ThyssenKrupp Industries India Pvt. Ltd. Vs Commissioner of CE & ST (CESTAT Mumbai)
Appellant undertake design, engineering, manufacture, supply, transport and erection & commissioning activities of various projects. They supply/sale duty-paid / non-duty paid materials, components, structural steel, parts, and machinery etc. for the said projects, which are either cleared from their manufacturing units or from the premises of job workers/ sub-contractors. Some of the goods are cleared from the port of importation or directly from suppliers to their project sites. In case of supply/sale of goods to customers, which are not manufactured by the assessee, appellants are only trading. It appeared that the input services availed by the assessee in relation to manufacture or for providing taxable output services, have also been used in trading activities.
After amendment in the CENVAT Credit Rules, 2004 w.e.f 01-04-2011, trading activities have been treated as exempted service. No service tax was leviable prior to or is leviable after the said amendment in the Rule, under Section 66 of the Finance Act, 1994 read with any given exemption. The services or portion of the input services, availed for providing output services, but utilized in relation to trading activities, appeared to be not qualifying as input service, and therefore the credit availed to that extent is not admissible.
Appellant did not maintained separate accounts input services used in trading activities , as required under Rule 9 (5) & (6) of the Cenvat Credit Rules , 2004. They should have not taken the credit of the input services or that portion of the input services which have been used in relation to the trading activities or else calculate and reverse the amount of credit/ proportionate credit along with interest, which they failed to do. In view of the option exercised by the assessee for reversal of input service tax credit, in terms of Rule 6(3A)(b)(iii) and Rule 6(3A)(c)(iii) of CCR Rules, 2004, finalization was required to be carried in terms of Rule 6(3A) (d) of Cenvat Credit Rules, 2004 till 30th June, 2012 and therefore pay interest @ 24% per annum in terms of Rule 6(3A)(e) of CCR, 2004.
Appellant on their own worked out from their input service credit documents/accounts and reversed/paid total service tax of Rs.60,93,784/- as per formula specified under Rule 6(3A)(b)(iii) & Rule 6(3A)(c)(iii) as per condition (c) & (d) of the said rule.
From the impugned order reproduced as above the only dispute in the matter is in relation to determination of the value of factors “M”, “N” & “P” in the formula prescribed as per the Rule 6 (3A) for the determination of the proportionate credit to be reversed in respect of the common input services used for providing the exempted services – trading activities and used in manufacture of the dutiable goods.
Since the appellant has followed Rule 6(2) and has not taken any CENVAT credit on the input services which were used exclusively for providing exempted services, the formula under Rule 6(3A) can only be used to only proportionately divide the credit taken on common input services and deny credit to the extent it is attributable to the exempted service viz., trading during the periods relevant to both appeals, viz., 2015-16 and April 2016 to June 2017.
To sum up, the main basis on which the demands were raised in both the Show Cause Notices have already been dropped by the adjudicating authority since the appellant had reversed proportionate amount of credit. Only the computation of the amount to be reversed is in dispute. The adjudicating authority has erred in (a) taking the total turnover of traded goods as the value of trading service instead of following Explanation 1(c) to Rule 6 to calculate the value of trading service; (b) For the periods covered in both appeals, the adjudicating authority has erred in reckoning the total credit taken instead of credit on common input services in calculating the amount of credit required to be reversed. The impugned orders, therefore, cannot be sustained.”
Undisputedly and admittedly appellant has reversed/ paid the amount of the CENVAT Credit attributable to trading activities as per the prescribed formula in Rule 6(3A) as interpreted in the above referred orders. The fact of reversal is also noted in the impugned orders.
FULL TEXT OF THE CESTAT MUMBAI ORDER
Appeal No ST/86112/2014 is directed against the order in original No PUN-EXCUS-001-COM-043-13-14 dated 07.01.2014 of the Commissioner Central Excise Pune 1. By the impugned order following has been held:
“ORDER
32.1 I confirm the demand of Rs.8,62,06,300/- (Rupees Eight Crores, Sixty Two Lakhs, Six Thousand and Three Hundred only), as determined in para 28.1 above, payable by the assessee i.e. M/s Thyssenkrupp Industries India Ltd., Pune, in terms of the provisions of clause (c) of sub-rule (3A) of Rule 6 of Cenvat Credit Rules, 2004 read with Explanation-III to sub-rule (3)/(3A), under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11A(1) of the Central Excise Act, 1944. I further order appropriation of an amount of Rs.61,76,635/- already paid by the assessee, against the aforesaid demand.
32.2 I order recovery of interest on the amount of demand confirmed in Para 32.1 above, under the provisions of Rule 6(3A)(e) read with Rule 14 of the Cenvat Credit Rules, 2004 readwith Section 11AA/11AB of the Central Excise Act, 1944. I further order appropriation of the amount of Rs.52,567/- already paid by the assessee, against the aforesaid demand of interest.
32.3 I further impose a penalty of Rs.8,62,06,300/- (Rupees Eight Crores, Sixty Two Lakhs, Six Thousand and Three Hundred only), on the assessee, i.e. M/s Thyssenkrupp Industries India Ltd., Pune, under the provisions of Rule 15(1) of Cenvat Credit Rules, 2004.
33. The said order is issued without prejudice to any other action that may be taken against the assessee under the provisions of the Central Excise Act, 1944 and/or the rules made thereunder and/or any other law for the time being in force.”
1.2 Appeal No ST/85932/2015 is directed against the order in original No PUN-EXCUS-001-COM-040-14-15 dated 05.02.2015. By the impugned order following has been held:
“ORDER
31.1 I determine and confirm the demand of Rs.7,94,80,900/-(Rupees Seven Crores, Ninety Fcur Lakhs, Eighty Thousand and Nine Hundred only), as calculated/determined in para 28.1 above, payable by the assessee i.e. M/s Thyssenkrupp Industries India Ltd., Pune, in terms of the provisions of Rule 6(3)(ii) of the CCR, 2004 readwith Rule 6(3A)(c)(iii) ibid read with Explanation-III inserted after Rule 6(3D) ibid, under Section 11A(10) of the Central Excise Act, 1944, readwith Rule 14 of Cenvat Credit Rules, 2004. I further order appropriation of an amount of Rs. 17,27,506/- since paid by the assessee, against the aforesaid demand.
31.2 I order recovery of interest on the amount of demand determined and confirmed in Para 31.1 above, under the provisions of Rule 6(3A)(e) read with Rule 14 of the Cenvat Credit Rules, 2004, further read with Section 11AA of the Central Excise Act, 1944.
31.3 I impose a penalty of Rs.7,94,80,900/- (Rupees Seven Crores, Ninety Four Lakhs, Eighty Thousand and Nine Hundred only), on the assessee, i.e. M/s Thyssenkrupp Industries India Ltd., Pune, under the provisions of Rule 15(1) of Cenvat Credit Rules, 2004.
32. The said order is issued without prejudice to any other action that may be taken against the assessee under the provisions of the Central Excise Act, 1944 and/or the rules made thereunder and/or any other law for the time being in force.”
2.1 Appellant are engaged in manufacture of excisable goods viz. Machinery/Parts/Equipments of Sugar Plant, Cement Plant, Boilers and Bulk Material handling systems, falling under Chapter 84 of the First Schedule to the Central Excise Tariff Act 1985. They are availing CENVAT credit in respect of duty paid on inputs, capital goods and service tax paid on various services received. They are having their Registered Office/Corporate Office at Mumbai and manufacturing units at Cherllapally, Hyderabad and Porbandar, which are separately registered.
2.2 Appellant have centralized service tax registration for payment of Service Tax in respect of taxable output services provided from Pimpri, Hyderabad and Porbandar factories/ units as well as services provided from site offices, Registered Office located at Mumbai, branch offices located at Chennai, “Delhi and Kolkata which are having separate legal entities and are maintaining centralized bills and accounts at Pimpri, Pune. They are also registered as an Input Service Distributor (hereinafter referred as ‘ISD’) with effect from 30-06-2008.
2.3 For the manufacture of goods and for providing the said output services, the assessee have been receiving various input services i.e. Management Consultancy, Consulting Engineer, CHA, Rent-a-cab, Advertisement, Transport of goods by road services, telephone, courier, security etc. at their Pimpri (Pune) factory and at their branch offices, site offices. Some of the services have been exclusively received and utilized in their Pimpri (Pune) Unit or turnkey projects undertaken by Pimpri (Pune) Unit. Some of the services have been received and utilized for Pimpri (Pune) & Hyderabad Unit. Some of the services have been received and utilized for common purposes.
2.4 Appellant undertake design, engineering, manufacture, supply, transport and erection & commissioning activities of various projects. They supply/sale duty-paid / non-duty paid materials, components, structural steel, parts, and machinery etc. for the said projects, which are either cleared from their manufacturing units or from the premises of job workers/ sub-contractors. Some of the goods are cleared from the port of importation or directly from suppliers to their project sites. In case of supply/sale of goods to customers, which are not manufactured by the assessee, appellants are only trading. It appeared that the input services availed by the assessee in relation to manufacture or for providing taxable output services, have also been used in trading activities.
2.5 After amendment in the CENVAT Credit Rules, 2004 w.e.f 01-04-2011, trading activities have been treated as exempted service. No service tax was leviable prior to or is leviable after the said amendment in the Rule, under Section 66 of the Finance Act, 1994 read with any given exemption. The services or portion of the input services, availed for providing output services, but utilized in relation to trading activities, appeared to be not qualifying as input service, and therefore the credit availed to that extent is not admissible.
2.6 Appellant did not maintained separate accounts input services used in trading activities , as required under Rule 9 (5) & (6) of the Cenvat Credit Rules , 2004. They should have not taken the credit of the input services or that portion of the input services which have been used in relation to the trading activities or else calculate and reverse the amount of credit/ proportionate credit along with interest, which they failed to do. In view of the option exercised by the assessee for reversal of input service tax credit, in terms of Rule 6(3A)(b)(iii) and Rule 6(3A)(c)(iii) of CCR Rules, 2004, finalization was required to be carried in terms of Rule 6(3A) (d) of Cenvat Credit Rules, 2004 till 30th June, 2012 and therefore pay interest @ 24% per annum in terms of Rule 6(3A)(e) of CCR, 2004.
2.7 Appellant on their own worked out from their input service credit documents/accounts and reversed/paid total service tax of Rs.60,93,784/- as per formula specified under Rule 6(3A)(b)(iii) & Rule 6(3A)(c)(iii) as per condition (c) & (d) of the said rule.
2.8 A show cause notice dated 27.05.2013 was issued to the appellant asking them to show cause as to why:
(i) CENVAT Credit amounting to Rs 8,62,06,300/- wrongly taken during the period April 2011 to March 2012on input services used in or in relation to trading activities which is an exempted service (which is worked as per formula prescribed under Rule 6 (3A) (b) (iii) & 6 (3A) (c) (iii) as per condition (c) and (d)), should not be denied and recovered from them under rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A of Central Excise Act, 1944/ Section 73 (1) of the Finance Act, 1994 and inadmissible input service tax credit of Rs 60,93,784/- already paid/ reversed on input services used in trading activities should not be adjusted against the aforesaid inadmissible amount.
(ii) Interest at the appropriate rate should not be demanded and recovered as per the applicable provisions
(iii) Penalty should not be imposed in terms of Rule 15 (3) of the CENVAT Credit Rules, 2004.
2.9 Another Show Cause Notice dated 16.06.2014 was issued to appellant on the same ground for the period from April 2012 to March 2013, demanding inadmissible Cenvat Credit of Rs 7,94,80,900/- was issued to the appellant.
2.10 Bothe the show cause notices have been adjudicated as per the impugned orders referred in para 1 above.
2.11 Aggrieved by the impugned orders appellant has filed these appeals.
3.1 We have heard Shri Shailesh P Seth, Advocate for the appellant and Shri Amrendra Kumar Jha, Deputy Commissioner, authorized representative for the revenue.
3.2 Arguing for the appellant learned counsel submits that
> The demand in the present case has been made in terms Rule 6 (3A) (c) of The CENVAT Credit Rules, 2004 read with Explanation III to sub rule 6(3)/6(3A) ibid, by invoking Rule 14 read with Section 11A(1) of the Central Excise Act, 1944.
> Appellant is engaged in supply of turnkey projects and the was also supplying the goods procured form other vendors to project sites, which is trading activity. As the trading activity has been defined as “exempt service” the appellant was required to reverse the credit computed as per the formula provided in Rule 6 (3A).
> Appellant was reversing the cenvat credit as per the prescribed formula, however revenue was of the view that appellant has not reversed the amount as per formula by improper application of the formula, by improper determination of the factors P & N as per the formula.
> The issue involved in the present case is no longer res integra and it has been held ‘total cenvat credit’ for the purpose of formulae under Rule 6 (3A) is only “total Cenvat Credit of Common Input Service” and not total cenvat credit including the credit on input/ input services exclusively used in manufacture of dutiable goods. Reliance is placed on the decisions as follows:
