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TMI Blog2015 (10) TMI 2401X X X X Extracts X X X X X X X X Extracts X X X X ..... nit, head office as also various branch offices. The input services are in relation to the manufacturing activity as also trading activities. As far as input services which are exclusively used in the manufacturing activity at Roha plant, appellants are taking credit and there is no dispute. However, there are services which are used both in trading and manufacturing, and it is not possible to segregate the invoices/usewise. The case of the Revenue is that the appellant-company is not entitled to take entire credit of input services in such cases but would be eligible to take credit based upon the turnover of manufacturing and trading. It was found that out of total turnover, trading turnover is 15 18% and manufacturing 85 82%. Revenue has proposed to deny 15- 18 % credit on common input services. Thus, Revenue has proposed to deny a credit of Rs. 1,30,90,786/- and recover it under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944 along with interest and also for imposition of equal amount of penalty under Rule 15 of the Cenvat Credit rules, 2004 read with Section 11AC of the Central Excise Act, 1944. In addition, it is also proposed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the term used in the ST-3 return is self-assessment. 2.2. Next submission of the learned counsel was that the issue may be referred to the Larger Bench in case the same is not acceptable to the present Bench. 2.3. Next submission of the learned counsel was that the CBEC has issued letter No.137/68/2013-ST dated 10.3.2014 clarifying that the provisions of Rule 14 of the Cenvat Credit Rules, 2004 shall only be invoked for denial of the credit. The said Rule 14 is not applicable to ISD and therefore the credit shall be denied at the jurisdiction where it is distributed. It was submitted that the said letter of the CBEC is not binding on CESTAT as it is contrary to the law laid down by the CESTAT. 2.4. In the appeal filed, appellants have contended that trading is not a service or exempted service and hence provisions of Rule 6 of the Cenvat Credit Rules will not be applicable thereby implying that they are entitled to whole of the cenvat credit taken. 2.5. Since this Tribunal in the case of Mercedes Benz has taken a view that trading is not service or exempted service during the period. During the argument, this part of the claim was not pressed. However, the learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n head office and the same is attributed to both manufactured goods and traded goods and the services are common services. Shri Anil Kumar Singh, Director's statement was recorded on 22/03/2011 wherein he clarified that they are passing on the credit to Roha unit for the services which are not exclusively used for manufactured goods or traded goods. It was also stated by him that they have never informed the department that they are availing credit on common input services through ISD used for manufactured and traded goods. Learned AR further submitted that Rule 2(l) relating to input services has a main part and another inclusive part and inclusive part is not independent of the main part of the definition. For being eligible for input service, it is required that the input service should be used in or in relation to the manufacture of excisable goods. It was also submitted that the input services for which ISD invoices were raised were relating to management, maintenance and repairs, advertisement, business auxiliary service, banking and financial services, company secretary service, courier, clearing and forwarding etc. Learned AR further submitted that from the statement of Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es vs. CC, Chennai reported in 2006 (199) ELT 405 (Mad.). 3.1. Learned AR further submitted that the definition of the input service was considered by the Hon'ble High Court of Bombay at Nagpur in the case of CCE, Nagpur vs. Ultratech Cement Ltd. reported in 2010 (20) STR 577 (Bom.) and in para 29 the Hon'ble High Court observed that 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 an input service under Rule 2(l) of the 2004 Rules. It was further submitted that the Tribunal in the case of Orion Appliances vs. CST, Ahmedabad reported in 2010-TIOL-752-CESTAT-AHM, held that a noticee would not be eligible to take input service tax credit on an output service which is neither a service nor excisable goods. It was further submitted that similarly the Tribunal in the case of Metro Shoe Pvt. Ltd. vs. CCE reported in 2008 (10) STR 382 (Tri.-Mum.), has held that credit is not admissible on services directly or only attributable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of registered dealer who is dealing in the excisable goods, such registered dealer normally purchases excisable goods and thereafter sells it to different buyers. When they buy the goods, they get the excise duty paying invoices. When they sell the goods, they indicate the corresponding details and on the basis of the invoices issued by registered dealer, the buyer of such goods is entitled to take the credit of excise duty paid. Thus in the case of registered dealer, there are three entities the manufacturer of the goods who has cleared the goods on payment of duty, registered dealer and thereafter the buyer (some time the manufacturer of the goods might have registered his depots as registered dealer but that will not make any difference). The role of input service distributor is totally different. Input service distributor is not a dealer or trader in services i.e. he does not buy and sell the services. Input service distributor receives the services for his own consumption, which may include his own office, his branch offices or various manufacturing units located in different places. Nature of services many a times are such that it may not be pertaining to particular m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the case may be." It would be seen from the definition that input service distributor is neither a service provider nor a manufacturer, but it is only an office of service provider or manufacturer. Since input service distributor neither manufactures the goods nor provides the service, there is no question of input service distributor liable to pay any excise duty or service tax. (The company will, of course, either be manufacturing the goods or providing the service from either the same location or some other location). There is therefore no question of assessment or self assessment by ISD. Further Rule 7 of the Cenvat Credit Rules which deals with the input service distributor, reads as under:- "Manner of distribution of credit by input service distributor. " The input service distributor may distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or units providing output service, subject to the following condition, namely:- (a) the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon; or (b) credit of service tax attributable to service used in a un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l products or provider of output service, which receives invoices issued under rule 4A of the Service Tax Rides, 1994 towards purchases of input services and issues invoice, bill or, as the case may be, challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be;" (emphasis added) The ISD hence receives the bills, challans, etc of service tax paid by their offices / units and distributes it to their own units involved manufacturing or producing or providing service as the case may be. It becomes 'Cenvat Credit' only when these units manufacturing or producing or providing service take the specifiedtaxes indicated in the document issued by the ISD as credit into their books as provided by Rule 3 of CCR. Since an Input Service distributor (ISD) is neither a "producer/manufacturer of final products' nor a 'provider of taxable service' Rule 3 does not apply to them. Further Rule 7 of CCR makes it clear that the said Rule only permits the distribution of 'Cenvat Credit' by an ISD. The text of Rule 7 is reproduced below:- "The input service distributor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effecting such recoveries." (emphasis added) 16.3. Hence while there is no provision enabling an ISD to avail Cenvat Credit, as he acts only as distributor, recovery of wrongly availed credit can also not be done by issuing a notice to him, a;; it can be affected only from a person who has wrongly availed the credit as provided by Rule 14 CCR. 1 have examined the CESTAT judgment in Godfrey Philips India Ltd. - 2009 (239) E.L.T 323 (Tri. - Ahmd.), the relevant portion of the judgment reads as under; "5. When we look at the functions of the input service distributor and the documents to be issued by him for passing on the credit, it becomes quite clear that the document issued by him for passing on the credit does not contain the nature of service provided and the details of services. It contains the service provider's details, distributor's details and the amount. Obviously the eligibility or otherwise of the service tax credit has to be examined at the end of input service distributor only. This is further supported by the fact that both Central Excise assessees and Service Tax assessees are under the regime of self assessment and therefore it is the assessee himself wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Credit Rules are concerned. The honble Supreme Court in the case of Municipal Corporation Of Delhi vs Gurnam Kaur (1989) 1 SCC 101 has held as under: "11. Pronouncements of law, which are not part of the ratio decidendi are classed as obiter dicta and are not authoritative. With all respect to the learned Judge who passed the order in Jamna Das' case and to the learned Judge who agreed with him, we cannot concede that this Court is bound to follow it. It was delivered without argument, without reference to the relevant provisions of the Act conferring express power on the Municipal Corporation to direct removal of encroachments from any public place like pavement or public streets, and without any citation of authority. Accordingly, we do not propose to uphold the decision of the High Court because, it seems to us that it is wrong in principle and cannot be justified by the terms of the relevant provisions. A decision should be treated as given per incuriam when it is given in ignorance of the terms of a statute or of a rule having the force of a statute. So far as the order shows, no argument was addressed to the Court on the question or not whether any direction could pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the type of dictum. Mere casual expressions carry no weight at all. Not every passing expression of a Judge, however eminent, can be treated as an ex cathedra statement, having the weight of authority." In the case of State of U.P. and Anr. vs. Synthetics and Chemicals (1991) 4 SCC 139 the honble Supreme Court has held as under: "40. Incuria' literally means 'carelessness'. In practice per incurium appears to mean per ignoratium.' English Courts have developed this principle in relaxation of the rule of stare decisis. The 'quotable in law' is avoided and ignored if it is rendered, 'in ignoratium of a statute or other binding authority'. (1944 IKB 718 Young v. Bristol Aeroplane Ltd. Same has been accepted, approved and adopted by this Court while interpreting Article 141 of the Constitution which embodies the doctrine of precedents as a matter of law. In Jaisri Sahu v. Rajdewan Dubey, [1962] 2 SCR 558 this Court while pointing out the procedure to be followed when conflicting decisions are placed before a Bench extracted a passage from Halsbury Laws of England incorprating one of the exceptions when the decision of an Appellate Court is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... templated by Article 141. That which has escaped in the judgment is not ratio decidendi. This is the rule of sub-silentio, in the technical sense when a particular point of law was not consciously determined. (See State of U.P. Vs. Synthetics & Chemicals Ltd. 1991 (4) SCC 138, para 41)." 5.4. In view of this position, the decision of this Tribunal in the case of Godfrey Philips India Ltd. and followed in few other cases has to be considered as per incurium and cannot be taken as a precedent and the whole issue is required to be examined with reference to various rules. 5.5. The next submission of the learned counsel is that credit cannot be denied unless the assessment of distribution of credit made at ISD is set aside. The above mentioned concept has been supported by this Tribunal in altogether different circumstances relating to excise and service tax assessment. There are many situations where goods were cleared by a manufacturer on a particular value, classification or rate of duty. When such goods were being received by another manufacturing unit and were being used as inputs in further manufacturing, the range officials in such unit were questioning value, classification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the manufacturing unit are the same legal entity and whether a show cause notice is issued to the manufacturing unit or to their head office will not really make any difference. Moreover, as mentioned earlier, the judgment of this Tribunal in the case of Godfrey Philips India Ltd. is per incurium and therefore there is no difference of opinion between us and the coordinate Bench so as to refer the matter to the Larger Bench. Rule 3, 9(5), 9(6) and Rule 14 have not been examined in that case. 5.8. Another submission made by the learned counsel was that the CBEC letter No.137/68/2013-ST dated 10.3.2014 is not binding on the CESTAT as it is contrary to the law laid down by CESTAT. In our view, the letter is not contrary to any decision of CESTAT. In fact the letter speaks of Rule 14 of the Cenvat Credit Rules which was not taken into consideration while passing the order in the case of Godfrey Philips. In any case it is to be mentioned that there were number of cases where because of the confusion created by the Godfrey Philips case, the department has issued show cause notices both to the ISD as also the manufacturing unit and it is in that context that this Tribunal has asked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f final products up to the place of removal. However, inclusive part of the definition list out certain services and as held by various courts that these services have to relate with the business of manufacture or business of providing taxable service. Thus, these services cannot be in relation to the trading activity. Thus, the appellant could not have taken the entire amount of credit of input services. We also note that Revenue has denied credit of service tax in proportion of trading goods. 7. Learned counsel's contention is that in the case of Mercedes Benz India Pvt. Ltd. vs. Commissioner of Central Excise, Pune I 2014-TIOL-476-CESTAT-MUM, the Tribunal has held that in computing the ratio of exempted turnover, the value of trading i.e. without deduction of cost of goods sold shall be considered as value of exempted turnover and quoted para 17 of the said judgment. It was further submitted that Tribunal has not laid down general proposition. We have gone through the said judgment and one of us was in the Division bench that decided the said case. The issue in para 17 was that a particular assessee is manufacturing and also undertaking trading and trading is not consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion was that the credit on input services should be apportioned in the same ratio as that of turnover of traded and manufactured goods. In view of the above analysis we are unable to agree with the contention of the learned counsel for the appellant and in our view the ratio of the judgment in the case of Mercedes Benz equally apply in the present case, and all other cases of similar nature. 8. We also note that the learned counsel of appellant has given a table indicating categorywise break up of credit and submitted that the credit mainly relates to management, maintenance or repair service and business auxiliary services. Learned counsel has also explained the nature of the services. We have given considerable thought. Even in this case one cannot say that the SAP system was used for the purpose of manufactured goods and not for the trading and changes in any computer software or SAP system are not determined based upon each click or transaction. Even if that is so, no conclusion can be drawn that it is used more for manufactured goods and less for traded. Revenue has proposed demand in proportion to the turnover of traded goods and the manufactured goods. Learned counsel has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, modernization, renovation or repairs of a factory, advertisement or sales promotion, market research, storage upto the place of removal etc. The definition further includes activities relating to business such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security. Thus we observe that second part of the definition includes services which are required for setting up of the factory or marketing of the goods. For example, advertisement or sales promotion or market research or storage upto the place of removal etc. are activities which may not be directly used in the manufacture of the goods but are required for sale of manufactured goods. Further, there are certain services which are not directly related to the manufacture or ultimate sale of the goods but would be used by the manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s." 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 manufacturing the final product." 31.1 I find that the decision in the case of Coca Cola analyses the definition of "input services" in 5 limbs and holds that each limb of the definition of input service can be considered as providing an independent benefit or concession or exemption. One of the limbs considered related to "services used in relation to activities relating to business....". However, the scope of the term "activities relating to business" was not spelt out in the said decision. 31.2 However, the latter decision of the Hon'ble High Court of Bombay, Nagpur Bench in the case of Ultratech Cement Ltd. has dealt with the scope of the said phrase and held as under : "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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices 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, recruitment etc. are only to be allowed. The services under dispute are mainly advertisement, even management, business auxiliary, business support services. None of these services are relating to activities illustrated or enumerated in the definition. On this ground also we do not find any merit in the contention of the appellant assessee that they would be entitled to the credit of common services. We, therefore, hold that the common services are not covered by the definition of activities relating to business. 10. We have gone through the list of such services as also the observations of Honble Bombay High Court in the case of Ultratech Cements as also in the case of Manikgarh Cements. The list includes services such as banking and other financial services, chartered accountant services, manpower recruitment services, etc., these services are used in the business of both the manufactured goods and als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was found to be vague or ambiguous. There is also nothing to show that it was found to be vague or ambiguous by the executive. In fact, the Board circular shows that invocation of clause (ii) had never been in contemplation of the taxing authorities." A somewhat similar situation arose in the case of Sify Technologies Ltd. vs. Commissioner of Cen. Excise & ST. LTU Chennai reported in 2011 (21) STR 252 (Tri-Chennai) = (2011-TIOL-123-CESTAT-MAD). This Tribunal in the said case observed as under - "5. Pursuant to the above amendment, following Explanation was inserted in Rule 6 of the Service Tax Rules, 1994, w.e.f. 10-5-08 :- "Explanation. - For the removal of doubts, it is hereby declared that where the transaction of taxable service is with any associated enterprise, any payment received towards the value of taxable service, in such case shall include any amount credited or debited, as the case may be, to any account, whether called "Suspense account" or by any other name, in the books of account of a person liable to pay service tax". 6. The statutory provision for demanding service tax in respect of transactions between associated enterprises, immediately upon amendment, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mediately on entry of the transaction in the books of account." Similar view has been taken by this Tribunal in the case of Sitara Exports Ltd. vs. Commr. Of Central Excise, Vapi reported in 2010 (255) ELT 117 (Tri-Ahd). 15. We find considerable force in the arguments of Ld. Senior Advocate for the appellant that changes made by Explanation are substantive in nature. Explanations have been made in Rules by a Notification without giving it retrospective effect and though notification was issued on 1.3.2011 but came into force only 1.4.2011 and thus it cannot have retrospective effect. In our view, Revenue's act as to consider trading' as exempted service for the period Aug. 2010 to March, 2011 in E/1019/12-Mum and demanding 6% of the trading turnover is not correct. 13. We also note that the learned counsel has submitted that the provision is procedural in nature, while in the case of Mercedes Benz the learned senior counsel had argued that the provisions are substantive in nature. This Tribunal has agreed with the view of learned senior counsel. In our view, if an amendment in a provision results in change of financial liability, the amendment is required to be consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 dispute is not relating to computation of turnover for purpose of charging a tax as there is no tax liability in case of traded goods. The question is how to apportion the credit of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. The learned counsel has also quoted certain judgments that there must be uniformity in application of laws on all the assessee. While there can be no dispute about such a proposition, however, on any issue, there would be, in the initial stages, there can be different opinion between different adjudicating authorities or between lower authority and higher authority. The decision of the higher authority is to be followed by all others. Just because in case of Godrej Boyce & Manufacturing Co. a different view has been taken by one Commissioner that cannot be a reason to follow the same by all the Commissioner and even by the higher forum. Uniformity does not imply that incorrect interpretation should be applied in all cases but uniformity should with reference to the correct interpretation. Since this Tribunal has taken a particular view that view is required to be followed by all lower authorities. The case of the Godrej has been adjudicated by the Commissioner when the decision of the Tribunal was not available. 18. learned counsel for the appellant has submitted that they should be given the benefit of the then Rule 6(5) of the Cenvat Credit Rules, which provides entire cred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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