Toshiba JSW Power Systems Private Ltd Vs Commissioner of GST & Central Excise (CESTAT Chennai)
CESTAT Chennai held that total CENVAT credit for the purpose of formula under Rule 6 (3A) is only the total cenvat credit on common input services and will not include CENVAT credit on input / input services exclusively used for the manufacture of dutiable goods.
Facts- The appellant is engaged in trading of spares and accessories of “Turbines”. They are also registered with the Service Tax Commissionerate.
During the course of audit of accounts of the appellant and scrutiny of the invoices, it was noticed by the department that the appellant had short paid the amount of cenvat credit that has to be reversed by them under Rule 6 (3) of Cenvat Credit Rules, 2004 in respect of exempted services. On perusal of the records produced before the audit, it was noticed that the appellant availed cenvat credit on common input services. They had opted to exercise the option of paying the amount as determined under sub-rule (3A) of Rule 6 of CCR 2004. While doing so, they had not adopted the formula correctly and this non-adoption of correct formula resulted in short reversal of cenvat credit as required under Rule 6 (3) of CCR 2004. Thus the appellant was liable to reverse an amount of Rs.6,63,93,170/- for the period 2012-13 to 2014-15.
Show cause notice dt. 28.07.2016 was issued proposing to demand the amount which ought to have been reversed by them on proper application of the formula along with interest and also for imposing penalties. Secondly, it was also noticed that the appellant had short-paid service tax under ‘Business Auxiliary Service (BAS)’ for the services rendered to NTPC. The notice proposed to demand the short-paid service tax along with interest and also for imposing penalties. After due process of law, the original authority vide order dated 27.03.2017 (impugned in Appeal No.ST/41580/2017) confirmed the amount on account of reversal of cenvat credit as required under Rule 6 (3) of CCR along with interest and also imposed equal penalty. Demand of service tax under BAS category was also confirmed along with interest and penalty was imposed u/s. 76 of the Finance Act, 1994.
Conclusion- The Tribunal in the case of CCE Vs Reliance Industries Ltd. – 2019 (3) TMI 784 CESTAT Ahmedabad had considered the issue as to interpreting the term “total cenvat credit” given in the formula. It was held that whole Rule 6 (1) (2) (3) has to be read harmoniously and conjointly and it would be clear that total cenvat credit for the purpose of formula under Rule 6 (3A) is only the total cenvat credit on common input services and will not include cenvat credit on input / input services exclusively used for the manufacture of dutiable goods. If the interpretation of the Revenue is accepted, it would result in an anomaly that the cenvat credit which is availed for manufacture of dutiable goods also will get disallowed.
We are of the considered opinion that the demand confirmed alleging that appellant has adopted incorrect formula requires to be set aside. The demand therefore cannot sustain and we set aside the same.
FULL TEXT OF THE CESTAT CHENNAI ORDER
The issue involved in both these appeals being the same, they are heard together and disposed of by this common order.
2. Brief facts are that the appellant is engaged in trading of spares and accessories of “Turbines”. They are also registered with the Service Tax Commissionerate. The appellant undertakes manufacture of Turbine and erection and installation of the same at the project sites of the customers. In the course of such activity, they procure bought out items through high sea sale and local procurements. Supply of these materials is a trading activity on the value of which CST is also paid by the appellant. During the course of audit of accounts of the appellant and scrutiny of the invoices, it was noticed by the department that the appellant had short paid the amount of cenvat credit that has to be reversed by them under Rule 6 (3) of Cenvat Credit Rules, 2004 in respect of exempted services. On perusal of the records produced before the audit, it was noticed that the appellant availed cenvat credit on common input services. They had opted to exercise the option of paying the amount as determined under sub-rule (3A) of Rule 6 of CCR 2004. While doing so, they had not adopted the formula correctly and this non-adoption of correct formula resulted in short reversal of cenvat credit as required under Rule 6 (3) of CCR 2004. Thus the appellant was liable to reverse an amount of Rs.6,63,93,170/- for the period 2012-13 to 2014-15. Show cause notice dt. 28.07.2016 was issued proposing to demand the amount which ought to have been reversed by them on proper application of the formula along with interest and also for imposing penalties. Secondly, it was also noticed that the appellant had short-paid service tax under ‘Business Auxiliary Service (BAS)’ for the services rendered to NTPC. The notice proposed to demand the short-paid service tax along with interest and also for imposing penalties. After due process of law, the original authority vide order dated 27.03.2017 (impugned in Appeal No.ST/41580/2017) confirmed the amount on account of reversal of cenvat credit as required under Rule 6 (3) of CCR along with interest and also imposed equal penalty. Demand of service tax under BAS category was also confirmed along with interest and penalty was imposed under section 76 of the Finance Act, 1994.
3. On the same set of facts, another show cause notice dated 16.10.2018 was issued on the allegation of non-adoption of correct formula for the purpose of reversal of credit under Rule 6 (3A) of CCR 2004 and short payment of service tax. The SCN proposed to demand an amount of Rs.1,20,76,891/- along with interest and for imposing penalty. Upon adjudication of notice, the original authority confirmed the demand along with interest and imposed penalty under Section 76 of the Finance Act, 1994. On appeal, the Commissioner (Appeals) vide Order-in-Appeal dated 20.06.2019 (Impugned in Appeal No.41582/2019) upheld the OIO. Aggrieved by the impugned orders, the appellant is now before the Tribunal.
4. Counsel Shri Raghavan Ramabadran appeared and argued for the appellant. On the first issue, it is submitted that the case of the department is that for the purpose of calculating the reversal of credit under Rule 6 (3A) of CCR 2004, the appellant has not applied the formula corectly. Rule 6 (3A) of CCR 2004 provides the following formula for computation of the credit that has to be reversed when common input services are used for dutiable goods as well as trading activity. The formula is as under:
5. It is alleged in the SCN that the appellant has to take total cenvat credit availed by them and not the common cenvat credit. Ld. Counsel submitted that the formula adopted by the appellant for reversal of cenvat credit is correct. He referred to Rule 6 (3) of CCR 2004 which reads as under :
“RULE 6. Obligation of a manufacturer or producer of final products and a provider of output service. –
… … ..
(3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow any one of the following options, as applicable to him, namely :-
(i) pay an amount equal to six per cent. of value of the exempted goods and exempted services; or
(ii) pay an amount as determined under sub-rule (3A); or
(iii) maintain separate accounts for the receipt, consumption and inventory of inputs as provided for in clause (a) of sub-rule (2), take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of said clause (a) and pay an amount as determined under sub-rule (3A) in respect of input services. The provisions of sub-clauses (i) and (ii) of clause (b) and sub-clauses (i) and (ii) of clause (c) of sub-rule (3A) shall not apply for such payment :
Provided that if any duty of excise is paid on the exempted goods, the same shall he reduced from the amount payable under clause (i) :
Provided further that if any part of the value of a taxable, service has been exempted on the condition that no CENVAT credit of inputs and input services, used for providing such taxable service, shall be taken then the amount specified in clause (i) shall be six per cent. of the value so exempted :
Provided also that in case of transportation of goods or passengers by rail the amount required to be paid under clause (z) shall be an amount equal to 2 per cent. of value of the exempted services.”
It is submitted by the Ld. Counsel that as per the provisions of Rule 6 (3) of CCR 2004, the manufacturer of goods or provider of output services shall pay an amount equivalent to the credit attributable to the inputs and input services used in or in relation to the manufacture of exempted goods or for provision of exempted services subject to the conditions and procedures stipulated in sub-rule (3A). Thus, the appellants having used common input services for manufacture of dutiable product as well as exempted services of trading, they are liable to reverse the credit attributable to the exempted services viz. trading. Department has computed the demand applying the total credit availed by the appellant. If such value is to be accepted, it would lead to a situation where cenvat credit attributable to dutiable final products also would have to be reversed which is contrary to Rule 6 (3) (ii) of CCR 2004.
6. The issue is no longer res integra settled by series of following decisions :
