TaxTMI 
TaxTMI 
2018 (9) TMI 295
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....ey procure the raw materials for the manufacture of such components and supply the same directly to the job worker. In the invoice of the raw materials, the job worker's name is mentioned as consignee and the job worker avails CENVAT credit on such raw materials. After completion of the manufacturing process, the job worker supplies the finished components directly to the customers of appellant by mentioning paper mills name as consignee so as to enable them to avail the credit involved on such finished components. They also procured other components from traders / first stage and second stage dealers and manufacturers. Such invoices are raised in the customers' name as consignee and accordingly the goods are supplied to the customers. The appellants were not paying excise duty on the goods supplied to Paper Mills and were acting as traders of goods. 2. During the course of audit of accounts, it was further noticed that they had availed CENVAT credit of service tax paid on input services such as:- (i) Commission paid to agents for procuring the project orders for supply of Recovery boiler (ii) Bank guarantee for advance of supply of materials / components - such advances were ....
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..../- for the period April 2007 - 2008. 2.5 During the said period, they had utilized credit of Rs. 35,91,928/- towards discharging service tax liability and such utilization resulted in short-payment to the tune of Rs. 35,91,928/-. 2.6 Show cause notice was therefore issued proposing recovery of wrongly availed CENVAT credit of Rs. 3,22,07,534/- and the short-paid duty for the reason of wrong utilization of CENVAT credit to the tune of Rs. 35,91,928/-. After due process of law, the adjudicating authority confirmed the demand along with interest and also imposed equal penalties. Hence this appeal. 3. The ld. counsel Shri Raghavan Ramabhadra made oral and written submissions which can be broadly summarized as under:- 3.1 The appellant undertakes activity which involves identifying the type of boiler suitable for a particular manufacture, designing the same, arrange for manufacture and source of various parts and components and all related equipments along with supervision of erection and commissioning of the boilers. In this regard, they provide Consulting Engineer Service and have discharged the service tax liability on such services. They entered into contracts with their custome....
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.... show cause notice fails and therefore the disallowance of credit on the count that the appellant has used the input services for doing trading activity is without any basis. 3.3 It is also argued by him that trading is an exempted service with effect from 1.4.2011. The Hon'ble High Court of Madras in the case of Ruchika Global Interlinks Vs. Commissioner of Central Excise - 2017-VIL-323-MAD-ST has held that trading is an exempted service prior to 1.42011 as well and that therefore Rule 6 is applicable for reversing the proportionate credit availed on trading. In the present case, show cause notice is not issued invoking Rule 6 to deny the credit. Instead department has invoked only Rule 3 of CENVAT Credit Rules, 2004. He submitted that the disputed input services are used by the appellant for providing the output service of Consulting Engineer Service and therefore the appellant is eligible for credit on the input services. The appellant has entered into composite contract for supply, design and installation of boiler. In order to fulfill these obligations, the appellant has used the various input services. The definition of input services as it stood during the relevant period p....
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....Credit Rules, 2004. For this reason, para 5.0 has alleged that appellant have wrongly availed CENVAT credit in contravention of provisions of Rule 3 of the CENVAT Credit Rules, 2004 and in para 6, the amount of such wrong credit has been proposed to be recovered under Rule 14 of the CENVAT Credit Rules, 2004. He explained that the services viz. commission paid to agents for procuring project order, Bank guarantee for advance, clearing and forwarding charges for goods, cargo handling services, technical testing etc. are services related to procurement of raw materials etc. But the appellant is not registered as a manufacturer and is not paying excise duty on the Recovery Boilers. So the appellant cannot avail credit as a manufacturer. They are registered as output service provider for Consulting Engineer Service. He adverted to the definition of Consulting Engineer and stated that it involves giving technical advice and has nothing to do with procurement of goods. So these input services cannot be said to be used for providing output service of Consulting Engineer Service. Instead, they are purchasing raw materials and selling it to job workers. These activities are nothing but trad....
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....e 3 of Rules 6 of 2004 Rules would apply". 6.2 It is therefore obvious that the Hon'ble High Court was only addressing the aspect of whether by invoking Rule 6(3) trading would be exempted services even prior to 1.4.2011. However, in the instant case, what is alleged in the show cause notice is that as per Rule 2(l) of the CENVAT Credit Rules, 2004, input service means 'any service used for providing output service'. As trading activity undertaken by the appellant is not taxable service, hence the appellant is not eligible to avail credit on the alleged / impugned input service. This being so, the appellants have clearly fallen foul of Rule 3 of the CENVAT Credit Rules, 2004 since that is the particular provision which lays down the types of duties or taxes or cesses suffered on input, input services etc. which alone can be availed as CENVAT credit. From the facts brought out in the show cause notice, it is evident that the impugned input services listed out in para 3.0 and 4.0 have all been availed in spite of the appellant having been involved in trading activity. Thus, there cannot be any credit that could be availed by the appellant ab initio and hence there is no need to exam....