Case Law Details
M/s Hindustan Coca Cola Beverages Pvt. Ltd. Vs Commissioner of Central Excise (CESTAT Hyderabad)
The facts of the case in dispute are that the appellant availed on common input services and goods and obtained to the services reversed under Rule 6(3A). The only questions to be decided are
a) whether the value of the goods which they procured from the sister units and sold in the market should be reckoned as exempted services for calculating the CENVAT credit to be reversed or not; and
b) whether the credit to be reversed should be taken as the proportion of “the total credit availed” or only proportion of “the common input service credit” availed.
It is the assertion of the appellant that procuring goods from the sister units and selling them to the customers does not amount to trading. Only when the goods are procured from other bottlers and sold, it amounts to trading. The Department, on the other hand, asserts that even procuring goods from their sister units and selling should be taken as trading activity for the purpose of CENVAT Credit Rules and the amount of credit to be reversed should be worked out accordingly. I find this issue has been settled by the Hon’ble High Court of Gujarat in the case of Sintex Industries Ltd., (supra) that as far as the CENVAT credit is concerned, what is relevant is not whether assesses are a single legal entity or not and whether they have a common PAN or not even whether the two units share a common area. What is relevant is whether they are separate registrants under the Central Excise. The case of Rushil Decor Limited (supra) relied upon by the Learned Counsel is different inasmuch as they were not selling any goods in that case but only importing and transferring the goods. Hence, there was no trade. In the present case, an appellant is procuring bottlers from their sister units on excise invoices issued in their name along with the stock transfer challans. Thereafter, the assessee is selling the goods to their customers. When specifically asked by the Bench, the Learned Counsel said that he is not sure how the money got transferred to the sister units and said that it will probably be through account adjustment by their head office; otherwise the sister units will keep spending money to produce bottles and the appellant keeps earning selling them. There must be a mechanism of transfer of the sell products or some part of it back to the manufacturing in sister units. These being from the same legal entity, it is possible that this transfer gets done through book adjustments by their accounts Department. Thus, I find no element of trading is missing when the appellant procures bottlers from their sister units and sells them. It is at par with the procurement of bottles from bottlers and selling except from the fact that they are not directly paying their suppliers for the bottles supplied. As far as CENVAT credit rules is concerned, this can be considered as no different from selling bottles procured from other units. I, therefore, find that this amounts to trading activity.
Accordingly, the appellant is required to reverse the CENVAT credit as per Rule 6(3A) of CENVAT Credit Rules, 2004 including the value of these bottles procured from the sister units and sold in the market. A perusal of the formula for reversal shows that the amount of credit to be reversed is proportionate to the value of exempted goods and services to the total value of goods and services (both exempted and dutiable or taxable) to the “total CENVAT credit taken on input services”. In view of the plain language in which the Rule is drafted, there is no scope to read the words “total CENVAT credit taken on input services” as “total CENVAT credit taken on common input services” as sought by the Learned Counsel. The Learned Counsel argues that they will be put to disadvantage as a result. However, equity has no place in fiscal statutes and they should be read as they are written without any indentment. Further, Rule 6 of CENVAT Credit Rules, 2004 itself gives several options for the assessee to choose from and they chose this option. If this did not suit them, they could have taken another option.
FULL TEXT OF THE CESTAT JUDGMENT
The appeal is directed against Order-in-Appeal No. VIZ-EXCUS-001-APP-141-17-18 dated 09.11.2017.
2. The appellant herein is manufacturer of aerated water under the brand names of Coca-Cola, Fanta, Limca, Thums up, Sprite and are paying Central Excise duty. In addition, the appellant also sources these products from their sister unit and also other franchisee bottlers to cover to the market demands. Therefore the appellant is
a) manufacturing these products
b) trading these products after purchasing from other units
c) procuring these products from sister units and selling them.
The appellant have availed CENVAT credit and have opted to avail CENVAT credit on common input services and reverse the CENVAT credit under Rule 6(3A) in respect of exempted goods and services. During the period the amount of credit to be reversed was to be calculated as M/N x P where M denotes total value of exempted services + total value of exempted goods manufactured and removed during the financial year, N denotes total value of dutiable and exempted goods manufactured and removed during the service period and total value of output and exempted services provided during the financial year. P denotes the total CENVAT credit taken on input services during the financial year.
3. The appellant were issued a show cause notice alleging that they have not reversed the CENVAT credit fully in terms of Rule 6 (3A) and therefore they are liable to pay an amount of Rs. 12,05,560/- towards CENVAT credit attributable to the exempted services as provided in Rule 6(3A) read with Rule 14 of CENVAT Credit Rules read with proviso to Section 11A(4) of the Central Excise Act. It was proposed to appropriate an amount of Rs. 1,40,065/- paid by them against the above demand. It is also proposed to impose penalty and charge interest from them. The Learned Lower Authority vide Order-in-Original No. VIZ-EXCUS-001-ADC-037-14-15 dated 24.12.2014 confirmed the demand and imposed penalties and interest has proposed. Aggrieved, the assessee appealed to Learned Commissioner (Appeals) should vide the impugned Order-in-Appeal rejected.
4. The Learned Counsel for the appellant submits that the entire dispute is on a simple point. It is his contention that the trading activity which they had undertaken is an exempted service while, the goods which are manufactured are dutiable goods. When they purchase bottles from other bottlers and sell them it amounts to trading and the value of said activity has been reckoned for calculating the amount of CENVAT credit to be reversed. It is the Department’s contention that the value of the goods which they received from the sister plant and sold in the market should also be considered as trading activity and the value of such trading should also calculate reckoned in the amount of CENVAT credit to be reversed. The Learned Counsel forcefully argued, since they are not purchasing bottles from the sister units and selling it does not amount to trading. They are receiving the goods from the sister units under the cover of stock transfer note, and this transfer does not amount to sale of goods because the appellant’s sister unit and the appellants are one at the same entity. He relied on the judgment of CESTAT-Ahmadabad in the case of Rushil Decor Limited Vs. CCE & ST, Ahmedabad – III [2018 (5) TMI 1560-CESTAT-Ahm] wherein, it had held that transfer of goods to other unit does not involve to any trade. Therefore, the value of the goods which they procure from the sister units and sell should not be reckoned while calculating the service tax to be reversed. If this position is taken it will lead to the situation where they will be deprived of some amount of CENVAT credit on inputs and input services used exclusively in relation to the manufacture of taxable goods which is not the intention of the CENVAT Credit Rules. He also argued that they have intimated to the Department vide letter dated 29.04.2011 regarding reversal of credit on trading activity and other also disclosed the details of the credit in their ER-1 returns. Therefore, they cannot be alleged to be suppressed facts with an intention to evade tax. Therefore, no extended period can be invoked in their case.
5. The Learned Departmental Representative opposed the appeal. It is his contention as held by the Hon’ble High Court of Gujarat in the case of Sintex Industries Ltd., [2013 (287) ELT 261] even two units which are a single legal entity with the common boundary wall should be treated as to separate Central Excise registrants and the assessee is entitled to credit on eligible inputs utilized in generation of electricity to the extent to which it was used produce electricity within its factory registered for the purpose but not to the extent it was supplied to a factory registered as a different unit even though both are parts of the same legal entity and have the same PAN.
6. I have considered the arguments on both sides and perused the records. The facts of the case in dispute are that the appellant availed on common input services and goods and obtained to the services reversed under Rule 6(3A). The only questions to be decided are
a) whether the value of the goods which they procured from the sister units and sold in the market should be reckoned as exempted services for calculating the CENVAT credit to be reversed or not; and
b) whether the credit to be reversed should be taken as the proportion of “the total credit availed” or only proportion of “the common input service credit” availed.
It is the assertion of the appellant that procuring goods from the sister units and selling them to the customers does not amount to trading. Only when the goods are procured from other bottlers and sold, it amounts to trading. The Department, on the other hand, asserts that even procuring goods from their sister units and selling should be taken as trading activity for the purpose of CENVAT Credit Rules and the amount of credit to be reversed should be worked out accordingly. I find this issue has been settled by the Hon’ble High Court of Gujarat in the case of Sintex Industries Ltd., (supra) that as far as the CENVAT credit is concerned, what is relevant is not whether assesses are a single legal entity or not and whether they have a common PAN or not even whether the two units share a common area. What is relevant is whether they are separate registrants under the Central Excise. The case of Rushil Decor Limited (supra) relied upon by the Learned Counsel is different inasmuch as they were not selling any goods in that case but only importing and transferring the goods. Hence, there was no trade. In the present case, an appellant is procuring bottlers from their sister units on excise invoices issued in their name along with the stock transfer challans. Thereafter, the assessee is selling the goods to their customers. When specifically asked by the Bench, the Learned Counsel said that he is not sure how the money got transferred to the sister units and said that it will probably be through account adjustment by their head office; otherwise the sister units will keep spending money to produce bottles and the appellant keeps earning selling them. There must be a mechanism of transfer of the sell products or some part of it back to the manufacturing in sister units. These being from the same legal entity, it is possible that this transfer gets done through book adjustments by their accounts Department. Thus, I find no element of trading is missing when the appellant procures bottlers from their sister units and sells them. It is at par with the procurement of bottles from bottlers and selling except from the fact that they are not directly paying their suppliers for the bottles supplied. As far as CENVAT credit rules is concerned, this can be considered as no different from selling bottles procured from other units. I, therefore, find that this amounts to trading activity.
Accordingly, the appellant is required to reverse the CENVAT credit as per Rule 6(3A) of CENVAT Credit Rules, 2004 including the value of these bottles procured from the sister units and sold in the market. A perusal of the formula for reversal shows that the amount of credit to be reversed is proportionate to the value of exempted goods and services to the total value of goods and services (both exempted and dutiable or taxable) to the “total CENVAT credit taken on input services”. In view of the plain language in which the Rule is drafted, there is no scope to read the words “total CENVAT credit taken on input services” as “total CENVAT credit taken on common input services” as sought by the Learned Counsel. The Learned Counsel argues that they will be put to disadvantage as a result. However, equity has no place in fiscal statutes and they should be read as they are written without any indentment. Further, Rule 6 of CENVAT Credit Rules, 2004 itself gives several options for the assessee to choose from and they chose this option. If this did not suit them, they could have taken another option. As far as the extended period of recovery under Section 11A(4) is concerned, it is mentioned in para 11 of the show cause notice that the assessee were requested vide letter dated 14.08.2012, 04.09.2012, 08.10.2012, 18.10.2012 and 05.11.2012 to submit details of trading goods using common input services. But, the assessee had submitted only partial details in reply to this letters and thereby had not disclosed the full details required for calculation for arriving at the proportionate credit attributable to the exempted goods. The short payment made by the assessee came to light only during the verification of the course by the Departmental officers. The assessee profited by not reversing the CENVAT credit correctly in terms of the option they choose and thereby gained CENVAT credit and to that extent evaded payment of duty which they would have had to pay in cash.
7. In view of the above, I find there is no reason to interfere with the impugned order and the appeal is liable to be rejected as being without merit.
8. The appeal is rejected.
