CENVAT - Appellant manufacturing goods as well as providing output service - Credit availed on Input services utilized for payment of CX - once credit is admissible it forms part of common pool and manufacturer can utilize Credit for both: CESTAT
By TIOL News Service
MUMBAI, OCT 14, 2013: THE appellants are engaged in the manufacture of excisable goods as well as in providing taxable output services of 'Erection and Commissioning'. The applicants availed CENVAT credit of service tax on services like labour, erection, installation etc. which are in relation to providing output services. This credit has been utilized for the payment of Central Excise duty at the time of clearance of manufactured excisable goods.
It is the contention of the Revenue that this cross utilization of CENVAT credit availed on Input services used for providing output services is not permissible.
Resultantly, a demand notice was issued demanding CENVAT credit of Rs.1,28,02,575/- and the same was confirmed by the CCE, Pune-I along with imposition of penalty and interest.
In the proceedings seeking Stay, the applicant submitted before the CESTAT that once they are held entitled for credit in respect of input services it forms part of a common pool and the same can be utilized for clearance of excisable goods or for providing taxable output services. They also relied on the stay order dt.27.04.2012 in Appeal no. ST/737/2011 whereby the WZB, Ahmedabad waived the pre-deposit of dues which were confirmed on same ground after relying upon the circular issued by the DG Audit vide F.No. 381/23/2010/862 dated 30.03.2010. A similar view taken in another appeal i.e ST/738/2011 & Stay Order no. S/1943/WZB/AHD/2012 dt. 6.9.2012, wherein the CESTAT, WZB, Ahmedabad had waived the pre-deposit of dues was also referred to by the applicant to submit that the demand was not sustainable.
Revenue relied upon the provisions of CENVAT Credit Rules and submitted that credit of service tax availed in respect of the taxable service which are not used directly or indirectly and in or in relation to the manufacture of excisable goods cannot be utilized for payment of duty at the time of clearance of the goods. It is also submitted that applicants are having two separate agreements, one is for manufacture of goods and other is for erection and commissioning which is liable for payment of service tax under the Finance Act and in this view of the matter, the appellant had wrongly utilized the credit of input services which are not used in or in relation to the manufacture of goods for payment of excise duty on the excisable goods.
Viewing that since on the same issue there is waiver of the dues granted by the Co-ordinate Bench of the Tribunal, the Bench granted stay in the matter. (See 2013-TIOL-122-CESTAT-MUM).
The appeal was heard recently.
The appellant submitted that there is no restriction under the CENVAT Credit Rules, 2004 for cross utilization of the CENVAT credit and various Benches of this Tribunal has held so.
In support,reliance is placed on the following decisions -
(i) Welspun Maxsteel Ltd. - (2012-TIOL-1662-CESTAT-MUM);
(ii) Jyoti Structures Ltd. - (2012-TIOL-1312-CESTAT-MUM);
(iii) Forbes Marshall Pvt. Ltd. vs. CCE, Pune 2010 (258) ELT 571 (Tri-MUM)
(iv) CCE, Coimbatore vs. Lakshmi Technology and Engg. Industries Ltd. - (2011-TIOL-700-CESTAT-MAD);
(v) CCE vs. Alidhara Textool Engineers Pvt. Ltd. - (2009-TIOL-370-CESTAT-AHM)
The Revenue representative vehemently argued that it is absolutely necessary to have segregated accounts in respect of input and input services relating to manufactured goods, as also input and input services used in relation to providing the output services.
It was inter alia submitted that -
+ service tax is collected under the Finance Act, 1994, while Central Excise duty is collected under the Central Excise Act, 1944 and that two Acts operates in their respective domains, lay down authority for availment or utilization within their respective domains and there is nothing in law to permit cross operation of such accounts for utilization of such credit beyond the respective laws.
+ appellant is registered separately for the manufacturing activity and as a provider of output service and there are separate authorities for the two.
+ Each authority in assessment stage is entitled to examine the admissibility of each of the CENVAT credit entry in the context of registered activity under its domain, jurisdiction and competence.
+ In the absence of segregated account, the authority shall be at loss to examine the issue to its conclusive state.
+ the Returns in case of Service Tax is filed half-yearly, while in the case of Excise these are monthly and if unified account is maintained it will create confusion.
+ the issue before the Tribunal in the case of Forbes Marshall Pvt. Ltd. quoted by the appellant has been unduly stretched and Tribunal's decision is, therefore, not a very good law.
None of these arguments by the Revenue found favour with the Bench inasmuch as the CESTAT inter alia observed -
+ Sub-rule (4) of Rule 3 provides that CENVAT credit may be utilized for payment of various liabilities and includes any duty of excise on any final product as also service tax on any output service
+ Rule 3 of the CENVAT Credit Rules, 2004 does not stipulate maintaining separate account as a manufacturer and as a service provider.
+ There are certain restrictions on the utilization of particular type of duties which are elaborated in sub-rule (b) of Rule 7 of the CENVAT Credit Rules. These restrictions do not cover cross utilization of credit of excise and service tax, as a general proposition.
After extracting the contents of paragraph 6 from the order passed by the CESTAT in the case of Lakshmi Technology and Engineering Industries Ltd. - (2011-TIOL-700-CESTAT-MAD), the Bench added -
"7. …, we have also gone through the format of ER-1 return and ST-3 return. Sr. no. 8 and the Table details the CENVAT credit taken and utilized. In ER-1 return, in Table at Sr. no. 8, in column (9), details about service tax are specifically listed. On careful analysis of the said format, the intention appears to be to permit cross utilization of the credit of excise duty and service tax."
In fine, the appeal was allowed.
Tail piece: It is high time that those Audit objections are consigned to the bin before appeals start accumulating at the CESTAT and add to the pendency. Nonetheless, the time is also apt for the Board to come out with a Circular and lay matters to rest at least for the past before the amending notification takes birth!
(See 2013-TIOL-1512-CESTAT-MUM)
