TaxTMI 
TaxTMI 
TaxTMI 
2019 (9) TMI 1532
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....acilities, as well as branded 'footwear' of other manufacturers is catered from stores of the assessee at different locations. This salmagundi of sources of footwear sold in retail is one of the roots of the dispute in the impugned orders. Besides the registration of the two manufacturing facilities in Uttarakhand and at Mumbai under Central Excise Rules, 2000, the head office of M/s Metro Shoes Pvt Ltd, as 'input service provider', defined in rule 2 of CENVAT Credit Rules, 2004, with separate registration under Service Tax Rules, 1994 distributes credit of tax paid on services procured against invoices issued to them for adding to the CENVAT credit account of eligible manufacturing units and providers of output service. This, or more specifically the distribution of credit arising from tax paid on services that were allegedly used in common for manufacture of their own goods as well as in the sale of goods including those procured for trading, is the malaise that pervades the dispute; services utilized, wholly or partly, for trading, specifically excluded from coverage as output service vide notification no. 3/2001-CE (NT) dated 1st March 2011, and at the manufacturing facility in....
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....g a taxable service and is undertaking another activity which is neither a service nor manufacture. In such a situation, the only correct legal position appears to be that it is for the assessee to segregate the quantum of input service attributable to trading activity and exclude the same from the records maintained for availing credit. This cannot be done in advance as it may not be possible to foretell the quantum of trading activity as compared with taxable activity. The obvious solution would be to ensure that once in a quarter or once in a six months, the quantum of input service tax credit attributed to trading activities according to standard accounting principles is deducted and the balance only availed for the purpose of payment of Service tax on output service. 17. In the present case, the assessee's argument that there is no mechanism to reverse credit, once taken, in the opinion of this Court, cannot be accepted. The assessee was well aware of the exact nature and extent of its service tax liability. It was also aware of the eligible service tax inputs. Therefore, when it did claim successfully and unchallenged input credits in respect of activities that were not sub....
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....e has a right to organize its business in the most convenient and efficient manner, it cannot claim that that such organization is so structured that its tax liabilities cannot be clearly discerned. In this case, the adjudicating authority adopted the proportionate percentage to the turnover method approach, which in this Court's opinion, is reasonable.' and affords further insight into the negation of credit of tax paid on services that are utilized in manufacture of ineligible output/rendering of ineligible output services. 3. In the case of the assessee referred to in the decision supra, the Tribunal had discarded the plea of inappropriateness of retrospective applicability of the Explanation incorporated in 2011 owing to inconceivability of 'trading' ever being a tax of the Union precluding the scope for deeming the insertion as a deliberate legislative act of exemption from tax. It was correctly pointed out by Learned Special Counsel for Revenue that 'trading' being taxed, as it was, under Value Added Tax legislation authorized by entry in List II of Seventh Schedule of the Constitution, deliberate legislative exemption of trading was superfluous in the face of constitutiona....
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....e legal oneness of the recipient of credit and distributor of credit. According to him, the assessee is both manufacturer of the impugned goods and provider of output service rendering them liable to respective obligations, as the case may be, and, thereby, precluded from claiming compartmentalized obligation. That is unarguably correct; however, statutes that not only acknowledge but also insist on such legal separateness is rife with scope for confusion in enforcing tax recoveries and susceptible to executive whim in which the assumption of unity may practically result in glossing over the broken links in the chain that purportedly leads from assumption of privilege by an assessee in its records to the detriment caused by its denial in recovery proceedings. 5. Nine show cause notices, covering the period from April 2006 to March 2011, were decided in three different orders leading to three of the appeals before us. Involved in these disputes are disallowance of credit of Rs. 46,37,021 for the period from April 2006 to October 2006, Rs. 1,66,25,625 for November 2006 to December 2007 and Rs. 2,85,26,566 for January 2008 to March 2011. Two other notices for the period from October ....
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.... finally, identification of the person against whom the proceedings must lie. This sequence has to be stood on its head in the adjudication process as the proceedings can advance only against the person designated by law to be subject to such recovery. Denial of credit and recovery are indistinguishable as cause and effect. Therein lies the nub of jurisdiction. 8. Our discomfiture with subordinate legislation that, bowing to the inevitability of catering to a niche for ensuring integrity of the scheme of credit, provides for special procedures distinguishable from the ordinary default but, prima facie, is silent on the onus for establishing the claim thereto and the lack of consistency engendered thereby in executive action, admittedly, places Revenue at a disadvantage in this dispute. This is no matter to be ashamed of; on the contrary, it is incumbent upon an adjudicatory tribunal to consider the consequences that assumption of such latitude may have on the immutable principle that tax collection without express backing of law is extortion. 9. In re Godfrey Phillips India Ltd, on being presented with the proposition that the 'input service distributor' was akin to 'a first stag....
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....d for unit exclusively in the manufacture of exempted goods or providing of exempted services shall not be distributed. xxxx 6. We find considerable force in the arguments advanced by the learned counsel. It has not been alleged in the show cause notice nor there is finding that the credit distributed against the documents is more than the amount to service tax paid and in any case, this can be verified only at the end of ISD. It is also not the case of the Department that credit has been received by the assessee in respect of services/goods which are totally exempted. Under these circumstances, on this ground alone, probably the matter can be decided but the London advocate is fair enough to argue the case on merits and also agreed to reverse the credits which are patently inadmissible.' and, while the final outcome, doubtlessly, was decided on the eligibility for availing of credit, consensus seems to have emerged within the Tribunal on lack of jurisdiction in law to deny the credit at the factory level as further reinforced by the decision, in re Gulf Oil Corporation Ltd, holding that '4. I find from the records that the Appellant had taken a definite stand that they have ....
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....is mutandis for effecting such recoveries." 3. Since there is no other provision for recovery, it is evident that recovery can be made only from the manufacturer or service provider. There is no provision in the Cenvat Credit Rules, 2004 for issuing SCN's to ISD's. This position is unambiguous and hence could have been pointed out by the jurisdictional Commissionerates, without asking the CBEC to restate the provision in the Cenvat Credit Rules. 4. The Chief Commissioners have also pointed out varying case law on the subject. A detailed examination of these case laws has revealed that each one of them can be distinguished effectively and their inapplicability could also have been pointed out. If this had been done by the Chief Commissioners Mumbai, then the legal position regarding Rule 14 and the case law could have been pointed out to the Honourable Tribunal without making a reference to the Board.' in re Mahindra and Mahindra (2017), emphasises the lack of unambiguous authority for recovery, highlights the reliance on executive instruction in the form of clarification of Central Board of Excise & Customs in F No. 137/68/2013-ST dated 10 March 2014 and underscores th....
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....laration are common for the provider of output service and for the ISD. Concept of self-assessment is relevant for service taxpayer alone. Since there is no assessment, the contention of the learned counsel is required to be rejected outright.....In the present case, neither there is any self-assessment nor any assessment is required to be made under any provision of the Service Tax Law. and subjecting each of the disputed services to scrutiny for attribution. 11. We find that the later decision in re Mahindra and Mahindra (2018) has followed the one supra and that the latter has relied upon the decision in re Indian Oil Corporation Ltd. All of these arose from disputes in which the recovery was sought to be fastened on the 'input service distributor.' In re Indian Oil Corporation Ltd, the Tribunal took exception to the order impugned therein for adopting a position contrary to that of the original authority for the earlier period in which it was held that, as per rule 14 of CENVAT Credit Rules, 2004, the recovery could be effected only from the entity taking the credit. We cannot but note that in all of these, the prevailing decisions of the Tribunal, which discharged the recipi....
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....CR (3) 111]. And, unquestionably, it must give way to judicial interpretation which, even by taking both streams of decisions in its stride, demonstrates a gap, whether intended to be so or by oversight, that cannot be filled by either. The remedial text, if at all, must lie in the legislative sphere. As noted in the same decision of the Hon'ble Supreme Court, with reference to the postulate in RBI v. Peerless General Finance [(1987) 2 SCR 1] that 'The interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted.' we owe it to ourselves have to look to the context of the existing text. 14. The dispute is about the propriety of recovering credit from the person who, while, undoubtedly, entitled to utilize the distributed credit, was statutorily enabled to take the credit without having to ascertain the eligibility except in terms of validity of documentation which is legally silent on the provenance. We have already made clear the want of precedent value in the decisions that fastened the liability on the person who utilized such credit. In these circumstances, the nature and purpose of CENVAT c....
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....rrent as a pool of money. The scheme is notified under the general rule making powers conferred by the taxing statute on the Central Government and not by recourse to the specific power of exemption in the respective statutes. Hence, the literal interpretation mandated by the Hon'ble Supreme Court in Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Company [2018 (361) ELT 577 (SC)] does not find application in resolving this dispute which turns on the lack of clarity in pinpointing a recovery mechanism for distributed credit. 17. Notwithstanding the inapplicability of the decision in re Dilip Kumar & Company, the distillation of landmark decisions therein does provide us with enlightenment in guiding us on our present path. CENVAT Credit Rules, 2004 fails the prescriptions laid down by the Hon'ble Supreme Court in Govind Saran Ganga Saran v. Commissioner of Sales Tax [1985 Supp (SCC) 205] to qualify as a taxing statute. It is a framework for, as we have premised supra, neutralizing the surplus that would have accrued to the exchequer at the cost of business and the ultimate consumer. Guiding, as it does, the availment of credit, any deficit of legitimacy in availment ther....