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TMI Blog2015 (10) TMI 2754X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice 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. Rule 7 of the Cenvat Credit Rules states that input service distributor is expected to distribute the credit and ensure that the credit distributed does not exceed the amount of service tax paid as per the documents. The other condition is that the credit of service tax attributable to service used in a unit exclusively engaged in the manufacture of exempted goods or providing exempted service shall not be distributed. It will be seen from the above Rule that these are only two guidance for the ISD for distribution of the credit. There is no rule in Service Tax Law which provides assessment or self-assessment by ISD. Next submission of the learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewise. 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 ₹ 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 deny credit of ₹ 1,11,444/- which is in relation to input services like cab, photography, club, association etc. and also services of share transfer agent and stock exchange services. Out of the said amount of ₹ 1,11,444/-, the appellant has reversed an amount of ₹ 49,731/- along with interest on input services like cab, photography, club or association etc. which are exclusively for trading activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 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 India (P.) Ltd. v. CCE [Order Nos A/123-126/2014/EB/C-II, dated 20-2-2014] 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 submitted that the ratio of the judgment in the case of Mercedes Benz India (P.) Ltd. is not applicable in the present case. The learned counsel submitted that in view of the details furnished, it will be seen that the major credit relates to management, maintenance or repair and busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices 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(1) 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 Shri Anil Kumar Singh, it is very clear that they have passed on the credit which are commonly used in relation to their manufactured and traded goods. Learned AR also submitted that as per Rule 9(6) of the Cenvat Credit Rules, the burden of proof regarding the admissibility o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved 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(1) of the 2004 Rules. It was further submitted that the Tribunal in the case of Orion Appliances v. CST [2010] 27 STT 319 (AHD - CESTAT), 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 (P.) Ltd. v. CCE [2008] 14 STT 280 (Trib. - Mum.), has held that credit is not admissible on services directly or only attributable to trading activities. It was further submitted that in the case of Synise Technologies Ltd. v. CCE [Order No. A/1217-1218/15/SMB, dated 8-5-2015], the Tribunal has held that credit disallowed in proportion of trading turnover is correct. Learned AR further relied upon the judgment of this Tribunal in the case of Mercedes Benz India (P.) Ltd. (supra) on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled 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 manufacturing unit but may be pertaining to across the manufacturing unit or across various branch offices. In excise administration, excise duty is required to be paid by manufacturing unitwise. Thus, credit of input services is also required to be available to each manufacturing unit separately. Since the services may be across various offices or manufacturing unit, it is in order to sort ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed. It would be seen from the said Rule that input service distributor is expected to distribute the credit and ensure that the credit distributed does not exceed the amount of service tax paid as per the documents. The other condition is that the credit of service tax attr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D 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 specified taxes 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 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 conditions 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 unit e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Philips India Ltd. 2009 (239) E.L.T 323 (Tri. - Ahd.), 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 who has to specify that the credit availed by him is admissible. Therefore the input service distributor cannot say that he is not required to prove the eligibility or otherwise of the service tax credit since at the receiver's end which could be a branch or a factory of the distributor, no details would be available regarding the nature of service. Therefore the preliminary objection raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho 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 properly be made compelling the Municipal Corporation to construct a stall at the pitching site of a PG NO 939 pavement squatter. Professor P.J. Fitzgerald, editor of the Salmond on Jurisprudence, 12th edn. explains the concept of sub-silentio at p. 153 in these words: A decision passes sub-silentio, in the technical sense that has come to be attached to that phrase, when the particu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;. 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 1KB 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 binding. 41. Does this principle extend and apply to a conclusion of law, which was neither raised nor preceded by any consideration. In other words can such conclusions be considered as declaration of law? Here again the English Courts and jurists have carved out an exception to the rule of precedents. It has been explained as rule of sub-silentio. A decision passed sub-silentio, in the tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or rate of duty paid by the original manufacturer. In those situations, this Tribunal has been taking a view that these aspects are to be assessed by the jurisdictional officer where such inputs have been manufactured and until and unless the assessment is changed or challenged by jurisdictional officers of such unit, the officers where such inputs are received and credit is being taken cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o refer the matter to the Larger Bench. Rules 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 India (P.) Ltd. (supra). In any case it is to be mentioned that there were number of cases where because of the confusion created by the Godfrey Philips India (P.) Ltd. (supra) 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 the AR to find out from the department that from whom (i.e. Head Office or manufacturing unit) Revenue would like the amount to be recovered as the amount cannot be recovered both from the head office as also the manufacturing unit. It is after the said oral directions of the Tribunal, the matter was referred by the Commissioners to the Boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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 (P.) Ltd. (supra) 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 considered as service (being neither taxable under service tax or excise), then how to apportion the credit on input services used in both the activities. This question has arisen as it was not possible to quantify how much of a particular service is used for trading and how much of that service is used for manufacturing. (It is added that where it was possible to identify a particular invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 not been able to provide any alternative solution. Just saying value addition will not help. We do not consider value addition in the present case will lead to more just and reasonable criteria. In our considered view, the submission made by the appellant requires to be out rightly rejected. 9. Another submission of the learned counsel is that credit of services specified in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtisement 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 manufacturer in his day-to-day business activity such as accounting, auditing, financing, recruitment, quality control etc. Here again such services are linked to his manufacturing activity. The definition of input service makes it very clear that the input service credit is available to a manufacturer and has to be related to the final products being manufactured b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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(1) 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 notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spute 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 Hon'ble Bombay High Court in the case of Ultratech Cements Ltd. (supra) 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 also the traded goods. In view of the said position the contention of the learned counsel is required to be rejected. We accordingly do so. 11. Another contention of the learned counsel was that the bifurcation of the credit between manufacture and trading shall be based on value addition and not on the basis of turnover o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Ltd. v. CCE ST 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. 10-5-2008 :- 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, has been introduced only w.e.f. 10-5-08. Prior to 10-5-08, neither the Finance Act, a 1994 nor the Service Tax Rules, 1994 contain any provision enabling demand of service tax prior to the realization of taxable services, in any circumstances. This being so, it is not legally permissible to give retrospective effect to the Explanation inserted in Rule 6 of the Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification 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 india (P.) Ltd. 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 considered as substantive. On the other hand, if amendment does not change the financial liability it can be considered as procedural. In the present case, the provisions of Rule 6(3D) changes the financial liability in a big way and in our view this cannot be called as a procedural change and therefore this contention is rejected. 14. Another contention of the learned counsel was that, demand ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 tax on the input service between the manufactured goods and the traded goods, whether we should take the turnover of the manufactured goods and traded goods for apportioning the credit of the service tax on input services or some other criteria should be followed. We, therefore, do not find any applicability whatsoever of the said judgment in the facts and cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the higher authority is to be followed by all others. Just because in case of Godrej Boyce Manufacturing Co. Ltd. (supra) 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 credit of service tax in respect of specified services, unless such service is used exclusively in or in relation to manufacture of exempted goods or providing exempted service. As noted earlier, even the appellant's contention is that they were providing exempted service or not, manufacturing exempted goods, but they were providing trading service. In our view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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