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TMI Blog2021 (6) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the appellant availed inadmissible credit on input services used for exempted services, viz., trading of goods and issued Show Cause Notice dated 27 March, 2018 demanding payment of an amount of Rs. 13,84,44,474/- for the period 2015-2016 under Rule 6(3)(i) of Cenvat Rules. This demand was partly confirmed to the tune of Rs. 6,21,72,263/- by the Order-in-Original dated February 22, 2019, which is impugned in Appeal No. E/51303/2019. 4. Another Show Cause Notice dated March 18, 2019 was issued covering the period from April 2016 to June 2017 demanding an amount of Rs. 21,35,06,000/- under Rule 6(3)(i) of Cenvat Rules. This demand was partly confirmed to the tune of Rs. 7,57,07,862/- by Order-in-Original dated November 20, 2019. This order is impugned in Appeal No. E/50236/2020-DB. 5. Learned counsel for the appellant submits that this dispute first arose during audit of the appellant's records for the period 2011-12 to 2012-13 conducted during February 2013 and July 2013. The appellant manufactures the goods and also trades in them and the latter activity is undisputedly, an exempted service. They have not availed CENVAT credit on the input services used exclusively for tradin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned separate records as required under Rule 6(2) and not have not taken credit on such input services. In respect of the common input services, of the three options, the appellant opted the third, i.e., Rule 6(3)(ii) and paid an amount determined as per Rule 6(3A) even before the show cause notices were issued. However, the department issued show cause notices demanding an amount under Rule 6(3)(i) which is ex facie erroneous. It is for the assessee to chose any option he pleases and it is not open to the department to thrust any option upon them. 11. If the assessee does not choose any of the options under rule 6(3), the availment of CENVAT credit will be irregular and, therefore, the department can issue a notice to disallow and recover the irregularly availed CENVAT credit. Even in such a case, the department cannot demand that assessee should follow a particular option under Rule 6(3) as has been held by the High Court of Telangana and Andhra Pradesh Tiara Advertising vs Union of India [2019 (10) TMI 27- Telangana and Andhra Pradesh High Court]. 12. Once the proportionate amount of CENVAT credit is reversed, it is as good as non-availment of the CENVAT credit as has been hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -CESTAT Ahmedabad] in which, in a case dealing with the unamended Rule, it was held that total CENVAT credit availed does not include the input services used exclusively for manufacture of dutiable goods. 16.2 Learned counsel submits that another anomaly in the impugned order for the period April 2016 to June 2017 (appeal no. E /50236/2020) is that it pertains to the period after amendment and the demand was confirmed in the impugned order relying on the unamended rules. 17. Learned Counsel also submitted that as far as the value of the exempted service (i.e., trading) reckoned in the impugned orders for calculating the amount to be reversed is concerned, the adjudicating authority has erroneously considered the total value of the goods traded as the value of the exempted service instead of the service element in it which should be only 10% of the goods traded or the difference between sale price and cost price as per Explanation 1(c) to Rule 6(3A). 18. Learned authorized representative of the department strongly supports the impugned orders. 19. We have considered the arguments on both sides. 20. The two show cause notices were issued demanding an amount equal to 6%/7% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - (a) the receipt, consumption and inventory of inputs used - (i) in or in relation to the manufacture of exempted goods; (ii) in or in relation to the manufacture of dutiable final products excluding exempted goods; (iii) for the provision of exempted services; (iv) for the provision of output services excluding exempted services; and (b) the receipt and use of input services - (i) or in relation to the manufacture of exempted goods and their clearance upto the place of removal; (ii) in or in relation to the manufacture of dutiable final products, excluding exempted goods, and their clearance upto the place of removal; (iii) for the provision of exempted services; and (iv) for the provision of output services excluding exempted services, and shall take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of clause (a) and input services under sub-clauses (ii) and (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices that are not inputs or input services. (3A) For determination and payment of amount payable under clause (ii) of sub-rule (3), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely :- (a) while exercising this option, the manufacturer of goods or the provider of output service shall intimate in writing to the Superintendent of Central Excise giving the following particulars, namely :- (i) name, address and registration No. of the manufacturer of goods or provider of output service; (ii) date from which the option under this clause is exercised or proposed to be exercised; (iii) description of dutiable goods or 9[output] services; (iv) description of exempted goods or exempted services; (v) CENVAT credit of inputs and input services lying in balance as on the date of exercising the option under this condition; (b) the manufacturer of goods or the provider of output service shall, determine and pay, provisionally, for every month, - (i) the amount equivalent to CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods, denoted as A; (ii) the amount of CENVAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red and removed during the financial year, N denotes total value of output and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and P denotes total CENVAT credit taken on input services during the financial year; (d) the manufacturer of goods or the provider of output service, shall pay an amount equal to - the difference between the aggregate amount determined as per condition (c) and the aggregate amount determined and paid as per condition (b), on or before the 30th June of the succeeding financial year, where the amount determined as per condition (c) is more than the amount paid; (e) the manufacturer of goods or the provider of output service, shall, in addition to the amount short- paid, be liable to pay interest at the rate of twenty-four per cent. per annum from the due date, i.e., 30th June till the date of payment, where the amount short-paid is not paid within the said due date; where the amount determined as per condition (c) is less than the amount determined and paid as per condition (b), the said manufacturer of goods or the provider of output service may adjust the excess amount on h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of extending deposits, loans or advances shall pay for every month an amount equal to fifty per cent. of the CENVAT credit availed on inputs and input services in that month. (3C) (3D) Payment of an amount under sub-rule (3) shall be deemed to be CENVAT credit not taken for the purpose of an exemption notification wherein any exemption is granted on the condition that no CENVAT credit of inputs and input services shall be taken. Explanation I. - "Value" for the purpose of sub-rules (3) and (3A), - (a) shall have the same meaning as assigned to it under section 67 of the Finance Act, 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) in the case of a taxable service, when the option available under sub-rules (7), (7A), (7B) or (7C) of rule 6 of the Service Tax Rules, 1994, has been availed, shall be the value on which the rate of service tax under section 66B of the Finance Ad, read with an exemption notification, if any, relating to such rate, when applied for calculation of service tax results in the same amount of tax as calculated under the option availed; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of exempted services and the credit not allowed shall be calculated and paid by the manufacturer or the provider of output service, in terms of the provisions of sub-rule (2) or sub-rule (3), as the case may be : Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule. Explanation 1. - For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of rule 2 shall include non-excisable goods cleared for a consideration from the factory. Explanation 2. - Value of non-excisable goods for the purposes of this rule, shall be the invoice value and where such invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made thereunder. Explanation 3. - For the purposes of this rule, exempted services as defined in clause (e) of rule 2 shall include an activity, which is not a 'service' as defined in section 65B(4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year. Explanation 2. - No CENVAT credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services. Explanation 3. - For the purposes of this sub-rule and sub-rule (3A),- (a) "non-exempted goods removed" means the final products excluding exempted goods manufactured and cleared upto the place of removal; (b) "exempted goods removed" means the exempted goods manufactured and cleared upto the place of removal; (c) "non-exempted services" means the output services excluding exempted services. (3A) For determination of amount required to be paid under clause (ii) of sub-rule (3), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely- (a) the manufacturer of goods or the provider of output service shall intimate in writing to the Superintendent of Central Excise giving the following particulars, namely :- (i) name, address and registration number of the manufacturer of goods or provider of output service; (ii) date from which the opt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of - (a) value of non-exempted services provided, (b) value of exempted services provided, (c) value of non-exempted goods removed, and (d) value of exempted goods removed, during the preceding financial year : Provided that where no final products were manufactured or no output service was provided in the preceding financial year, the CENVAT credit attributable to ineligible common credit shall be deemed to be fifty per cent. of the common credit; (v) remainder of the common credit shall be called eligible common credit and denoted as G, where,- G=C-D; Explanation.- For the removal of doubts, it is hereby declared that out of the total credit T, which is sum total of A, B, D, and G, the manufacturer or the provider of the output service shall be able to attribute provisionally and retain credit of B and G, namely, eligible credit and eligible common credit and shall provisionally pay the amount of credit of A and D, namely, ineligible credit and ineligible common credit. (vi) where manufacturer or the provider of the output service fails to pay the amount determined under sub-clause (i) or sub-clause (iv), he shall be liable to pay the interest from the due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 30th June of the succeeding financial year, the manufacturer of goods or the provider of output service, shall, in addition to the amount of credit so paid under clause (d), be liable to pay on such amount an interest at the rate of fifteen per cent. Per annum, from the 30th June of the succeeding financial year till the date of payment of such amount; (f) the manufacturer or the provider of output service, shall at the end of the financial year, take credit of amount equal to difference between the total of the amount of the aggregate of ineligible credit and ineligible common credit paid during the whole year and the total of the amount of annual ineligible credit and annual ineligible common credit, namely, (A+D) aggregated for the whole year) - A(Annual) t D(Annual), where the former of the two amounts is greater than the later; (g) the manufacturer of the goods or the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within a period of fifteen days from the date of payment or adjustment, as per the provisions of clauses (d), (e) and (0 , the following particulars, namely :- (i) details of credit attributed towards eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is granted on the condition that no CENVAT credit of inputs and input services shall be taken. Explanation I. - "Value" for the purpose of sub-rules (3) and (3A), - (a) shall have the same meaning as assigned to it under section 67 of the Finance Act, 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) in the case of a taxable service, when the option available under sub-rules (7), (7A), (7B) or (7C) of rule 6 of the Service Tax Rules, 1994, has been availed, shall be the value on which the rate of service tax under section 66B of the Finance Act, read with an exemption notification, if any, relating to such rate, when applied for calculation of service tax results in the same amount of tax as calculated under the option availed; (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; (d) in case of trading of securities, shall be the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to a developer of a special economic zone for their authorised operations; or] (ii) cleared to a hundred per cent. export-oriented undertaking; or (iii) cleared to a unit in art Electronic Hardware Technology Park or Software Technology Park; or (iv) supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 108 /95-Central Excise, dated the 28th August, 1995, number G.S.R. 602(E), dated the 28th August, 1995; or (iva) supplied for the use of foreign diplomatic missions or consular missions or career consular offices or diplomatic agents in terms of the provisions of Notification No. 7[12/2012-Central Excise, dated the 17th March, 2012, number GS.R. 163(E), dated the 17th March, 2012]; or] (v) cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002; or (vi) gold or silver falling within Chapter 71 of the said First Schedule, arising in the course of manufacture of copper or ![zinc by smelting; or] (vii) all goods which are e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia, from the date of provision : Provided that if such payment is received after the specified or extended period allowed by the Reserve Bank of India but within one year from such period, the service provider shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier in terms of sub-rule (3) to the extent it relates to such payment, on the basis of documentary evidence of the payment so received." 24. Undisputedly, trading is a form of service and no service tax is leviable on it and hence it is an exempted service. Usually the amount one pays to a service provider is the value of the services. For example, what one pays a doctor, dentist, lawyer, hair dresser, etc. represents the value of their services. Unlike other services, the amount transacted in trading represent not only the service rendered by trader but also the value of the goods delivered. The service element cannot be the total turnover of the goods traded but is only a small fraction of the turnover. This turnover represents the value of the goods plus the value of the service rendered by the trader. For example, if a trader buys a sack of rice for Rs. 4,500 and sells it for R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and calculated as,- C = T - (A + B); Explanation. - Where the entire credit has been attributed under sub-clauses (i) and (ii), namely ineligible credit or eligible credit, there shall be left no common credit for further attribution. (iv) the amount of common credit attributable towards exempted goods removed or for provision of exempted services shall be called ineligible common credit, denoted as D and calculated as follows and shall be paid, - D = (E/F) x C; where E is the sum total of - (a) value of exempted services provided; and (b) value of exempted goods removed, during the preceding financial year; where F is the sum total of - (a) value of non-exempted services provided, (b) value of exempted services provided, (c) value of non-exempted goods removed, and (d) value of exempted goods removed, during the preceding financial year 26. It is clear from the above, that the final amount to be debited as inadmissible CENVAT credit under Rule 6(3A) is D=(E/F)xC where, E represents the sum of value of exempted goods and exempted services, F represents the sum of value of exempted and dutiable goods as well as exempted and non-exempted services. 'C' is cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices', i.e., it should include not only the credit taken on common input services but also credit taken on input services used in manufacture of dutiable goods. According to the appellant only the CENVAT credit taken on common input services should be considered as the total CENVAT Credit taken since that is the credit in dispute which can be disallowed in proportion to the value of the exempted services to the total turnover. 30. To appreciate this issue, Rule 6 must be read as a whole while interpreting this formula. Rule 6(1) prohibits any credit on inputs and input services used in or in relation to exempted goods or exempted services. The rationale of this provision is evident. CENVAT credit enables one to use the credit to reduce duty or tax liability on the output goods or services. If they are not chargeable to duty or tax, one cannot take credit either. However, there are those who produce both dutiable and exempted goods and taxable and exempted services. Rule 6(2) deals with such situations and requires such a person to maintain separate records and take credit only the inputs and input services which are used for manufacture of dutiable goods or provision of taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means input or input service used in taxable service/dutiable goods, CENVAT credit is allowed. Sub-rule (2) of Rule 6 is only as an option that if any input or input services used in exempted goods, credit should not be allowed and only with this intention some mechanisms for expunging CENVAT credit attributed only to the exempted goods are provided. As per clause (b) (ii) & (iv), it is clearly provided that entire credit in respect of receipt and use of inputs/ input service is allowed when such input and input service is used in dutiable final products and taxable service. However, nowhere in Rule 6 it is provided that the input or input service used in dutiable goods shall not be allowed. The Revenue is only interpreting the term "total CENVAT credit"provided under the formula. If the whole Rule 6(1)(2)(3) is read harmoniously and conjointly, it is clear that "Total CENVAT Credit"for the purpose of formula under Rule 6(3A) is only total CENVAT credit of common input service and will not include the CENVAT credit on input/ input service exclusively used for the manufacture of dutiable goods. If the interpretation of the Revenue is accepted, then the CENVAT credit of part of input ..... X X X X Extracts X X X X X X X X Extracts X X X X
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