Varun Beverages Limited Vs Commissioner of Central Excise & Service Tax (CESTAT Delhi)
The preliminary objection by the appellant is that a show cause notice (SCN) dated 10 February 2016 was issued by the Department demanding duty short paid by irregularly availing exemption under Notification No. 1/2011-CE along with interest and penalty. The present show cause notice dated 18 February 2016 was issued for the same audit period seeking to deny Cenvat credit alleged to have been availed by the appellant. It has been asserted that two show cause notices cannot be issued by the Department on piecemeal basis for the same period and for this submission reliance was placed on the Simplex Infrastructures Ltd., in which Calcutta High Court held as follows : “there cannot be a double assessment for the period 10 September 2004 to 31 September 2005 as the Department has sought to do. The periods pertaining to which the show cause notice dated 21 April 2006 and the show cause notice dated 7 September 2009 were issued overlap to an appreciable extent”. It has also been submitted that this is not permissible in law as held by the Calcutta High Court in Avery India Ltd. Vs. Union of India11. Learned Counsel also relied upon in Duncans Industries Ltd. Vs. Commissioner of Central Excise, New Delhi12, Paro Food Products and Shreeji Colourchem Industries.
We find all these case laws dealt with cases in which the assessment of duty/service tax was proposed for the same period and differential duty/service tax was demanded on different grounds in different show cause notices. The present case is different. Consequent upon the audit report, a show cause notice was issued demanding duty which is not the subject matter of the present dispute. Demand of duty is a matter of assessment. If duty is short paid it can be recovered under Section 11A after issuing a notice. The show cause notice which culminated in the present appeal has nothing to do with duty. It deals with a different issue of Cenvat credit. Irregularly availed Cenvat credit is recoverable under Rule 14 of CCR, 2004. There is no detailed mechanism laid down for recovery under Rule 14 of CCR, 2004 and for this purpose the provisions of Section 11A have been made applicable mutatis mutandis for Rule 14 also. Nevertheless, any recovery of irregularly availed Cenvat credit under Rule 14 is not demand of duty at all. Section 11A deals with the duty which the assessee has to pay on final products. Rule 14 deals with the credit of duty on inputs which someone else had paid which the assessee has taken credit of. Any denial of Cenvat taken will not affect the duty liability. Similarly, any demand of duty will not affect the Cenvat credit. If Cenvat credit is wrongly availed, a penalty can be imposed under Rule 15 of CCR, 2004. If duty is short paid, penalty can be imposed under Section 11AC. Therefore, we do not find any illegality in the Revenue issuing two show cause notices; one for recovery of irregular availed Cenvat credit (which is subject matter of the present appeal) and another show cause notice for recovery of duty short paid. It does not amount to two assessments for the same period in this case.
FULL TEXT OF THE CESTAT DELHI ORDER
This appeal is filed by the appellant assailing order-in-original dated 1.12.2016 passed by the Commissioner, Central Excise & Service Tax, Alwar 1 whereby Cenvat credit amounting to Rs. 1,18,89,509/- was disallowed to the appellant and its recovery ordered along with interest and a penalty of equal amount was imposed upon the appellant under Rule 15(2) of CENVAT Credit Rules, 20042. The operative part of this order is as follows :
“(i) I disallow the Cenvat credit of Rs. 1,18,89,509/- and order recovery of the same from M/s Varun Beverage Limited, Chopanki, Bhiwadi in terms of Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11 A(2) / Section 11 A(10) of the Central Excise Act, 1944. However, the remaining demand of Cenvat credit of Rs. 18,75,923/- is dropped as the cenvat credit has been taken properly.
(ii) I order for recovery of interest at applicable rates on the aforesaid amount of cenvat credit confirmed at (i) above in terms of Rule 14 of Cenvat Credit Rules, 2004 read with Section 11 AB/Section 11 AA of the Central Excise Act, 1944.
(iii) I impose a penalty of Rs. 1,18,89,509/- upon M/s Varun Beverage Limited, Chopanki, Bhiwadi in terms of Rule 15(1) of the Cenvat Credit Rules, 2004 and order recovery of the same from them.
This order is issued without prejudice to any other action that may be taken under the law relating to Central Excise or any other law for the time being in force.”
2. We have heard both sides and perused the records.
3. The facts of the case, in brief, are that the appellant is a manufacturer of soft drinks, mineral water and fruit juices and holds Central Excise registration. During the course of audit of the appellant for the period April 2012 to March 2015, it was observed by the Auditors that the appellant had taken Cenvat credit on the basis of improper challans issued by its head office which is registered as Input Service Distributor as the challans did not contain the addresses of the persons providing the input services. Secondly, it was found that the credit was distributed by the head office of the appellant entirely to the appellant and it was not distributed from various manufacturing units as required under sub-rules (i) and (iv) of Rule 2 and Rule 4 of CCR, 2004. Thirdly, it was observed that the head office of the appellant was distributing input service credit on monthly basis while the pro rata turnover of the previous year of the appellant and of all the units were reckoned for distribution of credit in contravention of Rule 7 of CCR, 2004.
4. A show cause notice dated 18.2.2016 was issued to the appellant alleging that it had wrongly availed Cenvat credit amounting to Rs.1,37,65,432/- during the period April 2012 to December 2015 in contravention of Rule 3 and Rule 9 of Cenvat Credit Rules, 2004 and Rule 4A of Service Tax Rules, 1994 and proposing to recover it under Rule 14 of the CCR, 2004 read with Section 11A of the Central Excise Act, 1944. The Commissioner passed the impugned order, which is assailed in this appeal on the following grounds:
(i) The adjudicating authority has gone beyond the scope and ground of the show cause notice which is not permissible. In the impugned order, the Commissioner has denied the Cenvat credit on services on the ground that they do not qualify as input services under Rule 2(l) of the CCR, 2004. This ground could not have been taken in the impugned order because the appellant was not put to notice of this ground at all;
(ii) Even otherwise, the input services qualify as input services in terms of Rule 2(l) of CCR, 2004 as they were used directly or indirectly in or in relation to manufacture of the final products. The term “directly or indirectly” and “in or in relation to” as mentioned in the input service definition is very wide and encompasses the services in dispute. The input services have a nexus with the manufacturing of the final product. As far as the house keeping services on which the Cenvat credit was denied by the Commissioner it is essential to keep the factory clean for the manufacturing. Therefore, the house keeping services qualify as input services. Reliance was placed on the decisions of the Tribunal in Balkrishna Industries Limited Vs. Commissioner of Central Excise, Aurangabad 3 and Commissioner of Central Excise, Delhi-III Vs. Pricol Ltd4.
(iii) As far as the air travel agent and air charter services are concerned, the appellant used them in or in relation to the manufacture of final product. Reliance has been placed on Steadman Pharmaceuticals (P) Ltd. Vs. Commissioner of Central Excise, Chennai-III5.
(iv) On the allegation that the head office of the appellant (Input Service Distributor) has not distributed the credit to all units, it has been asserted that the ISD has indeed, distributed eligible CENVAT credit of service tax to all the units on pro rata basis as per Rule 7 of CCR, 2004 which reads as follows :
“Rule 7. Manner of distribution of credit by input service distributor. –
The input service distributor may distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or units providing output service, subject to the following condition, namely:-
(a) the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon; or
(b) credit of service tax attributable to service used by one or more units (upto March 31, 2014 ‘used in a units’) exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed.
(c) credit of service tax attributable to service used wholly by a unit (up to March 31, 2014 ‘used wholly in a unit’) shall be distributed only to that unit; and
(d) credit of service tax attributable to service used by more than one unit shall be distributed pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all its units, which are operational in the current year, during the said relevant period.
(upto March 31, 2014, clause (d) was read as ‘credit of service tax attributable to service used in more than one unit shall be distributed pro rata on the basis of the turnover during the relevant period of the concerned unit to the sum total of the turnover of all the units to which the service relates during the same period’)”.
5. Learned Counsel of the appellant submitted documents on a sample basis to demonstrate that the head office of the appellant has been distributing Cenvat credit to all the units and not only to the appellant.
6. It has also been submitted that even if the ISD had not distributed the Cenvat credit of input services to all its units on pro rata basis, it will not cause any revenue loss to the Department as the company could not have taken any excess Cenvat credit of input services.
7. On the question as to whether the Cenvat credit was distributed as per applicable Rules during the period or not, it has been submitted that the allegation in the show cause notice is that the ISD was distributing service tax credit on monthly basis whereas the pro rata turn over unit for distribution was taken for previous year. The appellant submits that Explanation (3) to Rule 7 of CCR, 2004 has undergone an amendment with effect from April 01, 2014. The extract of Explanation before and after 1.04.2014 is as follows:
Before 1.04.2014
“Explanation 3 – (a) The relevant period shall be the month previous to the month during which the CENVAT credit is distributed.
(b) In case if any of its unit pays tax or duty on quarterly basis as provided in rule 6 of Service Tax Rules, 1994 or rule 8 of Central Excise Rules, 2002 then the relevant period shall be the quarter previous to the quarter during which the CENVAT credit is distributed.
(c ) In case of an assessee who does not have any total turnover in the said period, the input service distributor shall distribute any credit only after the end of such relevant period wherein the total turnover of its units is available.”
After 1.04.2014
“Explanation 3 – For the purposes of this rule, the ‘relevant period’ shall be,-
(a) If the assessee has turnover in the ‘financial year’ preceding to the year during which credit is to be distributed for month or quarter, as the case may be, the said financial year; or
(b) If the assessee does not have turnover for some or all the units in the preceding financial year, the last quarter for which details of turnover of all the units are available, previous to the month or quarter for which credit is to be distributed.”
8. The appellant submits that the company has followed the provisions correctly inasmuch as for the period up to 1.4.2014, turnover of units on monthly basis has been taken and thereafter turnover on yearly basis was taken. However, the appellant had inadvertently taken turnover on calendar year basis instead of on financial year basis. Nevertheless, even if the computation is made as per the provisions of Rule 7 of CCR, 2004, it would be evident that the appellant has not taken excess Cenvat credit taken on input service and it will not be detrimental to the Revenue.
9. The appellant submitted the following details along with copy of the certificate from the Chartered Accountant:
