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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 ..... 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. - HON BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) AND HON BLE DR. SUVEN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, Boilers and Bulk Mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivities. 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 was required to be carried in te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, 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 the principles laid down in the above decisions the appeals be allowed in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a manufacturer or producer of final products and a provider of taxable services for availing Cenvat credit on inputs and input services. 22.2.1 Sub-rule (1) of the said Rule 6 provides that Cenvat Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision 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) in respect of input services. The provisions of sub-clauses (i) and (ii) of clause (b) and sub-clause (c) of sub-rule (3A) shall not apply for such payment. 22.2.4 Sub-rule (3A) of Rule 6 of the CCR, 2004 further reads as under:- (3A) For d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rule 6 (3A) (c) (iii) of the CCR, 2004, the following factors' are relevant: (I) M = Value of exempted services provided + total value of exempted goods manufactured and removed during the financial year; (II) N = Value of taxable output service provided + value of exempted services provided + value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tities 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 terms of Rule 6(3A)(c)(iii) of the CCR, 2004. Further, the assessee have not substantiated their claim with documentary evidence that the value of dutiable goods cleared from the Pimpri unit should have been considered as Rs. 175,60,76,814/- as against Rs. 172,23,69,388/- considered in the impugned S.C.N. I, therefore, hold that the amount of Rs. 172,23,69,388/- h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nput 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 of the factor P , by substituting it with Cenvat credit taken only on common input services instead of the total Cenvat credit taken on all input services during the financial year. In this regard, I rely upon the judgment of Hon'ble High Court of Gujarat in the case of Commissioner of Central Excise, Surat-I Vs. Neminath Fabrics Pvt. Ltd. [2010 (256) E.L.T. 369 (Guj.)], wherein the Hon'ble Court has held that no canon of interpretation permits exerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; 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 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. 26.1 I find that the above submission of the assessee is not acceptable. There is no proposal in the impugned SCN to deny the Cenvat credit on the input services which have been used exclusively for dutiable final products or taxable output services, as contended by the assessee. It is only the turnover of such Cenvat credit which has been considered for determining the quan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 acceptable. I find that the Cenvat credit on input services pertaining to their other units has been consumed in their main unit i.e. Pimpri unit. Therefore, the same has been correctly considered while determining the amount of Cenvat payable by them in terms of Rule 6(3A)(c)(iii) of the CCR, 2004. 28. In view of the foregoing discussions, I find that the amounts for the three parameters of the formula as per Rule 6(3A)(c)(iii) of the CCR, 2004, works out as under :- i. M viz., the total value of exempted services provided plus the total value of exempted g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 on input services, including the common input services should be considered while the contention of the appellant is that total Cenvat credit taken on input services should include only common input services and services used in exempted services and not the services used exclusively in rendering taxable output services. 15. In order to appreciate contentions, it will be appropriate to refer to the relevant provisions of Rule 6 of the Rules and it is as follows: Rule 6. Obligation of a manufacturer or producer of final products and a provider of taxable service. - (1) The CENVAT credit shall not be allowed on such quantity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proportionate credit that is attributable to the taxable service. 17. The dispute in the appeal is regarding the interpretation of the term total Cenvat credit provided in the formula in Rule 6(3A)(b)(ii). According to the Department, the total Cenvat credit should include even those services used exclusively in taxable services, including the common service while according to the appellant it should include only common input services and services used in exempted services and not the services used exclusively in rendering taxable output service. 18. It would be clear from a conjoint reading of sub-rules 6(1), (2) and (3) of Rule 6 that the total Cenvat credit for the purpose of for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 retrospective effect being clarificatory. 4.4 In case of National Steel Agro Industries Ltd. [Final Order No 51518-51519/2021 dated 25.05.2021, following has been held: 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 nonexempted services. C is calculated as C = T (A+B) where T is the total credit taken, A is the credit on inputs and input services used exclusively in the exempted goods and exempted services and hence ineligible and B represents the credit on inputs and input services used exclusively in dutiable goods and nonexempted services. In o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 services. However, if one produces both dutiable and exempted goods and provides both taxable and exempted services and chooses not maintain separate records, Rule 6(3) gives different options of paying an amount as a percentage of the value of the exempted goods and services or reversing an amount of credit t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 service even though used in the manufacture of dutiable goods, shall stand disallowed, which is not provided under any of the Rule of CENVAT Credit Rules, 2004. (emphasis supplied) 33. Since the appellant has followed Rule 6(2) and has not taken any CENVAT credit on the input services which were used exclusively for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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