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TMI Blog2015 (6) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... iod is say ₹ 1000 crore out of which turnover of ₹ 700 is pertaining to the indigenous cars and turnover of ₹ 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 ₹ 3 crore should be considered pertaining to imported and traded cars. Credit of input or input services is allowed only in order to eliminate the cascading effect of taxes. Thus, for taking credit, the trading activity should be taxable under Service Tax or Excise Law. The credit of input or input services is not allowed in respect of non-taxable activities. Here is a case where the services were used for trading activity. The appellant should have not taken the credit in the first instance itself, which was totally wrong on their part. They did not indicate in the returns that the credit relating to the trading activities was also being availed by them. Therefore, this is a clear case of suppression, and conduct of the appellant in this regard does not take him further and the extended period of limitation has been rightly invoked. No hesitation whatsoever in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and trading, they are using number of taxable input services. They are availing credit of service tax paid on such input services. Since there is no excise duty or service tax on the trading activities, the entire credit is utilized towards payment of excise duty on the goods manufactured by the appellant. Further, since they have two units i.e. one located in Pune and the other in Bangalore, they are utilizing the said credit in the two units. For purpose of distributing the said credit, the main appellant took another registration as an input service distributor in Pune itself and based upon their registration as an input service distributor, they are distributing the credit of input services between the two units. 3. The dispute between the Revenue and the appellant is that since trading is not a taxable activity either under Excise Law or Service Tax law, and since the input services have been used both in manufacturing and trading, appellants are not eligible for availing the entire credit of input services under Rule 3 read with Rule 2(l) of the Cenvat Credit Rules. The Revenue is of the view that the appellant is not eligible for credit of input services in proportion to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Flock India Pvt. Ltd. reported in 2000 (120) ELT 285 (SC) is quoted to support the contention. It is further submitted that the Bangalore Bench of this Tribunal in their own case, has set aside the demand vide final order No. 20723-20724/2014 dated 7.5.2014. It is also contended that if for some reason, the present Bench is of the different opinion, then the matter may be referred to a Larger Bench and in support of this contention, the judgment of the Hon'ble Allahabad High Court in the case of Xerox India Ltd. reported in 2011 (270) ELT 654 (All.) is quoted. It is also submitted that CBEC has issued letter No. 137/68/2013-ST dated 10.3.2014 and this letter of the CBEC is not binding on CESTAT as it is contrary to the ratio laid down by CESTAT. It is submitted that in case of conflict between the Board circular and CESTAT order, CESTAT order has to prevail and in support of the same, certain case laws are submitted. It is further submitted that the ratio of the judgment of this Tribunal in the case of Mercedes Benz reported in 2014 (36) S.T.R. 704 (Tri. - Mumbai) - is not applicable in the present case. According to the learned counsel, in the said judgment this Tribunal h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April 2011. Hence the demand prior to March 2010 is hit by limitation, as the issue relates to interpretation of statutory provisions and there was a bona fide belief that in the absence of any reversal provisions, no cenvat credit is to be reversed for trading activity upto March 2011. 6. The learned Commissioner (AR), on the other hand, submitted that the appellant is one and the same and they have taken registration for manufacturing activity. Since they wanted to distribute the credit of input services, they have taken registration as an input service distributor in addition to as manufacturer. It is to be noted that both the registrations are in the name of SKF India ltd., Chinchwad, Pune. Function relating to input service distributor is being carried out from the office which is also located in the same premises as that of the factory. He further submitted that show cause notice has been issued to the appellant, both as a manufacturer as also an input service distributor. For both the activities viz. manufacturing and input service distribution, the jurisdiction is that of Commissioner of Central Excise, Pune-I. Under the circumstances, the various contentions raised wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal. Further, the term 'final product' is defined under clause (h) of the said Rule. In view of the said definitions, the appellant is not permitted to take credit of input services used in the trading activities. Since the input services are of such a nature that these are used both in the trading as also the manufacturing activities, the only solution is to divide the credit in proportion to the turnover of trading activity and manufacturing activity. The learned AR further submitted that the issue has been discussed in detail by this Tribunal in the case of Mercedes Benz India Pvt. Ltd. vs. CCE Pune -I reported in 2014 (36) S.T.R. 704 (Tri. - Mumbai) -. In the said judgment, this Tribunal has taken a view that trading is not a service. The learned AR also submitted that even the appellant at the time of original adjudication has taken the same plea that trading is not a service and, therefore, the ratio of the judgment in the case of Mercede ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bai) (para 5.3); (vi) AG Industries Pvt. Ltd. vs. CCE, New Delhi reported in 2001 (129) ELT 218 (Tri.-Del.) (para 2). 7. We have considered the submission of both the sides. The main contentions raised by the learned counsel is relating to jurisdiction. The relevant provision for registration is provided under Section 69 of the Finance Act, 1994. The said provision is reproduced below:- 69. - (1) Every person liable to pay the service tax under this Chapter or the rules made thereunder shall, within such time and in such manner and in such form as may be prescribed, make an application for registration to the Superintendent of Central Excise. (2) The Central Government may, by notification in the Official Gazette, specify such other person or class of persons, who shall make an application for registration within such time and in such manner and in such form as may be prescribed. A bare reading of the said section would indicate that registration is required to be taken by (i) every person liable to pay service, tax, and (ii) other person or class of persons as notified by the Central Government. Thus, the service tax registration is required to be taken by a perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lone. 8. In the case in hand, the appellants are located in Chinchwad, Pune and are registered as manufacturer of goods under the Central Excise Act. If this was the only factory, there was no need to get registered as input service distributor. Since they have another unit in Bangalore, they have registration of the Pune unit as an input service distributor also. The purpose of such a registration is that the concerned authority is aware that the registered person is receiving invoices relating to input services used in their both the factories /locations. They normally would be paying excise duty in both the factories and accordingly the credit of input services is distributed among both the factories. It is to be noted that all the functions i.e. receipt of the invoices, distribution of the credit of such invoices, availment and utilization of such credit are done by the same legal entity. The only reason for distribution is that excise duty is paid factory-wise. So credit of duty on input services is also required to be distributed in both the factories. 9. The main objection of the appellant that the show cause notice should have been issued to the ISD and not to the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Credit of service tax not eligible to be distributed* (B) Closing Balance Details of Education cess received and distributed Details of Credit Apt/Oct May/Nov June/Dec July/Jan Aug/Feb Sept/Mar (1) (2) (3) (4) (5) (6) Opening Balance Credit of education cess received Credit of education cess distributed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done to them as an ISD but has been done as factory or vice versa. Factory and ISD, both are one and the same legal entities and are in one place under the jurisdiction of same Commissioner. Two registrations, one as manufacturer and the other for activity as ISD, will not make any difference whatsoever. 11. The learned counsel has submitted that the Bangalore Bench of the Tribunal in their own case has set aside the demand. We have gone through the said order. In the said order, the Tribunal has only remanded the matter. In respect of the Bangalore unit, at least the ISD and the unit were located in different places under jurisdiction of two different Commissioners, In the present case, ISD as well as unit are located in the same complex and, therefore, the ratio of the said case is not applicable. Hence the contention of the appellant is rejected. 12. The learned counsel has also submitted that the matter may be referred to the Larger Bench. As discussed earlier, in the present case, both ISD as also the Pune factory are located in the same premises and, therefore, the case laws quoted are distinguishable and hence, in our view, there is no need to refer the matter to a Lar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal; (Emphasis supplied). We observe the definition of input service has two parts. The first part provides for use by a provider of a taxable service for providing output service. The second part provides for use by a manufacturer in or in relation to the manufacture of final products. Further, the said definition relating to manufacture not only relates to the services which are used in the manufacturing operations but also includes services used in relation to setting up, moderniza ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration of the eligibility of nine services has been made in the light of decision in Coca Cola case holding that - all services which constitute activities related to business need not have a nexus with manufacture in a manner different from what was found in the Coca Cola India Pvt. Ltd. case by the Hon'ble High Court to become input Service . On the other hand, Hon'ble Member (Judicial) took note of the decision in the case of Ultratech Cement Ltd. relevant portion of which reads as follows : 29. The expression activities in relation to business in the definition of input service postulates activities which are integrally connected with the business of the assessee. If the activity is not integrally connected with the business of the manufacture of final product, the service would not qualify to be a input service under Rule 2(l) of the 2004 Rules. In view of the above judgment, he was of the opinion that a manufacturer claiming the benefit of CENVAT credit on any service under Rule 2(l) on the premise that the service is covered by the above expression should establish an integral connection between the activity/service and the business of man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first one is manufacturing of cars in India and the second one is importing the cars and selling the cars in the Indian market viz. trading activity. In view of above position, we are of the view that the credit of input services which are used both in the manufacturing and trading cannot be entirely allowed. It will also be interesting to see various common services of which credit has been taken and are matter of dispute in the present case. The main common services on which the credit has been taken are advertisement, event management service, business auxiliary services, business support services. These services are related to sales promotion and are included in the definition before the words activities relating to business such as .. In respect of these services, there can be no doubt that these have to be linked with manufactured product (and not the traded goods). We also note that all services used in business are not included in the definition of input service. This part of the definition reads - activities relating to business such as accounting, auditing, financing, recruitment and Thus the services used in activities such as accounting, auditing, financing, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period prior to 1.4.2011 and the amended provision with effect from 1.4.2011 will not have retrospective effect. The next issue to be decided is how to apportion the credit of input service taken by the appellant, where such input services have been used both in the manufactured goods and trading activities of the imported goods. It is in this context that the ld. Sr. Advocate for appellant has argued that the same should be computed with reference to clause (c) of Explanation I appended after Rule 6(3D) of Cenvat Credit Rules, 2004. The said provision as noted earlier was inserted with effect from 1.4.2011. The argument of the ld.Sr.Advocate is that the said explanation only provides the procedure for computation and since this change is procedural in nature it will have a retrospective effect. Ld.Sr. advocate also argued that in case of traded goods, the value addition by the appellant is only the difference between the sale price and the purchase price of the goods which is not so in the case of manufactured goods. On a query by the Bench that since Ld.Sr. advocate is arguing that only the value addition should be taken in respect of the traded goods, then why the same crite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The question was whether the new inserted rule can be used for determining the value of properties for earlier period and hence determine the wealth tax. It is in this context that the Hon'ble Supreme Court has taken a view that the same would be applicable to all the proceedings pending at the time of its enactment. In the present case, as mentioned earlier, it is not the computation of tax but apportionment of the credit of service tax on input services availed for manufactured goods and traded goods. As we have already held that trading was not a service and therefore cannot be considered as an exempted service before 1.4.2011, therefore, the substantive provision itself did not exist before the said date. Under the circumstances, we are of the view that the said judgment is not applicable in the facts and circumstances of the present case. 17. Having come to the conclusion that clause (c) of Explanation 1 has no application for determining the apportionment of the credit of service tax on input services, the question is how to determine the same. We find that the major amount pertains to the services in relation to the advertisement, even management, business auxiliary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same ratio as the turnover of the manufactured and traded cars. 18. In addition to the earlier mentioned case laws, the ld.Sr.Advocate also mentioned the judgment of the Hon'ble Supreme Court in the case of Ashok Leyland Ltd. Madras vs Commissioner of Income Tax, Madras reported in (1997) 1 SCC 729. We have gone through the said judgment of the Hon'ble Supreme Court. The issue in that case was relating to deduction attributable to a priority industry within the meaning of Sec. 80-B(7). It is in that context that the Hon'ble Supreme Court took a view that importing certain spare parts and selling the same in the market would be covered within the scope of priority industry as it was necessary for the appellant to provide such spare parts in the market. Trading of imported cars is not necessary for selling the domestically manufactured cars. We have also discussed the scope of the term business used in the definition of 'input services' with reference to the business of manufactured and imported goods. We therefore, do not find the ratio of the said judgment applicable in the present circumstances. In view of the said decision of the Tribunal, the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ₹ 5.41 crores and denied for the balance. We find no error in such determination, which is in consonance with Rule 2(l) of the Cenvat Credit Rules. 11. On the plea of limitation, it has been considered by the Adjudicating Authority, Commissioner (Appeals) and the Tribunal and there is a clear finding that the appellant had not disclosed the availment of input service credit on commission in respect of trading activities and it came to the knowledge of the Department only on verification of the documents, such as, contract agreements, commission agreements etc. and therefore the plea of limitation was rightly rejected by the Authorities below. This Tribunal in the case of Kalpik Interiors (supra) has observed as under:- 14. As regards the allegation of suppression of facts, it is seen that the appellants deliberately indulged in deducting 67% from the gross value shown in the invoices and paid service tax only on 33% under Notification No. 15/2004-S.T. and Notification No. 1/2006-S.T., admitted to have availed of the said notifications and even mentioned these notifications in their ST-3 Returns even when the said notifications specifically, unambiguously and exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t produced any evidence to show that the appellants had used these H.R. Coils for the manufacture of dutiable products also. We have no hesitation whatsoever in holding that taking credit in respect of services used in trading activity cannot be considered as bona fide at all. Just because the Government has put a trust in the trade and permitted them to take credit without any reference to tax authorities, it does not imply that the appellant can avail any credit whether permissible or not under the law and the later on, take the plea that the same is not recoverable on the grounds that the issue involves interpretation and hence the extended period of limitation cannot be applied. For similar reasons, penalties have been correctly imposed and we uphold the same. 20. In the result, we do not find any merit in the appeal filed by the main appellant and accordingly the same is dismissed. 21. We find that a penalty of ₹ 5,000/- has been imposed on the appellant as an ISD Under rule 15A of the Cenvat Credit Rules. The said Rule 15A reads as under:- Whoever contravenes the provisions of these rules for which no penalty has been provided in the rules, he shall be lia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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