2020 (3) TMI 146 - AT - Central Excise

Tribunal rules in favor of appellant on CENVAT credit eligibility and penalty imposition under Rule 6(5).

The Tribunal ruled in favor of the appellant regarding the eligibility of CENVAT credit on common input services under Rule 6(5) of CENVAT Credit Rules, ... Reversal of CENVAT Credit - common input services used in the manufacture of goods, providing taxable output services and sale of CBUs - non-maintenance of separate records - Rule 6 of CENVAT Credit Rules, 2004. Whether the appellants are eligible to CENVAT Credit on common input services described under Rule 6(5) of the CENVAT Credit Rules, 2004 and in calculating the proportionate CENVAT Credit attributable to sale of cars? - HELD THAT:- It is clear that credit on whole of Service Tax paid on taxable input services mentioned in the said sub-rule(5) shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services. In the present case, the appellant had categorically submitted that as and when the aforementioned listed services were used exclusively in providing exempted services or manufacture of the exempted goods, they have reversed the credit availed on such input services. No contrary finding has been recorded by the authorities below to the said claim of the assessee. Therefore, the input services on which CENVAT Credit availed in the present case mentioned under sub-rule (5) of Rule 6 of the CENVAT Credit Rules, 2004 would be admissible, even if the same are used both for exempted services as well as taxable output services giving due effect to the non-obstante clause mentioned under the said Sub-rule. There is fundamental fallacy in the approach and would be at the cost ofmis-interpretation of the said rules. No doubt, CENVAT Credit on input services would be allowed only when it is used in the taxable output services and/or dutiable manufactured goods; but when common input services are used in both taxable and exempted services or non-taxable services, the appropriate rule prescribed under CENVAT Credit Rules is Rule 6 of the CENVAT Credit Rules, 2004 - It prescribes a procedure/mechanism to separate the inadmissible quantum of cenvat credit used in the exempted services and/or exempted goods. To simplify the procedure further in case of input service credit, sub-rule(5) lays down a fiction whereby services mentioned under the said Rule deemed to have been used in providing only taxable service, and consequently the rigour of Sub-Rule (1),(2),(3) of CENVAT Credit Rules, 2004 has been made inapplicable. This reasoning is further supported when under the said sub-rule it is specifically laid down that when input services are exclusively used in providing exempted service, credit is inadmissible. Whether in the formula-prescribed under Rule 6(3A) of CCR,2004, it is only the margin of value addition of the traded cars be considered or otherwise? - HELD THAT:- It is clear that the nerve chord of the dispute lies in the determination and scope of determination of the ‘value’of the traded goods for the purpose of Sub-rule (3A) of Rule 6 of CCR,2004. Under the sub-rule (3A) of Rule 6 of CENVAT Credit Rules, 2004 as was in force between 01.04.2008 and 31.03.2011, there is no mention about determination of value of ‘traded’ goods. In the said explanation, it is prescribed that the value for the traded goods be determined in accordance with Section 67 of the Finance Act, 1994. A plain reading of Section 67 of Finance Act,1994 along with Service Tax (Determination of Value) Rules, 2006, and principles of law settled in this regard, it can easily be construed that the value of taxable services cannot include the value of the material/goods used in rendering the taxable services. Simultaneously, it is an accepted principle that the cost of all ancillary and incidental services for providing the taxable service be part of the value of the taxable service - Applying the said principles to the present case also, that is, in determining the value of non taxable service i.e. ‘trading’ of imported cars, it cannot include the value of the imported cars while apportioning the quantum of credit availed on common input services and attributable to the sale of imported cars, but the total value of the services/expenses incurred in trading of the imported cars ought to be considered as part of “value” for the purpose of the formula prescribed at sub-rule 3A(c) (iii) for the period 01.4.2008 to 31.3.2011. To apportion the quantum of CENVAT Credit availed on various common input services and attributable to sale of the imported Cars as per the formula prescribed at Rule 6(3A)(c )(iii) of CCR, 2004, for the period 01.4.2008 to 31.3.2011 the matter needs to be remanded to the adjudicating authority, who would determine the said amount by applying the principles discussed above and other factors for the normal period of limitation. The Appeals filed by the assessee are disposed of by way of remand to the adjudicating authority. Issues Involved:1. Eligibility of CENVAT Credit on common input services under Rule 6(5) of CENVAT Credit Rules, 2004.2. Calculation of proportionate CENVAT Credit attributable to trading of imported cars.3. Inclusion of sale of scrap and value of taxable output services in the denominator while computing the reversal of credit.4. Application of the extended period of limitation for the first Show Cause Notice.5. Imposition of penalty on the appellant.Detailed Analysis:1. Eligibility of CENVAT Credit on Common Input Services under Rule 6(5):The appellant contended that they are entitled to CENVAT Credit on various input services utilized for both taxable output services and trading of imported cars, as specified in Rule 6(5) of CENVAT Credit Rules, 2004. The Tribunal agreed, stating that credit on services listed under Rule 6(5) is admissible even if used for both exempted and taxable services, due to the non-obstante clause in the rule. The Tribunal found no contrary evidence from the authorities to the appellant's claim of reversing credit on services used exclusively for exempted services.2. Calculation of Proportionate CENVAT Credit Attributable to Trading of Imported Cars:The appellant argued that the formula prescribed under Rule 6(3A) of CENVAT Credit Rules, 2004 should consider only the margin of value addition of traded cars, not the total turnover. The Tribunal analyzed the rules and concluded that the value of traded goods should not include the cost of the imported cars but should include the value of incidental and ancillary services incurred in trading. The Tribunal rejected the appellant's argument to limit the value to trade/profit margin, emphasizing that it should also include the value of services related to trading.3. Inclusion of Sale of Scrap and Value of Taxable Output Services:The appellant contended that the value of scrap sold on payment of duty and the value of taxable output services were not considered in the impugned order. The Tribunal noted that this aspect was not addressed by the adjudicating authority and remanded the matter for reconsideration, instructing the Commissioner to include these values in the denominator while computing the reversal of credit.4. Application of the Extended Period of Limitation for the First Show Cause Notice:The appellant argued that the first Show Cause Notice for the period 01.03.2005 to 31.03.2008 was barred by limitation, as the fact of trading was disclosed to the department, and the issue involved interpretation of law. The Tribunal found merit in this argument, noting that the appellant had communicated the trading activity to the department and obtained necessary permissions. The Tribunal concluded that there was no suppression or misdeclaration of facts, and the issue involved a question of law interpretation. Hence, the extended period of limitation was not applicable, and only the normal period could be sustained.5. Imposition of Penalty on the Appellant:Given the Tribunal's findings on the issues of eligibility of credit, calculation methodology, and limitation period, it concluded that the imposition of penalty was unwarranted and unjustified. The Tribunal emphasized that the issue involved interpretation of law and there was no suppression of facts by the appellant.Conclusion:The Tribunal modified the impugned orders, rejecting the Revenue's appeal for enhancement of penalty and remanding the matter to the adjudicating authority to re-determine the quantum of CENVAT Credit attributable to the sale of imported cars, considering the principles discussed and limiting it to the normal period of limitation. The Tribunal clarified that no penalty was imposable in the present circumstances.