TaxTMI 
TaxTMI 
2021 (11) TMI 991
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....ith the first proviso to Section 73(1) of the Finance Act, 1994; (b) I order recovery of interest, on the amount confirmed above at Sr. No. (a), from the due date of payment of such short paid amount under the provision of Rule 6(3A)(e) read with Rule 14 of the Cenvat Credit Rules, 2004 read with Section 75 of the Finance Act, 1994. (c) I impose penalty of Rs. 10,65,06,027/- (Rs. Ten Crore Sixty Five Lakhs Six Thousand Twenty Seven only), on M/s Dow Chemical International Pvt. Ltd., under the provisions of Rule 15 of the Cenvat Credit Rules, 2004, as applicable for the relevant period, read with Section 78 of the Finance Act, 1994. If the Service Tax and interest, as determined in this order, is paid within 30 days from the date of receipt of the Order then the penalty payable shall be 25% of the Service Tax amount determined as payable, provided the penalty amount is also paid within 30 days of the date of receipt of the Order. (ii) SCN F. No. ST-VII/Dn-1/Gr-11I/Audit/Dow Chem/2015 dated 07.04.2015 amounting to Rs. 1,14,81,987/ (a) Thereby confirm amount of demand of Rs. 1,14,81,987/- (Rs. One Crore Fourteen Lakhs Eighty One Thousand Eighty Seve....
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....rvice Tax and interest, as determined in this Order, is paid within 30 days from the date of receipt of the Order then the penalty payable shall be 25% of the penalty imposed under Section 76 ibid, provided the penalty amount is also paid within 30 days of the receipt of the Order. (d) impose penalty of Rs. 10,000/- (Rs. Ten Thousand only), on M/s Dow Chemical International Pvt. Ltd., under Section 77 of the Finance Act, 1994 for their failure to file the prescribed returns correctly a required under Section 70 of the Finance Act, 1994, read with Rule 7 of Service Tax Rules, 1994. 2.1. Appellant has several manufacturing units located across India. The factories of the Appellant are separately registered under Central Excise and regularly filing excise returns. They are also provider of output services for which they have taken centralized registration. Details of the activities undertaken by the appellant at various premises are as indicated below: Sr No Unit Activity Credit availment for eligible input services 1 Kalwa Factory Unit Manufacturing Full credit availed 2 Chennai unit Provision of services (export) Full credi....
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.... 3,09,23,106 2,60,99,039 11,57,91,458 J Amount already reversed 2,07,51,736 2,30,87,251 2,24,68,589 K Difference (I-J) 1,01,71,370 30,11,788 9,33,22,869 Total Difference 10,65,06,027 2.5. A show cause notice dated 23.5.2014 was issued to the Appellant proposing recovery of Rs. 10,65,06,027/- under Rule 14 of Cenvat Credit Rules, 2004 along with interest and penalty under section 78. 2.6. Two more show cause notices dated 7.4.2015 and 15.4.2016 were issued determining the Cenvat credit to be reversed as follows: Sr No Particulars 2013-2014 2014-2015 A Sale of Traded goods 1109,39,95,371/- 1162,29,47,2721 B Purchase of Traded goods 970,48,70,734/- 940,20,36,712/ C. Profit on sale of Traded goods 138,91,24,637/- 222,09,10,560/- D 10% of Sale of traded goods (A) 110,93,99,537/- 116,22,94,727/- E Exempted Turnover whichever is higher of C or D 138,91,24,637/- 22,09,10,560/ F TOTAL TURNOVER 861,44,42,452/- 987,97,72,255/- G % age of reversal of Proportionate basis as ....
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....y, no credit was availed by the Appellant. Such a practice adopted by the Appellant was in consonance with the provisions of Rule 6(1) & Rule 6(2) of the Credit Rules. • On harmonious and conjoint reading of Rule 6(1), (2) & (3), it is clear that "Total CENVAT Credit" for the purpose of formula under Rule 6(3A) is only total Cenvat credit of common input service and will not include the Cenvat credit on input service exclusively used for the manufacture of dutiable goods. If the interpretation of the Revenue is accepted, then the Cenvat credit of part of input service even though used in manufacture of dutiable goods/provision of taxable output services, shall stand disallowed, which is not in consonance with the provisions of Rule 6 of the Credit Rules. • The aforesaid principle has been also reiterated by the Board under its Circular No. 754/70/2003-CX dated 09.10.2003 [pg. 62/ of case compilation) that no credit should be taken on inputs which are used exclusively in or in relation to the manufacture of exempted final products. • Rule 6, Rule 6(3A) of the Credit Rules was amended vide Notification No. 13/2016-CE (NT) dated 01.03.2016, by su....
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....flected in the ST-3 return 2,39,21,7311 2,48,67,9741 B Cenvat Credit reversal considered by the Department in the Show Cause Notice 2.07,51,736/- 2,24,68,589/- (A- B) Therefore, Credit actually reversed by the company, not considered by the department 31,70,021/- 23,99,385/- Total 55,69,406/ • For computation of reversal ratio, the department has taken purchase price of the goods instead of cost of goods sold which is contrary to explanation 1 to sub-rule (3) of Rule 6 of the CENVAT Credit Rules, 2004. If worked on the basis as per the explanation, the reversal ratio for the year 2012-13 will be 16.55% and not 21.47%. as determined by the revenue. • The provisions of Rule 6(3) regarding reversal of CENVAT credit is not applicable at the end of ISD and the same are applicable at the end of recipient receiving such credit.Reliance is placed on CBEC Circular No. 868/6/2008-CX dated 9 May 2008 pg 63 of case law compilation wherein the board has issued clarifications. In question no 5 of the said circular, the board has explicitly mentioned that since ISD does not provi....
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....iming that they have the requisite documents and had provided the same the same needs to be verified by the lower adjudicating authorities. • The Appellate have claimed their in their appeal that they are entitled to the entire credit for the period is not convincing as they have not provided supporting authenticated records maintained by them they only provided bulky details from various vendors but have not produced the documentary evidence showing the nexus of input services with output services. 4.1 We have considered the impugned order along with the submissions made in appeal and during the course of argument. 4.2 In response to the Show Cause Notice and the demand notices, appellants had made detailed submissions before the Commissioner. The submissions made by the appellant vide their letter dated 20.12.2016, and received by the adjudicating authority on 12.01.2017 are reproduced below: We, Dow Chemical International Private Limited ('DCIPL' or 'the Company refer to the captioned letter for Personal Hearing (*PH') granted to us. Firstly, we would like to thank you for granting us the PH in relation to our reply to the cap....
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....and the list of input services in respect of which full CENVAT credit is availed and the list of common input services in respect of which CENVAT credit is availed after making the CENVAT credit reversal as prescribed under Rule 6(3) of the CENVAT rules. The copy of the said letters are attached herewith as Annexure I. Our submissions At the outset, it is submitted that the proposals made in the SCNs to levy service tax along with interest and penalty on non- payment of amount as required under Rule 6(3) of CENVAT Rules is baseless, contrary to the facts and incorrect in law. We are submitting our detailed replies to the various allegations made in the impugned SCNs which are without prejudice to each other. Centralized registration and ISD registrations are two different registration 8 Firstly, the Company would like to submit that the centralized registration and ISD registration obtained by the Company are two separate registrations. Section 69 of the Finance Act 1994 requires every person liable to pay service tax, to be registered with the Central Excise and accordingly centralized registration has been obtained. Centralized registration is to be obtained by ....
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....redit Availed 5,67,80.263 13,68,30,505 19,36,10,768 2014- 15 Availment of Credit 2008- 09 15,65,09,343 22,62,54,529 38,27,63,872 Reversal under Rule 6(3) 4,81.08,335 4,81,08,335 Net Credit Availed 15,65,09,343 17,81,46,194 33,46,55,537 Jurisdiction of tax authorities over CENVAT credit distributed by the ISD 13 The said SCN alleges to make reversal of CENVAT credit which includes the credit reported under centralized and ISD registration. In this regards, the company would like to submit that the I$D is only an office of service provider or manufacturer which receives invoices towards purchases of input services from the provider of input services and further, distribute the In by issuing invoices, bill or challan to such manufacturer or service provider. 14 The ISD does not avail the credit on input services and thus verification regarding availment of the input credit needs to be done on the unit to whom the credit has been distributed. 15 Further, since ISD is neither a manufacturer nor a service provider, there is no question of ISD being lia....
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.... regarding certain queries. In question no 5 of the said circular, the board has explicitly mentioned that since ISD does not provide any service, the question of availing either option (i) or option (ii) under Rule 6(3) of the Credit Rules does not arise. Copy of the said circular is attached herewith as Annexure II. 20 In line with the above submission pertaining to jurisdiction and recovery, the company would like to apprise you with the fact that verification has already been conducted by the excise officers regarding the credit of Kalwa including the credit distributed to Kalwa unit by ISD for the disputed period. Accordingly orders have been issued to the company wherein it is specifically mentioned that the jurisdiction regarding verification of credit availment under ISD is with the excise office under which the unit to whom credit distributed falls, Copies of the said order issued regarding the credit availment at Kalwa unit is attached herewith as Annexure III. Thus raising demand for credit distributed to Kalwa which has been reported under ISD registration would lead to duplication of demand and therefore amount reported under ISD registration and covered under....
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....credit for the period 2008-09 reported under ISD registration includes services notified under Rule6(5) of CCR, 2004. In this regard the provision of Rule 6(5) of CCR, 2004 is produced hereunder for ready reference: "Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clause (g), (p), (9), (d), (v), (w). (za), (zm), (zp), (zy), (zzd), (zzg), (zzh). (zzi), (zzl), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services". 26 Thus credits availed under Rule 6(5) are fully allowed unless such services are used exclusively in relation manufacture of exempted goods. 27 In this regards, the company would like to inform your goodself that during the period 2008-09 it has taken credit of Rs. 8,31.63.427 in its ISD registration pertaining to services which are notified under the Rule 6(5) of CCR. Since, the credit availed by the company under the said rule is not fully pertaining to manufacture of exempted goods / services, it is e....
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.... 33 The company follows a location wise method of availment of credit which is summarized as follows: Unit Activity Credit availment for eligible input services Kalwa Factory Unit Manufacturing Full credit availed Chennai unit Provision of services (export) Full credit availed Powai unit Provision of services (export) Full credit availed Warehouses Trading of goods No credit availed Vikhroli Renders Business Auxiliary Services and Business Support Services Full credit availed of Input services exclusively used in such Output Services Vikhroli /Chembur unit Head office for all business activities Proportionate credit availed after reversal under Rule 6(3A) 34 The company maintains cenvat register which provides the details on location where the services have been used / consumed. Copy of cenvat register for centralized registration for each year is attached herewith as Annexure VII. The summary of cenvat register for centralized registration for each year providing det....
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....bsp; credit availed 5,015,231 5,015,231 Vikhroli Market Support Services Proportiona te credit availed 3,639,090 436,343 3,202,747 Common Location Market Support Services Proportiona te credit availed 919,478 98,026 821,451 Credit pertaining to FY 2014-15 availed under centralized registration 60,408,958 534,370 59,874,589 Add Credit pertaining to 2011-12 availed based on provisional ratio (888) 888 Less Credit pertaining to 2011-12 & 2012-13 reversed based on revised ratio 397,251 (397,251) Total Credit availed under Centralized Registration (A) 60,408,958 930,732 59,478,226 FY 2013-14 Unit Activity Credit availment Service Tax 6(3) Reversal Net Credit Chennai Export of taxable services Full credit availed 44,405,699 414,714 43,990,985 Powai Export of taxable services Full credit availed 6,095,245 6,095.245 Pune Export of taxable services Full credit ....
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....es that CENVAT credit can be taken by the manufacturer of final product and taxable service provider and Rule 6 casts certain obligation on the manufacturer of dutiable and exempted goods. Thus the credit of service tax paid on input services exclusively used in dutiable goods is not covered under Rule 6 of CENVAT Rules but covered under Rule 3 of the CENVAT Rules. Accordingly, the service tax paid on input services used exclusively in providing taxable services will also remain outside the ambit of application of Rule 6. The provisions of Rule 6(3) are only procedural and cannot take away the rightto avail credit fully on inputs and input services used in the dutiable goods or taxable services. 37 The Company further believes that the provisions of sub- Rules (1), (2), (3) and (5) to Rule 6 of CENVAT Rules are to be interpreted keeping the purpose of these provisions in mind. Sub-Rules (1) and (2) to Rule 6 of CENVAT Rules did not have any restriction in utilization of cenvat credit on input services used exclusively for providing taxable output service. Sub-Rule (2) to Rule 6 of CENVAT Rules required a provider of taxable and exempted services to maintain separa....
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.... some rational justification for allocation. It should be noted that sub-rule (2) requires separate accounts and not separate books of account to be maintained. 42 When an assessee does not intend to follow the procedure in rule 612) of CENVAT Rules, the procedure prescribed in rule 6(3) of CENVAT Rules is to be followed. As per sub-rule (3). an assessee has two options if it is not maintaining separate accounts for common input services: i) Pay 6% on the value of exempted goods or exempted services and utilise the credit for the entire common input services used for both taxable and exempted activities. ii) Allocate the common input credit on the basis of turnover of exempted and taxable activities in the manner prescribed in sub-rule (3A) of Rule 6 of CENVAT Rules and pay an amount equal to the credit relatable to exempted activities, 43 As regards common input services, sub-rule (3A) of Rule 6 of CENVAT Rules prescribes that a manufacturer or a service provider shall calculate the ratio of the value of exempted goods and services and total value of goods and services produced/provided in the preceding financial year and pay an amount monthly provisionally by....
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.... 46 The said view is also supported by circular issued by Central Board of Excise & Customs ("Board') (Circular No. 754/70/2003- CX., dated 9-10-2003) wherein it has been clarified that Rule 6 of CENVAT Credit Rules, 2002 is only for common inputs and input services and the 8% reversal is only for common inputs and input services alone. The relevant extract is as under: "2. ..............Thus, it is clear that the option to maintain the separate accounts or payment of 8% of the price of the exempted goods can be exercised only in respect of common inputs used for the manufacture of dutiable and exempted goods " 47 In this connection the company would like to refer and rely on the judgement of Commissioner of Central Excise (Appeals), Chennai (Commr. Appl.') in the case of Chennai Petroleum Corporation Ltd. 2014 (35) S.T.R. 169 (Commr. Appl.)]. In the said case, the issue was whether in the determination of the CENVAT credit attributable for exempted goods and exempted services, the value of goods and services that were exclusively used in the manufacture of dutiable goods and taxable services was also to be taken into account. The Commr. Appl. held....
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....l CENVAT credit taken on input services during the financial year." The impugned order reads the underlined portions of (i) and (iii) which is disconnected to the underlined portion of (c) above. By making such an isolated reading, the impugned order denies the recredit of excess reversal of attributable CENVAT credit. The purpose of sub-clause (c) is to find out the attributable CENVAT credit in the manufacture of exempted goods and rendering of exempted services in the manner specified. Hence, there is no need to take into account the CENVAT credit on inputs and input services that were exclusively used for manufacture of dutiable goods and rendering of taxable service. 48 In light of the above analysis of Rule 6(3) and Rule 6(3A) of CENVAT Rules and relying on the above judgment, we wish to submit that credit of input services used exclusively for taxable activities should be fully allowed. The formula prescribed in rule 6(3A) would apply to those input services which are used for both taxable and exempted activities, where the assessee does not maintain separate accounting for such input services. 49 Thus in the impugned SCNs, the authorities have erred in ....
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...., as the case may be..... Thus, we find that there is no inconsistency in Rule 5A and section 72A of the Finance Act, 1994. The said provision is not arbitrary. The manner for conducting the audit is as per the accounting standard provided by the Institute of Chartered Accountant of India. The audit report will be made available to the assessee, as per law." (Emphasis supplied) 52 In light of the above ruling, the Company submit that the officers of the service tax department are not legally authorized to carry out audit. The officers can only call for materials required for the audit and then the audit has to be conducted by independent chartered accountants. Evidently the same has not been done in the present case. The demand is not sustainable which is based solely upon the said audit report. The SCN is time barred for the period 2008-09 and 2011- 12 53 In the impugned SCN, the company has been asked to show cause as to why service tax short paid/not paid, for the period April 2008-09 and 2011-12 should not be demanded and recovered from them under Section 73(1) of the Finance Act. 54 In this regard, it would be relevant to read through the secti....
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....been made with the intent to evade the payment of duty. The said contention is also upheld by the tribunal in the case of CCE, Chandigarh Vs Allied Industries [2000 (XC3)-GJX-0675-CEGAT). 58 In the present case, the company had duly filed service tax returns for the period under dispute. In the returns, the company had disclosed the amount of cenvat credit availed as well as reversals made. Thus from the information available in the returns it is clear that the company had made reversals only on the common credit availed and not on the entire credit. 59 Further the company had also intimated the authorities in respect of the method of ratio adopted for Rule 6(3) and also regarding the finalization of ratio and amount reversed under Rule 6(3) at the year-end after finalization of books of accounts. In the said intimations too, it is clear that the company had made reversals only on account of common input services, 60 Therefore it is evident from above that the authorities had all the necessary information on record and thus it would be incorrect to hold a view that the company had intention to evade service tax. Further, there is no material on record fro....
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....6(2) of the CENVAR Credit Rules, 2004. It has been alleged in the SCNs that the noticee having not maintained separate accounts, was either required to pay an amount at the applicable rates for the relevant period, on the amount of exempted services or pay an amount equivalent to Cenvat credit attributable to input used for provision of exempted services, subject to the conditions and procedure specified in sub rule (3A) of Rule 6(3) of the Cenvat Credit Rules, 2004. It is seen from the records of the noticee that they have tile filed intimations regularly with the department, under Rule 6(3A)(g) of the Cenvat Credit Rules, 2004 intimating the amount of proportionate Cenvat credit reversed on exempted /traded goods. However it was only during the course of inspection of the noticee's records by Audit that it has come to light that the amount of proportionate Cenvat credit on exempted /traded goods has been incorrectly reversed. The amount short paid by the noticee, which has now been reconciled on the basis of the figures given in the balance sheets and the amounts reversed as declared in the ST3 returns for the relevant period SCN wise worked out as under: Sr. No. SCN....
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....side the scheme of rule 6(3). This implies that such input credit would not participate in the allocation formula. On the same logic, the input credit relatable to inputs and input services used exclusively for taxable services should also be outside the purview of rule 6(3). Rule 6(3) of CCR, 2004 starts with the expression "Notwithstanding anything contained in sub-rules (1) and (2)". That means, the provision of sub-rule (3) would apply only to the extent of sub-rules (1) and (2) contain something contrary. A reading of sub-rules (1) and (2) shows that credit on common inputs and input services cannot be taken if these are used for exempted services, and input credit can be fully used on inputs and input services exclusively used for providing taxable services. Only when the service provider does not maintains separate accounts for the common inputs and input services, he has to follow the mechanism prescribed in sub-rule (3). 4.1.3 In light of the above analysis or Rule 6(3) and Rule 6(3A) of CCR, 2004, noticee submitted that credit of input services used exclusively for taxable activities should be fully allowed. The formula prescribed in rule 6(3A) would apply to tho....
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....d services. I find that except making such a bald claim they failed to tender any documentary evidence to establish their claim. They ought to have furnished the evidence in the form of various records maintained by them in respect of different services used by them in taxable/exempted services. This apart their claim that certain input services are utilised fully in taxable services, is also not supported by any documentary evidence. Moreover the demand of short payment has been based on their own documents i.e. Balance Sheet and hence their claim that demands are in correctly worked out is also not acceptable. I therefore reject their claim of maintenance of separate records. 7. The noticee's claim that they are entitle to avail full CENVAT credit on the services notified under Rule 6(5) of CCR, 2004 is also not convincing in as much as they have not furnished the actual details of such services along with supporting authenticated records maintained by them. It is observed that they have furnished bulky details of only input services from their various vendors but have failed to furnish the vital information and documentary evidence thereof to show the nexus that suc....
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....of the Central Excise Act, 1944 will also apply to the Central Excise officers conducting Service Tax audit and shall also include Service Tax officers. Thus, a Central Excise officer assigned the duties of Audit in Service Tax in a proper officer for conduct of Service Tax audit. 11. Vide Service Tax Circular No. 775/8/2004-CX, dated 17.02.2004 (F.No.206/03/2003-CX), the Board directed the audit of all services subjected to levy of service tax. Subsequently, vide Service Tax Circular No. 97/8/2007-ST, dated 23.08.2007 [F.No. 135/87/2007-CX4), at S.No.11, the Board issued instructions for selective audit of Service taxpayers and other assesses like input service distributors etc. 12. The Service Tax Law through the Finance Act, 1994 and Service Tax Rules, 1994 do not prescribe any specific records to be maintained by the taxpayer. However, Rule 5 of the said Rules deals with records. In this regard, (I) Rule 5(1) of the Service Tax Rules, 1994 mentions that the records (including computerised data) as maintained by a taxpayer in accordance with various laws in force from time to time shall be acceptable. (II) Rule 5(2) of the Service Tax Rules. 1....
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.... provided by them, in the manner laid down under the aforesaid Act/Rules. Therefore, the noticee is liable to pay interest under Section 75 of the Finance Act, 1994, on the amount of Service Tax determined under Section 73(2) of the Finance Act, 1994, as recoverable in respect of the demand of Service Tax made in the impugned Show Cause Notices. 15. As regards, penalty proposed in respect of SCN F. No. ST- 11/Dn-V/Gr.1/Audit/Dow Chem/2013 dated 23.05.2014, the question whether the penalty under Section 78 is attracted, I find that under the scheme of Service Tax levy, the self assessment system casts a responsibility on the noticee to declare truthfully and comply with all requirements of law. The noticee has, as already discussed above, deliberately refrained from declaring the true and correct amount of reversal under Rule 6(3A) of Cenvat Credit Rules, 2004 as discussed above. Had it not been for the detection carried out by the departmental audit officers of Service Tax, Mumbai, the evasion of Service Tax by the noticee would not have come to light. As such penalty under Section 78 is warranted for misdeclaration of the amount payable under said rule leading to evasion ....
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....ind that these calculation errors themselves have not been considered and adjudicated by the impugned order. Authorized representative has in his submissions referred to the decision of the Hon'ble Apex Court in case Dilip Kumar [2018- TIOL-302-SC-CUS-CB], without even indicting how the said decision is relevant to the facts of this case. It seems reliance has been placed just for the reason that decision exists even without examination of the applicability/ relevance of the same to the present case. 4.5 On the examination of the impugned order we can only observe that impugned order cannot be called a speaking order in any manner. Except for the brief discussion in para 6 and 7, in the "Discussion and Findings" recorded by the Commissioner we do not find anything anywhere in the entire order, considering the allegations made in the show cause notice and the submissions made by the appellants while contesting the same. The only reason for the rejection of the claims made by the appellants is that they have &n....
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....ges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants' faith in the justice delivery system. (j) Insistence on reason is a requirement for both judicial accountability and transparency. (k) If a Judge or a quasi-judicial authority is not candid enough about his/her decision making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism. (l) Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or 'rubber-stamp reasons' is not to be equated with a valid decision making process. (m) It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision making not only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor (1987) 100 Harward Law Review 731-737). (n) Since the requirement to record rea....