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TMI Blog2023 (2) TMI 1343X X X X Extracts X X X X X X X X Extracts X X X X ..... t include Cenvat credit on input service exclusively used for the manufacture of dutiable goods. In case of National Steel Agro Industries Ltd. [ 2021 (6) TMI 60 - CESTAT NEW DELHI] , where it was held that The adjudicating authority has erred in (a) taking the total turnover of traded goods as the value of trading service instead of following Explanation 1(c) to Rule 6 to calculate the value of trading service; (b) For the periods covered in both appeals, the adjudicating authority has erred in reckoning the total credit taken instead of credit on common input services in calculating the amount of credit required to be reversed. Undisputedly and admittedly appellant has reversed/ paid the amount of the CENVAT Credit attributable to trading activities as per the prescribed formula in Rule 6(3A) as interpreted in the above referred orders. The fact of reversal is also noted in the impugned orders. There are no merits in the impugned order on the merits of demand. As the demand is set aside there can be no question for interest or penalty. Hence the impugned orders are set aside. Appeal allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ith Rule 6(3A)(c)(iii) ibid read with ExplanationIII inserted after Rule 6(3D) ibid, under Section 11A(10) of the Central Excise Act, 1944, readwith Rule 14 of Cenvat Credit Rules, 2004. I further order appropriation of an amount of Rs. 17,27,506/- since paid by the assessee, against the aforesaid demand. 31.2 I order recovery of interest on the amount of demand determined and confirmed in Para 31.1 above, under the provisions of Rule 6(3A)(e) read with Rule 14 of the Cenvat Credit Rules, 2004, further read with Section 11AA of the Central Excise Act, 1944. 31.3 I impose a penalty of Rs. 7,94,80,900/- (Rupees Seven Crores, Ninety Four Lakhs, Eighty Thousand and Nine Hundred only), on the assessee, i.e. M/s Thyssenkrupp Industries India Ltd., Pune, under the provisions of Rule 15(1) of Cenvat Credit Rules, 2004. 32. The said order is issued without prejudice to any other action that may be taken against the assessee under the provisions of the Central Excise Act, 1944 and/or the rules made thereunder and/or any other law for the time being in force." 2.1 Appellant are engaged in manufacture of excisable goods viz. Machinery/Parts/Equipments of Sugar Plant, Cement Plant, Boile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also been used in trading activities. 2.5 After amendment in the CENVAT Credit Rules, 2004 w.e.f 01-04-2011, trading activities have been treated as exempted service. No service tax was leviable prior to or is leviable after the said amendment in the Rule, under Section 66 of the Finance Act, 1994 read with any given exemption. The services or portion of the input services, availed for providing output services, but utilized in relation to trading activities, appeared to be not qualifying as input service, and therefore the credit availed to that extent is not admissible. 2.6 Appellant did not maintained separate accounts input services used in trading activities , as required under Rule 9 (5) & (6) of the Cenvat Credit Rules , 2004. They should have not taken the credit of the input services or that portion of the input services which have been used in relation to the trading activities or else calculate and reverse the amount of credit/ proportionate credit along with interest, which they failed to do. In view of the option exercised by the assessee for reversal of input service tax credit, in terms of Rule 6(3A)(b)(iii) and Rule 6(3A)(c)(iii) of CCR Rules, 2004, finalization ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the goods procured form other vendors to project sites, which is trading activity. As the trading activity has been defined as "exempt service" the appellant was required to reverse the credit computed as per the formula provided in Rule 6 (3A). Appellant was reversing the cenvat credit as per the prescribed formula, however revenue was of the view that appellant has not reversed the amount as per formula by improper application of the formula, by improper determination of the factors P & N as per the formula. The issue involved in the present case is no longer res integra and it has been held 'total cenvat credit' for the purpose of formulae under Rule 6 (3A) is only "total Cenvat Credit of Common Input Service" and not total cenvat credit including the credit on input/ input services exclusively used in manufacture of dutiable goods. Reliance is placed on the decisions as follows: o Reliance Industries Ltd. [2019 (28) GSTL 96 (T-Ahmd)] o E-Connect Solutions (P) Ltd [2021 (376) ELT 678 (T-Del)] Admittedly appellant have been reversing the CENVAT Credit by applying the above principle as has been noted in the impugned orders. As they have reversed the credit as per t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut services, used for providing such taxable service, shall be taken." 22.1.1 Further, an explanation has been inserted to the said Rule 2(e), vide Notification No.3/2011-C.E.(N.T.), dated 01-03-2011, which is applicable with effect from 01-04-2011, and the same reads as under: "Explanation: For the removal of doubts, it is hereby clarified that "exempted services" includes trading." 22.1.2 Further, with effect from 01-07-2012, an amended Rule 2(e) has been introduced vide Notification No. 28/2012-C.E. (N.T.), dated 20-06- 2012, and the same reads as under: "(e) "exempted service" means a- (1) taxable service which is exempt from the whole of the service tax leviable thereon; or (2) service, on which no service tax is leviable under section 66B of the Finance Act; or (3) taxable service whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken; but shall not include a service which is exported in terms of rule 6A of the Service Tax Rules, 1994.' 22.2. Rule 6 of Cenvat Credit Rules, 2004: The said rule provides for the obligation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (iv) of clause (b). (Emphasis supplied) 22.2.3. Further, sub-rule (3) of Rule 6 provides that in case manufacturer of goods or the provider of output services, opts not to maintain separate accounts as provided in sub-rule (2); he shall follow any one of the following options as applicable to him namely:- (i) pay an amount equal to five per cent (six per cent w.e.f. 01-04- 2012) of value of the exempted goods and exempted services; or (ii) pay an amount as determined under sub-rule (3A); or (ii) maintain separate accounts for the receipt, consumption and inventory of inputs as provided for in clause (a) of sub-rule (2), take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of said clause (a) and pay an amount as determined under sub-rule (3A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay 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; 23. The assessee in their submissions have contended that most of the services considered as 'common' in the impugned Show Cause Notice are in fact not 'common input services'. 23.1 In this regard, I find that the above submission of the assessee is not acceptable, in as much as, they have not furnished any documentary evidence to support their contention. Further, for determining the quantum of the Cenvat credit attributable to the exempted service, the categories of the exempted services have no relevance. I find that as per the formulae prescribed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that Pune-I Commissionerate has no jurisdiction over the activities of other manufacturing units/sites of M/s Thyssenkrupp Industries India Ltd., who are holding separate Central Excise Registrations. Thus, any reference to the activities of the unit located at Hyderabad or at various sites, having different Central Excise registrations, being separate entities in terms of the Central Excise Law, would be extraneous, being ultra vires and beyond the legal ambit. Thus, there arises no question of considering the total turnover of Rs. 360,24,98,262/- of all the units/factories for calculating the assessee's duty liability. Since the calculation of the amount of Rs. 172,23,69,388/- is based on the data / information available in the ER-1 returns of the Pimpri Plant which is registered as a Central Excise assessee within the jurisdiction of Central Excise, Pune-I Commissionerate, and the information submitted by the said unit to the Range officer from time to time, the demand has been correctly worked out and legally sustainable. I find no relevance in taking the information relating to other units while computing the amount for the assessee's unit at Pimpri, Pune, in term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvat credit taken on input services during the financial year'. The assessee's contention that Rule 6 (3)(ii) of the CCR, 2004 provides for considering the service tax credit taken only on common input services, is factually incorrect, in as much as, the said Rule reads as follows .. "pay an amount as determined under sub-rule (3A)". 25.3 Further, Rule 6(3A)(c)(iii) of the CCR, 2004 reads as under- "(iii) the amount attributable to input services used in or in relation to manufacture of exempted goods and their clearance upto the place of removal or provision of exempted services = (M/N) multiplied by P, where M denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, N denotes total value of taxable 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." 25.4 It is, therefore, evident that the above provisions are crystal clear and that there is no scope of having different interpretations and restricting the scope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of rule requires that only credit of such input services which are used for both dutiable / exempted goods and taxable / exempted services to be taken and the said rule no way provides to take entire cenvat credit which will include inputs services which are used for specific dutiable final products and also taxable output services. When it comes to pro rata reversal under Rule 6 (3) r/w Rule 6 (3A) (c)(iii) only input services which have been used for "both dutiable/ taxable output services as well' exempted goods / exempted services" is only to be considered and not all the cenvat credit availed on input services. In short, the assessee's contention is that as they have maintained separate accounts for receipt and use of input services in or in relation to the manufacture of dutiable final products, excluding exempted goods, and their clearance upto the place of removal; and for the provision of output services excluding exempted services, as provided under Rule 6 (2)(b) of CCR, 2004, except for the common input services, the said amount of Cenvat credit, which is admissible to them, should not be considered for determining the amount attributable to inp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire input service credit availed by the assessee's Pimpri unit is required to be considered. Therefore, the cenvat credit required to be considered would be Rs. 22,78,34,139/- and not Rs. 2,04,87,486/-, as contended by the assessee. 26.3 In this regard, I rely upon the judgement of Hon'ble Bombay High Court in the case of M/s NICHOLAS PIRAMAL (INDIA) LTD - 2009 (244) E.L.T. 321 (Bom.), wherein Hon. Court has, inter alia, held as under:- "…." 26.4 ….. 27. The assessee have also contended that if the turnover figure of Rs. 175.60.76.814/- pertaining only to Pune unit is to be considered then it becomes necessary to reduce the cenvat credit figures of common input services to the extent of Rs. 43.03.691/- from Rs. 2,04,87,485/-, which credit corresponds to the turnover of Units located at Hyderabad and units located at other sites. They have also submitted that cenvat credit of common input services of Rs. 43,03,691/- pertaining to other units such as Hyderabad and other units at various sites, can be legally availed and used by the main unit having ISD / centralized service tax registration. 27.1 The assessee's above contention is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-rule (3), (3A) and (3B), it shall be recovered, in the manner as provided in Rule 14, for recovery of Cenvat credit wrongly taken," and I hold accordingly. I further hold that the assessee are also liable to pay interest on such amount in terms of provisions of Rule 6(3A)(e) read with Rule 14 of CCR, 2004 and Section 11AB / 11AA of the Central Excise Act, 1944." 4.3 From the impugned order reproduced as above the only dispute in the matter is in relation to determination of the value of factors "M", "N" & "P" in the formula prescribed as per the Rule 6 (3A) for the determination of the proportionate credit to be reversed in respect of the common input services used for providing the exempted services - trading activities and used in manufacture of the dutiable goods. We find the issue has been settled by the tribunal in the case of E-Connect Systems [2021 (376) ELT 678 (T-Del)] holding as follows: "14. The issue that arises for consideration in this appeal is regarding the manner of computation of proportionate reversal of credit determined under Rule 6(3A) of the Rules. The contention of the Department is that for the purpose of reversal, the total Cenvat credit taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services, used for providing such taxable service, shall be taken then the amount specified in clause (i) shall be six per cent. of the value so exempted. Explanation I. - If the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year. Explanation II. - For removal of doubt, it is hereby clarified that the credit shall not be allowed on inputs used exclusively in or in relation to the manufacture of exempted goods or for provision of exempted services and on input services used exclusively in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services. Explanation III. - No CENVAT credit shall be taken on the duty or tax paid on any goods and services 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 servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services are rendered, the credit pertaining to such exempted service is not admissible and is required to be reversed. Rule 6(2) provides that wherever exempted service is rendered, then such service provider has to maintain separate accounts for receipt, consumption and inventory of various input services used for rendering such service and that Cenvat credit should be availed only in respect of input services used in rendering taxable service. Rule 6(3) provides an elaborate procedure for reversal of credit on a proportionate basis in respect of those service providers opting not to maintain separate accounts. Rule 6(3A) provides for a procedure for calculating proportionate credit admissible to an assessee. A service provider can avail the entire credit of input services and at the end of every month reverse a provisional amount of credit based on the preceding financial year's turnover for different services, but at the end of the year, the service provider is required to calculate final credit based on the current year's actual turnover figures and make the adjustments. What transpires, therefore, is that in terms of Rule 6(3A), a provider of output service can take only pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd perused the record. The limited issue to be decided in this case is that for the purpose of calculating the CENVAT credit for reversal in terms of rule 6(3A) as per of formula given therein, whether the total Cenvat credit means it is including the Cenvat credit of input services exclusively used for dutiable product should be taken or total Cenvat credit of only common input service should be taken. Before proceeding, it is necessary to read the relevant Rule 6(1), (2), (3) pre and post-amendment notification………… ……………… 10. From the above it can be seen that when anomaly was noticed, the Government has substituted the sub-rule (3A). The legislators very consciously substituted the Rule with intention to give a clarificatory nature to the provision of sub-rule (3A) so as to make it applicable retrospectively. It was all along not the intention of the Government to deny Cenvat credit on the input/input service even though used in the dutiable goods. Keeping the said view in mind, the substitution in sub-rule (3A) of Rule 6 was made. Therefore, the substituted provision of subrule (3A) shall have retrospecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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; 29. In this formula, there is no dispute regarding the values of M (the value of exempted services and exempted goods) and N (total of exempted and non-exempted services and dutiable and exempted goods). The dispute is regarding ‗P' which, according to the Revenue, is ‗the total CENVAT Credit taken on input services', 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 cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of whether they are attributable to the manufacture of dutiable goods or provision of exempted services. Then the total CENVAT credit taken during a year would have included all the CENVAT credit taken. 32. We concur with a similar view taken by a coordinate Bench at Ahmedabad in Reliance Industries. Paragaph 8 of the decision is reproduced below: "8. From the reading of Rule 6(1), it is clear that only in respect of input or input service used in exempted goods are not allowed. That 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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