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TMI Blog2014 (4) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... put services. Dispute is relating to such availment of credit on input services in relation to trading of motor vehicles/cars. viz. whether entire credit is available or only a part will be available and if only part is available then the criterion for determining the same, or determining the liability as per Rule 6 of Cenvat Credit Rules. 2. In all there are 4 appeals covered by the present order. Appeal No. E/370-11 um pertains to the period March, 2005 to December, 2009. The said appeal is against the impugned order dated 30.11.2010 wherein the Commissioner has confirmed a demand of Rs.1,65,40,590/- and Rs.4079894/- and also imposed penalty of Rs.1,65,40,590/-. Appeal No. E/456/11 is filed by the Revenue against the same impugned order and is against the decision of the Commissioner for not imposing the penalty corresponding to the duty confirmed amounting to Rs.40,79,894/-. Appeal No. E/385/12-Mum is pertaining to the period January, 2010 to July, 2010 and is on the similar ground. Appeal No. E/1019/12 is pertaining to the period August, 2010 to March, 2011. In the appeal E/370/11-Mum and E/385/12-Mum demand has been confirmed based upon the turnover of trading and manufacturi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal; (Emphasis supplied). Rule 6(3) provided as under:- 3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow either of the following options, as applicable to him, namely (i) the manufacturer of goods shall pay an amount equal to five per cent. of value of the exempted goods and the provider of output service shall pay an amount equal to six percent of value of the exempted services. Before 1.4.2008, the corresponding provisions exist in Rule 6(3) (b). Position from 1.4.2011 The term "exempted service" was re-defined under Rule 2(e) as under: (e) exempted services" means taxable services which are exempt from the whole of the service tax leviable thereon, and includes services on which no service tax is leviable under section 66 of the Finance Act; and taxable services w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of sub-rules (3) and (3A), - (a) shall have the same meaning s assigned to it under section 67 of the Finance Act,1994 read with rules made thereunder or, as the case may be, the value determined under section 3, 4 or 4A of the Excise Act, read with rules made thereunder; (b) ....... (c) in case of trading, shall be the difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or ten per cent of the cost of goods sold, whichever is more. 4. Revenue wants to use the explanation added to the definition of "exempted service" with effect from 1.4.2011 to determine the liability for the period August, 2010 to March, 2011 (as the said show-cause notice happened to have been issued after introduction of the said explanation). The liability for the earlier period covered by earlier two show-cause notices is determined differently. On the other hand, the appellant assessee, though of the view that the amendment made with effect from 1.4.2011 is prospective and are not relevant for the period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "For removal of doubts". The said explanation cannot be made applicable retrospectively for the reason that the amendments are substantive in nature and is not really any clarification or explanation. Further, the said explanation was introduced on 1.3.2011 vide Notification No. 3/11-CE (NT), but the said Notification itself states that the said provision will come into force from 1.4.2011. In view of this position, the said explanation cannot be given retrospective effect. Ld. Sr. Advocate also stated that the Central Excise Rules are delegated legislation and these cannot be issued with retrospective effect by the Government until and unless the retrospective effect is enacted through legislative enactment. The next contention of the Ld. Sr. advocate was that if for some reason their main contention that the credit of common input services is not covered by the definition of 'input services' is not accepted by the Tribunal, in that event their liability to reverse the credit should be determined in terms of clause (c) to Explanation I after Rule 6(3D) even though the said explanation is introduced w.e.f. 1.4.2011. Ld.Sr. advocate further contended that the said explanation ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impose penalty under Section 11AC even in respect of demand for the normal period. Ld. Commissioner (A.R.) also took us through the impugned order dated 30.3.2012 and vide Notification dated 1.4.2011, trading became an exempted service, and appellant assessee are therefore liable to rigorous of Rule 6 of the Cenvat Credit Rules and must pay 6% on the value of the traded goods. Learned Commissioner (A.R.) quoted the following case laws in support of various contentions: (i) Orion Appliances Ltd. - 2010 (19) S.T.R. 205 (Tri-Ahmd.); (ii) Loreal India Private Ltd. - 2012 (281) E.L.T. 113 (Tri-Mumbai); (iii) Metro Shoes Pvt. Ltd. - 2008 (10) S.T.R. 382 (Tri-Mumbai); (iv) Chemfab Alkalis Ltd. - 2010 (251) E.L.T. 264 & (v) Indian Furniture Products Ltd. - 8. We have considered the rival submissions. The first issue to be decided in this case is whether trading activity could be considered as an exempted service. This Tribunal in series of judgments starting from Orion Appliances Ltd. (supra) has been consistently holding that the trading activity is not a service at all and therefore, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, it is quite clear that since trading activity is nothing but purchase and sales and is covered under sales tax law, it may not be appropriate to call it a service. Therefore it has to be held that trading activity cannot be called a service and therefore it cannot be considered as an exempted service also. 6. The next question that arises is whether Cenvat Credit Rules and Service Tax Credit Rules would be applicable. Rule 6(2) of Cenvat Credit Rules is reproduced below : "Where a manufacturer or provider of output service avails of CENVAT CREDIT in respect of any inputs or input services, [***], and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take CENVA T credit only on that quantity of inp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which would be legally correct appears to be to ensure that once in a quarter or once in a six months, the quantum of input service tax credit attributed to trading activities according to standard accounting principles is deducted and the balance only availed for the purpose of payment of service tax of output service. This proposition is not against the law in view of the fact that there are several decisions of various High Courts and also of the Tribunal wherein a view has been taken that subsequent reversal of credit amounts to non-availment of credit." 9. In the case of M/s. Indian Furniture Products Ltd. (supra), this Tribunal at the stay stage has observed- "4. After hearing both sides and perusal of case records, we find that Rule 3 of the Cenvat Credit Rules, 2004, allows credit of excise duty paid on any inputs and service tax paid on any input service received by the manufacturer of final products or by the provider of output service. Input and input service have been defined in Rule 2(k) and (l) of the Cenvat Credit Rules, 2004, to mean goods and services used in or in relation to manufacture of final products or used for providing output servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; "After hearing both sides, we find that the first issue involved in the appeal is whether the Cenvat credit available on raw materials and services used for non-excisable goods is admissible to the appellants. Under the Cenvat Credit Rules, input means all goods used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and Cenvat credit can be availed on the duty paid on any input received in the factory of manufacture of the final product. This is an accepted fact that the goods containing alcohol are not final product since the same are not excisable goods under the Central Excise Act. As such the inputs which are used for manufacture of such goods do not qualify as inputs and credit availed by them on such inputs is not admissible. The appellants claimed that on being pointed out, they have paid the entire credit taken by them for the period April, 2004 to August, 2006. They submitted that since they were reversing 10% of the price of non-excisable goods, the total amount reversed under Rule 6(3)(b) of the Cenvat Credit Rules was Rs. 90,86,941/- which is much more than the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice receiver. In this case of trading, there is no service provider or service receiver. Here the appellant assessee purchases goods from their principals and store it and thereafter sell it to various customers for profit. So in that sense trading is not a service and as has been held so in various judgments and quoted by both the ld. Sr.Advocate as also ld. A.R. 13. The main contention of the Ld.Sr.advocate is that their business consists of two streams viz. manufacturing and trading. The services which are common for manufacturing and trading are therefore used in connection with their business and the definition of input service as per Rule 2(l) specifically includes activities relating to business and therefore, they are entitled to take the credit of the same. We are not impressed with the said argument of the Ld.Sr.advocate. The term "input service" is defined under Rule 2(l) as - "input service" means any service,- (i) used by a provider of taxable service for providing an output service; or (ii) used by the manufacturer, whether directly or indirectly, in or in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be related to the final products being manufactured by that manufacturer. Thus, if advertisement is relating to the goods manufactured by the manufacturer, then the manufacturer would be entitled for the credit of the same as an input service. Similarly, if the manufacturer's activity relating to accounting, financing, recruitment and quality control etc. are relating to the goods manufactured by him, then the manufacturer would be entitled to the credit of tax paid on input service. In our view the term 'business' used in the said definition is relating to the business of manufacture of the final products by the manufacturer and not relating to the trading activity. A somewhat similar issue i.e. whether "Activities relating to business" requires integral connection between activity/service and business of manufactured final products came up before this Tribunal in the case of Telco Construction Equipment Co. Ltd. vs C.C.E. & Cus. Belgaum reported in 2013 (32) S.T.R. 482 (Tri-Bang.). This Tribunal by majority view observed as - "30.2 The proposed order by the Hon'ble Member (Technical) allowing the credit in respect of five services and the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e would not qualify to be a input service under Rule 2(l) of the 2004 Rules." It is also relevant to note that the decision in the case of Ultratech Cement Ltd. has been rendered after considering the decision in the case of Coca Cola (Paragraphs 37 & 38). 31.3 It is further noticed that the Hon'ble High Court of Bombay in the case of Manikgarh Cement has also interpreted the expression "relating to business" and held as under : "However to qualify as an input service, the activity must have nexus with the business of the assessee. The expression 'relating to business' in Rule 2(l) of CENVAT Credit Rules, 2004 refers to activities which are integrally related to the business activity of the assessee and not welfare activities undertaken by the assessee." 31.4 On the other hand, a close perusal of the decisions relied upon by the learned advocate for the appellant, reveals that the said decisions did not interpret the expression 'relating to business'. 31.5 In view of the above, the appellant should be required to establish integral connection betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, particularly, the said view is also supported by the fact that the said Notification was issued on 1.3.2011 and was to come in to force only from 1.4.2011. Moreover, Rules are delegated legislation and Government has no power to amend the Rule with retrospective effect. This can be done only by an Act. We agree with Ld.Sr.Advocate's contentions in this regard. We also find support for the same from the judgment of the Hon'ble Supreme Court in the case of UOI vs. Martin Lottery Agencies Ltd. reported in 2009 (14) S.T.R. 593 (S.C.). An explanation was appended to Section 65(19) of Finance Act, 1994 vide Finance Act, 2008. The said explanation started with the words "For the removal of doubts........". In this context, Hon'ble Supreme Court in para 24 has observed - "24. ....... If by reason of the said explanation, the taxing net has been widened, it cannot be held to be retrospective in operation. No doubt, the explanation begins with the words 'for removal of doubts'. Does it mean that it is conclusive in nature? In law, it is not. It is not a case where by reason of a judgment of a court, the law was found to be vague or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Explanation has specifically stated that it would be effective from the date of its publication, it takes effect only from that date. In the instant case also, Notification No. 19/08 introducing Explanation to Rule 6 of the Service Tax Rules, 1994 contains a provision that it shall be effective only from the date of its publication. The amendment to Section 67 is a substantive one and will be applicable only from the date of its introduction and not retrospectively, eventhough the Explanation uses the expression "for removal of doubts". The decision of the Tribunal in CCE, Pune v. Bajaj Auto Ltd. [1999 (111) E.L.T. 846] relied upon by the lower appellate authority to conclude that the amendment, which is clarificatory in nature, is retrospective, is not applicable in the facts of the present case, as the Tribunal held in that case that clarificatory amendments are retrospective only when they did not materially change, the existing provisions, while in the instant case, there was no provision either in Section 67 of the Finance Act or Rule 6 of the Service Tax Rules to suggest that in the case of transactions between associated enterprises, service tax has to be paid immediatel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , electricity and many other services and it will not be appropriate to take the value addition. In support of his contention that in case of traded goods only value addition should be taken, Ld.Sr. advocate took us through the judgment of the Court (5 th Chamber) dated 14.7.1998 in case C-172/96 which was passed on a reference under Article 177 of the EC Treaty by the High Court of Justice of England and Wales, Queen's Bench Division. We have gone through the said judgment carefully. In the said case, the issue was how to determine the turnover for purpose of value added tax in case of transactions in different currencies by the First National Bank of Chicago. The Bank used to purchase various currencies at a certain rate in other currencies. Similarly, the Bank used to sell various currencies in other currencies. The difference between the two is generally understood as spread and would be the income of the Bank. The question was what should be considered as the turnover for purpose of VAT. It is in that context, the said court has held that the spread, the difference between the selling price and purchase price should be taken for the purpose of VAT. In the present case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sly while other cars are imported and hence traded. In our view, the credit of tax paid on such sales promotion activities should be apportioned with reference to the turnover of the manufactured cars and turnover of the traded cars. For example, if the turnover in particular period is say Rs.1000 crore out of which turnover of Rs.700 is pertaining to the indigenous cars and turnover of Rs.300 crores pertains to the imported and traded cars then if the input credit of 10 crores is available then 7 crore should be considered for the manufactured cars in India and credit of Rs.3 crore should be considered pertaining to imported and traded cars. If we go by the argument of the Ld.Sr.Advocate then the value of traded cars will have to be taken as Rs.30 crores and total turnover will be considered as Rs.730 crores and credit of Rs.10 crores will have to have apportioned in the ratio of 700:30 or 70:3. Obviously, this would be leading to incorrect results. It would amount to 96% expenditure (relating to sales promotion) is for the domestically manufactured goods and approximately 4% expenditure on the imported and traded cars. Similar is the position in respect of event management servic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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