CX - Common input services for trading & manufacture - Tribunal must firstly refer to substantive Rule 6 operative prior to 1st April 2011 and then arrive at a conclusion in relation to Explanation introduced later: High Court
By TIOL News Service
MUMBAI, JULY 09, 2016 : THE appellant is engaged in the manufacture of ball and roller bearings and textile machinery components. Besides manufacture of the said goods, they also undertake trading of similar goods which they normally procure from their associate companies in other parts of the world, as also from SKF Technologies India Pvt. Ltd., Ahmedabad. The appellant has depots/hubs situated in different parts of the country from where they sell the said goods. In India they have two manufacturing units, one located in Pune and the other located in Bangalore. Their main office in India is also located in Pune in the same complex as that of factory.
For the above mentioned activities, they are using a number of taxable input services and avail credit. Since there is no excise duty or service tax on the trading activities, the entire credit is utilized towards payment of excise duty on the goods manufactured by the appellant. Further, since they have two units i.e. one located in Pune and the other in Bangalore, they are utilizing the said credit in the two units. For purpose of distributing the said credit, the appellant took another registration as an input service distributor in Pune itself and they are distributing the credit of input services between the two units.
The Revenue is of the view that since trading is not a taxable activity appellants are not eligible for availing the entire credit of input services under Rule 3 read with Rule 2(l) of the CCR, 2004.
The CCE, Pune-I confirmed the demand along with interest and penalties. A penalty of Rs. 5,000/- was also imposed on the appellant for their role as ISD.
Aggrieved by the said order, both the appellants (manufacturer and ISD) had filed appeals before the CESTAT.
The Tribunal had while dismissing the appeals inter alia observed -
"17. Yet another contention of the appellant is that the demand needs to be recomputed as there are certain services which are directly used for manufacturing activity. We find that during investigation, the appellant has not made any such claim and not provided any such detail. Even while filing the appeal, no such claim has been made. It is only at the time of argument, a peculiar claim of this type has been made without giving any details. Under the circumstances, we reject the contention.
18…It is common knowledge that the credit of input or input services is allowed only in order to eliminate the cascading effect of taxes. Thus, for taking credit, the trading activity should be taxable under Service Tax or Excise Law. The credit of input or input services is not allowed in respect of non-taxable activities. Here is a case where the services were used for trading activity. The appellant should have not taken the credit in the first instance itself, which was totally wrong on their part. They did not indicate in the returns that the credit relating to the trading activities was also being availed by them. Therefore, this is a clear case of suppression, and conduct of the appellant in this regard does not take him further and the extended period of limitation has been rightly invoked."
In fine, both the appeals were dismissed as devoid of any merits. We reported this order as - 2015-TIOL-914-CESTAT-MUM.
The appellants are before the High Court and raise various substantial questions of law.
Inter alia it is submitted that on the following question -
(f) Whether on the facts and circumstances, in calculating amount of the eligible Cenvat Credit of service tax paid on common input services margin/value addition on trading of goods is to be considered and not entire sale price/turnover of traded goods?
the findings of the Tribunal are purely and solely based on its decision in Mercedes Benz India Private Limited - 2014-TIOL-476-CESTAT-MUM.
The High Court noted that the finding of the Tribunal to question (f), in the instant case, is based entirely on its own finding in the decision of Mercedes Benz India Private Limited (supra).
Inasmuch as since the order of the Tribunal in the case of Mercedes Benz India Private Limited has been set aside & the matter was remanded back to the Tribunal for fresh finding - 2016-TIOL-105-HC-MUM-CX, the High Court viewed that it became necessary to remit the questions of law raised in the present Appeals also to the Tribunal for its fresh decision.
The appeals were allowed by way of remand.
(See 2016-TIOL-1322-HC-MUM-CX)
