Case Law Details
Spac Taopica Products (India) Ltd Vs Commissioner of GST & Central Excise (CESTAT Chennai)
CESTAT Chennai held that the demand for paying an amount of 5% /10% /6% on the value of exempted clearances unwarranted when the appellant has reversed the proportionate credit of inputs used in manufacture of exempted products.
Facts- The appellants are engaged in manufacture of Tapioca Starch (Native Starch and Modified Starch respectively falling under Chapter 1108 and 3505 of CETA 1985). Based on the intelligence gathered and on a reasonable belief that the appellant has not paid the amount equivalent to 5% / 10% / 6% of value of the exempted final goods on the manufacture and clearance of exempted goods while using common cenvatable inputs, the officers of the Preventive Unit visited the appellant’s unit.
Show cause notice was issued to the appellant proposing to demand the amount equivalent to 5% / 10% / 6% value of exempted goods for the disputed period as the appellant had not maintained separate accounts in respect of common inputs used in the manufacture of dutiable and exempted products. After due process of law, the original authority confirmed the demand, interest and imposed penalties. Aggrieved by such order, the appellant is now before the Tribunal.
Conclusion- Hon’ble Telangana High Court, in the case of Tiara Advertizing vs Union of India, has held that rule 6 (3) does not contemplate that the service tax authorities can choose one of the options on behalf of the service provider.
Held that the appellant has reversed the proportionate credit to the tune of Rs.10,91,346/- along with interest on 05.01.2013. In spite of this, the show cause notice has been issued on 05.03.2013 alleging that the appellant has to pay an amount equivalent to 5% / 10% / 6% of value of exempted final goods for the reason that the appellant has not filed declaration giving the option to the department that they intend to reverse the proportionate credit of the inputs used in the manufacture of exempted products.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Brief facts are that appellants are engaged in manufacture of Tapioca Starch (Native Starch and Modified Starch respectively falling under Chapter 1108 and 3505 of CETA 1985). Based on the intelligence gathered and on a reasonable belief that the appellant has not paid the amount equivalent to 5% / 10% / 6% of value of the exempted final goods on the manufacture and clearance of exempted goods while using common cenvatable inputs, the officers of the Preventive Unit visited the appellant’s unit. During the course of verification, it was noted by the department that the appellant had cleared Tapioca Native Starch without payment of duty in terms of Notification No.3/2006-CE dt. 1.3.2006 for the period upto February 2010. The appellant also cleared Modified Starch which is a dutiable product for home consumption, for export and to EOU and SEZ. The appellant cleared the residue product “Thippy” which arises in the course of manufacture of Tapioca Starch falling under chapter 23031000 to various customers for some consideration under proper invoices for being used in production of animal/cattle feed. The tarrif rate for ‘Thippy’ is Nil.
2. The enquiries revealed that the appellant is using common inputs (chemicals) for manufacture of dutiable and exempted products of Tapioco Starch and they have not maintained separate accounts for the input used in the manufacture of both dutiable and exempted products. The appellant cannot avail cenvat credit in respect of inputs used in exempted final goods. The appellant had not paid any amount equivalent to 5% / 10% / 6% of value of the exempted products in terms of Rule 6 (3) (i) of Cenvat Credit Rules, 2004.
3. Further, the appellant had not exercised their option as prescribed under Rule 6 (3A) of CCR 2004. It appeared to the department that the appellant has to follow Rule 6 (3) (i) of CCR 2004 if they have not maintained separate accounts. Show cause notice was issued to the appellant proposing to demand the amount equivalent to 5% / 10% / 6% value of exempted goods for the disputed period as the appellant had not maintained separate accounts in respect of common inputs used in the manufacture of dutiable and exempted products. After due process of law, the original authority confirmed the demand, interest and imposed penalties. Aggrieved by such order, the appellant is now before the Tribunal.
4. Learned counsel Sri S. Durairaj appeared and argued for the appellant.
5. The facts were explained by the learned counsel as under :
(i) The allegation against the appellant is that they have taken cenvat credit on common inputs (Sodium Hypo Chloride, Caustic Soda flaks, Caustic soda, Lye, Soda Ash, Hydrochloric Acid, Borax, Phosphoric Acid, Sulphuric Acid, Sulphur etc.) which are used in the manufacture of both dutiable goods (Modified Starch and Native Starch) and exempted products (Native Starch) from 1.2.2008 to 1.2.2010 as well as on exempted product viz. Thippy. The appellant admittedly did not maintain separate accounts and had not exercised the option as laid down in rule 6 (3A) of CCR 2004. Ld. Counsel submitted that however on being pointed out by department, the appellant has reversed the proportionate credit as required under clause (ii) of sub rule (3) of Rule 6 of CCR 2004 before issuance of SCN.
(ii) Show cause notice has been issued alleging that the appellant cannot reverse the proportionate credit under Rule 6 (3) (ii) and has to pay 5% / 10% /6% of the value of the exempted products under rule 6 (3) (i). During the adjudication proceedings, the appellant had furnished documents to show that the total input credit availed by them was Rs.31,30,753/- out of which the credit involved on the common inputs (Sulphur, Sulphuric Acid and Indion) used for both dubitable and exempted goods is only Rs.1,25,989/-. The balance credit (Rs.30,04,764/-) is relating to the inputs used exclusively for dutiable products. However, they have reversed / paid Rs.10,91,346/- along with interest of Rs.7,35,307/- being the proportionate credit. Another common input is the packing material (Polyproplyne sacks) for which they have taken the proportionate credit of Rs.2,87,312/- by foregoing the credit of Rs.8,59,419/-. The appellants have not taken any credit on input services. These details were verified by the Range Officer as directed by the adjudicating authority. The Range Officer has furnished his report OC No.1482/2013 dt. 20.12.2013 wherein the above facts have been verified.
6. Learned counsel argued that the department cannot unilaterally impose a condition of paying an amount of 5% /10% /6% on the value of exempted clearances when the appellant has an option to reverse the proportionate credit.
6.1. It is submitted by the counsel that the issue is no longer res integra. In the case of Tiara Advertizing Vs Union of India – 2019 (30) G.S.T.L. 474 (Telegana), the Hon’ble High Court of Telengana held that Rule 6 (3) does not contemplate that the service tax authorities can choose one of the options on behalf of the service provider.
6.2. The decision in the case of M/s. Nava Bharat Ventures Ltd. Vs CCE Hyderabad – 2011 (11) TMI 426 CESTAT HYDERABAD and Linkwell Telesystems Pvt Ltd. Vs Commissioner of Central Tax, Secunderabad – 2022 (3) TMI 590 CESTAT HYDERABAD were also relied by the learned counsel to submit that the Hon’ble High Court upheld the order passed by Tribunal wherein the demand of duty under Rule 6 (3) (i) and Rule 14 @ 5% /10% / 6% on the value of exempted goods was set aside. It was held by the Tribunal that payment of proportionate credit is sufficient to meet the requirement under Rule 6 (1) of not availing the cenvat credit on inputs / input services used in the manufacture of exempted goods and that no penalty can be imposed. Similar view was taken by the Tribunal in the case of Sunstar Bio Polymers Ltd. Vs CCE Rajkot – 2021 (11) TMI 15 – CESTAT AHMEDABAD.
7. Ld. Counsel has also argued on the ground of limitation. It is submitted that the entire figures were available in the accounts maintained by the appellant. Further, at the time of adjudication the appellant had given details of common input credit availed by them. The adjudicating authority had directed the Range Officer to verify and report about the figures furnished by the appellant. After verification, the Range Officer has submitted the report wherein no deviation has been found in the figures furnished by the appellant. This would show that the appellant has not suppressed any facts from the department. The credit availed on common inputs is only about Rs.1,25,000/- whereas the appellant after calculating the proportionate credit has reversed the amount of Rs.10,91,346/- along with interest of Rs.7,35,307-. This would show bonafide of the appellant. Further, the department has not been able to establish any evidence regarding suppression of facts with intent to evade payment of duty. The show cause notice issued invoking the extended period is therefore not sustainable and requires to be set aside. Ld. Counsel prayed that the appeal may be allowed.
8. Ld. A.R Sri Rudra Pratap Singh appeared and argued for the Department.
8.1 It is strongly argued by the Ld. A.R that the appellant had not filed the declaration as required under Rule 6 (3A) opting for reversal of proportionate credit attributable to exempted goods. Therefore, the appellant cannot contend that they are not liable to pay the amount of 5% / 10% / 6% of value of the exempted goods.
8.2 Ld. A.R argued that the show cause notice issued invoking extended period is legal and proper. He prayed that the appeal may be dismissed.
9. Heard both sides.
10. The first issue to be decided is whether the appellant is liable to pay 5% / 10% / 6 % of value of the exempted final products cleared for the disputed period 01.02,2008 to 30.11.2012 in terms of Rule 6 (3) (i) of CCR 2004 as proposed in the SCN. The second issue is whether the show case notice is barred by limitation.
11. The facts bring out that the appellant has reversed the proportionate credit to the tune of Rs.10,91,346/- along with interest on 05.01.2013. In spite of this, the show cause notice has been issued on 05.03.2013 alleging that the appellant has to pay an amount equivalent to 5% / 10% / 6% of value of exempted final goods for the reason that the appellant has not filed declaration giving the option to the department that they intend to reverse the proportionate credit of the inputs used in the manufacture of exempted products. The issue stands covered by decision in the case of Tiara Advertising (supra). The Hon’ble High court held as under :
“14. Further, we may reiterate that Rule 6(3) of the Cenvat Credit Rules, 2004, merely offers options to an 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 on behalf of the service provider. As rightly pointed out by Sri S. Ravi, Learned Senior Counsel, if the petitioner did not abide by the provisions of Rule 6(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/-.
15. We may also note that in the event the petitioner was found to have availed Cenvat Credit wrongly, Rule 14 of the Cenvat Credit Rules, 2004 empowered the authorities to recover such credit which had been taken or utilised wrongly along with interest. However, the second respondent did not choose to exercise power under this Rule but relied upon Rule 6(3)(i) and made the choice of the option thereunder for the petitioner, viz., to pay 5%/6% of the value of the exempted services. The statutory scheme did not vest the second respondent with the power of making such a choice on behalf of the petitioner. The Order-in-Original, to the extent that it proceeded on these lines, therefore cannot be countenanced.”
12. Similar view was decided by the Tribunal in the case of M/s. Nava Bharat Ventures Ltd. (supra). The relevant para reads as under :
“11. After 1.4.2008, Rule 6(3A) specifically provides for proportionate reversal and provides a formula for the purpose and the assessee has followed it. Revenue‘s objection to accepting such reversal is on the ground that the assessee has not made the required declaration before the Superintendent but the assessee asserts that it made the declaration. Even if such a declaration was not made, in our considered view, such a technicality cannot deprive the assessee of its opportunity to avail Rule 6(3A). Thus, reversal of proportionate amount of CENVAT credit also satisfies the requirement under Rule 6(3A), in addition to meeting the requirement under Rule 6(1) and 6(2).
12. For the period prior to 1.4.2008, following the Finance Act, 2010, the assessee has reversed the credit and interest. Revenue‘s objection is that the declaration was filed with the jurisdictional Deputy Commissioner instead of the Commissioner and that the interest was not paid along with the reversal but much later. On the first question of declaration, we find that if the assessee made a declaration with the Central Excise department itself, even if wrongly with the Deputy Commissioner instead of the office of the Commissioner, it may be technically incorrect but such hyper-technicality should not deprive the assessee of substantial benefit. Similarly, Revenue‘s argument that interest was paid much later does not hold much water as long as it has been paid.
13. We, therefore, find that reversal of proportionate amount of CENVAT credit by the assessee in this case is not only sustainable under Rule 6(3A) for the period post 1.4.2008 and under Finance Act, 2010 (for the period pre 1.4.2008) but such reversal itself meets the obligations of the assessee under Rule 6(1) (of not taking credit of inputs and input services used in exempted goods) and Rule 6(2) (of maintaining separate accounts).
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18. We cannot agree with this submission of the Revenue because if Rule 6 does not apply to the assessee‘s case, then nothing in this Rule including the demand in the show cause notice or the argument made by the Revenue would survive because all of them are on the premise that Rule 6 applies to the assessee. When Rule 6(5) explicitly excludes some services from the provisions of Rule 6(1), 6(2) or 6(3), the benefit of this cannot be denied to the assessee. Even otherwise, Revenue does not dispute that some of the common input services in dispute are used to produce electricity, which is further used in manufacture of dutiable products. Unless the services are exclusively used for production of exempted products, they are explicitly covered under Rule 6(5) and the assessee need not reverse proportionate amount of CENVAT Credit on such input services.
Show cause notice demanding an amount under Rule 6(3) of the CCR
19. Learned Counsel for the appellant submits that the department demanded under Rule 6(3) an amount equal to 10%/ 8% of the price of exempted goods which is not sustainable. He relies on the judgment of the High Court of Telangana and Andhra Pradesh in Tiara Advertising in which it was held that Rule 6 provides various options for the assessee who produces both dutiable and exempted goods or provides both taxable and non taxable services to choose and one of these is the option to pay an amount equal to 10% or 8% of the value of the exempted goods/ services. The authorities cannot choose an option for the assessee and enforce it. If the assessee does not follow any of the options and still takes credit, such irregularly availed CENVAT credit can be recovered under Rule 14 of CCR. Therefore, the show cause notice demanding an amount under Rule 6(3) is without authority of law and needs to be set aside. Learned counsel for the department, however, supports the show cause notice.
20. We find that Rule 6 of the CCR lays down Obligations of the assessee‘. These obligations are not in the form of a charging section demanding a duty but are obligations to avail CENVAT credit. Just as no assessee can be compelled to maintain separate records under Rule 6(2), no assessee can be compelled to pay an amount under Rule 6(3). The obligations under Rule 6 are in the form of various alternatives and the assessee is free to choose any option. There is no mechanism either in the CCR or in the Act to enforce any of the options or one of the options on the assessee. If the assessee does not choose any of the options and still avails CENVAT credit, such irregularly availed CENVAT credit can, of course, be recovered under Rule 14 of the CCR. The High Court of Telangana and Andhra Pradesh has, in the case of Tiara Advertising, held as follows: ―
13. Having considered the issue of maintainability of this writ petition, we are of the opinion that the petitioner cannot be non-suited on the ground of availability of an alternative remedy. The alternative remedy principle is not a straitjacket formula but a rule of convenience which has been evolved by Courts so as to ensure equitable distribution of work. It is therefore within the discretion of this Court to refuse to adopt the said rule in a deserving case. Presently, we find that the second respondent has brazenly exercised power under a provision which was not even available to him, as it was an enabling provision put in place for the benefit of the assessee, and arrived at a wholly unreasonable, if not absurd, result. That apart, the second respondent did not even choose to deal with the binding case law cited before him while dealing with the issues arising for consideration. This arrogant and arbitrary approach adopted by the second respondent cannot be countenanced. It would therefore not be necessary for the petitioner to go through the motions of a statutory appeal to challenge the same. The contention of the respondents as to the maintainability of the writ petition is therefore rejected.
14. Further, we may reiterate that Rule 6(3) of the CENVAT Credit Rules, 2004, merely offers options to an 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 on behalf of the service provider. As rightly pointed out by Sri S. Ravi, learned senior counsel, if the petitioner did not abide by the provisions of Rule 6(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/-.
15. We may also note that in the event the petitioner was found to have availed CENVAT Credit wrongly, Rule 14 of the CENVAT Credit Rules, 2004 empowered the authorities to recover such credit which had been taken or utilised wrongly along with interest. However, the second respondent did not choose to exercise power under this Rule but relied upon Rule 6(3)(i) and made the choice of the option thereunder for the petitioner, viz., to pay 5%/6% of the value of the exempted services. The statutory scheme did not vest the second respondent with the power of making such a choice on behalf of the petitioner. The Order-in-Original, to the extent that it proceeded on these lines, therefore cannot be countenanced”.
21. As per the aforesaid judgment, the show cause notice is without authority of law and, therefore, any order in pursuance of it is bad in law and needs to be set aside.”
13. From the foregoing, after appreciating the facts, evidence and applying the decisions in the above cases, we are of the considered opinion that the demand cannot sustain and requires to be set aside. The issue on merits is decided in favour of the appellant.
14. In the present case the appellant has reversed the proportionate credit before the SCN. There is no evidence put forward by the department to establish that there was suppression of facts with intent to evade payment of duty. For this reason, we find that the appellant succeeds on the ground of limitation also.
15. In the result, the impugned order is set aside. The appeal is allowed with consequential relief.
(Pronounced in court on 15.09.2023)
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