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2016 (12) TMI 436
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....tobacco is also exported to foreign customers. While factory is located in Mumbai, the Head Office is located in Delhi. The appellants are also engaged in trading of various goods. 90% of their turnover is from cigarettes and cut-tobacco. The traded goods include Pan Masala which is not entitled to CENVAT Credit. All these business are handled by respective business team located in Delhi and other cities and branches and depots of the appellant. The branches, depots and head office are registered as Input Service Distributor (ISD) under Rule 3 of the Service Tax (Registration of Special Category of Persons) Rules, 2005. The appellant being a manufacturer of final products namely, cigarettes and cut tobacco, were entitled to avail credit on inputs, input services and capital goods received in the Andheri factory, used in or in relation to manufacture of final products. In addition to above, the appellants received credit from its branches, depots and head office, distributed by them in terms of Rule 7 of the Cenvat Credit Rules, 2004, under the cover of ISD challans. The appellants availed the credit on the strength of such ISD challans. The appellants have claimed that they are not....
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....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 (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 receipt, consumption and inventory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take CENVAT credit only on that quantity of input or input service which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax is payable. (3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not ....
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....of exempted services (provisional) = (E/F) multiplied by G, where E denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the preceding financial year, F denotes total value of taxable and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the preceding financial year, and G denotes total CENVAT credit taken on input services during the month; (c) the manufacturer of goods or the provider of output service, shall determine finally the amount of CENVAT credit attributable to exempted goods and exempted services for the whole financial year in the following manner, namely:- (i) the amount of CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods, on the basis of total quantity of inputs used in or in relation to manufacture of said exempted goods, denoted as H; (ii) the amount of CENVAT credit attributable to inputs used for provision of exempted services = (J/K) multiplied by L, where J denotes the total value of exempted services provided during the financial year, K denotes the total value of dutiable....
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....1.12.2011. The appellants are seeking to avail the option (i) of sub-rule (3) of Rule 6 for the exempted cigarettes and option (ii) of sub-rule (3) of Rule 6 in respect of traded goods. Sub-rule (3) of Rule 6 provides for a mechanism to be followed by a manufacturer or a service provider producing both dutiable and exempted services and using common inputs and input services where separate record has not been maintained. The main clause of sub-rule (3) during 1.4.2011 to 31.12.2011 read as follows: - (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 per cent. 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-ru....
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....ppellants had reversed an amount of Rs. 69,78,847/- as credit attributable to traded goods on proportionate basis i.e. credit in ratio of total turnover. The appellants had now claimed that during that period, they were allowed to reverse credit as per the formula prescribed under Rule 6(3A) by considering the value of traded goods as equivalent to "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". On that basis, they have concluded that amount of reversal comes to Rs. 10,94,043/-. Clause (c)(iii) of sub-rule (3A) of Rule 6 prescribes the manners in which the manufacture of goods or provider of output services so determined finally the amount of service tax credit attributable to exempted goods / exempted services/ trading activity for the whole financial year. The said clause reads as under: - "c) the manufacturer of goods or the provider of output service, shall determine finally the amount of CENVAT credit attributable to exempted goods and exempted services for the whole f....
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....43/- in para E7 at page 73 of the appeal. It seems that the said amount has been calculated as per formula prescribed under sub-rule (3A) of Rule 6 by taking into consideration for each branch the total turnover of each branch, turnover of traded goods at each branch and 'Amount of credit common to dutiable goods and traded goods'. The table is as follows Table A Statement showing proportionate reversal of CENVAT credit pertaining to traded goods availed during the period 01.04.2011 to 31.12.2011 Year Branch Total Turnover (in '000') Turnover of Traded Good (Sales - COGS) or 10% of COGS whichever is greater (in '000') Ratio trading goods to total Turnover Amount of credit of common to dutiable goods and traded goods Proportionate credit to be reversed 1 2 3 4 5 6 7 2011-12 HO 248,072.71 5,196.11 2.09 41417774.34 865,631 2011-12 Delhi 49,146.32 631.38 1.28 708704.2668 9,071 2011-12 Chandigarh 58,578.49 495.61 0.85 93806.928 797 2011-12 Mumbai 54,094.59 696.88 1.29 779178.9764 10,051 2011-12 Ahmedabad 39,170.44 449.44 1.15 371895.64 ....
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....hes. 2.4 Even if their argument that they can avail both the options prescribed in rule 6(3) of Cenvat Credit Rules is accepted they would be required to reverse the credit as per formula prescribed in rule 6(3A)(c) (iii) by taking the value of 'N' as the total credit taken in the period and not merely the common credit. In the instant case the column (6) takes into account only Amount of credit of common to dutiable goods and traded goods. Thus the credit of services taken at factory has been left out of calculation. Thus the claim of the appellant is without any merit. 2.5 However, these issues become irrelevant in the light of sub-rule (3) of Rule 6 of Cenvat Credit Rules, 2004. The rule 6(3) during the period reads as follows 6(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 per cent. of value of the exempted goods and exempted services; or (ii) pay an amount as determined under sub-rule (3A); or (iii) maintain separa....
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....e of excisable goods and also for trading activities. They relied on the Circular No. 868/6/2008-CX dated 9.5.2008, wherein CBEC has clarified as follows: - Question Answer 8. Whether credit in respect of input services covered by rule 6(5) would be required to be taken into account for determination of amount payable as per formula provide in rule 6(3A). No, the credit attributable to services mentioned in sub-rule (5), shall not be taken into account for determination of amount under rule 6(3A). The appellants argued that the credit to be reversed is calculated by the following formula: - Credit to be reversed = Total credit taken x exempted turnover Total turnover And for the purpose of this, CBE&C has clarified that total credit taken would not include the credit availed under sub-rule (5) of Rule 6 of Cenvat Credit Rules. The learned Counsel also relied the Circular No. 137/203/2007-CX.4 dated 1.10.2007 for the period prior to a.7.2008. The said circular clarified as follows: - Please refer to letter F.No. IV/16-385/CCO/MCX-I/2005 dated 5th September, 2005 from the Chief Commissioner of Central Excise, Mumbai-I Zone on the above su....
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....decision of the Tribunal in the case of SKF India Ltd. vide Order No. A/947-948/15/EB dated 28.4.2015 and on the decision of the Tribunal in the case of Clariant Chemicals (I) Ltd. Vs. Commissioner of Central Excise, Pune-I vide Order No. A/3360/15/EB dated 15.10.2015. He argued that decision cited by the appellants were in reference to situation where only exempted services or exempted goods were cleared. The decision in the case of SKF India (supra) and Clariant Chemicals (supra) have been given after considering the traded activities as well. In the case of SKF India Ltd., the Tribunal has observed as under: - 15. The next contention of the appellant was that the credit relating to categories of services specified in Rule 6(5) of the Cenvat Credit Rules, 2004 shall be allowed. We have gone through the said Rule 6(5). Said sub-rule starts with non-obstanta clause with reference to sub-rule (1), (2) & (3) of Rule 6. Eligibility of credit is defined in Rule 3 read with definition in Rule 2(l). It is only after that various questions in Rule 6, come into play. Rule 6(5) cannot be read in isolation but has to be read in the overall scheme of the things. The overall scheme of CENVA....
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.... argued that they are not claiming CENVAT Credit on input services exclusively relatable to activity of purchase and sale of various traded goods. They are also not taking CENVAT Credit of the duty paid on the traded goods. 4.2 Learned Counsel argued that there are common services used for manufacture and sale of cigarettes as also for sale and purchase of various traded goods. Learned Counsel accepted that Service Tax attributable to activity of purchase and sale of excisable goods are not available, however, quantum of such credit needs to be determined. He argued that for such determination the provisions of Cenvat Credit Rules introduced w.e.f. 1.4.2011 should be adopted. Learned Counsel argued that under the existing provisions of the Cenvat Credit Rules at the first instance, assessee takes entire credit of Service Tax paid on common input service and subsequently to the extent credit is to be disallowed/reversed. This is for administrative convenience of assessee as well as of the department. He argued that for this purpose, one has to consider total common input service and multiply by a suitable fraction/percentage. 4.3 Learned Counsel argued that for the period prio....
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.... Particulars Amount Service Tax Excise duty Materials (A) 1,00,000 -- 20,000 Expenses (B) 50,000 5,000 -- Total (C) = (A) + (B) 1,50,000 5,000 20,000 Manufacturing Turnover Particulars Amount Service Tax Excise duty Materials (D) 5,00,000 -- 1,00,000 Expenses (E) 3,00,000 30,000 -- Total (F) = (D) + (E) 8,00,000 30,000 1,00,000 Grand Total (G) = (C) + (F) 9,50,000 35,000 1,20,000 Reversal = Total credit X Exempted Turnover Exempted + Dutiable Turnover Net Credit available Option I-Gross value method 24473 1,55,000 (20,000 + 1,00,000+5000+ 30,000) X 1,....
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....HHC deals with deductions in total income of assessee in respect of profits derived from exports business. He argued that prior to 1991, Section 80HHC (3) provided for the following formula: - 80HHC concessions=export profits=Total business profits x Export turnover/Total turnover. Since this formula let certain anomaly, by Finance Act, 1991, Section 80HHC was amended and a new formula was introduced, which reads as under: - 80HHCconcession=export profits= export turnover- costs attributable to such exports (direct and indirect)] 4.8 Learned Counsel cited Circular No. 621 dated 19.12.1991 of Central Board of Direct Taxes, wherein the following has been clarified: - 32.5 Under the existing provisions of sub-section (3) of section 80HHC of the Income-tax Act, profit derived from the export of goods is computed in the following manner : Export turnover Profits of the business X ------------------ Total turnover xxx xxx 32.8 Under the new formula, the profits from the business of export of any goods or merchandise would be computed in the following manner : (a) where the export is of goods or merchandise manufactured by the taxpa....
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....bove formula in Section 80HHC one has to give a schematic interpretation to that expression. 16. Leaned senior counsel appearing for the Department (appellant), submitted that one has to give plain and unambiguous meaning to the word "turnover" in the above formula; that there was no need to call for any rule of interpretation or external aid to interpret the said word; that having regard to the plain words of the section, excise duty and sales tax ought to have been included in the "total turnover". Learned counsel submitted that the word "turnover" even in the ordinary sense would include the above two items. Learned counsel urged that the formula should be read strictly. ... 17. We do not find any merit in the above contentions advanced on behalf of the Department. Therefore, schematic interpretation for making the formula in Section 80HHC workable cannot be ruled out. Similarly, purposeful interpretation of Section 80HHC which has undergone so many changes cannot be ruled out, particularly, when those legislative changes indicate that the legislature intended to exclude items like commission and interest from deduction on the ground that they did not possess any ....
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...., concerning currency, bank notes and coins used as legal tender, with the exception of collectors' items; "collectors' items" shall be taken to mean gold, silver or other metal coins or bank notes which are not normally used as legal tender or coins of numismatic interest.' Article 13C(b), however, makes it possible for Member States to allow their taxpayers a right of option for taxation in respect of the transactions covered by, inter alia, Article 13B(d). Article 17(3)(c) of the Sixth Directive provides as follows: `3. Member States shall also grant to every taxable person the right to a deduction or refund of the value added tax referred to in paragraph 2 in so far as the goods and services are used for the purposes of: ... (c) any of the transactions exempted under Article 13B(a) and (d), paragraphs 1 to 5, when the customer is established outside the Community or when these transactions are directly linked with goods intended to be exported to a country outside the Community.' The Court held that the foreign exchange transactions undertaken by the bank are supplies of services. Further, in that case, while deciding about the considerat....
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.... for the service of exchanging currencies for other currencies or consequently as constituting consideration for that service. 44 Determining the consideration therefore comes down to determining what the Bank receives for foreign exchange transactions, that is to say the remuneration on foreign exchange transactions which it can actually take for itself (see, in this regard, Case C-38/93 Glawe v Finanzamt Hamburg-Barmbek-Uhlenhorst [1994] ECR I-1679, paragraph 9). 45 In this regard, the spread representing the difference between the bid price and the offer price is only the notional price which the Bank would obtain if it were to conclude, at the same instant and on similar conditions, two corresponding purchase and sale transactions for the same amounts and the same currencies. 4.11 The learned Counsel has argued that input services are not used till the stage of purchase of goods and purchase price will not include or comprise of any input service. This is factually incorrect. It is obvious that C&F services, Goods transport Operator services, telephone services, cargo handling services, Business Auxiliary services etc are commonly used in the purchase activity. The arg....
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....ng activity and not manufacturing activity. Thus, these services are used exclusively for trading purposes and post manufacture trading activities. Thus, they are need to be divided in the proportion of the value addition happening at the depot/office level after clearance from factory in respect of manufactured goods and the value addition happening at the depot/office level in respect of traded goods. If the argument of the learned Counsel is accepted and the value addition happening at the stage of manufacture and services used therein need to be considered, then the entire Service Tax credit taken at factory also needs to be apportioned. In view of the above, the argument of the learned Counsel does not hold much water. 4.12 The purpose of rule 6(3) is to permit the reversal of cenvat credit based on an estimate as separate records have not been maintained. There was no method prescribed for such estimation before 1.4.2011. Consequently we have to ascertain which method to adopt. After 1.4.2011 a method of such ascertainment has been provided and learned counsel suggests that it can be adopted for the past period too. We need to examine if it gives a fair estimate of the amo....
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.... The following diagram explains the various components of value addition in the instant case 4.14 As per rule 6(3A)(c) (iii) read with explanation I(c) the amount of service tax credit to be reversed is to be calculated as follows Amount to be reversed = (N1 + N2) X ( L + (S - P)) M + L + (S - P) Where N1 = Service tax credit availed at factory N2 = Common Service tax availed at depots and various offices (other than factory) M = Sales Dutiable L = Sales exempted S = Sales trading P = Costs of goods sold or Purchase including cost of purchase and service tax paid on services availed on purchase 4.15 The formula is not suitable for the following reasons a) The formula envisages that the service tax credit attributable to trading activity is proportional to the value addition over the cost of goods sold. However it envisages that the credit to be allowed on dutiable goods should be proportional to the value of goods sold. Services availed during manufacture only lead to value addition. If the Service Tax credit on trading activity is to be apportioned on the basis of value addition in case of trading then the same should be....
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....d (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 moreby the notification 13/11 CE (NT) dated 31.3.11. If detailed accounts are to be maintained for calculating the cost of goods sold in respect of traded goods then what is the need of the formula to estimate the same. The same records will give the real amount of service tax attributable to the trading activity. Thus the formula for estimation, which requires maintenance of detailed records, defeats the purpose of prescribing the formula. 4.16. The learned Counsel has relied on the decision of the Hon'ble Supreme Court in the case of Sharvan Kumar Swarup (supra). Rule 1BB was inserted in the Wealth Tax Rules w.e.f. 1.4.1979. The said rule read as under: - "1BB(1) for the purpose of Sub-section (1) of Section 7, the value of a house which is wholly or mainly used for residential purposes shall be the aggregate of the following amounts, namely: (a) The amount arrived at by multiplying the net maintainable rent in respect of the part of the house used for residential purposes by the frac....
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....tially a rule of evidence as to the choice of one of the well accepted methods of evaluation in respect of certain kinds of properties with a view to achieving uniformity in valuation and avoiding disparate valuations resulting from application of different methods of valuation respecting properties of a similar nature and character. The view taken by the High Courts, in our opinion, cannot be said to be erroneous. It can be seen that in the said decision, it was held that the said method is one of the recognized and accepted method and therefore the same was accepted. In the instant case it can be seen that the method suggested by the learned Counsel is not the method prescribed in law even after 1.4.2011. Learned Counsel is seeking to apply the modified method not prescribed by law. The method after 1.4.2011 seeks to apportion the total credit taken by manufacturer/service provider, while the learned Counsel is seeking to adopt the method apportioning only the credit taken in common services. Since the method suggested by the learned Counsel is not a method, which has been prescribed in statute even for the period after 1.4.2011, the said decision of the Hon'ble Supreme Co....
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....goods to the total turnover; (c) where the export consists of goods manufactured by the taxpayer as well as of goods purchased from a third party, the export profits will be the aggregate of the following amount : (i) profits relating to export of goods manufactured by the taxpayer computed by allocating the profits of the business net of profits relating to business of exporting third party goods, in the ratio of the export turnover of the manufactured goods to the total turnover of the manufactured goods; (ii) profits relating to export of goods purchased from third party by deducting from the sale proceeds of such goods, the direct and indirect costs attributable to such exports; Learned Counsel relied on the decision of Hon'ble Supreme Court in the case of CIT Vs. Lakshmi Machine Works 2007 (290) ITR 667 (SC) in the context of deduction under Section 80HHC of the Income Tax Act, 1961. In the said decision, Hon'ble Supreme Court has observed as follows: - "14. The formula under Section 80HHC was very simple as far as it related to the sole business of exports. The formula became complicated in cases of composite business. In the case of direct exporter the....
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....ort profits in will be calculated separately and not estimated by a formula. Earlier the formula for 80HHC concessions was export profits= Total business profits x Export turnover Total turnover. The new formula for 80HHCconcession prescribed export profits= export turnover- costs attributable to such exports (direct and indirect) The calculation of costs attributable to such exports direct and indirect) would require maintenance of detailed records. It is like requirement of maintenance of separate records for dutiable and exempted goods. Since the profit is to be calculated, therefore, for the purpose of export profits, the formula adopts the difference between the export turnover and the cost attributable to such exports (direct and indirect) to ascertain export income. Section 80HHC, therefore, prescribes maintenance of detailed separate records for the export and the domestic sale. It in no way assists the argument of learned counsel. The rule 6 (3) prescribes for an approximation in the circumstances the detailed accounts are not maintained. Such an eventuality arise only if such detailed accounts are not maintained. The new section 80 HHC ....
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....tax credit credit it can be done on the basis of sale value as most of the services cost on the basis of the value or volume or weight or turnover. In all these cases the value would be a fair proportion to use for estimation. Thus using sales value for apportioning the common credit is a fair formula. For example in the instant case the various common services in respect of which reversal is sought are (i) Renting of immovable property, storage and warehouse service. It is hired for storing both dutiable manufactured goods and traded goods. Space for depot or godown has to be apportioned on the basis of volume of goods and in absence of volume of goods and value is a fair method of apportionment. Value addition of traded goods has no relevance for apportionment. (ii) Management consultancy service, IT service, telephone, chartered accountant, online information and data retrieval service, used for both dutiable manufactured goods and traded goods has to be apportioned on the basis of the number of transactions. In absence of number of transactions and sale value is a fair method of apportionment. Value addition of traded goods has no relevance for apportionment. (iii) Auc....
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....he manufacturer or provider of output service taking such credit. In view of this position, we have no hesitation in holding that the extended period of limitation has been correctly invoked. We also note the judgement of Hon[ble Madras High Court in the cae of F.L. SmidthPvt. Ltd. (supra). For the same reason, the penalty imposed under Rule 15 of the Cenvat Credit Rules read with Section11AC of the Central Excise Act is in order. We also note, as far as the demand of Rs. 1,11,444/- is concerned, appellant has already admitted that the demand of Rs. 49,731/- as these have nothing to do with the manufacture of goods. As far as the remaining demand is concerned, which is relating to the security broker service, etc. For the reasons stated earlier, the same is upheld. Penalty imposed in respect of the same is also upheld. It is the primary responsibility of the assessee to take/reverse the credit correctly. The provisions require reversal of credit in these situations. The appellants have not reversed any credit on their own and only when they were investigated that they have reversed as per their own calculation. There was no doubt regarding liability to reverse. In this appeal al....