By TIOL News Service

MUMBAI, FEB 04, 2014: ON inquiry by the Hqrs. Preventive Section of the Raigad Commissionerate, it was revealed that the appellant had availed CENVAT Credit of Service Tax paid on services which were used for trading activity of imported goods and relating to their real estate business and the credit so taken was utilised towards discharge of excise duty on goods manufactured at their factory at Alibaug.

The officers of the appellant firm, in their statements recorded, also admitted to taking CENVAT Credit without proper supporting documents and on services which were exclusively for trading activity. The amount of credit so taken was quantified at Rs.2,42,02,704/-. It was further observed that the Head Office of the appellant had distributed CENVAT Credit of service Tax paid on input services to the Alibaug factory without getting themselves registered as Input Service Distributor (ISD) and even though the services were availed by the factories at Alibaug, Kanjur Marg and Silvassa, the entire credit was taken at the Alibag factory. The CENVAT Credit so taken amounted to Rs.2,92,78,755/-. It was further noticed that the appellant had availed CENVAT Credit without being in possession of proper documents as prescribed under Rule 9 of the CCR, 2004 and the credit taken without proper supporting documents amounted to Rs.2,88,89,730/-. It was also noticed that the appellant had taken credit twice in respect of a sum of Rs.8,19,902/- and, therefore, the credit taken second time was liable to be recovered. It was also noticed that the appellant had taken excess credit amounting to Rs.28,84,078/- than what has been shown in the input service invoices and hence the appellant was not eligible for the credit in excess of what is specified in the documents. Thus, during the period September, 2006 to September, 2010, the appellant has availed ineligible CENVAT Credit amounting to Rs.8,80,80,062/-. Similarly, for the subsequent period, the appellant had availed ineligible CENVAT Credit amounting to Rs.96,63,002/- during October, 2010 to December, 2011. On conclusion of the investigation, show-cause notices were issued proposing to recover the above ineligible CENVAT Credit taken by the appellant. The appellant contested the demands and submitted that ineligible credit taken by them would be only Rs.3,23,60,407/- which they had reversed during the course of investigation. However, the adjudicating authority did not accept this plea and confirmed the CENVAT Credit demands of Rs.8,80,80,062/- and Rs.96,63,002/- under the provisions of Rule 14 of the CCR read with Section 11A of the Central Excise Act along with interest thereon under Section 11AB. He also imposed a penalty of Rs.8,80,80,062/- on the appellant under the provisions of Section 11AC and a penalty of Rs.19,62,600/- under Rule 15 of the Central Excise Rules, 2002.

The Bench after hearing the extensive arguments made by both sides observed -

CENVAT on Construction Services [Rs.2.42 Crores] - the said construction was mainly used for storage of imported goods and was in respect of the trading activity. Prior to 2011, trading was not considered as service at all and, therefore, the appellant could not have taken credit pertaining to the trading activities ab initio. Since Rule 6(3) talks of dutiable as well as exempted services, it cannot apply to a situation wherein credit taken pertains to a non-service activity. Similarly, in the case of Insurance services availed by the appellant, bulk of it pertains to traded goods and, therefore, the appellant could not have taken credit in respect of this service for the manufacturing activity undertaken at their Alibag factory.

CENVAT distributed by HO [Rs.2.93 Crores] - the distribution of the credit by the Head Office without being registered as ISD is against the provisions of CCR. Tribunal has consistently taken a view that the Service Tax credit can be distributed only if the services were received at the manufacturing premises and if it is received elsewhere, it is not permissible to avail of the Service Tax credit. Input Service Distribution scheme is a special scheme and if anyone wants to avail the benefit thereof, the terms and condition should be complied with completely. From the statements of the officials of the appellant firm, it clearly emerges that the credit was distributed by the Head Office without any registration and without ascertaining the receipt of the services at the Alibaug factory. Services received at the depots were also distributed to the Alibaug factory and also services received at the other factories of the appellant. Thus, as regards the denial of CENVAT Credit of Rs.2.92 Crore, the appellant is not prima facie eligible for the benefit of the same.

CENVAT on allegedly improper documents [Rs.2.89 Crores]: The appellant's claim is that the department has not clearly shown how the documents on strength of which the credit was taken was improper and what particulars were missing in the documents, so as to deny benefit of the CENVAT Credit. There is some merit in this contention but these needs to be verified with the actual documents which can be done only at the stage of final hearing.

The Bench further observed that in respect of the credits taken twice, taken in excess the appellant has not made out any case at all.

In short, barring the demand of service Tax raised of Rs.2,88,89,713/- out of total demand of Rs. 9.7 crore, the appellant has not made out a prima facie case for grant of stay, the Bench observed.

The CESTAT also noted that the appellant had made a payment of Rs.3.23 crore after the commencement of investigation and which is a clear pointer to the wrong availment of credit by the appellant and coupled with the confessional statements it was apparent that the availment of CENVAT Credit at least to the extent of about Rs.7 crore by the appellant prima facie appears to be not in accordance with the provisions of CCR, 2004.

Holding that it appeared to be a case of “fraudulent availment” of ineligible CENVAT credit by resorting to manipulation of records/documents, deliberate mis-declaration and blatant violation of statutory procedures and the fact that the appellant had not pleaded any financial hardship, the Bench directed the appellant to make a pre-deposit of another Rs.3 Crores within eight weeks and report compliance.

In passing: Mainly, solely and the Orion Appliances Ltd. case 2010-TIOL-752-CESTAT-AHM.

(See 2014-TIOL-173-CESTAT-MUM)