SECTION 11A OF CENTRAL EXCISE ACT IS APPLICABLE TO MANUFACTURER UTILISING CENVAT CREDIT

[Mr. M. GOVINDARAJAN]

            Rule 3 of CENVAT Credit Rules, 2004 ('Rules' for short) provides  that a manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit of the excise duty, additional excise duty, national calamity contingent duty, service tax, education cess, education cess, secondary and higher secondary education cess paid on any input or capital goods received in the factory of manufacture of final products or premises of the provider of output service  and any input service received by the manufacturer of final product or by the provider of output services.  The CENVAT credit may be utilized for payment of any duty of excise or service tax. 

            Rule 14 provide that where the CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer of the provider of output service and the provisions of Sections 11A and 11AB of the Central Excise Act or Sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries.

            In 'Vikram Ispat V. Commissioner of Central Excise, Raigad' - [2009 -TMI - 34136 - CESTAT, MUMBAI] the application is for waiver of pre deposit of the service tax credit irregularly taken and demanded from them.  The facts of the case run as follows:

            The applicant availed CENVAT credit for the service tax paid for mobile phones, rent-a-cab service, securities etc., against the payment of Central Excise duty. The Department found irregularity in availing the credit and issued show cause notice under Section11A of the Central Excise Act, 1944 and confirmed the service tax,

            Before the tribunal the appellant raised the preliminary objection that availment and utilization of credit on input service should have been issued under Section 73 of the Finance Act, 1994 instead of section 11A of the Central Excise Act. Under Rule 14 of the CENVAT Credit Rules, 2004 both Section 11A and Section 73 of the Finance Act have been applicable for recovery of credit irregularly taken and utilized and it is the submission of the applicant that in respect of credit relating to input services the demand should be made under Section 11A and since in his case the credit relates to input services demand cannot be raised under Section 11A.

            The applicant further submitted that the credit of the input service like mobile services has been held to be admissible as per decision of the tribunal in 'Commissioner of Central Excise (LTU), Chennai V. Brakes India Ltd., - [2009 -TMI - 31940 - CESTAT CHENNAI]. In respect of rent-a-cab service, association service and security service, it is his submission that they have to be considered as input service as per the inclusive definition of the term 'input service' as these services are meant for carrying on the business.

            It is further submitted that ER-1 returns to the department has been admitted in the show cause notice and therefore the charge of suppression of facts could not be found in the show cause notice. Invoking of long period is also not right.

            The Department submitted that the demand has been rightly issued under Section 11A as this had been made applicable by Rule 14 of the CENVAT Credit Rules and there is no infirmity in show cause notice for issuing demand under Section 11A. As regards the plea of time bar the department submitted that the activity is not declared to the department it amounts to suppression and therefore the extended period has been rightly invoked.

            The Department further submitted that the appellants have not been able to show the exact activity for which mobile service and Rent-a-cab service has been availed; whether they were in relation to post-manufacturing or pre manufacturing and whether they were used for private purpose or official purpose. In the absence of any such break up the entire demand has to be treated as valid. As regards security services it relates to railway sliding which was about 40 kms from the factory premises and it cannot be considered as input service and further the railway siding is used both for transportation of inputs and dispatch of finished goods, and therefore, it becomes ineligible to CENVAT Credit. The association charges have nothing to do with the manufacture of the goods as association is used as forum for sharing each other's experience, building image etc.,

            The tribunal considered the submissions of both parties. The tribunal held that the plea that demand cannot be issued under Section 73 has no force. Under Rule 14 Cenvat credit incorrectly taken and utilized can be recovered from the manufacturer or output service provider and for that purpose the provisions of Section 11A and Section 73 has been made applicable by Rule 14 which talks about both the manufacturer of the goods as well as the provider of the output service.   Section 11A prima facie will be applicable in respect of the manufacturer who utilizes the credit for payment of excise duty and section 73 will be applicable in respect of output service provider who utilizes the credit for payment of service tax, and therefore, demand under Section 11A prima facie is maintainable. 

            On merits the tribunal agreed that service tax credit is available on mobile phone if used for business purpose as has been held by the various cases relied on by the appellant but the appellant has been unable to give break up of mobile charges used for private as well as business purpose and same is the case with Rent-a-cab service also. As regard security services firstly the security is not provided in the factory but at the railway side. Whether the liability of the supplier or of the receiver is not known and hence it is noticed that the railway side used both for the purpose of inputs as well as for finished goods and no separate accounts regarding charges for the finished goods and for input service is available. As regards credit on association charges, no date has been furnished to show that how this activity relates to manufacture of goods and whether such charges paid go into costing of the product. Prima facie this does not appear to be admissible. Since the appellants have not been able to make out a prima facie case for complete waiver of pre deposit of duty/service tax demanded from them.