Case Law Details
Aurum Pharmachem Private Limited Vs Commissioner of CGST & Excise (CESTAT Kolkata)
Issue that has to be considered in the present appeal is whether the Appellant not having maintained separate accounts in respect of the common input services used for manufacture of dutiable final products as well as exempted goods is mandatorily required to pay an amount equal to 5% (effective up to 16.03.2012) and 6% (w.e.f.17.03.2012) of the value of exempted goods.
CESTAT find that the aforesaid issue is no more res integra and has been considered in a catena of judgments. In the present case, the Appellant has reversed the credit attributable to the common input services used in or in relation to the manufacture of exempted goods.
Tribunal in the case of Philips Carbon Black Limited [Final Order No.FO/76973-76975/2019 dt.17.12.2019] had held that non-compliance of the procedure prescribed under Rule 6(3A) of the Cenvat Credit Rules, 2004 does not result in loss of substantive right of the assessee to avail the option of reversing proportional credit and such non-compliance is at best a procedural lapse, which can be condoned.
Hon’ble Supreme Court in the case of Chandrapur Magnet Wires [1996 (81) ELT 3 (SC)] has held that reversal of credit along with interest amounts to a situation, which is akin to as if the assessee had never availed such credit at the first place.
Hon’ble Calcutta High Court in the case of Commissioner of Service Tax I, Kolkata Vs. M/s Surya Vistacom Private Limited [2022-TIOL-1005-HC-KOL-CX] has held that if according to the adjudicating authority, the assesse did not abide by the provisions of Rule 6(3) of the Cenvat Credit Rules, 2004, it was open to such adjudicating authority to reject the assessee’s claim as regards the disputed Cenvat Credit and it could not mechanically invoke the 6% Rule on the assesse.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The Appellant, M/s Aurum Pharmachem Private Limited, is engaged in the manufacture of dutiable final products, “Paint Driers” of various types, namely, Cobalt Octoate, Lead Octoate, Zinc Octoate, Lead Napthanate, Copper/Lead Napthanate etc. all falling under Tariff Item No.32110000 and also exempted goods, viz. Sulfurized Karanjia Oil falling under Tariff Item No.15180039 of the First Schedule to the Central Excise Tariff Act, 1985. The product of Sulfurized Karanjia Oil is fully exempted from payment of duty in terms of Notification No.3/2006-CE dated 01.03.2006 (up to to 16.03.2012) and thereafter, under Notification No.12/2012-CE dated 17.03.2012 as amended.
2.1 The appellant took credit on duty paid inputs as well as service tax paid on input services. They utilized such credit towards payment of duty on their final product. On scrutiny of records relating to production, clearances and cenvat credit account during Audit under EA-2000 by the Central Excise Officers, it was noticed that they have taken cenvat credit of service tax paid on the input services, viz, GTA Service (carriage inward), Customs House Agent Service, Telephone Service, ISO Certification Service etc. and utilized such credit towards payment of duty on their final product during the period from July, 2010 to March, 2014. It is the case of the Department that the input services have been used in or in relation to the manufacture of the said dutiable final products as well as exempted goods during the period under dispute. It was noticed that separate accounts had not been maintained for receipt and use of common input services in respect of dutiable final products as well as exempted goods.
2.2 Based on the above allegation, Show-cause Notice dated 29.07.2015 was issued proposing recovery of amount of Rs.15,70,918/- payable on 4,04,600 Kgs. of exempted goods valued at Rs.2,87,56,310/- cleared from the factory during the period from July, 2010 to March, 2014 under Section 11A (4) of the Central Excise Act, 1944 read with Rule 14 of the Cenvat Credit Rules, 2004 along with interest and for imposition of penalty.
2.3 The appellant replied to the Show-cause Notice and informed to the Department that it has reversed the entire amount of credit taken amounting to Rs.63,922/- along with interest. However, the Ld. Adjudicating Authority vide Order-in-Original dated 14.06.2016, disallowed the cenvat credit amounting to Rs.15,70,918/- and confirmed the demand as proposed in the show-cause notice and also imposed penalty of equal amount under Sub-rule 2 of Rule 15 of Cenvat Credit Rules, 2004 read with proviso of Sub-section (c) of Section 11AC of the Central Excise Act, 1944.
2.4 On appeal, the Ld. Commissioner (Appeals) rejected the appeal before him and upheld the adjudication order. Hence, the present appeal before the Tribunal.
3.1 The Ld. Advocate appearing on behalf of the Appellant, vehemently argued that the Adjudicating Authority erred in holding that the claim of the Appellant about reversal of entire amount of input service credit along with interest and proportionate penalty, could not be corroborated due to absence of relied upon documents. It is his submission that in each statutorily prescribed ER-1 Return, the amount of credits taken whether input credit or input service credit or capital goods credit, are mentioned. He further submitted that ER-1 Return shows the quantity and value of dutiable final products and exempted final product manufactured and cleared in the respective month and also the amount of duty paid by utilizing cenvat credit account and by debiting PLA respectively. The copies of corresponding ER-1 Returns were submitted before the adjudicating authority and from the said Returns, the amount of credit taken in each month under the respective heads was available. Accordingly, by adding the credit of all concerned, the total amount of credit of Rs.63,922/- taken by the appellant was determined as reversed.
3.2 The Ld. Advocate further submitted that it was never the case of the Department that ER-1 Return was not filed or in-correctly filed. Therefore, the Ld. Adjudicating Authority holding that in absence of relied upon documents, the fact of reversal could not be corroborated, is totally incorrect. He further submitted that the Ld. Commissioner (Appeals) has not applied his mind and simply followed the observations and findings of the adjudicating authority.
3.3 The Ld. Advocate further submitted that the Ld. Commissioner (Appeals) has observed that the provisions of Rule 6(3)(ii) of Cenvat Credit Rules, 2004 provided option to pay an amount as determined under Rule 6(3A) ibid and the Appellant has not followed the conditions and procedures regarding maintenance of separate accounts of the input services used in exempted goods/dutiable goods. In that case, the only option available to the Appellant was to pay duty at the rate prescribed under Rule 6(3)(i) of Cenvat Credit Rules, 2004 @ 5% or 6% as applicable from time to time from the value of the exempted goods. It is the submission of the Ld. Advocate that such observations of the Ld. Commissioner (Appeals) is clearly against the law settled by decisions holding that non-compliance of the procedure of Rule 6(3A) of Cenvat Credit Rules, 2004 is a procedural lapse and if the assessee has not exercised his option, it is not open to the Department to exercise the option on behalf of the assessee.
3.4 In support of his submissions, he relied upon the various decisions of the Tribunal, the Hon’ble High Courts and the Hon’ble Supreme Court, which are as follows :
(i) Surya Vistacom Private Limited Vs. CST I, Kolkata (Final Order No.75675/2021 dated 09.11.2021 passed by this Tribunal) and upheld by the Hon’ble High Court.
(ii) Philips Carbon Black Limited Vs. CCEx. & S.Tax. (Final Order No.76973-76975/2019 dated 17.12.2019 passed by the Tribunal) ;
(iii) Chandrapur Magnet Wires (P) Ltd. Vs. CCE (1996 (81) ELT 3 (S.C.) ;
(iv) Hello Minerals Water (P) Ltd. Vs. Union of India : 2004 (174) ELT 422 (All.) ;
(v) Goyal Proteins Ktd. Vs. CCE (2008 (232) ELT 156 (Tri.-Del.) ;
(vi) Mepro Pharmaceuticals Pvt. Ltd. Vs. CCE & ST (2022-TIOL-312-CESTAT-AHM).
3.5 The Ld. Advocate further submitted on limitation and also drew the attention of the Bench that none of the conditions precedent for invoking the extended period of limitation as provided under Section 11A (4) of the Act existed or was satisfied in the present case. He further contended that the entire case has been made out on the basis of information available in the statutory books of accounts and the very basis of show-cause notice is audit objection meaning thereby that the entire demand was raised on the basis of information found available in statutory books of the assessee. In support of his contentions, he relied upon the following decisions : –
(i) Aditya College of Competitive Exam Vs. CCE (2009-TIOL-2216-CESTAT-Bang. = 2009 (16) STR 154 (Tri.-Bang.) ;
(ii) MSP Sponge Iron Ltd. Vs. Commissioner of CGST & Central Excise : 2022-TIOL-610-CESTAT-KOL ;
(iii) M/s Rathi Steel and Power Ltd. Vs. Commissioner of CGST & Excise : 2022-TIOL-684-CESTAT-KOL ;
(iv) Commissioner of Service Tax I, Kolkata Vs. M/s Surya Vistacom Pvt. Ltd. : 2022 –TIOL- 1005-HC-Kol-CX ;
(v) CCE Vs. M/s Hindustan Cables Ltd. : 2022-TIOL-872-HC-KOL-CX.
4. The Ld. Authorised Representative for the Department , justified the impugned order and further submitted that the appellant had admitted their liability and reversed the credit along with applicable interest and they have also paid proportionate penalty. By doing so, they have admitted their liability for penalty. Accordingly, he prayed that the appeal be dismissed being devoid of any merit.
5. Heard both sides and perused the appeal records.
6. I find that the issue that has to be considered in the present appeal is whether the Appellant not having maintained separate accounts in respect of the common input services used for manufacture of dutiable final products as well as exempted goods is mandatorily required to pay an amount equal to 5% (effective up to 16.03.2012) and 6% (w.e.f.17.03.2012) of the value of exempted goods.
7. I find that the aforesaid issue is no more res integra and has been considered in a catena of judgments. In the present case, the Appellant has reversed the credit attributable to the common input services used in or in relation to the manufacture of exempted goods.
8. I find that this Tribunal in the case of Philips Carbon Black Limited [Final Order No.FO/76973-76975/2019 dt.17.12.2019] had held that non-compliance of the procedure prescribed under Rule 6(3A) of the Cenvat Credit Rules, 2004 does not result in loss of substantive right of the assessee to avail the option of reversing proportional credit and such non-compliance is at best a procedural lapse, which can be condoned.
9. Further, I find that the Hon’ble Supreme Court in the case of Chandrapur Magnet Wires [1996 (81) ELT 3 (SC)] has held that reversal of credit along with interest amounts to a situation, which is akin to as if the assessee had never availed such credit at the first place.
10. I find that the Hon’ble Calcutta High Court in the case of Commissioner of Service Tax I, Kolkata Vs. M/s Surya Vistacom Private Limited [2022-TIOL-1005-HC-KOL-CX] has held that if according to the adjudicating authority, the assesse did not abide by the provisions of Rule 6(3) of the Cenvat Credit Rules, 2004, it was open to such adjudicating authority to reject the assessee’s claim as regards the disputed Cenvat Credit and it could not mechanically invoke the 6% Rule on the assesse. The relevant paras are being reproduced below : –
“11. We have perused the show cause notice issued by the adjudicating authority and we found that there is no specific allegation against the assessee of any deliberate suppression or misstatement with an intent to evade taxes.2021-TIOL-405-CESTAT-KOLCEXA/11/2022 At this juncture, it will be beneficial to take note of the decision of the Hon’ble Supreme Court in Uniworth Textiles Ltd. vs. Commissioner of Central Excise, Raipur2 wherein the Hon’ble Supreme Court held that every non-payment/non-levy of duty does not attract extended period and there must be deliberate default. Further, it was held that the conclusion that mere non-payment of duties is not equivalent to collusion or wilful misstatement or suppression of fact is untenable as the Act contemplates a positive action which betrays a negative intent of wilful default. Further, in Pushpam Pharmaceuticals Co. vs. CCE3 it was held that misstatement or suppression of fact must be wilful since the word ‘wilful’ precedes the words ‘misstatement or suppression of fact’ which means with an intent to evade duty. Bearing in mind the above legal principle, if we examine the allegations in the show cause notice dated 17thOctober,2016, we find that there is no specific allegation nor prima facie finding of any wilful misstatement or suppression on the part of the assessee. That apart, the details have been culled out by the adjudicating authority from the available records and there is no new or fresh2013 (288) ELT 161 (SC)1995 (75)ELT 721 (SC)CEXA/11/2022tangible materials available in the hands of the adjudicating authority to make out a case of wilful misstatement or wilful suppression. Therefore, the tribunal was fully justified in holding that the extended period of limitation could not have been invoked.
12. The issue as to whether the adjudicating authority could have mechanically applied the 6% rule on the assessee, was considered in the case of Tiara Advertising vs. Union of India and it was held as follows:
“14. Further, we may reiterate that Rule 6(3) of the Cenvat Credit Rules, 2004, merely offers options toan output service provider who does not maintain separate accounts in relation to receipt, consumption and inventory of inputs/input services used for provision of output services which are chargeable to duty/tax as well as exempted services. If such options are not exercised by the service provider, the provision does not contemplate that the Service Tax authorities can choose one of the options onbehalf of the service provider. As rightly pointed out by Sri S.Ravi, Learned Senior Counsel, if the petitioner does not abide by the provisions of Rule6(3) of the Cenvat Credit Rules, 2004, it was open to the authorities to reject its claim as regards the disputed Cenvat Credit of Rs.17,15,489/-.”
13. As pointed out in the aforementioned decision, if according to the adjudicating authority, the assessee did 2019 (30) G.S.T.L. 474 (Telangana) CEXA/11/2022 not abide by the provisions of Rule6(3) of the Rules, it was open to the adjudicating authority to reject the assessee’s claim as regards the disputed Cenvat Credit andit could not mechanically invoke 6% Rule on the assessee. That apart, the tribunal also, on facts, noted that the department mechanically applied 6% of the entire balance-sheet turn over of the assessee without detailing as to why the said turn over has been taken and why not the value of trading that is provided in Rules, namely, the difference between the sale price and the cost of goods sold or 10% of the cost of goods sold whichever is more in terms of Explanation-1 as contained in Rule 6(3A).
This factual finding could not be dislodged by the revenue before us and we agree with the tribunal on the said aspect. That apart, as pointed out by the learned Advocate appearing for the respondent/assessee, a new rule has been introduced namely, sub-rule 3(aa) in Rule 6 which came into force w.e.f. 1st March, 2016 which states that where a manufacturer or provider of output services has failed to exercise the above, under sub-rule 3 and follow the procedure provided under sub-Rule 3(a),the Central Excise Officer, competent to adjudicate the case, based on amount of Cenvat Credit involved, may allow such manufacturer or provider or output CEXA/11/2022service to follow the procedure and pay the amount referred to in Clause 2(i) of sub-Rule (3) with interest calculated at the rate of 15% per annum from the date of payment of amount for each of the months till the date of pay meant thereof. The adjudicating authority has not invoked the said rule. That apart, what is important to note is that the amount of legible Cenvat credit to the assessee was Rs.41,17,269/-whereas the demand which was impugned before the tribunal fastened a liability of Rs.3,29,07,268/-which is not legally sustainable.
14. Thus, for the above reasons, we find that the learned tribunal rightly allowed the assessee’s appeal. In the result, the appeal filed by the revenue (CEXA/11/2021) stands dismissed and the substantial questions of law are answered against the revenue.”
11. In view of the above discussion and settled legal principles, the demand cannot sustain and is accordingly set aside. Appeal is allowed with consequential relief, if any.
(Pronounced in the open court on 27.09.2022)
