TaxTMI 
TaxTMI 
2025 (4) TMI 1539
X X X X Extracts X X X X
X X X X Extracts X X X X
....x law, the appellants is centrally registered with jurisdictional authorities, for its Head Office (HO) situated at Mumbai for provision of output services; and are holding Centralized Service Tax Registration No. AAACJ0866EST004. The appellants are also registered centrally with Mumbai Large Taxpayer Unit (LTU) and are holding Membership No. LTU/MUM/2213 for the relevant period. The HO of the appellants is also registered as an Input Service Distributor (ISD) for availing CENVAT credit of input services invoiced to HO and further transfers/distributes the same to its corresponding manufacturing units engaged in manufacture of taxable and exempted excisable products and service unit at HO, Mumbai in terms of Rule 7 of CENVAT Credit Rules, 2004 (CCR of 2004). The appellants manufacture various consumer goods at their production units situated at Aurangabad, Mulund, CPD Baddi and Ethicon Baddi, holding separate Central Excise registration with the respective jurisdictional authorities for payment of Central Excise duty. From these units, the appellants undertake its own manufacture and sale where applicable Central Excise duty is paid by them; manufacture under loan license agreement....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he outset their preliminary objection against the issuance of SCN and its legal validity, as the departmental authorities did not comply with the requirement issuing a pre-consultation notice opportunity to the appellants, prior to issuance of SCN as mandated under the Board's Master Circular No. 1053/02/2017 dated 10.03.2017 and lack of jurisdiction in initiating demand and recovery action, by relying on the Board's Circular No. 1056/05/2017-CX dated 29.06.2017. Therefore, he claimed that department has overlooked the settled position in law that it is mandatorily required to have pre-show cause notice consultation with the assessee. Not being done so, he claimed that the impugned proceedings initiated via show cause notice non est in law. Further, the department had already issued similar SCN dated 20.12.2016 covering the earlier period of financial years 2011-2012 to 2014-2015, for which separate proceedings had been initiated by the department, which resulted in confirmation of demands proposed in the SCN vide Order-in- Original dated 18.06.2019, in which the appellants have filed separate appeal before the Tribunal. 3.2 Learned Advocate also stated that the appellan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the option to follow Rule 6(3)(i) ibid cannot be forced upon the appellants even if no option has been exercised by them as held in the case of Tiara Advertising vs Union of India [2019 (30) G.S.T.L. 474 - (Telangana)]. 3.5 In support of their stand, the appellants had relied upon the following case laws: (i) Amadeus India Pvt. Ltd. Vs. Pr. Commr. of C. Ex., S.T & Central Tax - 2019 G.S.T.L. 486 (Del.) (ii) Dow Chemicals International Pvt. Ltd. Vs. Commissioner of Service Tax-VII, Mumbai - 2021 (11) TMI 991-CESTAT Mumbai (iii) Inox Leisure Limited Vs. Commissioner of Service Tax, Mumbai - 2016 (42) S.T.R. 497 (Tri. - Mumbai) (iv) Unitech Machines Ltd. vs. Commissioner of Central Excise - 2018 (9) G.S.T.L. 401 (Tri. - All.) 4. On the other hand, learned Authorized Representative (AR) appearing for Revenue had reiterated the findings given in the impugned order and submitted that the appellants was required to maintain appropriate records/accounts of the receipt, consumption and inventory of description, quantity, value and credit in relation to input and input services as well as common inputs and input services. He claimed that benefit of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he provider of output service, in terms of the provisions of sub-rule (2) or sub-rule (3), as the case may be : Provided that 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. Explanation 1.-For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of rule 2 shall include non-excisable goods cleared for a consideration from the factory. Explanation 2.-Value of non-excisable goods for the purposes of this rule, shall be the invoice value and where such invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made thereunder. Explanation 3.-For the purposes of this rule, exempted services as defined in clause (e) of rule 2 shall include an activity, which is not a 'service' as defined in section 65B(44) of the Finance Act, 1994, 72a[provided that such activity has used inputs or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year. Explanation 2.-No CENVAT credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services. Explanation 3.-For the purposes of this sub-rule and sub-rule (3A),- (a) "non-exempted goods removed" means the final products excluding exempted goods manufactured and cleared upto the place of removal; (b) "exempted goods removed" means the exempted goods manufactured and cleared upto the place of removal; (c) "non-exempted services" means the output services excluding exempted services. ] (3A) For determination of amount required to be paid under clause (ii) of sub- rule (3), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely:- (a) the manufacturer of goods or the provider of output service shall intimate in writing to the Superintendent of Central Excise giving the following particulars, namely :- (i) name, address and registration number of the manufactur....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (a) value of exempted services provided; and (b) value of exempted goods removed, during the preceding financial year; where F is the sum total of- (a) value of non-exempted services provided, (b) value of exempted services provided, (c) value of non-exempted goods removed, and (d) value of exempted goods removed, during the preceding financial year: Provided that where no final products were manufactured or no output service was provided in the preceding financial year, the CENVAT credit attributable to ineligible common credit shall be deemed to be fifty per cent of the common credit; (v) remainder of the common credit shall be called eligible common credit and denoted as G, where,- G = C - D. Explanation.-For the removal of doubts, it is hereby declared that out of the total credit T, which is sum total of A, B, D, and G, the manufacturer or the provider of the output service shall be able to attribute provisionally and retain credit of B and G, namely, eligible credit and eligible common credit and shall provisionally pay the amount of credit of A and D, namely, ineligible credit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....credit and Annual ineligible common credit and the aggregate amount of ineligible credit and ineligible common credit for the period of whole year, namely, [{A (Annual) + D (Annual)} - {(A+D) aggregated for the whole year)}], where the former of the two amounts is greater than the later; (e) where the amount under clause (d) is not paid by the 30th June of the succeeding financial year, the manufacturer of goods or the provider of output service, shall, in addition to the amount of credit so paid under clause (d), be liable to pay on such amount an interest at the rate of fifteen per cent per annum, from the 30th June of the succeeding financial year till the date of payment of such amount; (f) the manufacturer or the provider of output service, shall at the end of the financial year, take credit of amount equal to difference between the total of the amount of the aggregate of ineligible credit and ineligible common credit paid during the whole year and the total of the amount of annual ineligible credit and annual ineligible common credit, namely, [{(A+D) aggregated for the whole year)} - {A (Annual) + D (Annual)}], where the former of the two amounts is greater ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... prescribed maximum (as computed in terms of Rule 6(3)(i) ibid, determined as Rs.91,30,45,071/-, since the appellants did not comply with the provisions of Rule 6(3A) ibid, as held by him. (iv) The appellants did not provide information sought by the department, and only after conduct of audit of the records, and on the basis of Audit's observations and subsequent investigations, the issue of non-payment of CENVAT amount came to the notice of the department. Hence, learned Commissioner had confirmed the adjudged demands be invoking extended period of time and imposed interest, penalty under Rule 14 ibid read with Section 11AB of Central Excise Act, 1944 and under Rule 15(2) ibid read with Section 11AC ibid, respectively. On the above basis, the learned Principal Commissioner had confirmed the demand of CENVAT credit and its recovery along with interest thereon under Rule 14 ibid read with Section 11A of the Central Excise Act, 1944 and proposing for imposition of penalty on the appellants under Rule 15(2) ibid. 9. 1 On plain reading of the legal provisions under Rule 6 of CCR of 2004, it transpires that while providing a comprehensive input credit scheme of the dutie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ervice Distributor (ISD) for availing CENVAT credit of input services which are billed only to HO, which in turn are distributed to its corresponding manufacturing units and the service unit of the HO, in terms of Rule 7 ibid. However, there are some services used in the headquarters office of the appellants which cannot be attributed completely to either the manufacture of dutiable goods or to the provision of exempted services viz., trading. The only option in respect of such services is to divide the credit on such input services in proportion to the value of the dutiable goods/taxable services and exempted services and deny credit to the extent it is attributable to the exempted services using the formula under Rule 6(3A) ibid. Therefore, the total credit taken in the formula under Rule 6(3A) ibid can only refer to such credit as is not covered by Rule 6(2) ibid i.e., credit on common input services. 9.3 From the legal provisions of the Finance Act, 1994, it is understood that 'trading' is a form of service and no service tax is leviable on it and hence it is an exempted service. Usually the amount one pays to a service provider is the value of the services. For example, wha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2,63,75,720/- (3+6-7) is the total net eligible credit availed by the appellants, in terms of the legal provisions as contained in Rule 6(3A)(b) ibid. Therefore, we find that the quantification of the adjudged demand of CENVAT credit of Rs. 91,30,45,071/- determined by the learned Principal Commissioner in the impugned order is baseless and against the legal provisions of Rule 6(3A) ibid, as it was incorrectly calculated on the basis of the turnover of all the manufacturing units and HO of the appellants. Therefore, we are of the considered view that the adjudicating authority had erred in not taking the specific legal provisions explaining the formula and basis for determining the calculation of the amount to be CENVAT credit required to be paid and the Explanation provided for determination of 'Value' to this Rule 6 ibid into account. Therefore, confirmation of adjudged demands on the basis of incorrect calculation of the amount required to be reversed as per Rule 6(3A) ibid in the impugned order is not legally sustainable for the above reasons. 9.5 We had also examined the question that whether only the CENVAT credit taken on common input service should be considered or the e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of exempted goods and exempted services, F represents the sum of value of exempted and dutiable goods as well as exempted and non-exempted services. 'C' is calculated as C = T -(A+B) where T is the total credit taken, A is the credit on inputs and input services used exclusively in the exempted goods and exempted services and hence ineligible and B represents the credit on inputs and input services used exclusively in dutiable goods and non-exempted services. In other words, C represents only the credit taken on the common inputs and input services. 9.6 In the present case, the only dispute is regarding the credit on common input services used in their HO unit, which was transferred to the field units through ISD invoices. This credit cannot be attributed wholly to either the dutiable goods manufactured or the exempted service rendered viz., trading. This should therefore, be apportioned in terms of Rule 7 ibid. The adjudicating authority, therefore, erred in taking the total credit taken (including credit taken on inputs and input services used exclusively for manufacture of dutiable goods) to calculate the amount of CENVAT credit that must be reversed under Rule 6(3A) ibid. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and input services used in manufacture of dutiable goods. 31. However, there are some services used in the headquarters office of the appellant which cannot be attributed completely to either the manufacture of dutiable goods or to the provision of exempted services viz., trading. The only option in respect of such services is to divide the credit on such input services in proportion to the value of the dutiable goods and exempted services and deny credit to the extent it is attributable to the exempted services using the formula under Rule 6(3A). Therefore, the total credit taken in the formula under Rule 6(3A) can only refer to such credit as is not covered by Rule 6(2), i.e., credit on common input services. Only such an interpretation is harmonious with the restriction on credit laid down under Rule 6(1) and the provision for maintenance of separate records under Rule 6(2). We do not find anything in the CENVAT Rules which prohibits an assessee from following Rule 6(2) in respect of the inputs and input services where it is feasible to maintain separate records and follow Rule 6(3A) in case of such inputs or input services where it is not feasible to do so. It would h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly proportionately divide the credit taken on common input services and deny credit to the extent it is attributable to the exempted service viz., trading during the periods relevant to both appeals, viz., 2015-16 and April 2016 to June 2017." 11. We further find that in the case of Amadeus India Private Limited (supra), the Hon'ble High Court of Delhi have held that Master Circular dated 10.03.2017 for holding pre-notice consultation is mandatory, and the cases involving interpretation of payment of service tax will not fall under the category of 'preventive/offence' related SCN. The relevant paragraphs are extracted and given below : "16. The mandatory character of the Master Circular can be traced to Section 83 of the Finance Act, 1994 which makes Section 37B of the Central Excise Act, 1944 applicable in relation to service tax. In terms Section 37B of the Central Excise Act, 1944 instructions issued by the CBEC would be binding on the officers of the Department. 17. The legal position in this regard is well-settled. Illustratively a reference may be made to the decision in State of Tamil Nadu v. India Cements Ltd. (2011) 13 SCC 247 (SC). Specific to the Mas....