Case Law Details
Thyssenkrupp Industrial Solutions (India) Private Limited Vs Commissioner of Central Tax (CESTAT Mumbai)
Conclusion: Neither the submissions during the hearing nor the records of the proceedings before the lower authorities indicated correct segregation of credit taken on ‘input services’ between eligible and ineligible except to the extent that the formula had to be resorted to, therefore, the re-computation of segregation of credit restored to the original authority before whom the accountal of credit taken on ‘input service’ should be furnished by the appellant herein and to which the ratio in the formula was to be applied.
Held: In the instant case, proceedings were initiated against the appellant for applying, instead of the proportion that value of ‘exempted services’ bore to the value of ‘total services’ to the total credit availed, the proportion that value of ‘exempted services’ bore to the value of ‘total services’ to the credit availed on ‘input services’ used in common only. Appellant claimed for the discarding of the determination in the impugned order upon correct segregation of credit taken on ‘input services’ between eligible and ineligible except to the extent that the formula had to resort while the Revenue contended upon the lack of segregation of the entire credit. It was held that the interpretation of ‘total CENVAT credit’ and applicability to the present dispute hinges upon the extent to which the credit arising from ‘input services’ used in common was distinguishable from ‘total CENVAT credit’; the spectrum of such credit may extend anywhere between ‘nil’ and the entirety of CENVAT credit with the gap increasing upon accountal of each service in the manner prescribed in rule 6(2) of CENVAT Credit Rules, 2004. Therein lies the nub: it was not the total lack of separate accounting but the incompleteness of that which could give rise to disputations such as this. The claim of the appellant for discarding of the determination in the impugned order rested upon correct segregation of credit taken on ‘input services’ between eligible and ineligible except to the extent that the formula had to be resorted to; the claim of Revenue rested upon the lack of such segregation of the entire credit. Neither the submissions during the hearing nor the records of the proceedings before the lower authorities indicated such partial segregation or the correctness of it. In the absence of such ascertainment, the principle alone could establish with the consequent impact on the recovery to be quantified upon presentation of the segregated accounts and verification thereof. Hence, the impugned order was set aside and the re-computation restored to the original authority before whom the accountal of credit taken on ‘input service’ should be furnished by assessee herein and to which the ratio in the formula was to be applied. Needless to state, the exercise shall be limited to 2014-15 as the demand for the earlier year had been set aside.
FULL TEXT OF THE CESTAT MUMBAI ORDER
It is common ground in the rival disputations of this appeal that liability does arise under rule 6(3) of CENVAT Credit Rules, 2004 for 2013-14 and 2014-15. However, the appellant, M/s Thyssenkrupp Industrial Solutions (India) Pvt Ltd, is convinced that reversal of credit of ₹ 18,19,267 effected by them has erased the obligation while Commissioner of Central Tax, Central Excise & Service Tax (Appeals), Raigarh has, in order-in-appeal no. MKK/145-146/RGD APP/2018-19 dated 13th June 2018, upheld recovery of ₹ 23,45,469, out of ₹ 52,87,392 demanded in show cause notice and confirmed by the original authority under rule 14 of CENVAT Credit Rules, 2004, along with applicable interest as well as penalty under rule 15 of CENVAT Credit Rules, 2004. There is no challenge to the setting aside of recovery of ₹ 11,22,656 for 2013-14, along with the penalty of ₹ 34,68,125 under rule 15 of CENVAT Credit Rules, 2004, for being barred by limitation. During 2014-15, the appellant had rendered services valued at ₹ 354,78,35,104 of which ₹ 9,57,75,175 was attributable to ‘trading’ and credit of ₹ 13,32,09,285 availed by them was sought to be curtailed by ₹ 35,96,036 instead of ₹ 12,50,567 acknowledged in the reversal effected by them. According to the tax authorities, only credit to the extent that the value of ‘taxable services’ bore to the value of ‘total services’ could be retained; the assessee reversed credit in such proportion as the value of the ‘exempt service’ bore to the value of ‘taxable service’ for the relevant year.
2. Before proceeding to consider the submissions on behalf of the appellant and of Revenue, enunciation of the source of the varying interpretation of the statutory measure for adjustment may well be warranted. Credit, validly availed upon procurement of ‘input service’, may carry the taint of subsequent ineligibility from deployment in rendering of ‘exempted service’ or manufacture of ‘exempted goods’ in common with eligible services and goods and, unlike ‘inputs’, may not be amenable to particular correlation. The erasure of the ineligible portion of such credit, in keeping with the foundational integrity of the credit scheme, is, at best, a mathematical approximation and has, over the period of its subsistence, undergone tinkering reflective of wisdom garnered from operational experience of the self-contained mechanism in rule 6 of CENVAT Credit Rules, 2004. Not surprisingly, judicial decisions have interpreted the mechanics of the neutralization and re-statement of the computation has, often, been in response.
3. The appellant, in the business of ‘engineering, procurement and construction (EPC)’ contracts, is assessed for ‘taxable services’ rendered to their clients and also procures goods necessary for execution that are billed in fulfillment of these contracts which, as ‘trading’ and deemed by insertion of Explanation in rule 2(e) of CENVAT Credit Rules, 2004 effective from 1st April 2011 to be service that was not taxable, mandated the neutralization exercise since then. Proceedings were initiated against the appellant for applying, instead of the proportion that value of ‘exempted services’ bore to the value of ‘total services’ to the total credit availed, the proportion that value of ‘exempted services’ bore to the value of ‘total services’ to the credit availed on ‘input services’ used in common only. And the issue that needs resolution is the legislative intent of rule 6 of CENVAT Credit Rules, 2004 and the extent, if any, to which the computation, as held by the lower authorities, is in breach of such intent.
4. It is also admitted in the orders of the lower authorities that, while letter DOF no. 334/8/2016-TRU dated 29th February 2016 of Ministry of Finance elaborating upon the amendment in rule 6 of CENVAT Credit Rules, 2004 may favour the appellant herein, the prospective intent of amendment in rule 6 of CENVAT Credit Rules, 2004 precludes such shelter for the period of dispute in this appeal. Furthermore, and strangely so after noting that the two orders relied upon in submissions were interim in nature, the original authority considered the decision in Thyssenkrupp Industries (I) Pvt Ltd [2014 (310) ELT 317 (Tri-Mumbai)] to be worthy of emulation. It does not seem to have occurred to the lower authorities that disposal of application for stay of recovery pending decision on the appeal did not warrant anything other than a preliminary survey of the law and, thereby, depriving it of status as binding precedent. The impugned order has, with its emphasis on the formula, held that
‘.. The amount attributable to input services used in or in relation to manufacture of exempted goods and their clearance up to the place of removal or provision of exempted services = (M/N) multiplied by P, where M denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, N denotes total value of output and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and P denotes total CENVAT credit taken on input services during the financial year. Thus, the term used in the rule is ‘total CENVAT credit taken on input services’ and is not common input services. The appellant, while calculating the amount, have taken into consideration the common input service instead of total cenvat credit. Term ‘P’ has been interpreted case of Thyssenkrupp industries (I) Pvt. Ltd Vs. Commissioner of C. EX., Pune reported in 2014 (310) ELT 317 (Tri-Mumbai)] were term P has been explained in paragraph 5 stating that it should be noted that “P” denotes the total Cenvat Credit taken on input service during the financial year and not the total of the cenvat credit taken on services. It is a well settled position in law that while interpreting statutes, no words can be added /deleted from the statute.
Thus, actual amount to be reversed has to be calculated taking into account P as to ‘total Cenvat Credit taken on input services’ and ‘not as Cenvat Credit taken on common input services.
7.3 Appellants has contested that the interpretation of the adjudicating authority that the value of ‘P’ to be entire amount of cenvat credit on input service is against the core purpose of Rule 6 and against the harmonious reading of the Rule. In this regards I find that the computation of payment of an ‘amount’, ‘total cenvat credit availed’ is to be taken into account. Therefore, I find that contention of the appellants is not tenable.’
which is the sum and substance of the dispute.
5. The submissions made by Learned Counsel for the appellant and Learned Authorized Representative have been carefully considered along with the case laws relied upon by them. The primary argument on behalf of the appellant is that legislative intent is evident in the amendment effected in rule 6(3A) of CENVAT Credit Rules, 2004 with effect from 1st April 2016 and, consistent with judicial pronouncements in IPCA Laboratories Ltd [2015 (40) STR 771 (Tri-Del)], in Foods, Fats & Fertilisers Ltd [2009 (247) ELT 209 (Tri-Bang)] and in Mercedes Benz India (P) Ltd [2015 (40) STR 381 (Tri-Mumbai)] holding that the procedure prescribed in rule 6(3A) incorporated from 1st April 2008 does resolve disputes arising before such provision, should be made applicable similarly to dispute on reversals pe-dating the amendment.
6. CENVAT credit scheme is operated through the self-contained CENVAT Credit Rules, 2004 and its essence is availment and utilization in self-maintained records that, once reported in periodical returns, becomes irretractable except by revision in subsequent return. The filtration for availment is conformity with rule 3 of CENVAT Credit Rules, 2004 and utilization is governed by rule 4 of CENVAT Credit Rules, 2004. Recovery of ineligible credit is enabled through rule 14 of CENVAT Credit Rules, 2004. Rule 6 of CENVAT Credit Rules, 2004 is not, by any stretch, a substitute for either rule 3 or rule 14 of CENVAT Credit Rules, 2004; it affords neutralization, without attendant detriment, of credit that, validly availed upon procurement of input/input service, transforms, owing to subsequent deployment, as ineligible for continuance which is made abundantly clear in
‘ (1) The CENVAT credit shall not be allowed on such quantity of input used in or in relation to the manufacture of exempted goods or for provision of exempted service, or input service used in or in relation to the manufacture of exempted goods and their clearance up to the place of removal or for provision of exempted services, except in circumstances mentioned in sub-rule (2);’
in rule 6 of CENVAT Credit Rules, 2004 and acknowledges the possibility of input/input service used in common for rendering ‘output service’ or in manufacture of ‘output’ as well as for rendering ‘exempted service’ or in production of ‘exempted goods’ which must be reversed or regularized. Intrinsic to such reversal is the maintenance of separate accounts of deployment in terms of eligibility/ineligibility as prescribed in rule 6(2) of CENVAT Credit Rules, 2004. The convenience of non-maintenance of such meticulous record-keeping carries the price of imprecise apportionment in accordance with a mathematical formula available in rule 6(3A) of CENVAT Credit Rules, 2004. Guided by the basic principle of discontinuance of ineligible credit, the amendments therein have rationalized the computation to ensure that effacing of credit, with concomitant benefit to the exchequer, is fair and equitable.
7. The amendment referred to in the arguments on behalf of the appellant and discussed in several decisions cited by both sides has disassembled the pool of credit as eligible credit and ineligible credit from that attributable to ‘exempted goods’ and ‘exempted services’ as well from application of formula to such credit as are not clearly attributable. Before the amendment, such partitioning of credit related to ‘input service’ did not exist even as ‘inputs’ was provided for. From
‘Explanation – Where the entire credit has been attributed under sub-clauses (i) and (ii), namely ineligible credit, there shall be left no common credit for further attribution.’
it is clear that the signification of the formula for apportionment of credit relates to such credit as is not amenable to attribution according to the taxability, or otherwise, of goods manufactured or service rendered. Impliedly, such impediment arises from impossibility of recording, or unwillingness to maintain, separate account of deployment. The sole change brought about by the amendment of 2016 has, all the same, to do with the extent of detailing in the records of utilization of ‘input’/’input service’ which was not explicitly articulated till then but, nonetheless, implicit. Total CENVAT credit is total to the extent that such credit has remained unattributed in the accounts to taxable goods or services.
8. Hence it was that the Tribunal, in Commissioner of Central Excise & Service Tax, Rajkot v. Reliance Industries Ltd [2019 (28) GSTL 96 (Tri-Ahd)], held that
‘8….. The Revenue is only interpreting the term “total Cenvat credit” provided under the formula. If the whole Rule 6(1), (2) and (3) is read harmoniously and conjointly, it is clear that “Total Cenvat Credit” for the purpose of formula under Rule 6(3A) is only total Cenvat credit of common input service and will not include the Cenvat credit on input/input service exclusively used for the manufacture of dutiable goods. If the interpretation of the Revenue is accepted, then the Cenvat credit of part of input service even though used in manufacture of dutiable goods, shall stand disallowed, which is not provided under any of the Rule of Cenvat Credit Rules, 2004.’
The said dispute did not arise in the context of rendering ‘taxable’ and ‘exempt’ service but in relation to goods of which some were non-dutiable; the context of applicability of the formula is slightly at variance with that in the impugned order. Nevertheless, disaggregation of ‘input service’ has been approved therein.
9. In E-Connect Solutions (P) Ltd v. Commissioner of Central Excise & CGST, Udaipur [2021 (376) ELT 678 (Tri-Del)], disputation over the meaning of ‘total CENVAT credit’ in rule 6(3A) of CENVAT Credit Rules, 2004 was brought before the Tribunal and it was held that
’18. It would appear from a conjoint reading of sub- rules 6 (1), (2) and (3) that the total Cenvat credit for the purpose of formula under Rule 6 (3A) is only total Cenvat credit of common input service and cannot include Cenvat credit on input service exclusively used for the manufacture of dutiable goods.
19. This position is also clear from the underlying object of the amendment made in Rule 6 (3 A) of the Rules by Notification dated March 1, 2016, to consider only common input service and not total input service credit, for the purpose of computing the amount of reversal.’
Likewise, in Honda Cars India Limited v. Commissioner of Central Goods & Services Tax, Customs and Central Excise, Alwar [final order no. 51046/2021 dated 22nd February 2021 disposing of appeal no. 54157 of 2018 against order-in-appeal no 439-440 (SM) CE/JPR/2018 dated 15th October 2018 of Commissioner of Central Taxes (Appeals), Jaipur], the Tribunal took note of the scheme of rule 6 of CENVAT Credit Rules, 2004, the subsequent amendment and the precedent decisions while rejecting the proposition of Revenue, relying upon the decision of the Hon’ble Supreme Court in Union of India v. Deoki Nandan Agarwal [AIR 1992 SC 96], on enlarging upon legislation thus
‘18. The aforesaid observation of the Hon’ble Apex Court pertains to a situation where there is no ambiguity in law. In the instant case, it is seen that Rule 6 of CENVAT Credit Rules, 2004 deals solely with the situation of CENVAT Credit resulting from exempted services and exempted products. The rule itself is clearly designed to deny partial credit of CENVAT credit taken on inputs/input services used in exempted goods and services…. In the circumstances, it is obvious that the reference to CENVAT Credit in the said Rule would be reference to CENVAT Credit on common input services which I used for exempted products and services as well as for dutiable products and services.’
10. This dispute over the formula in rule 6(3A) of CENVAT Credit Rules, 2004 arose in consequence of exercise of that option, from among those in rule 6(3) of CENVAT Credit Rules, 2004, for neutralization of credit that, in conformity with the injunction in rule 6(1) of CENVAT Credit Rules, 2004, could not be continued and the obvious disinclination to resort to the mandate of rule 6(2) of CENVAT Credit Rules, 2004. The non obstante qualification of rule 6(3) of CENVAT Credit Rules, 2004 accords regularity to other modes of neutralization that, at best, are approximations of attribution.
11. The decisions of the Tribunal supra have determined the interpretation of ‘total CENVAT credit’ and applicability to the present dispute hinges upon the extent to which the credit arising from ‘input services’ used in common is distinguishable from ‘total CENVAT credit’; the spectrum of such credit may extend anywhere between ‘nil’ and the entirety of CENVAT credit with the gap increasing upon accountal of each service in the manner prescribed in rule 6(2) of CENVAT Credit Rules, 2004. Therein lies the nub: it is not the total lack of separate accounting but the incompleteness of that which can give rise to disputations such as this. The claim of the appellant for discarding of the determination in the impugned order rests upon correct segregation of credit taken on ‘input services’ between eligible and ineligible except to the extent that the formula had to be resorted to; the claim of Revenue rests upon the lack of such segregation of the entire credit. Neither the submissions during the hearing nor the records of the proceedings before the lower authorities indicate such partial segregation or the correctness of it. In the absence of such ascertainment, the principle alone can established with the consequent impact on the recovery to be quantified upon presentation of the segregated accounts and verification thereof.
12. For that purpose, the impugned order is set aside and the re-computation restored to the original authority before whom the accountal of credit taken on ‘input service’ shall be furnished by the appellant herein and to which the ratio in the formula is to be applied. Needless to state, the exercise shall be limited to 2014-15 as the demand for the earlier year has been set aside.
13. Appeal is, accordingly, disposed off by this specific remand. (Order pronounced in the open court on 09/06/2022)
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