Cenvat Credit Allowed on ISD invoices issued prior to registration as ISD
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
The Text of the Order as follows :
This appeal is directed against OIO passed by the Commissioner of Central Excise, Ahmedabad-III whereby demand of Cenvat Credit amounting to Rs. 15,07,27,999/- was confirmed and equivalent amount of penalties was imposed under Rule 15 of Cenvat Credit Rules read with section 11AC of Central Excise Act, 1944. It was also confirmed recovery of interest under section 11AB/AA of Central Excise Act. The details of demand of Cenvat Credit is as under :-
(a) Rs. 3,30,189/- – Demand of cenvat credit on the ground that invoices issued in respect of ‘Management Consultancy Services’ and ‘Security Services’ have been wrongly availed as invoices for the same did not carry either serial number or service tax registration number. Period – January, 2005 to February, 2011.
(b) Rs. 41,94,123/- – Demand of Cenvat credit on the ground that credit lying in the account of branches other than Nadiad, has been wrongly transferred under centralized registration without any documents. Period — 2011
(c) Rs. 5,59,851/- – Demand of Cenvat credit of service tax paid on various services such as Medi-claim, Vehicle Insurance, Canteen Exp., CHA Bills, Guest House, Vehicle Hire Charges, Membership Charges, Residential Premise on the ground that the said services do not have any nexus to the manufacturing activity carried out by the appellant. Period — January. 2005 to February, 2011
(d) Rs. 39,60,634/- – Demand of Cenvat credit on the ground that the same pertains to ISD invoices issued by appellant’s Mumbai and Ahmedabad branch for services received by the said units prior to their registration as Input Service Distributors. Period – 2010
(e) Rs. 14,16,83,202/- Demand of amount payable in terms of Rule 6 of the Cenvat Credit Rules for availing Cenvat credit of service tax paid on input services used for both exempted and dutiable clearances. Period – August, 2007 to September, 2011
2. The brief facts of the case are that appellant is manufacturer of Cotton Yarn, Fabrics etc. The appellant have availed exemption Notification 29/04- CE and Notification No. 30/04-CE both dated 09.07.2004. The accounts of the appellant for the period April, 2005 to March, 2011 were audited and various objections were raised by the audit party. One of the objections raised is that the appellant had not maintained separate accounts as per Rule 6 of Cenvat Credit Rules and despite the said fact, the appellant had availed Cenvat credit of Input service used for both exempted and dutiable clearances. Pursuant to audit, a number of correspondence were exchanged between the department and the appellant leading to issuance of letter dated 11.05.2011and addressed to the appellant calling upon to workoutproportionate credit under Rule 6(3A) of Cenvat Credit Rules, 2004 and to pay the same. In spite of the same, the appellant submitted detailed calculation indicated proportionate credit to be Rs. 54,01,338/- and the same amount was reversed by the appellant on 08.04.2011 and communicated to the department vide letter dated 17.06.2011. As per the final audit report dated 01.08.2011, the department hadcalled upon the appellant to pay an amount equal to 10% of the value of exempted goods or to reverse entire Cenvat credit of Input service used in manufacture of exempted gods. The final audit report further stated that total Cenvat credit required to be reversed for the period April 2005 to March 2011 is Rs. 1,57,74,837/- and such figure did not include 17 Input services mentioned in Rule 6(5) which were excluded from the purview of application of rule 6(3) of the Rules. The appellant during the stage of audit objection, had already reversed a sum of Rs. 54,01,338/- on 08.04.2011. They had further paid a sum of Rs. 25,25,341/- on 06.08.2012. A show cause notice dated 07.09.2012 was issued to the appellant thereby called upon to show cause as to why an amount of Rs. 14,16,83,202/- should not be demanded and recovered from them which is at the rate of 10% of value of exempted goods cleared by the appellant, in terms of Rule 6 of the said Rules. In addition to the said demand, in terms of Rule 6, various other demands of Cenvat credit as cited hereinabove were also raised in this show cause notice or in the show cause notice for the period August 2007 and September 2011. The said show cause notice was adjudicated vide OIO dated 24.02.2014wherein all the demands, which were proposed in the show cause notice, have been confirmed with interest and penalties. Being aggrieved by the said OIO, captioned appeal is filed by the appellant.
3. Shri M. Pandya, Learned Counsel appearing on behalf of the appellant, in respect of the major demand of Rs. 14,16,83,202/- submits that said demand is equivalent to proportionate credit for the period August 2007 to March 2008 and @ 10%/ 5% of the value of clearances of exempted goods for the period April 2008 to September 2011. He submits that as per Rule 6, when the appellant has not maintained separate accounts for exempted and dutiable goods, then the assessee has an option to – (i) pay an amount equal to 10% /5% of the exempted goods, or (ii) pay proportionate amount as per formulae provided under Rule 3(A) of Rule 6 or (iii) pay an amount equivalent to Cenvat credit attributable to Input service used in the manufacture of exempted goods. He submits that various courts and judgments has also accepted that if the proportionate Cenvat credit attributed to exempted goods is reversed along with payment of interest then there is no case of delay i.e. duly compliance of Rule 6. Accordingly, the demand for Cenvat Credit @10/5% will not sustain.
4. He further submits that credit also includes credit in respect of common input services which are specified under rule 6(5) which provides that notwithstanding anything contained in sub Rule (1) (2) (3) of Rule 6, credit of the whole of the service tax paid on taxable service as specified in the said Rule, shall be allowed unless such services is used exclusively in or in relation to manufacture of the exempted goods or providing exempted service. He submits that in the present case, some of the services specified in Rule 6(5) were commonly used in the manufacture of dutiable and final goods therefore, the entire credit is available to the appellant and the same need not be reversed proportionately. He submits that the appellant, to show their bonafide and co-operation, reversed the total amount of Rs. 1,87,97,856/- along with payment of Rs. 87,35,806/- towards interest under protest. However, as per calculation, total Cenvat credit availed during the period August 2007 to September 2011 comes to Rs. 1,57,99,822/-. Out of the said credit availed by the appellant, Cenvat credit attributable to 17 excluded input services comes to Rs. 11,56,585/- therefore, the total Cenvat credit comes to Rs. 1,46,43,236/-. In respect of this calculation, he referred to copies of letters which were submitted as Annexure ‘A’ to their submission. He further submits that it is a settled legal position in the series of judgments that reversal of proportionate Cenvat credit to exempted goods along with interest which is paid even if belated, it results in a situation as if the assessee had not taken any Cenvat credit. It was also held by the Courts that it is on the assessee to decide which rule to follow under Rule 6 and said option can be exercised by the assessee even at the later stage. However, in the present case, the appellant has reversed Cenvat credit reversible under Rule 6 along with interest and therefore, there is no question of applicability of Rule 6 (relevant to 10/5% ) of Cenvat Credit Rules. In this regard, he relied upon the following judgments/ decisions:-
(a) Swiss Parenterals Pvt. Limited – 2014 (308) ELT 81 (Tri. Ahmd.)
(b) Mercedes Benz India (P) Ltd – 2015 (40) STR 381 (Tri. Mum)
(c) CCE, Puducherry – 2015 (323) ELT 323 (Mad)
(d) T.T. Limited – 2017 (355) ELT 71 (Raj.)
(e) Mettur Pharmaceuticals Limited – 2017 (356) ELT 184 (Mad.)
(f) Reliance Insurance Co. Ltd. -2018 (363) ELT 1050 (Tri. Mum.)
(g) Himmat Glazed Tiles – 2018 (15) GSTL 486 (Guj.)
5. As regards the Cenvat credit payment of Rs. 3,30,189/-, which is on the basis that certain invoices issued in respect Consultancy Management Service and Security Services on which Cenvat credit was availed by the appellant did not carry either serial number of invoices or service tax Registration of the service tax. He submits that demand on this count is without jurisdiction inasmuch as the demand confirmed is for the period even beyond five years. As is evident from the show cause notice, the invoices are from the period January 2005 to February 2011 whereas the show cause notice was issued by the department only on 07.09.2011. Therefore, the demand which is beyond five years is illegal. As regards the discrepancies in invoices, it is stated that there is no suggestion in the impugned order that the service tax has not been paid on the said invoices or alternatively an excess amount of Cenvat credit has been availed by the appellant. Therefore, the said discrepancy is only a technical infraction and for this reason, Cenvat credit cannot be denied. He also placed reliance on the decision by this Tribunalin the case Novozymes South Asia Pvt. Limited vs. CCE Bangalore – 2015 (38) STR 204 (Tri. Bang.).
6. The next demand of Rs. 41,94,123/- confirmed on the basis that Cenvat credit could not have been transferred by appellant’s various branches to the Nadiad unit under centralised, without issuance of proper documents by each unit. He submits that it is not a case of department that an excess amount of Cenvat credit has been availed by the appellant at Nadiad unit i.e. amount in excess of Cenvat credit originally availed in other branches. It is also not a case of the department that transferring unit utilised such Cenvat credit as initially transferred unit appellant was also tax/ duty paid unit. The only objection of the department is that no documents were issued while making the said transfer to the Nadiad unit. In this regards, he submits that in the Tribunal decision in the case of Central Bank of India vs. CCE, Bhopal – 2019 (365) ELT 565 (Tri. Delhi.)which is on identical facts and circumstances, has set-aside the demand by holding that such objection is merely a technical error on the part of the appellant and there is no revenue loss to the department on account of such error. The Tribunal also held that there is no document specified under law for said transfers and therefore, the case can be established on the basis of statutory documents of the assessee and it cannot be said that there has been any violation on the part of the assessee. He submits that statutory documents maintained by the appellant’s Nadiad branch as well as other branches clearly shows that there has been transfer of credit from appellant’s one unit to another. Therefore, the demand is not sustainable.
7. Demand of Rs. 5,59,851/- is confirmed against Cenvat credit availed by the appellant on Input services such as Medi-claim, Canteen Services, Vehicle Insurance, Vehicle Hiring Service, CHA Bills, Guest House expenses, Residential Premise services and Membership services. He submits that even this amount of demand also includesdemand for the period beyond five years, which is without jurisdiction of the adjudicating authority. He submits that the demand is otherwise not legal inasmuch as all the aforesaid services have been held to be legally permissible and having nexus to the manufacturing activity. He relied on the following judgments:-
(a) CST, Chennai vs. Spectrasoft Technologies Limited -2019 (24) GSTL 224 (Tri. Chennai)
(b) CST, Mumbai vs. FIL Capital Advisors (India) Pvt. Limited – 2015 (40) STR 1073 (Tri. Mumbai)
(c) CCE, Bangalore vs. Stanzen Toyotetsu India (P) Limited – 2011 (23) STR 444 (Kar.)
(d) Vinayak Steels Limited vs. CCE & ST, Hyderabad – 2017 (4) GSTL 188 (Tri. Hyderabad)
8. The next demand of Rs. 39,60,634/- was also confirmed on the ground that Cenvat credit has been wrongly availed on ISD invoices issued by the appellant’s Ahmedabad and Mumbai branch for services availed by the said unit prior to the date on which ISD registration was granted to the said unit. He submits that the issue of distribution of input service credit prior to obtaining registration is no longer res-integra and is settled by various decisions of the Tribunal holding that availment of Cenvat credit on such ISD invoices is proper and legal. In this regard the appellant has relied upon the following decisions:-
(a) Acro Paints Limited vs. CCE, Jaipur – 2017 (47) STR 284 (Tri. Del)
(b) Lona Industries Limited vs. CCE, Raigad – 2016 (42) STR 362 (Tri. Mumbai)
9. He alternatively submits that as regard the demand of Rs. 41,94,123/- and Rs. 39,60,634/- for which the submission made hereinabove, these demands also stand covered in the calculation of the amount required to be reversed by the appellant under Rule 6. Accordingly, the said amount along with proper interest stands paid by the appellant. In view of the said reversal along with interest the issue concerning eligibility becomes academic. As regards invocation of extended period, he submits that department has failed to bring on record any evidence to show that the present case concerns any contravention or infraction on the part of the appellant with intention to evade duty. Thus, invocation of extended period as also imposition of penalty on the appellant was without any merit or justifications. He submits that show cause notice wrongly suggests that the said infractions have been unearthed during the course of audit. A perusal of the audit report would show that said issues were not raised by the audit party but were discovered fromperusal of record of the appellant while preparing the show cause notice in respect of the demand concerning Rule 6. He submits that in the present case, there is not even iota of evidence confirming any infraction was committed by the appellant with intention to evade any payment of duty. He relied upon the judgment of Hon’ble Gujarat High Court in the case of CCE vs. Chandresh C. Shah – 2014 (36) STR 972 (Guj.). Therefore, he submits that all the demands are not sustainable and the appellant to reverse only proportionate credit attributable to exempted goods and interest for the delay in reversal thereof.
10. On the other hand Shri T.G. Rathod, Learned Joint Commissioner (AR) appearing on behalf of the Revenue reiterates the findings of the impugned order. He placed reliance on the following judgments:-
(a) Vishay Components India Pvt. Limited vs. CCE, Pune – 2018 (8) GSTL 196 (Tri. Mumbai)
(b) Tigrania Metal & Steel Industries P. Limited vs. CCE – 2015 (326) ELT 650 (Bom.)
(c) Jay Yuhshin vs. CCE, New Delhi – 2000 (119) ELT 718 (Tri. LB)
11. We have heard both sides and perused the record. We find that major demand of Rs. 14,16,83,202/- was confirmed invoking Rule 6, for the period August 2007 to September 2011. This demand consist amount equal to proportionate credit for the period August 2007 to March 2008 and 10%/5% of the value of clearance of the exempted goods for the period April 2008 to September 2011. We find that there is no dispute that the appellant have reversed Cenvat credit much more than the Cenvat credit attributed to common input service used in the manufacture of exempted goods. The appellant have also paid interest on such reversal. As per option available under Rule 6, one of the option is that appellant is required to reverse proportionate credit in terms of sub-Rule 3(A) of said Rule on the inputs and input service attributed to exempted goods and therefore, in the present case, when the appellant have reversed the credit, which should be proportionate credit on the common input service attributed to the exempted goods and also paid interest. The entire demand raised under Rule 6 will not sustain. This issue has been considered by this Tribunal time and again in various judgments. Some of the judgments are referred below:-
In the case of Mercedes Benz India (P) Limited (supra), this Tribunal dealing with identical issue passed the following order :-
5. We have considered the submissions made by both sides. From the facts and circumstances of the case and arguments put forth by rivals, we find that the issue to be decided by us is whether appellant is required to pay 5% of total sale value of the goods traded by them in terms of Rule 6(3)(i) when the appellant paid the actual credit attributed to the quantum trading sale in terms of Rule 6(3A) alongwith interest following the option available under Rule 6(3)(ii). Provisions for payment of 5% of the sale value of exempted goods is provided as one of the option given in Rule 6(3) of Cenvat credit Rules which is reproduced below :-
RULE 6. Obligation of a manufacturer or producer of final products and a [provider of output service. – (1) The CENVAT credit shall not be allowed on such quantity of [input used in or in relation to the manufacture of exempted goods or for provision of exempted services, or input service used in or in relation to the manufacture of exempted goods and their clearance 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.
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.
(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 exempted goods;
(iii) for the provision of exempted services;
(iv) for the provision of output services excluding exempted services; and
(b) the receipt and use of input services –
(i) in 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 five percent of value of the exempted goods and 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 clause (a) of sub-rule (2), take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of said clause (a) and pay an amount as determined under sub- rule (3A) in respect of input services. The provisions of sub-clauses (i) and (ii) of clause
(b) and sub-clauses (i) and (ii) of clause (c) of sub-rule (3A) shall not apply for such payment :
Provided that if any duty of excise is paid on the exempted goods, the same shall be reduced from the amount payable under clause (i) :
Provided further that if any part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs and input services, used for providing
such taxable service, shall be taken then the amount specified in clause (i) shall be [six per cent.] of the value so exempted.
Provided also that in case of transportation of goods or passengers by rail the amount required to be paid under clause (i) shall be an amount equal to 2 per cent. of value of the exempted services.
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.
Ld. Adjudicating 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 the option provided under sub-rule (3)(ii) of Rule 6 and paid an amount as per sub-rule (3A) along with interest and intimated the same to the jurisdictional superintendent in writing vide letter dated 14-3-2012. From the perusal of the said letter, we observed that the appellant categorically stated in the said letter that payment of Cenvat Credit, which they have made alongwith interest is in accordance with Rule 6 (3A) of Cenvat Credit Rules. With this act of the appellant, it is clear that the appellant opted for the option as provided under Rule 6(3)(ii) of the Cenvat Credit Rules, 2004, in accordance to which, the appellant are supposed to an amount equivalent to Cenvat Credit on input service attributed to the exempted service in terms of Rue 6(3A). In the present case, the appellant has availed Cenvat credit in respect of common input services, which has been used in relation to the manufacture of the final product as well as for trading of bought out cars. Therefore they are supposed to pay an amount equivalent to Cenvat credit which is attributed to the input service used for exempted service i.e. sale of car. In our view, three options have been provided under Rule 6(3) and it is up to the assessee that which option has to be availed. Revenue could not insist the appellant to avail a particular option. In the present case the appellant have admittedly availed option as provided under Rule 6(3)(ii) and paid an amount as required under sub-rule (3A) of Rule 6. As regard the compliance of the procedure and conditions as laid down for availing option as provided under sub-rule (3)(ii), we find that foremost condition is that the appellant is required to pay an amount as per the formula provided under sub-rule (3A) on monthly basis. However, we find that as per the provision, payment on monthly basis is provisional basis, therefore it is not mandatory that whole amount or part of the amount was required to be paid on every month. The appellant though belatedly calculated the amount required to be paid in terms provided under sub-rule (3A) of Rule 6, therefore to fulfill the condition, assessee should pay the said amount, which has been complied by the appellant.
5.2 As regard the delay in payment, if any, the appellant have discharged the interest liability on such delay. Regarding the compliance as provided under Clause (a) of sub- rule (3A) of Rule 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 intimated to the Jurisdictional superintendent while exercising option stand produced. Though these particulars have not been submitted specifically under a particular letter, but since these particulars otherwise by way of return and some of the information under their letters has admittedly been submitted, we are of the view, as regard this compliance of Rule 6(3A), it stood made.
5.3 As regard the contention of the adjudicating authority that this option should be given in beginning and before exercising such option, we are of the view that though there is no such time limit provided for exercising such option in the rules but it is a common sense that intention of any option should be expressed before exercising the option, however the delay can be taken as procedural lapse. We also note that trading of goods was considered as exempted service from 2011 only, thus it was initial period. We are also of the view that there is no condition provided in the rule that if a particular option, out of three options are not opted, then only option of payment of 5% provided under Rule 6(3)(i) shall be compulsorily made applicable, therefore we are of the view that Revenue could not insist the appellant to avail a particular option. In the present case admittedly it is appellant who have on their own opted for option provided under Rule 6(3)(ii). The meaning of the option as argued by the Ld. Sr. Counsel is that “option of right of choosing, something that may be or is chosen, choice, the act of choosing”. From the said meaning of the term ‘option’, it is clear that it is the appellant who have liberty to decide which option to be exercised and not the Revenue to decide the same.
5.4 We find that the appellant admittedly paid an amount of Rs. 4,06,785/- plus interest, this is not under dispute. Therefore in our view, the appellant have complied with the condition prescribed under Rule 6(3)(ii) read with sub-rule (3A) of Rule 6 of Cenvat Credit Rules, therefore demand of huge amount of Rs. 24,71,93,529/- of the total value of the vehicle amounting to. Rs. 494,38,70,577/- sold in the market cannot be demanded. We are also of the view that Rule 6 of the Cenvat Credit Rules is not enacted to extract illegal amount from the assessee. The main objective of the Rule 6 is to ensure that the assessee should not avail the Cenvat Credit in respect of input or 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. The legislator has not enacted any provision by which Cenvat credit, which is other than the credit attributed to input services used in exempted goods or services; can be recovered from the assessee.
5.6 We have gone through judgments relied upon by the Ld. A.R. In the arguments, we found that as regards the judgments on the issue of availment of Cenvat credit on the input or input services used in dutiable and exempted goods, the provision involved in the present case i.e. Rule 6(3) (i) (ii) (3A) has not been considered in the relied upon judgments, therefore the same are not applicable. As regard the other judgments, all these judgments having different facts and dealing with other provisions such as SSI exemption, exemption notification, etc., which are not identical to the fact of the present case, Moreover, in the present case the substantive provisions under Rule 6(3)(ii) and sub rule (3A) i.e. payment of equivalent to the Cenvat credit, which the appellant have complied with and if at all there is delay, the required interest has also been paid, therefore in the present case, there is no case of noncompliance of procedure and condition. Therefore the judgments cited by the ld. A.R. are not applicable.
6.1 In view of these observations, we are of the considered view that demand confirmed by the adjudicating authority has no legs and therefore the same cannot be sustained. The impugned order is set aside and Appeal is allowed.
In the above decision, it can be seen that in identical set of facts, this Tribunal dealing with the same Cenvat Credit Rules, held that various options are available under Rule 6 to the appellant and it is choice of the appellant to opt for any option i.e. either 10%/ 5% payment of value of exempted goods or payment of proportionate credit attributed to exempted goods. Therefore, in view of this judgment, department has no say that which option the assessee should avail. In the present case, the appellant have reversed Cenvat credit which is more than the proportionate credit attributed to exempted goods. Therefore, the demand of Rs. 14,16,83,202/- raised invoking Rule 6 will not sustain. We further make it clear that as per the option available under Rule 6, the appellant is required to reverse Cenvat credit in respect of common input service along with interest and nothing more than that. As per submission of the appellant they have reversed excess credit. In this position, the adjudicating authority should recalculate the proportionate credit during the period of show cause notice and thereafter, if any amount of excess reversal and interest thereof arise, the same shall stand refundable to the appellant.With these observations, the demand of Rs. 14,16,83,202/- raised under Rule 6 is set-aside.
11. As regards the demand of Rs. 3,31,189/-, we find that Cenvat credit was denied only on the ground that in the invoices, certain services did not carry either Serial Number or Service Tax Registration. We find that this is a technical infraction and moreover this error is not on the part of the appellant but on the part of the service provider who issued the invoices. It is not a case of the department that in said invoices, no service tax was paid and there is no dispute about receipt and use of the services, which are the main criteria for allowing Cenvat credit on input service. Therefore, in our view, credit, only on the technical infraction should not be denied. This issue has been considered by this Tribunal in the case of Novozymes South Asia Pvt. Limited (Supra) and held as under :-
5. Coming to the deficiency in the documents, I observe that while applying the provisions of the Statute, officers seem to ignore important aspects. In para 15 of the Order-in-Original, the original authority observed “sub-rule (2) of Rule 9 of Cenvat Credit Rules, 2004, the bill/invoices shall contain the Registration No. of the person issuing, name and address of the person receiving taxable service, description and classification of the taxable service. As these details are not shown in the bill/invoice, hence Cenvat credit is liable to be disallowed. In the show cause notice issued, I find that same are not forthcoming on the invoice on which the credit was availed by the assessee. I have also verified a copy of the above said invoice and found that the above mentioned particulars are not forthcoming on the same”.
6. According to Rule 9(2) of Cenvat Credit Rules, the requirement of name and address of the person receiving taxable service is not a mandatory requirement. I reproduce the relevant portion of the Rule 9(2) to make this clear.
“Provided that the said document does not contain all the particulars but contains details of duty or Service Tax payable, description of the goods or taxable service, assessable value, central excise or Service Tax Registration No. of the person issuing the invoices as the case may be, the name and address of the factory or warehouse or premises of first or second stage dealers or provider of taxable service……”
From the above, it becomes clear that the name and address of the person receiving the taxable service is not a mandatory requirement. Secondly I also find that even verification of documents has not been done by the original authority properly and on going through the invoice produced by the appellants before me, I find that full name and address of the service receiver, the nature of service provided, Registration No. of the service provider, amount of Service Tax paid for the service rendered and address of the issuer are available in the invoice. At least I could not make out any deficiency in the invoice. The Assistant Commissioner made a categorical observation that above mentioned particulars, meaning thereby, name and address of the person receiving taxable service, description and classification of taxable service are not forthcoming on the invoice. The only basis this objection can be upheld is that photocopy submitted by the appellant cannot be relied upon. Unfortunately, the Assistant Commissioner does not even say that he has verified the original or photocopy. The Commissioners (Appeals) observes :
“I find that adjudicating authority has convincingly established vide para 15 of the impugned order that the appellants have taken the credit of Service Tax on the basis bill which is not a prescribed document and does not contain details as required under sub-rule (2) of Rule 9 of Cenvat Credit Rules, 2004…”.
Apparently the Commissioner (Appeals) is too busy to verify the invoice in to deal with limitation also. It is strange that the original authority in para 16 of his order observes :
“It is also noticed that the assessee have not indicated or produced any specific documents or records before me during the adjudication proceedings as evidence that the documents on which the issue in question was brought to the knowledge of department earlier. The assessee has therefore suppressed the fact of availing and utilizing credit on Service Tax paid on services from the knowledge of the department. But for observation of the department audit team, the fact of irregular availment of Cenvat credit would have gone unnoticed and resulted in revenue loss to the exchequer. ”
I am not able to understand what exactly was suppressed by the assessee in this case. The requirement of submission of the documents on the basis of which credit has been taken is no longer in the Statute book. Therefore, the appellant was not required to produce the documents on the basis of which credit has been taken. Hon’ble Supreme Court has already taken a view to the effect that to invoke suppression facts, suppression of facts should be such that they should be ones which are required to be declared in accordance with Statute before the Statutory Authorities. When a document on the basis of which credit was taken is not required to be produced, how suppression of facts can be invoked and on what basis defies imagination. In any case, I find considerable force in the arguments advanced by the learned counsel that before a decision in the case of Cadila Healthcare (supra) by Hon’ble Gujarat High Court was rendered, there was a view prevailing that credit is admissible in respect of service rendered by commission agent. In fact, there is a Circular issued by the Board where such a view has been taken. Under these circumstances, extended period could not have been invoked in this case. The discussion above would show that on merits as well as on limitation, the impugned order cannot be sustained. Accordingly, the impugned order is set aside and appeal allowed with consequential relief if any to the appellants question and is in dispute before him. Otherwise there is no indication forthcoming as to whether the Commissioner (Appeals) had a look at the invoice or not. This is the sole ground on the basis of which he has disallowed the Cenvat credit. After considering the invoice, I am not able to find any deficiency in the bill/invoice, I have to take a view that Cenvat credit has been taken correctly.
Accordingly this demand of Rs. 3,30,189/- is set-aside.
12. The demand of Rs. 41,94,123/- has been confirmed on the basis that Cenvat credit could not have been transferred by the appellant’s various branches to Nadiad unit under Centralised registration without issuance of proper documents by each unit. In this regard we find that the appellant undisputedly made necessary recording in the statutory books of transfree’s branch. There is no document prescribed for such transfers. There is no case of the department that the transferor branches have transferred excess credit or wrong credit. It is also not a case of the department that the Cenvat credit transferred is not out of the credit availed by the branches. Therefore, only on the ground that proper documents under centralised registration was not issued for transfer of credit cannot be denied. This issue has been considered by this Tribunal in the case of Central Bank of India (supra) wherein this Tribunal has considered identical issue as under :-
“6. After hearing both the sides at length and going through the material available on record, we are of the view that appellant is a public sector undertaking Bank, no individual interest is involved. The main ground on which Cenvat credit was denied is lack of proper document for transferring credit lying at various branches to the zonal office upon approval of centralized registration. The fact remains that the documents were available in the books of account and as mentioned no individual interest is involved. Further, we find there is no statutory requirement of specified documents for transferring credit available with the multiple registrations to centralized registration. Hence, when there is no dispute regarding the credit originally availed by various branches, transfer of such credit cannot be denied. We are of the view that there is no distribution of credit in the present situation.
7. Considering the above factual position, we find that impugned order is not sustainable. Same is set aside.
8. In the result, appeal filed by the appellant is allowed.”
In view of the above discussions and observations made by us, there is no sufficient reason to deny Cenvat credit of Rs. 41,94,123/-, hence demand of the said amount is set-aside.
13. Cenvat credit of Rs. 5,59,851/- was disallowed in respect of Input Services namely Medi-claim, Vehicle Insurance, Canteen Exp., CHA Bills, Guest House, Vehicle Hire Charges, Membership Charges, Residential Premise. This issue has been considered time and again by this Tribunal and credit of all the services have been allowed in various judgments. The details of judgment along with relevant services are given as below:-
(a) For Mediclaim – CST, Chennai vs. Spectrasoft Technologies Limited – 2019 (24) GSTL 224 (Tri. Chennai) and CST, Mumbai vs. FIL Capital Advisors (India) Pvt. Limited – 2015 (40) STR 1073 (Tri. Mumbai)
(b) For Canteen and Insurance Services- CCE, Bangalore vs. Stanzen Toyotetsu India (P) Limited – 2011 (23) STR 444 (Kar.)
(c) For Vehicle Insurance – Vinayak Steels Limited vs. CCE & ST, Hyderabad – 2017 (4) GSTL 188 (Tri. Hyderabad)
In view of the above judgments, we find that Cenvat credit in respect of all the services has been allowed by this Tribunal. Therefore, demand of Rs. 5,59,851/- on this count is not sustainable and the same is set-aside.
14. Demand of Rs. 39,60,634/- was confirmed on the ground that same was wrongly availed on ISD invoices issued by the appellant’s Ahmedabad and Mumbai branch for services availed prior to the date of ISD registration was granted for the said unit. We find that Hon’ble High Court of Karnataka in the case of mPortal (I) Wireless Solutions (P) Limited vs. CST, Bangalore – 2012 (27) STR 134 (Kar.) has considered the issue of ISD invoices issued prior to registration and held that for this reason Cenvat credit cannot be denied. The relevant portion of the order is reproduced as under:-
“7. Insofar as requirement of registration with the department as a condition precedent for claiming Cenvat credit is concerned, learned counsel appearing for both parties were unable to point out any provision in the Cenvat Credit Rules which impose such restriction. In the absence of a statutory provision which prescribes that registration is mandatory and that if such a registration is not made the assessee is not entitled to the benefit of refund, the three authorities committed a serious error in rejecting the claim for refund on the ground which is not existence in law. Therefore, said finding recorded by the Tribunal as well as by the lower authorities cannot be sustained. Accordingly, it is set aside.
8. That does not mean that the assessee is entitled to refund as claimed by him consequent to setting aside these orders. As is clear from the order of the original authority in the show cause notice, they have categorically called upon the assessee to furnish the particulars of the taxes paid on input services. They called upon the assessee to produce the invoices, bills, receipts to substantiate their claim for their verification. The assessee would be entitled to the refund of the Cenvat credit only on his proof that he has paid input Service tax.
In that view of the matter, the matter is now remanded back to the adjudicating authority to decide the correctness of the claim made by the petitioner. Liberty is reserved to the assessee to produce such documents which are in his possession to substantiate his claim. On production of such documents, the assessing authority shall process the application for refund in accordance with law and expeditiously.”
In view of the above judgment, it has been settled that even for ISD invoices issued for the distribution of input service credit prior to the registration, the same cannot be denied. Accordingly, demand of Rs. 39,60,634/- is set-aside.
15. Since the entire demand has been set-aside, consequently penalties and demand of interest are also set-aside.
As per our above observations and findings, the appeal is allowed in the above terms with consequential reliefs, if any.
(Pronounced in the open court on 01.06.2020)