UTILIZISATION OF CENVAT CREDIT FOR PAYMENT OF EXCISE DUTY AND SERVICE TAX

[Mr. M. GOVINDARAJAN]

CENVAT Credit Rules, 2004 provides for taking credit and utilization of that credit against the payment of service tax by the provider of output service or for the payment of central excise duty by the manufacturer of the final products.  The issue to be discussed in this article is whether the CENVAT credit taken may be utilized for the payment of both central excise duty and service tax  by an assessee who is manufacturing final product and also a provider of output service and obtains registration in both cases, with reference to decided case laws.

In ‘Commissioner of Central Excise, Coimbatore V. Lakshmi Technology and Engineering Industries Limited’ – 2011 (2) TMI 1275 - CESTAT, CHENNAI the Tribunal analyzed Rule 3(1) of CENVAT Credit Rules, 2004.  The said Rule permits credit to a manufacturer of final product or a provider of taxable service.   If a person manufactures only excisable goods, he is entitled to take credit of not only excise duty paid capital goods and inputs but also additional duty of customs paid under Customs Tariff Act in respect of imported inputs and capital goods and also service tax on the input services utilized in or in relation to the manufacture of excisable goods.   In other words, a manufacturer of excisable goods is entitled to use the credit from a common pool to which different categories of specified excise duties, customs duty and service tax are allowed to be taken as credit.  Similarly a provider of taxable service is also entitled to take credit of specified excise duty, additional duty of customs and service tax in respect of input services and utilize the credit from all these sources for the purpose of paying service tax.

The objection of the Department is that the respondent who is both a service provider and the manufacturer should maintain two separate accounts one in respect of credit attributable to inputs, capital goods and services meant for excisable goods and the other for credit attributable to capital goods, inputs and services attributable to the service provided by them.  The Tribunal observed that common CENVAT Credit Rules have been formed in terms of powers conferred by Section 37 of Central Excise Act, 1944 and Section 94 of the Finance Act, 1994.  Rule 3(1) enables a ‘manufacturer’ or ‘a provider of taxable service' to take credit of specified duties and utilize them to discharge duty liability under Rule 3(4) of the Rules.  A credit can be utilized for payment of any excise duty on any final product or for payment of service tax on any output service.  The Tribunal held that the respondent is undisputedly registered as a service provider for providing the services of renting of immovable property.  The credit taken by them as manufacturer/service provider has been used for both paying excise duty and for paying service tax.  The rules permit taking of credit under a common pool and there is no restriction placed to the effect that credit amounts should be maintained for manufacture of excisable goods and for use for providing services.  The Tribunal held that the view taken by the Commissioner (Appeals) cannot be faulted.

In ‘Commissioner of Central Excise V. Thangavel & Sons’ – 2014 (7) TMI 895 - CESTAT CHENNAI it was held that once the assessee has been held eligible for availing of credit, credit can be utilized for payment of excise duty or for payment of service tax credit as stipulated in Rule 3(4) of the Rules as there is no restriction for utilization of common inputs and input services for payment of excise duty or service tax.

In ‘S.S. Engineers V. Commissioner of Central Excise, Pune – I’ – 2013 (10) TMI 611 - CESTAT MUMBAI the appellants are engaged in the manufacture of sugar machinery and parts thereof.  They also undertake erection and commissioning of sugar machinery at the customers site.  The appellants have taken separate registration as a manufacturer, as also service provider with the respective authorities.  They availed the input and input service credit in respect of the manufacturing activity and pay the excise duty on the goods manufactured in their factory.  They also availed the credit of input and input services in respect of erection and commissioning of the machinery and also pay the service tax on the said activity.  During the scrutiny the Revenue found that the assessee availed the credit of service on the services which are required in connection with erection and commissioning service but utilized the same for payment of excise duty on the manufacture of sugar machinery and parts thereof.

Show cause notice was issued and the demand was confirmed.  Before the Tribunal the appellant contended that there is no restriction under CENVAT Credit Rules, 2004 for cross utilization of the CENVAT credit.   The Revenue contended that-

• It is absolutely necessary to have segregated account in respect of input and input services relating to manufactured goods, as also input and input services used in relation to providing output services;
• The service tax is levied under Finance Act, 1994 while central excise duty is levied under the Central Excise Act, 1944.Both the Acts operate in their respective domains lay down authority for taking or utilization with their respective domain and is nothing in law to permit cross operations of such accounts for utilization of such credit beyond the respective laws;
• The appellant registered separately for the manufacturing activity and as a provider of output services and there are separate authorities for the two;
• Each authority is entitled to examine the admissibility of each of CENVAT credit entry in the context of registered activity under its domain, jurisdiction and competence;
• In the absence of segregate account, the authority shall be at loss to examine the issue to its conclusive state;
• The returns in case of Service tax is filed half yearly while in the case of excise these are monthly and if unified account is maintain it will create confusion.

The Tribunal analyzed the provisions of CENVAT Credit Rules, 2004.  Rule 3(4) provides that CENVAT credit may be utilized for payment of various liabilities and includes any duty of excise on any final product as also service tax on any output service.  The Tribunal found that Rule 3 does not stipulate maintaining separate account as a manufacture and as a service provider.  Third proviso to Rule 3(4) provides that no credit of additional duty leviable under Section 3(5) of the Customs Tariff Act, shall be utilized for payment of service tax on any output service.  Similar restrictions are in other proviso.  The Tribunal also noted that there are certain restrictions on the utilization of particular type of duties which are elaborated in Rule 7(b) of CENVAT Credit Rules.  These restrictions do not cover cross utilization of credit of excise and service tax, as a general proposition.  The Tribunal also gone through the forms of ER-1 and ST-3.  Sl. No. 8 and the Table give the details of CENVAT credit taken and utilized.  In ER-1 in Table at Sl. No. 8 in column (9), details about service tax are specifically listed.   On careful analysis of the said formats, the intention appears to be to permit cross utilization of the excise duty and service tax.

The Revenue filed appeal against the order of the Tribunal before the High Court in ‘Commissioner of  Central Excise, Pune – I V. S.S. Engineers’ – 2016 (4) TMI 108 - BOMBAY HIGH COURT.  The High Court found that the Tribunal has arrived at a conclusion that the credit is admissible during the course of manufacture of the final products of duty paid on inputs as well as service tax of the input service availed of.  The High Court held that while availing the credit, the cross utilization is not ruled out, leave alone barred or prohibited.  Rule 3(1) provides that the manufacturer of product of final products or a provider of output service shall be allowed to take credit on various duties and that is the substantive provision in the Rule.  That takes within its fold the duty of excise, other duties and service tax leviable under Section 66 of the Finance Act, 1994 and thereafter with effect from 18.04.2006, service tax leviable under Section 66A of the Finance Act, 1994.  If there are various duties of which credit can be availed of, then further sub rules as analyzed by the Tribunal in Para of the order do not suffer from perversity.  The only difficulty that may have been presented throughout was of scrutiny and verification of the accounts.  The accounts are maintained in relation to payment of both levies.  Even that does not present any difficulty once the Revenue has issued a circular to guide the officers, which is on the subject of cross utilization of credit on inputs and input service.  The Tribunal has rightly come to the conclusion that there are certain restrictions on the utilization of particular type of duty.  For this purpose the Tribunal relied on Rule 7.  A reference to that also did not vitiate the impugned order since Rule 7 states that ISD may distribute the CENVAT credit in respect of service tax paid on the input service to its manufacturing units or units providing input service, subject to conditions, stipulated therein.  In such circumstances, the cross utilization of credit on goods and services being not covered by any restrictive provision leave alone any prohibition or embargo, the Tribunal orders does not call for any interference.  The High Court held that the interpretation placed on the Rules is probable and possible view.  Further there is no revenue deficit much less any loss.  The High Court dismissed the appeal.