Introduction: In a significant ruling, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Kolkata has quashed an Excise Duty demand imposed on Super Smelters Limited. The demand pertained to the alleged non-maintenance of separate accounts for input services utilized in trading activities declared as exempted services under the Cenvat Credit Rules, 2004. This article delves into the details of the case, the arguments presented, and the CESTAT’s verdict.
1. Background: Super Smelters Limited, a manufacturer of sponge iron, M.S. Billets, and other products, availed Cenvat credit on both inputs and input services used in manufacturing. These input services included Survey Fees, Professional charges, Sampling & Analysis Charges, Commission Charges, and Security Charges. During a specific period from April 2011 to February 2015, the company removed certain quantities of inputs to sister units and sold a portion of unwanted inputs, including undersized coal. To comply with the rules, they reversed the Cenvat credit on these removed inputs.
2. Allegation and Demand: The authorities alleged that, in the guise of input removal, Super Smelters Limited was engaged in providing services, specifically ‘Trading of Goods,’ which qualified as an exempted service. They argued that the company failed to maintain separate accounts for credit attributable to taxable and exempted trading services under Rule 6(1) of the Cenvat Credit Rules, 2004. Consequently, the authorities issued a show-cause notice in April 2015, leading to an adjudication that confirmed the demand under Rule 6(3) of the Cenvat Credit Rules, 2004.
3. Appellant’s Contention: The appellant argued that they were manufacturing dutiable goods and had merely removed some inputs as such, which did not entail the provision of services. They contended that although they reversed the proportionate Cenvat credit on input services, it was not necessary. To support their stance, they relied on the judgment of the Hon’ble Punjab & Haryana High Court in the case of Commissioner of C.Ex., Chandigarh-I v. Punjab Steels [2010 (260) E.L.T. 521 (P & H)] and the case of Commissioner vs. Bassi Alloys Pvt. Ltd. [2011 (24) S.T.R. J174 (P & H)].
4. Department’s Argument: The department argued that Super Smelters Limited was involved in trading coal and that this activity was declared as an exempted service during the relevant period. Since the company did not maintain separate accounts for dutiable and exempted services, they were liable to pay 6% to 10% of the value of the exempted service provided.
5. CESTAT Verdict: CESTAT Kolkata, after hearing both sides and considering their submissions, made the following observations:
6. Implications of the Verdict: The CESTAT’s decision signifies that although Super Smelters Limited had reversed Cenvat credit on input services, they were required to reverse proportionate Cenvat credit for input services used in providing the exempted trading activity. The case laws cited by the appellant were deemed irrelevant to the current situation, as the nature of the dispute differed. In this case, the demand for non-maintenance of separate accounts for input and input services for the final exempted service was deemed unnecessary, as the reversal of Cenvat credit sufficed to meet the requirements of justice.
Conclusion: The CESTAT Kolkata’s ruling in favor of Super Smelters Limited sheds light on the intricacies of Cenvat credit and the obligations of businesses engaged in manufacturing and trading. It underscores the importance of maintaining separate accounts for input services when engaged in both taxable and exempted services. The decision reiterates that compliance with tax rules and accurate record-keeping are crucial for businesses to avoid unnecessary demands and disputes. As the case comes to a close, it serves as a reminder to companies to remain vigilant in adhering to tax regulations and to seek legal counsel when facing complex tax issues.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The facts of the case are that the appellant is manufacturer of sponge iron, M.S. Billets etc.. In the course of their manufacturing, the appellant brought coal, pig iron etc.. They availed cenvat credit as their inputs were used in or in relation to manufacture of their final products on which duty was paid at the time of clearance of the same. The appellant was availing cenvat credit on inputs as well as input services such as Survey Fees, Professional charges, Sampling & Analysis Charges, Commission Charges, Security Charges etc.. During the period from April 2011 to February 2015, the appellant had removed some quantities of their inputs to their sister units as well as sold in the open market a small percentage of unwanted inputs including undersized coal or coal containing large percentage of fines. Therefore, they removed input as such from their factory on reversal of cenvat credit in terms of Rule 3(5) of the Cenvat Credit Rules, 2004. The allegation against the appellant is that in the guise of removal of inputs as such, the appellant was engaged in rendering of services namely, ‘Trading of Goods’, which service was exempt as per the explanation to Rule 2(e) of the Cenvat credit Rules, 2004. The appellant was not maintaining separate accounts in respect of the credit attributable to taxable and exempted trading services under rule 6(1) of CCR Rules. Therefore, the appellant was liable to pay an amount 6%/10% of the exempted goods cleared by them. Therefore, the show cause notice was issued to the appellant on 24.04.2015, which was adjudicated and demand in terms of Rule 6(3) of the Cenvat Credit Rules, 2004 was confirmed. Aggrieved from the said order, the appellant is before us.
2. The contention of the appellant is that the appellant is manufacturing dutiable goods paying duty thereon. Some of the inputs they have removed as such on reversal of cenvat credit. In that circumstances, the proceedings against the appellant are not sustainable. He further submits that although they have reversed proportionate cenvat credit on input services availed by them along with interest, but the same was not required to be reversed by them. To support his contention, he relied on the decision of the Hon’ble Punjab & High Court in the case of Commissioner of C.Ex., Chandigarh-I v. Punjab Steels [2010 (260) E.L.T. 521 (P & H)]. He also relied on the decision of the Punjab & Haryana High Court in the case of Commissioner vs. Bassi Alloys Pvt. Ltd. [2011 (24) S.T.R. J174 (P & H)].
3. On the other hand, the Ld.AR for the department contended that the appellant is engaged in activity of trading of coal and the said activity during the impugned period was declared as exempted service and the appellant is not maintaining separate account for providing dutiable as well as exempted services, in that circumstances, the appellant is liable to pay 6%/10% of the value of the exempted service provided by them.
4. Heard the parties, considered the submissions.
5. In this case, it is an admitted fact that the appellants were engaged in the activity of trading of coal as evident from the books of accounts. The trading activity has been declared exempted service in terms of Cenvat Credit Rules, 2004.
6. In that circumstances, although the appellant has reversed cenvat credit as input cleared as such, but is required to reverse proportionate cenvat credit on input services used for providing exempted service.
7. The case law relied upon by the appellant are not relevant to the facts of this case as in those cases, the case of the revenue was that the appellant is clearing input as such, therefore the issue arose whether in that circumstances, the appellant was required to reverse proportionate cenvat credit on input services or not, whereas in the case in hand, the case of the revenue is that the appellant is providing exempted service namely trading activity, in that circumstances, whether the appellant is required to reverse proportionate cenvat credit with regard to input and input services used in providing final exempted service or not? Therefore, the case law relied upon by the appellant are distinguishable from the facts and circumstances of the case, as the appellant has already revered proportionate cenvat credit for providing the exempted service namely trading activity. In that circumstances, proportionate reversal of cenvat credit on inputs cleared as such and proportionate cenvat credit attributable to exempted service has already been reversed by the appellant the same is sufficient to meet the ends of justice.
8. In view of this, we hold that the appellant is required to reverse proportionate cenvat credit on inputs cleared as such and proportionate input services used for providing trading activities i.e. trading of coal, therefore, there is no requirement of payment of 6%/10% of the value of trading activity provided by the appellant.
9. In that circumstances, we hold that the demand on account of non-maintenance of separate account for input or input services for final exempted service does not arise and the reversal of cenvat credit on input and proportionate credit on input service is sufficient to meet the ends of justice.
In view of this, we dispose of the appeal.
(Order pronounced in the open court on 18.09.2023.)