CX - Commissioner has no jurisdiction to reallocate CENVAT distributed by ISD - assessee is not entitled to take credit on services mentioned in rule 6(5) which is attributable to trading as during material period it was neither taxable nor exempted: CESTAT
By TIOL News Service
MUMBAI, OCT 24, 2014: THE assessee has manufacturing units located in Maharashtra, Uttaranchal and in Himachal Pradesh . The Head Office is located at Andheri (W), Mumbai. The manufacturing units located at Uttaranchal and Himachal Pradesh did not pay Central Excise duty. The appellant is also engaged in the activity of trading of goods at their Head Office. The other units are manufacturing dutiable as well as exempted goods. The Head Office at Andheri (West) distributed the CENVAT Credit of input services to the units located in Maharashtra at Nerul, Pawane and Patalganga. While doing so the Head Office has distributed credit in proportion of turnover i.e. credit attributable to units exclusively engaged in exempted goods and credit attributable to trading was not distributed. However, CENVAT Credit on input services covered under Rule 6(5) of CCR, 2004 was distributed in full so long as it did not pertain to units exclusively engaged in manufacture of exempted goods or trading.
The period involved is September, 2006 to March, 2010 & January 2011 to March 2012. SCNs were issued inter alia alleging that in respect of services mentioned in Rule 6(5) of CCR, 2004, the ISD could not take 100% credit and distribute it.
The adjudicating authority dis-allowed the credit under Rule 6(5) of CCR, 2004 and redistributed the whole of CENVAT Credit distributed by ISD.
Against this order, the assessee is before the CESTAT.
Revenue is also in appeal against this order on the ground that while re-distributing the credit, the assessee is required to include the turnover of goods got manufactured by the assessee from loan licence units.
There is also another Revenue appeal against an O-in-A and the ground is that in terms of rule 9 of CCR, 2004 the burden of proving that the CENVAT Credit is in respect of input/capital goods and input services lies upon the manufacturer and this condition has not been satisfied by the assessee.
After considering the submissions on the issue of jurisdiction raised by the assessee that the jurisdictional Commissioner cannot challenge the correctness of the credit distributed by the ISD located in a different jurisdiction, the Bench after distinguishing the judgments cited observed -
++ In fact, the issue in this case is that whether the assessee is entitled to take CENVAT credit as per Rule 6(5) of CENVAT Credit Rules, 2004 for specified service as a whole or not. This question is to be examined at the end of the assessee; therefore, the lower authorities are to examine the correctness of the admissible CENVAT credit to assessee.
In the matter of interpretation of rule 6(5) of CCR, 2004, the Bench held -
++ As per the said Rule, there is no bar to avail CENVAT credit on the services covered under Rule 6(5) by a unit who is engaged in the activity of manufacturing of both dutiable as well as exempted goods and engaged in dutiable as well as exempted services. Therefore, we hold that in this case the assessee is entitled to take the CENVAT credit of services referred in Rule 6(5) of CENVAT Credit Rules, 2004 for whole of the credit attributable to dutiable as well as final exempted products and for taxable or exempted services but the assessee is not entitled to take CENVAT credit attributable to the activity of trading as during the relevant time, the trading activity was neither excisable nor an exempted service at all. Therefore, the quantification of inadmissible CENVAT credit is required to be done at the end of adjudicating authority to disallow the CENVAT credit attributable to trading activity.
As to whether the Commissioner has jurisdiction to reallocate the CENVAT credit or not, the Bench observed -
++ We have gone through the show-cause notice wherein the allegation is that the assessee is not entitled to take CENVAT credit referred in under Rule 6 (5) of CENVAT Credit Rules, 2004 as the same are not covered in Rule 7. Therefore we hold that the learned Commissioner has no jurisdiction to reallocate the CENVAT credit to the assessee in question as there was no such allegation in the show-cause notice and he cannot go beyond the allegation in the show-cause notice to decide the issue.
The CESTAT further held that the issue involved is as to whether the assessee is entitled to take CENVAT credit on the services covered under Rule 6(5) or not and which being a debatable issue extended period of limitation is not invokable& so also imposition of penalty.
In fine, the following order was passed by the Bench -
(a) The assessee is entitled to take CENVAT credit on the services covered under Rule 6(5) of the CENVAT Credit Rules, 2004 as prescribed in the manner in the said Rule.
(b) The assessee is not entitled to take CENVAT credit on the services mentioned in Rule 6(5) of the CENVAT Credit Rules, 2004 which is attributable to their trading activity.
(c) The extended period of limitation is not invokable.
(d) The demands pertaining to the extended period of limitation are set aside.
(e) No penalty is warranted.
(f) The matter is remanded back to the adjudicating authority for re-quantification of demands, inadmissible credit on trading activity for the normal period of limitation.
The Appeals were disposed as above.
In passing : In all probability, Round Two would commence shortly…
(See 2014-TIOL-2071-CESTAT-MUM)
