CENVAT - Under Rule 6(3) manufacturer can avail any one option - once first option is exercised, a different option for other goods is not allowed: CESTAT
By TIOL News Service
MUMBAI, NOV 30, 2016: THE branches, depots and head office of the appellant are registered as Input Service Distributor (ISD). The appellant being a manufacturer of final products namely, cigarettes and cut tobacco, were entitled to avail credit on inputs, input services and capital goods received in the Andheri factory, used in or in relation to manufacture of final products. In addition to above, the appellants received credit from its branches, depots and head office, distributed by them in terms of Rule 7 of the CCR, 2004, under the cover of ISD challans. The appellants have claimed that they are not availing credit in respect of services used exclusively for the purpose of trading. The credit that is distributed by the ISDs relates to the services availed commonly for dutiable final products and traded goods at such branches, offices and depots.
An audit was conducted and consequently the appellant reversed an amount of Rs.3,01,987/- along with interest in respect of ineligible services. The appellants also reversed an amount of Rs.2,41,06,906/- (along with interest of Rs.69,32,127/-) as proportionate credit in respect of certain goods.
Accordingly, a SCN was issued to the appellant on various counts and the demand was confirmed by the CCE, Mumbai-I.
The appellant is before the CESTAT and contests the following three issues -
A.
| Amount allegedly payable on the value of traded goods for the period 1.4.2011 to 31.12.2011 to terms of Rule 6(3)(i) of CENVAT Credit Rules, 2004 - Admitted amount is Rs.10,94,043/-& amount appealed against is Rs.2,48,86,416; |
B.
| CENVAT allegedly wrongly availed on input services (falling under Rule 6(5) CCR, 2004) commonly used for excisable goods and traded goods in contravention of Rule 3 of the CCR, 2004 for the period 2007-08 to 2010-11 - Amount admitted - Nil, Amount appealed against is Rs.75,23,945/- - Amount Alleged to be time barred is Rs.10,66,591/-. |
C.
| CENVAT allegedly wrongly availed on input services (not falling under Rule 6(5) CCR, 2004) commonly used for excisable goods and traded goods in contravention of Rule 3 of the CCR, 2004 for the period 2007-08 to 2010-11 - Amount admitted - Rs.28,27,193/-, Amount appealed against is 1,45,85,751/- - Amount Alleged to be time barred is Rs.15,27,862/-. |
After considering the elaborate submissions made and extracting the provisions of Rule 6 of the CCR, 2004, the Bench while negating the submissions made by appellant, inter alia observed thus -
A.
+ The appellants have given the mechanism to arrive at the amount of Rs.10,94,043/- in para E7 at page 73 of the appeal. It seems that the said amount has been calculated as per formula prescribed under sub-rule (3A) of Rule 6 by taking into consideration for each branch the total turnover of each branch, turnover of traded goods at each branch and 'Amount of credit common to dutiable goods and traded goods'.
+ First of all the mechanism of arriving at the value in column 4 of the table is unknown. For arriving at this value detailed accounts need to be maintained to arrive at the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase). In such case some costs of services availed need to be apportioned to traded goods. No such data has been given.
+ Secondly, the formula prescribed in rule 6(3A)(c) (iii) requires total service tax credit to be taken by the manufacturer/ service provider to be taken for such apportionment. 'N' denotes total CENVAT credit taken on input services during the financial year
+ For some unknown reasons the appellant have taken 'N' as the 'Common' credit attributable to dutiable and traded goods instead of total credit as required in the formula. The variable 'N' in the formula needs to include the entire credit taken in the factory and not just the common credit availed at the depot and branches.
+ In the instant case the column (6) takes into account only Amount of credit common to dutiable goods and traded goods. Thus the credit of services taken at factory has been left out of calculation. Thus the claim of the appellant is without any merit.
+ The rule [6(3)] clearly prescribes that the 'the manufacturer of goods or the provider of output service' can avail 'any one' of the options out of the options provided in the sub rule. The manufacturer has exercised the option (i) in respect of the exempted goods sold to the Navy. It is not open to them to exercise a different option for other goods. In these circumstances we find no merit in the appeal in so far as the first issue is concerned.
B.
+ We find that the issue regarding interpretation of sub-rule (5) of Rule 6 of Cenvat Credit Rules, 2004 is no longer res integra . In view of the above, respectfully following the decisions of the Tribunal on the issue, we hold that benefit of Rule 6(5) of Cenvat Credit Rules, 2004 cannot be extended in respect of trading activities. The said credit needs to be reversed in proportion to the trading turnover and the total turnover. [SKF India Ltd. - 2015-TIOL-914-CESTAT-MUM and Clariant Chemicals (I) Ltd. - 2015-TIOL-2510-CESTAT-MUM relied upon]
C.
+ The purpose of rule 6(3) is to permit the reversal of cenvat credit based on an estimate as separate records have not been maintained. There was no method prescribed for such estimation before 1.4.2011.
+ The formula prescribed for period after 1.4.2011 envisages calculation of cost of goods sold for the traded goods. This will require maintenance of detailed separate accounts and apportionment of common costs. It is also correct that cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) is not the same as purchase price of the goods. The words "difference between the sale price and the purchase price of the goods traded", have been substituted by the words "difference between the sale price and the cost of goods sold (determined as pre the generally accepted accounting principles without including the expenses incurred towards their purchase) or ten per cent of the cost of goods sold whichever is more" by the notification 13/11 CE (NT) dated 31.3.11. If detailed accounts are to be maintained for calculating the cost of goods sold in respect of traded goods then what is the need of the formula to estimate the same. The same records will give the real amount of service tax attributable to the trading activity. Thus the formula for estimation, which requires maintenance of detailed records, defeats the purpose of prescribing the formula.
+ We do not find that for apportioning the service tax credit of common services used between the dutiable manufactured goods and traded goods the Value addition of traded goods has any relevance. The formula prescribed for the period after 1.4.2011 does not provide reasonable estimate of the credit attributable to the exempted and dutiable activities. Furthermore, the formula sought to be adopted by the appellants is not the formula prescribed for the period after 1.4.2011. In these circumstances we hold that the credit availed at various places registered as ISD needs to be apportioned in the ratio of the exempted and other sales, as has been done by the Revenue.
Limitation, penalty:
It is the primary responsibility of the assessee to take/reverse the credit correctly. The provisions require reversal of credit in these situations. The appellants have not reversed any credit on their own and only when they were investigated that they have reversed as per their own calculation. There was no doubt regarding liability to reverse. In this appeal also they are contesting merely the quantification and not liability to reverse. In these circumstances the extended period has been rightly invoked. The penalty on the appellant company is upheld. [Clariant Chemicals (I) Ltd. - 2015-TIOL-2510-CESTAT-MUM relied upon.]
Penalty on employees:
Shivkumar Ranghunathan, Beenu Agarwal and Deepak Shahani have filed appeals against imposition of penalty against them. It is apparent from the above discussion that the liability to reverse is not disputed. The quantification, though, has been challenged. We find the role of each of them has been discussed clearly in the impugned order. We do not find any reason to interfere with that.
All the appeals were dismissed.
(See 2016-TIOL-3096-CESTAT-MUM)
