Case Law Details
Sify Technologies Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
CESTAT Chennai held that an assessee cannot avail of the options under Rule 6(2) and 6(3) of CENVAT Credit Rules,2004 simultaneously. Once the option is availed, other option cannot be chosen simultaneously.
Facts- STL was merged with M/s. Sify Communications Ltd. (SFL) in pursuance of order dated 7.7.2009 passed by the Hon’ble High Court of Madras with retrospective effect i.e. from 1.4.2008.
After the merger, STL has received input service which are used for exempt service and also taxable services. The appellant vide their letter dated 14/10/2010, have availed the facility under Rule 6(3)(ii) of CCR 2004, for the period from April 2008 to March 2010, as the Hon’ble High Court’s order covered the period from 1.4.2008.
The issue in dispute as stated by the appellant is whether retrospective effect can be given to the option filed by the taxpayer on 14.10.2010 under Rule 6(3)(ii) of CENVAT Credit Rules, 2004.
The Learned Commissioner after having put the appellant to notice, has vide his order No LTUC/296/2012-C dated 11/09/20 12 come to the conclusion that as per a clear reading of the Statute the option filed by the appellant under Rule 6(3)(ii) of CCR, 2004 is effective only prospectively. He also further held that when the taxpayer has claimed that they are maintaining separate set of accounts for exempted and taxable services as per the option under Rule 6(2) of CENVAT Credit Rules, 2004, and are taking credit of only those input services used in taxable services for discharge of duty related to taxable services, they cannot simultaneously avail the option under Rule 6(3) for credit of common input services used for both exempted and taxable service. He has confirmed duty with interest and also imposed a penalty as per relevant Rules. Aggrieved by this order, the appellants are before us.
Conclusion- Held that it is very clear that an assessee cannot avail of the options under Rule 6(2) and 6(3) simultaneously. The obligations under Rule 6 are in the form of various alternatives and the assessee is free to choose any option. The assessee is under no compulsion to choose one option over the other. But once having chosen a particular option he cannot avail of the other option simultaneously. Hence this question is also answered in favour of the decision of the Lower Authority in the impugned order.
FULL TEXT OF THE CESTAT CHENNAI ORDER
This present appeal has been filed by M/s. Sify Technologies Ltd. (STL) against Order in Original No. LTUC/296/2012-C dated 11.9.2012 passed by the Commissioner, LTU, Chennai.
2. The facts of the present appeal are that, STL was merged with M/s. Sify Communications Ltd. (SFL) in pursuance of order dated 7.7.2009 passed by the Hon’ble High Court of Madras with retrospective effect i.e. from 1.4.2008. After the merger, STL has received input service which are used for exempt service and also taxable services. The appellant vide their letter dated 14/10/2010, have availed the facility under Rule 6(3)(ii) of CCR 2004, for the period from April 2008 to March 2010, as the Hon’ble High Court’s order covered the period from 1.4.2008. The issue in dispute as stated by the appellant is whether retrospective effect can be given to the option filed by the taxpayer on 14.10.2010 under Rule 6(3)(ii) of CENVAT Credit Rules, 2004. The Learned Commissioner after having put the appellant to notice, has vide his order No LTUC/296/2012-C dated 11/09/20 12 come to the conclusion that as per a clear reading of the Statute the option filed by the appellant under Rule 6(3)(ii) of CCR, 2004 is effective only prospectively. He also further held that when the taxpayer has claimed that they are maintaining separate set of accounts for exempted and taxable services as per the option under Rule 6(2) of CENVAT Credit Rules, 2004, and are taking credit of only those input services used in taxable services for discharge of duty related to taxable services, they cannot simultaneously avail the option under Rule 6(3) for credit of common input services used for both exempted and taxable service. He has confirmed duty with interest and also imposed a penalty as per relevant Rules. Aggrieved by this order, the appellants are before us.
3. We have heard Ms. Krithika Jaganathan, Advocate on behalf of the appellant and Ms. K. Komathi, AR for the Revenue and have gone through the appeal memorandum, the impugned order and connected documents submitted by them, carefully.
4. The Learned Counsel for the appellant has submitted that in the circumstances of the Hon’ble High Court’s judgement dated 7.7.2009 related to their merger, the statute envisages that the assessee reverse a proportionate amount of credit availed on common input services albeit upon due intimation to the department which they have done. Rule 6 does not stipulate any time limit within which the assessee must inform the department about exercising the option under Rule 6(3A) of CENVAT Credit Rules, 2004. Non-intimation of option under Rule 6(3A) is at best a procedural lapse for which a substantive benefit of credit cannot be denied. That by reversing Rs.10,58,545/- for the period from 1.4.2008 to 3 1.3.2010, the appellants have complied with the rigors of Rule 6(3A) of CENVAT Credit Rules, 2004 and denial of entire credit availed by them is unjust. Reversal of CENVAT credit tantamount to non-availment of input service credit on common inputs and hence imposition of interest and penalty is unsustainable. Hence he prayed that the appeal may be allowed with consequential relief.
5. The Learned Counsel for the appellant has referred to the following judgments in support of their views, that no time limit has been provided for an assessee to exercise option under Rule 6; that delay in giving intimation can be taken at most as a procedural lapse as the conditions for filing declaration are not mandatory; that the obligation under Rule 6 are in the form of various alternatives and the assessee is free to choose any option; that once proportionate credit of input services used in exempted output services has been reversed, it tantamounts to not availing of credit of common inputs. : –
(a) Nava Bharat Ventures Limited Vs. CCE&ST Hyderabad reported in 2021 (11) TMI 426 – CESTAT Hyderabad
(b) Mercedes Benz India (P) Ltd. Vs. CCE, Pune reported in 2015 (40) STR 381 (Tri. Bom.)
(c) Alstom T&D India Ltd vs Commissioner in 2019 (370) ELT 625 (Tri-Chennai)
(d) Sahyadri Starch & Industries Pvt. Ltd. Vs. CCE, Kolhapur reported in 2016 (3) TMI 804 – CESTAT Mumbai
(e) Tata Technologies Ltd. Vs. CCE, Pune reported in 2016 (42) STR 290 (Tri.Mum.)
(f) Star Agriwarehousing & Collateral Management Ltd. Vs. CCE & ST, Jaipur reported in 2021 (44) GSTL 271 (Tri. Del.)
6. Revenue on the other hand, have after taking us through Rule 6(3A)(v) of CENVAT Credit Rules, 2004 stated that taxpayer desiring to avail the said option should declare the amount lying to the credit in the CENVAT account on the date of exercising the option. There is no scope for ambiguity while interpreting the words ‘on the date of exercising the option’ and the legislative intent in this regard is clear i.e. option exercised takes effect only from the date it is filed. Hence the learned AR pleaded that the option filed during October 2010 by the taxpayer under Rule 6(3)(ii) of CENVAT Credit Rules, 2004 can be held effective only prospectively. They have relied on the judgment of the Hon’ble Supreme Court in the case of M/s. Eagle Flask Industries Ltd. Vs. CCE, Pune reported in 2004 (171) ELT 296 (SC) in Civil Appeal No. 4647/1998 to state that any declaration or undertaking to be submitted by an assessee has to be mandatorily done. It is the foundation for availing the benefit and cannot be said to be merely procedural with no consequences attached to non-observance. The learned AR further stated that even on merits, as per the provisions of Rule 6(3), the appellant cannot simultaneously avail the benefit of common input services i.e. input services used in the provision of taxable as well as exempted service. Thus, service providers opting not to maintain separate accounts are eligible to avail the benefits of Rule 6(3) of CENVAT Credit Rules, 2004. Since the taxpayer by own admission are maintaining separate accounts for taxable and exempted services, they have already availed of that option and they are not eligible to operate under Rule 6(3) ibid. Further, this is not a question of interpretation of statute as the plain reading of the provisions of Rule 6 of the CENVAT Credit Rules, 2004 prescribe the condition for availing the benefits under Rule 6(3A) are very clear and taxpayer has not sought any clarification if they had any doubt in this regard. She has also drawn our attention to the decision of this Tribunal in the appellant’s own case Sify Technologies Ltd. Vs. Commissioner of Service Tax, LTU, Chennai vide Final Order No. 42327/2018 dated 30.8.2018 reported in 2019 (370) ELT 977 (Tri. Chennai) wherein the Tribunal has held that they cannot opt for Rule 6(2) and 6(3) of CENVAT Credit Rules, 2004 concurrently. Such procedure is against basic principles of Rules and is legally barred under sub-rule (1).
7. Based on the issues involved, we take up the following points for consideration:-
1) Whether Rule 6 stipulates any time period within which the assessee must inform the department about exercising the option under Rule 6(3) of CCR.
2) Whether non-intimation of option under Rule 6(3) is at best a procedural lapse for which substantial benefit ought not to be
3) Whether as per the Statute the option filed by the appellant under Rule 6(3)(ii) of CCR, 2004 is effective only prospectively.
4) Whether the option under Rule 6(2) of CENVAT Credit Rules, 2004, for credit of inputs used for payment of duty on taxable services and Rule 6(3) for credit of common input services used for both exempted and taxable service, can be availed simultaneously.
5) Whether interest or penalty is liable as proportionate reversal of credit is tantamount to non-availment of the input service credit of the common inputs.
8. The issues at point 1, 2 and 3 listed above, are interconnected and are hence examined together. It is seen from the impugned order that the Learned Commissioner has examined these issues and given his considered decision in a very detailed manner at paras 9 and 10 of the impugned order, leaving no room for ambiguity. We may add that Rule 6 of CCR 1994 as it stood on 1.4.2008, lists out the obligations of manufacturer of dutiable and exempted goods and provider of taxable and exempted service. Rule 6(1) disallows credit to be availed on input or input services which are used in the manufacture of exempted goods except if the circumstances mentioned in sub-rule (2) are satisfied. Hence the very availment of credit with respect to exempted goods can only commence after satisfying the requirements of sub-rule (2). Sub-rule (2) requires a manufacturer or provider of output service to maintain separate accounts for receipt, consumption and inventory of input and output service meant for use in the manufacture of dutiable final products or in providing output service and take CENVAT credit only on that quantity of input or input services which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax is payable i.e. the accounts would be maintained manufacturer / service provider wise and not individual service wise. Sub-rule (3) carves an exception to sub-rule (1) and (2) for manufacturers of goods or the providers of output service not maintaining separate accounts to follow either of the conditions given at sub-rule (3)(i) or (3)(ii) if they want to avail credit. In this case also the service provider has to make up his mind as to which option he chooses to avail, before being allowed credit of input or input services. Rule 6(3A) provides the procedure and conditions to be followed for determination and payment of amount payable under sub-rule (3)(ii). Rule 6(3A)(a) states that while exercising this option, the manufacturer of goods or the provider of output services shall intimate in writing to the Superintendent of Central Excise giving the particulars as detailed thereunder. It also requires him to inform the date from which the option under clause (ii) of sub-rule 3 is exercised or proposed to be exercised. Sub-rule (3)(v) requires him to intimate the CENVAT credit of inputs and input services lying in balance as on the date of exercising the option under the said condition. Hence the time by which the assessee must inform the department about exercising the option is on the date of exercising the option. He can intimate the date on which he proposes to avail the option in advance also.
9. The sequence of Rule 6 and the procedure and conditions stated therein, clearly bring out that the assessee can only avail the facility under Rule 6 after following the provisions of the said Rule which should be as on the date of exercising the option. Hence a harmonious reading of Rule 6(3)(ii) and Rule 6(3A) of CCR, 2004 leads to the conclusion that the intimation given to the department is effective only prospectively. It must be stated that, Rules made under the Statute must be treated for all purposes of construction or obligation exactly as if they were in the Act and are to be of the same effect as if contained in the Act and are to be, judicially noticed for all purposes of construction or obligation. (State of U.P. v. Babu Ram Upadhya (1961) 2 SCR 679, 702). Rule 6 is framed in a manner that it builds in a process whereby the jurisdictional Superintendent is aware that the taxpayer is availing the benefit of CENVAT credit under a special procedure. This helps him during the periodic verification of Returns filed by the taxpayer or during other verifications of payment of duty. The service provider has to calculate and pay, provisionally, for every month, the amount attributable to exempted services, as per the formula given under Rule 6(3A)(b) of CCR, 2004. This is not an empty formality to term the provision as procedural. Credit taken into their books by assessee’s are as good as liquid cash for the purpose of payment of duty and requires a system of checks and balances to ensure their proper and lawful utilization as per the scheme of the Act and Rules. Allowing every assessee the freedom to make the declaration whenever he chooses, even retrospectively after the statutory monthly returns are filed and then reversing credit at will to claim compliance with the Rules will lead to lack of finality in assessments, encourage attempts to evade duty and create administrative difficulties in effectively monitoring and implementing the CENVAT scheme. In the circumstances it is difficult to hold that non-compliance with the procedures and conditions of Rule 6 as non-mandatory. The Hon’ble Supreme Court while examining a similar issue, in its judgement in the case of M/s Eagle Flask Industries Vs CCE, Pune [2004 (171) ELT 0296 (SC)], relating to the making of a declaration and giving an undertaking by the assessee to avail the benefit of exemption given by a notification, held that it cannot be said that these are procedural requirements, with no consequences attached for non-observance. The issues listed above at points 1,2 and 3 are accordingly answered in favour of the order passed by the Lower Authority.
10. As regards the point whether the option under Rule 6(2) and Rule 6(3) can be availed simultaneously, the matter has already been examined by this Bench vide Final Order No. 42327/2018 dated 30.8.2019 as reported in 2019 (370) ELT 977 (Tri. Chennai). The relevant provisions are reproduced below:-
“10. It is clear that Rule 6(1) is a substantive plenary provision. Hon ’ble Supreme Court in CCE v. Gujarat Narmada Fertilizers Co. Ltd. – 2009 (240) E.L.T. 661 (S.C.) held that sub-rule (1) of Rule 6 is plenary. It restates a principle, namely, that Cenvat credit of duty paid on inputs used in the manufacture of exempted final product is not allowable. This principle is inbuilt in the very structure of the Cenvat scheme. Sub-rule (1), therefore, merely highlights that principle. Sub-rule (1) covers all inputs, including fuel, whereas sub-rule (2) refers to non-fuel inputs. Sub-rule (2) as well as (3) put in place the mechanism to comply with the mandate of sub-rule (1) in the case of a manufacturer/provider of an output service availing Cenvat Credit, but manufactures/provides output services which are both chargeable to duty as well as exempted. Sub-rule (2) requires the manufacturer/provider of output service to maintain separate accounts for inputsñnput services which are used for manufacture of dutiable goods/providing taxable service as well as those which are used towards the exempted goods/services. In terms of the sub-rule(2) he assessee is allowed to take Cenvat Credit only in respect of inputsñnput services used towards dutiable goods/services. Sub-rule (3) on the other hand, caters to the circumstances where the manufacturer/service provider does not maintain separate accounts as per sub-rule (2). The procedure which is required to be followed in such circumstances is outlined in sub-rule (3).
11. The appellants have relied on the principle laid down by the Hon ’ble Supreme Court in Gujarat Narmada Fertilizers Co. Ltd. (supra). However, they have relied on this only to state that sub-rule (1) should not be read in isolation. In the present case, we are faced with a situation where the appellants have several common inputsñnput services. For some of them, they followed sub-rule (2) and maintained separate accounts and for some others they have followed Rule 6(3). Rule 6(3) allowed credit on common input services notwithstanding the provisions of Rule 6(1) or Rule 6(2). The appellant’s claim is that Rule 6(2) and Rule 6(3) can operate concurrently. We are not in agreement with such a proposition. Both sub-rule (2) and (3) of Rule 6 talk about “manufacturer” or “provider of output services”. The said sub-rules do not talk about the service wise maintenance of accounts. It is with reference to “manufacturer or “provider of output service”. As already noted, sub-rule (1) absolutely prohibits availing Cenvat credit on input service which is used in the manufacture of exempted goods or exempted services except in the circumstances mentioned in sub rule (2). In other words, it is very clear that plenary provision of sub-rule (1) is giving exception to a situation envisaged in sub-rule (2). Sub-rule (2) is for a ‘manufacturer’ or ‘provider of output service’ who shall maintain separate accounts for receipt, consumption and inventory of input and input services meant for use in the manufacture of dutiable final products or in providing output service as well as those exempted. A combined reading of provisions of Rule 6 makes it clear that Cenvat credit shall not be allowed for input services used for exempted service except where the assessee using common input services, both for exempted as well as taxable output services, maintains separate accounts in respect of consumption of such input services on which credit is availed.
12. Sub-rule (3) of Rule 6 is another option available to the assessee who opts not to maintain separate accounts under sub-rule (2). Thus sub-rule (3) provides for a situation when a manufacturer/service provider who is using common inputs for dutiable and exempted products is not able to maintain separate accounts. Though the sub-rule uses the words ‘opting not to maintain separate accounts’, in fact, the same has to be construed to mean a situation when he is not able to maintain separate accounts for e.g.:- due to the complex process of manufacture or complex stream of use of such inputsñnput services. There is no compulsion on the manufacturer/service provider to maintain separate accounts, and the manufacturer/output service provider can opt not to maintain separate accounts by following sub-rule (3). Thus sub-rule (2) takes care of manufacturer/service provider who can maintain separate accounts for common inputsñnput services and sub-rule (3) takes care of manufacturer/service provider who is not able to maintain separate accounts. However, the options are left open to both categories by the use of non-obstante clause in sub-rule (3). In other words, it cannot be said that for certain common input services, the assessee can maintain separate account under sub-rule (2) and in respect of others, he need not maintain such account and opt for sub-rule (3). In our considered opinion that will defeat the very mandate of the main provision under sub-rule (1).
13. We note that mechanism adopted by the appellant for following both sub-rule (2) and sub-rule (3) in respect of different common input services defeats the very restrictions placed under different conditions of sub-rule (3). As seen in the present case itself that appellant invoked clause © of sub-rule (3) and submitted that they were not hit by restriction of 20% in utilizing credit on tax liability of final output services, on the ground that total credit availed under sub-rule (3) falls short of the same. We note this claim is misleading and ignoring the fact that they have maintained separate accounts and availed full credit in respect of common input services attributable to taxable output services in terms of sub-rule (2). In other words, it would lead to a situation where the assessee can choose to maintain separate account in respect of common input services under sub-rule (2) and, at the same time, follow sub-rule (3) in respect of a few of the common input services so that the bar of 20% utilization of credit on final tax liability can be avoided. We find the present situation is against the basic principle of CCR. We are of the considered opinion that in respect of common input services for which the appellant is entitled to credit they have an option either to follow sub-rule (2) or sub-rule (3). Following both selectively in respect of selective common input services is against the basic principle and the legal bar under sub-rule (1). Accordingly, we hold that the original authority is correct in disallowing the credit which was availed by the appellant under sub-rule (3).
14. The appellants submitted that there is no provision to deny credit on common input services. While we agree on such legal principle, we note that credit cannot be availed beyond the scope of provision in Rule 6. In the appellant’s case credits are availed in terms of provision under sub-rule (2) and sub-rule (3) simultaneously. Hence the question of irregularly availing and disputing the reversal due to lack of legal machinery is not tenable. In other words, the appellants should follow legal provision as per Rule 6. Having not followed, they cannot take a plea that there is no provision to deny credit already availed. When the appellants maintained separate accounts for common input services and availed credits under sub-rule (2) of Rule 6, then there is no question of another option for common input services under sub-rule (3) of Rule 6.”
From the above judgment, it is very clear that an assessee cannot avail of the options under Rule 6(2) and 6(3) simultaneously. The obligations under Rule 6 are in the form of various alternatives and the assessee is free to choose any option. The assessee is under no compulsion to choose one option over the other. But once having chosen a particular option he cannot avail of the other option simultaneously. Hence this question is also answered in favour of the decision of the Lower Authority in the impugned order.
11. The final question relates to whether interest or penalty are liable to be demanded from the assessee, as proportional reversal of credit has been done by them. As discussed above the provisions of Rule 6 are very clear and without any ambiguity. The appellant has been suo moto taking credits even after the issue of previous show cause notices. In a few cases relating to Rule 6 of CCR 2004, orders have also been passed by the department deciding the matter, as is observed from the Appeal Memorandum filed by the appellants. The Hon’ble Supreme Court in a seven Judge Bench judgement in the case of Smt. Ujjam Bai Vs State of Uttar Pradesh [1962 AIR 1621/ 1963 SCR (1) 778] have held that the binding force of a decision which is arrived at by a taxing authority acting within the limits of the jurisdiction conferred upon it by law cannot be made dependent upon the question whether its decision is correct or erroneous. For, that would create an impossible situation. Therefore, though erroneous, its decision must bind the assessee. In the light of the stated position of law by the Apex Court, the appellant after receipt of orders from the department relating to erroneous credit taken by them as per Rule 6 of CCR 2004, cannot continue to plead ambiguity in the interpretation of the said provision and claim that having reversed wrongly taken credits – that too as per their interpretation of the Rule – the imposition of interest and penalty is unsustainable. Their plea in this regard also fails.
12. Having regard to the facts and circumstances as discussed above, we are of the considered opinion that the impugned order calls for no interference. The appeal filed is dismissed.
(Pronounced in open court on 27.2.2023)
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