs.20,51,421; out of this Rs.17,51,454/- was related to the input service for inward transportation of inputs procured from various suppliers; they have reversed balance credit of Rs.2,99,967; w.e.f. April, 2012, they had stopped availing Cenvat credit on the Input services; there was no evidence to allege that they had not maintained separate accounts. 16.1. M/s Axiom Cordages Ltd submit that they had maintained separate inventories of the input services used for manufacture of dutiable and the exempted goods: from the affidavit dated 17.05.2014 and deposition of Shri AP Jain, their Assistant Manager, it is evident that out of the total Cenvat credit of Rs. 1,39,99,363, during November, 2010 to February, 2012, Rs 1,30,62,963 pertained to manufacture of dutiable excisable goods; they had reversed the balance of credit of Rs. 9, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t services commonly is not denied; moreover it is even sworn in an affidavit dated 17.05.2004; There is also no averment, either in the written reply dated 13.11.2013 or the affidavit dated 17.05.2014, as to whether the reversal made was equal in quantum to or was determined and reversed in accordance with the formula prescribed Rule 6(3A) of the Cenvat Credit Rules, 2004 and as to when it was made; A fact, when sought to be averred, needs to be to be proved with circumscribing and definitive facts; in a record based issue, oath before a notary is no substitute for evidence; Letters by man power suppliers are similar verbatim and thus credibility of the same is negated; the bills do not indicate corroboratory details; in the case of use of GTA services, no cogent evidence has been tendered to show that the allegedly indented and received materials therein were used for manufacture of only dutiable excisable goods and not hawser nets; Hawser nets are also manufactured out of the Very same inputs; He relies on Hon ble Bombay High Court decision in the case of Nicholas Piramal India Limited, 2009 (244) ELT 321; the decision of the Supreme Court in Ind-swift Laboratories, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xempted services; or (ii) the manufacturer of goods or the provider of output service shall pay an amount equivalent to the Cenvat credit attributable to inputs and input services used in, or in relation to, the manufacture of exempted goods or for provision of exempted services subject to the conditions and procedure specified in sub-rule (3A). Explanation I. - If the manufacturer of goods or the provider 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. 20. As per above, we find that Rule 6 of the Cenvat Cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Authority demanded 5% of the total sale of the trading turnover of goods on the ground that option provided under Rule 6(3)(i) is applicable on the ground that claim of the appellant on the option provided under Rule 6(3)(ii) is not available for the reason that appellant has not complied with condition provided under sub Rule (3A) of Rule 6 which provides that manufacturers of the goods shall follow certain procedure and conditions as provided under sub-rule (3A)(a)(i) to (iv) inasmuch as the appellant have not given said information in writing to the Jurisdictional Superintendent of Central Excise. Secondly the appellant, as provided under Claus (b) of sub-rule (3A) have not paid the amount of Cenvat on monthly basis and paid after almost 11 months. 5.1 We have observed that in Rule 6(3) prevalent at the relevant time, two options have been provided:- (i) Payment of 5% on value of exempted services. (ii) Payment of an amount equal to the Cenvat Credit amount attributed to input services used in or in relation to manufacture of exempted goods or provision of exempted services as provided under sub rule (3A)(b). It is observed that the appellant has availed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 6 the appellant while exercising this option is required to intimate in writing to the Jurisdictional Superintendent, Central Excise, 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; (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. As per the submission of the appellant and perusal of their letter along with enclosed details, it is found that more or less all these particulars were intimated to the Jurisdictional Superintendent. The appellant has been filing their returns regularly on monthly basis to the department. On perusal of the copies of the such return submitted along with appeal papers, it is observed that the particulars, as required under clause (a) of sub-rule (3A) of Rule 6 has been produced to the range superintendent. Therefore all the particulars which are required to be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... input services which are used in or in relation to the manufacture of the exempted goods or for exempted services. If this is the objective then at the most amount which is to be recovered shall not be in any case more than Cenvat Credit attributed to the input or input services used in the exempted goods. It is also observed that in either of the three options given in sub-rule (3) of Rule 6, there is no provisions that if the assessee does not opt any of the option at a particular time, then option of payment of 5% will automatically be applied. Therefore we do not understand that when the appellant have categorically by way of their intimation opted for option provided under sub-rule (3)(ii), how Revenue can insist that option (3)(i) under Rule 6 should be followed by the assessee. 5.5 As discussed above and in the facts of the case that actual Cenvat credit attributed to the exempted services used towards sale of the bought out cars in terms of Rule 6(3A) comes to Rs. 4,06,785/- where as adjudicating authority demanded an amount of Rs. 24,71,93,529/-. In our view, any amount, over and above Rs. 4,06,785/- is not the part of the Cenvat Credit, which required to be reversed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial nature and will not disentitle the assessee from availing the Cenvat credit of the common inputs for which they have already been making a regular reversal of proportionate credits. We also take note of the fact that the Department has nowhere mentioned in entire proceedings that the amount of Cenvat credit reversed is not proportionate to the value of exempted services or not proper otherwise. The only ground that the appellant have not followed the laid down procedure of availing the option of Rule 6(3A) like not declaring value of turnover of exempted services in their periodic service tax return, etc., can be minor procedural lapses, but same cannot become ground for denying a substantial benefit to the appellant. 9. We are also of the view that once the proportionate reversal of the Cenvat credit has taken place, that tantamount to not availing of the input services credit of the common inputs which are going into the exempted services. While holding this view we take shelter of the decision of the Hon ble Supreme Court in the case of Chandrapur Magnet Wires (P) Ltd. v. Collector of Central Excise, Nagpur - 1996 (81) E.L.T. 3 (S.C.). 10. We also take note of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retation of the provisions of the Finance Act and Cenvat Credit Rules, 2004 considered their service as not exempted and availed Cenvat of input service which were commonly used. The appellant though litigating the show cause notice and demand on merits had also prayed for reversal of credit instead of demand of 6% value of the exempted goods contending that the substantial benefit of reversing the credit should not be denied to them. Before us also it is their submission that they have been given option to reverse the proportionate credit and they cannot be forced to reverse 6% of the value of exempted goods in terms of Rule 6(3) of CCR, 2004. In our considered view the assessee cannot be forced to pay 6% of the value of exempted goods in case where they have availed the credit of input services used in exempted output services. The Rule 6(3A) of CC Rules, 2004 only contemplates procedure for application of Rule 6(3) and does not mandates that on failure to intimate in writing for availing option the manufacturer or the service provider shall lose their choice to avail option under Rule 6(3)(ii) for reversing proportionate credit. The procedure given therein and the conditions in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement with the aforesaid order of the Tribunal and the other judgments and hold that the appellant is entitled for reversal of credit attributable to the exempted service and the demand of 6% is not sustainable against them. The appellant has also argued that there reversal of Cenvat credit ought to be computed by taking the entire Cenvat credit of the services of Insurance Auxiliary Service as the same fall in ambit of Rule 6(5) of Cenvat Credit Rules, 2004 in line with Tribunal s decision in case of TATA AIG Life Insurance Company Ltd. reported in 2014-TIOL-487 = 2015 (37) S.T.R. 570 (Tribunal). We find that in terms of Rule 6(5) of CCR, 2004 the credit of tax paid on Insurance Auxiliary Service cannot be denied if the person availing such credit is engaged in both categories of services i.e. taxable as well as exempted. In the present case it is not disputed that the appellant is engaged in providing both categories of services and therefore there is no reason to demand Cenvat reversal in respect of credit of Insurance Auxiliary services. However, input services which are exclusively used for providing exempted service the Cenvat credit on such services is not admissible in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf and calling upon it to explain as to why it should not be directed to pay an amount of 5%, upto 31-3-2012, and 6%, from 1-4-2012, of the value of the exempted services, aggregating to Rs. 3,52,65,241/-. In its reply dated 16-5- 2016, the petitioner contended that it was wholly unreasonable on the part of the authorities to expect it to pay over Rs. 3.50 Crore when the total Cenvat Credit availed by it was less than Rs. 1.50 Crore and the actual dispute boiled down to a mere Rs. 17,15,489/-. It relied on case law to support its contention that such an unreasonable result could not be allowed to follow by application of the law. The impugned Order-in-Original however reflects that the second respondent did not even advert to the case law cited before him 14. Further, we may reiterate that Rule 6(3) of the Cenvat Credit Rules, 2004, merely offers options to an output service provider who does not maintain separate accounts in relation to receipt, consumption and inventory of inputs/input services used for provision of output services which are chargeable to duty/tax as well as exempted services. If such options are not exercised by the service provider, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the appellants and the case law cited and paraphrased as above, we find, in the light of judicial pronouncements it is clear that (i). Rule 6 lays down the obligations of the manufacturer of dutiable and exempted goods and provider of taxable, and exempted services; Rule 6 (1) and (2) Provide for different situations; (ii). Rule (3) starts with a non estante clause; it begins with the words notwithstanding and refers to Sub-Rules (1) and (2) of Rule 6 of CCR, 2004; once the conditions stipulated in Sub-Rule (3) are complied with, the provisions of Sub-Rule (1) and (2) will not be applicable; sub-Rule (3) clearly provides that if the provider of output service does not opt to maintain separate accounts, he should comply with the provision of Rule 6(3)(c) of the said Rules; (iii). Reversal amounts to non availment of credit (iv). It is not open for the revenue to thrust upon the assessee the choices available under Sub-Rule (3) (v). It is not the intention of the legislature to demand huge amounts of credit disproportionate to the credit availed on exempted goods. We find that the department has heavily relied upon the judgment of Mumbai High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrary, the claim of the appellants and the reversal thereof, as mentioned in the certificates, was taken to be ample proof that the appellants have availed cenvat credit of common inputs. It is not a case of the Department that the said Chartered Accountant has been examined. Learned Commissioner was within his rights to call the said Chartered Accountants and examine him to find out and establish the veracity or otherwise of the certificates issued by them. Interestingly, one more argument taken by the learned adjudicating authority is that the certificates given by the Manpower Recruitment Agency in respect of Axiom Cordages Ltd are verbatim to the end and do not disclose any details. In this context also, the learned adjudicating authority has not thought it fit to call upon the persons issuing certificates and to record the submission before proceeding to adjudicate the case. We find that in the absence of any enquiry, verification or examination of the persons concerned, the conclusion drawn by the learned adjudicating authority do not sustain the scrutiny of law. For the reasons discussed above, we find that impugned orders are not sustainable. 29. Moreover, the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are also not sustainable. The same need to be set aside along with demand. We find that the appellants have reversed the credit attributable to the inputs or inputs services alleged to have been used in the manufacture of exempted goods. In view of the settled position of law, we find that reversal of CENVAT Credit amounts to non-availment of CENVAT Credit and therefore, demands would not sustain. 31. We find that in case of M/s Responsive Industries Ltd. (Appeal No. E/88822/2013), the Department not contested the method or quantum of reversal of CENVAT Credit and in respect of M/s Axiom Cordages Ltd. (Appeal No. E/85402/2015) have disputed the conclusion. We find that in the interest of justice, the matter needs go back to the adjudicating authority for the limited purpose of verifying the correctness of the reversal. 32. In the result (i) Appeal No. E/88822/2013 and E/85676/2015 filed by the M/s Responsive Industries Ltd are allowed. (ii) Appeal No. E/85402/2015 filed by M/s Axiom Cordages Ltd. is partly allowed by way of remand to the adjudicating authority for a limited purpose of verifying the conclusion of reversal. In case the amount reversed by the appellant f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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