2016 (4) TMI 933 - HC - Central Excise

Calculating amount of the eligible cenvat credit of service tax paid on common input services margin/value - addition on trading of goods is to be considered and not entire sale price/turnover of traded goods - apportionment - Held that - The Tribunal agrees with the Assessee that the common services are not covered by the definition of activity relating to business. The effect of the amendment made in 2011 is then considered from paragraph 14. The argument of the Assessee s Advocate that these amendments are substantive in nature and though they are introduced in the form of an explanation, they would cover certain cases prior to the insertion or introduction of the same appears to have been rejected but in the same paragraph it is held that Rules are delegated legislation and the Government has no power to amend them with retrospective effect. To that extent, the Tribunal agrees with the learned Senior Advocate appearing on behalf of the Assessee. From there onwards and then in paragraph 15, at page 99 of the paper-book, the Tribunal holds that changes made by the Explanation are substantive. The Explanations have been made in Rules by a Notification without giving it retrospective effect and though the same was issued on 1st March 2011 it came into force on 1st April 2011. Thus, it cannot have retrospective effect. The Revenue s action in considering trading as an exempted service for the period from August 2010 to March 2011 and covered by Appeal and demanding 6% of the trading turnover is not correct. To that extent, the Tribunal agrees with the Assessee and renders a finding against the Revenue. The Revenue has not challenged the same before us. In paragraph 16 onwards after reiterating this conclusion, the Tribunal deals with the apportionment of the credit of the common input service where such input services have been used both in relation to the manufacture of goods and trading activities in respect of the imported goods. From there onwards, we find that the Tribunal has referred to the arguments of the Assessee s Senior Advocate. Tribunal misdirected itself completely to work out a denominator. We had put it to Mr. Bhate as to how in the teeth of such finding could the Tribunal then sustain the formula and the working of the denominator arrived at by it. The Tribunal must firstly refer to the substantive Rule and as operative prior to 1st April 2011 and then arrive at a conclusion in relation to the Explanation introduced with sub-clauses with effect from 1st April 2011. On its introduction and even prior thereto, we do not find any justification then to hold that the Parliament intended to encourage trading of goods rather than manufacturing of the same. The Parliamentary intent has to be gathered from the language used. If the words are plain, simple and clear, there is no scope for interpretation or applying any principle thereof. Once the Tribunal is bound to decide the controversy in the backdrop of the object and purpose sought to be achieved but has not arrived at any conclusion bearing in mind the same, then, we are required to step in. We cannot sustain this part of the finding and conclusion. Even Mr. Bhate found it difficult to support the same. We are of the view that as far as working of the denominator is concerned (and even the numerator, technically speaking) and to apportion the input credit, it would be appropriate to send the matter back to the Tribunal.

Issues Involved:
1. Availability of credit of service tax on common input services.
2. Mechanism for calculating proportionate service tax credit to be reversed.
3. Eligibility for CENVAT credit of service tax on common input services.
4. Validity of demand for periods prior to 31.3.2008.
5. Basis for calculating eligible CENVAT credit on common input services.
6. Applicability of extended period of limitation under Section 11A.
7. Imposition of penalty under Section 11AC.
8. Imposition of penalty under Section 11AC for subsequent show cause notices.
9. Imposability of interest for unutilized CENVAT credit.
10. Tribunal's error in remanding the matter back to the adjudicating authority.

Detailed Analysis:

1. Availability of Credit of Service Tax on Common Input Services:
The Appellants argued that they should be allowed full credit of service tax paid on common input services used in both the manufacture and sale of cars and the import and sale of cars. However, they accepted that they are not entitled to credit on input services exclusively related to import and sale of cars.

2. Mechanism for Calculating Proportionate Service Tax Credit to be Reversed:
The Tribunal noted that there was no mechanism in the Cenvat Credit Rules, 2004, until 31-03-2011, to calculate the proportionate service tax credit to be reversed for input services used for trading of goods. This issue was not pressed by the Appellants.

3. Eligibility for CENVAT Credit of Service Tax on Common Input Services:
The Tribunal failed to address questions (c) and (d) regarding the eligibility for the entire amount of credit of common input services under Rule 6(5) of the Cenvat Credit Rules, 2004, and the validity of demands for periods prior to 31.3.2008. These questions were remanded back to the Tribunal for a fresh decision.

4. Validity of Demand for Periods Prior to 31.3.2008:
The Tribunal did not address this issue, and it was remanded back for reconsideration.

5. Basis for Calculating Eligible CENVAT Credit on Common Input Services:
The Tribunal discussed the method of calculating the eligible CENVAT credit on common input services. The Appellants proposed a method based on a suitable fraction/percentage, while the Revenue suggested a pro-rata formula based on trading turnover divided by total turnover. The Tribunal's order was found to be lacking in clarity and was remanded for a fresh determination.

6. Applicability of Extended Period of Limitation under Section 11A:
The Tribunal's findings on the applicability of the extended period of limitation were found to be cryptic and inaccurate. This issue was remanded back for reconsideration.

7. Imposition of Penalty under Section 11AC:
The Tribunal's findings on the imposition of penalty under Section 11AC were also found to be lacking in clarity and were remanded back for reconsideration.

8. Imposition of Penalty under Section 11AC for Subsequent Show Cause Notices:
The Tribunal's findings on this issue were found to be cryptic and inaccurate, and it was remanded back for reconsideration.

9. Imposability of Interest for Unutilized CENVAT Credit:
This issue was not pressed by the Appellants and was not addressed in detail by the Tribunal.

10. Tribunal's Error in Remanding the Matter Back to the Adjudicating Authority:
The Tribunal's decision to remand the matter back to the adjudicating authority for recomputation based on a different basis than proposed in the show cause notice was challenged. This issue was not pressed by the Appellants.

Conclusion:
The High Court allowed the Appeal, setting aside the Tribunal's order to the extent it failed to address questions (c) and (d). The matter was remanded back to the Tribunal for a fresh decision on these questions, as well as on questions (f), (g), and (h), which are consequential. The Tribunal was instructed not to reopen issues already concluded in favor of the Assessee. The High Court emphasized that the Tribunal should not conclude that the amendment was adopted to encourage trading in goods rather than manufacturing.

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