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TMI Blog2025 (4) TMI 1539X X X X Extracts X X X X X X X X Extracts X X X X ..... d with jurisdictional authorities, for its Head Office (HO) situated at Mumbai for provision of output services; and are holding Centralized Service Tax Registration No. AAACJ0866EST004. The appellants are also registered centrally with Mumbai Large Taxpayer Unit (LTU) and are holding Membership No. LTU/MUM/2213 for the relevant period. The HO of the appellants is also registered as an Input Service Distributor (ISD) for availing CENVAT credit of input services invoiced to HO and further transfers/distributes the same to its corresponding manufacturing units engaged in manufacture of taxable and exempted excisable products and service unit at HO, Mumbai in terms of Rule 7 of CENVAT Credit Rules, 2004 (CCR of 2004). The appellants manufacture various consumer goods at their production units situated at Aurangabad, Mulund, CPD Baddi and Ethicon Baddi, holding separate Central Excise registration with the respective jurisdictional authorities for payment of Central Excise duty. From these units, the appellants undertake its own manufacture and sale where applicable Central Excise duty is paid by them; manufacture under loan license agreement where applicable Central Excise duty is dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issuance of SCN and its legal validity, as the departmental authorities did not comply with the requirement issuing a pre-consultation notice opportunity to the appellants, prior to issuance of SCN as mandated under the Board's Master Circular No. 1053/02/2017 dated 10.03.2017 and lack of jurisdiction in initiating demand and recovery action, by relying on the Board's Circular No. 1056/05/2017-CX dated 29.06.2017. Therefore, he claimed that department has overlooked the settled position in law that it is mandatorily required to have pre-show cause notice consultation with the assessee. Not being done so, he claimed that the impugned proceedings initiated via show cause notice non est in law. Further, the department had already issued similar SCN dated 20.12.2016 covering the earlier period of financial years 2011-2012 to 2014-2015, for which separate proceedings had been initiated by the department, which resulted in confirmation of demands proposed in the SCN vide Order-in- Original dated 18.06.2019, in which the appellants have filed separate appeal before the Tribunal. 3.2 Learned Advocate also stated that the appellants have duly followed the mechanism provided under R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon the appellants even if no option has been exercised by them as held in the case of Tiara Advertising vs Union of India [2019 (30) G.S.T.L. 474 - (Telangana)]. 3.5 In support of their stand, the appellants had relied upon the following case laws: (i) Amadeus India Pvt. Ltd. Vs. Pr. Commr. of C. Ex., S.T & Central Tax - 2019 G.S.T.L. 486 (Del.) (ii) Dow Chemicals International Pvt. Ltd. Vs. Commissioner of Service Tax-VII, Mumbai - 2021 (11) TMI 991-CESTAT Mumbai (iii) Inox Leisure Limited Vs. Commissioner of Service Tax, Mumbai - 2016 (42) S.T.R. 497 (Tri. - Mumbai) (iv) Unitech Machines Ltd. vs. Commissioner of Central Excise - 2018 (9) G.S.T.L. 401 (Tri. - All.) 4. On the other hand, learned Authorized Representative (AR) appearing for Revenue had reiterated the findings given in the impugned order and submitted that the appellants was required to maintain appropriate records/accounts of the receipt, consumption and inventory of description, quantity, value and credit in relation to input and input services as well as common inputs and input services. He claimed that benefit of proportionate credit even under the amended Rule 6(3)(ii) ibid cannot be granted unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e : 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(44) of the Finance Act, 1994, 72a[provided that such activity has used inputs or input services. Explanation 4.-Value of such an activity as specified above in Explanation 3, shall be the invoice/agreement/contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 option under this clause is exercised or proposed to be exercised; (iii) description of inputs and input services used exclusively in or in relation to the manufacture of exempted goods removed or for provision of exempted se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 date of payment till the date of payment of such amount, at the rate of fifteen per cent per annum; (c) the manufacturer or the provider of output service shall determine the amount of CENVAT credit attributable to exempted goods removed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) + 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 (f), the following particulars, namely :- (i) details of credit attributed towards eligible credit, ineligible credit, eligible common credit and ineligible common credit, month-wise, for the whole financial year, determined as per the provisions of clause (b); (ii) CENVAT credit annually attributed to eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1944 and under Rule 15(2) ibid read with Section 11AC ibid, respectively. On the above basis, the learned Principal Commissioner had confirmed the demand of CENVAT credit and its recovery along with interest thereon under Rule 14 ibid read with Section 11A of the Central Excise Act, 1944 and proposing for imposition of penalty on the appellants under Rule 15(2) ibid. 9. 1 On plain reading of the legal provisions under Rule 6 of CCR of 2004, it transpires that while providing a comprehensive input credit scheme of the duties and taxes paid on input and input service, the Government had provided for an exception of not extending such input credit facility in respect of those inputs and input services used in or in relation to exempted goods or exempted services. The rationale of this provision is evident inasmuch as the CENVAT credit scheme enables the manufacturer or output service provider to use the credit to reduce the cascading effect of tax on input/input service embedded in the duty or tax liability on the final product or output services. Henec, it is clear if the final product or output service is not chargeable to duty or tax, one cannot take credit either. However, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utable to the exempted services using the formula under Rule 6(3A) ibid. Therefore, the total credit taken in the formula under Rule 6(3A) ibid can only refer to such credit as is not covered by Rule 6(2) ibid i.e., credit on common input services. 9.3 From the legal provisions of the Finance Act, 1994, it is understood that '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 for a service, the amount paid represent not only the service rendered by trader, but also the value of the goods purchased and delivered. The service element cannot be the total turnover of the goods traded but is only a small fraction of the turnover. Thus, it can be understood that turnover of trading activity represents the value of the goods plus the value of the service rendered by the trader. This special nature of the trading as a service has been taken into account in Rule 6 ibid. On reading of the Explanation I(c) to this Rule 6 ibid, for both the relevant periods (April 2016 to June 2017 and earlier periods) it clearly specifies that in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount. Therefore, confirmation of adjudged demands on the basis of incorrect calculation of the amount required to be reversed as per Rule 6(3A) ibid in the impugned order is not legally sustainable for the above reasons. 9.5 We had also examined the question that whether only the CENVAT credit taken on common input service should be considered or the entire CENVAT credit taken should be considered for calculating the proportionate amount of CENVAT to be reversed as per Rule 6(3A) ibid. For the period April 2016 to June 2017, it is seen Rule 6(3A)(b) lays down the procedure as follows: "(b) the manufacturer of final products or the provider of output service shall determine the credit required to be paid, out of this total credit of inputs and input services taken during the month, denoted as T, in the following sequential steps and provisionally pay every month, the amounts determined under sub-clauses (i) and (iv), namely :- (i) the amount of CENVAT credit attributable to inputs and input services used exclusively in or in relation to the manufacture of exempted goods removed or for provision of exempted services shall be called ineligible credit, denoted as A, and shall be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority, therefore, erred in taking the total credit taken (including credit taken on inputs and input services used exclusively for manufacture of dutiable goods) to calculate the amount of CENVAT credit that must be reversed under Rule 6(3A) ibid. For the period April 2016 to March 2017, this was clearly, against the explicit rule position as laid down in Rule 6(3A)(b) ibid discussed above. Therefore, we find that the calculation of CENVAT credit adopted by the learned adjudicating authority does not stand the scrutiny of law. 9.7 Since we have discussed the issue on merits of the case, we donot find it necessary to address the other issues raised by the learned Advocate for the appellants on jurisdiction, limitation etc. 10. In this regard, we also find that the issues under dispute is no more res integra in view of the decision of the Co-ordinate Bench of the Tribunal involving similar set of facts in the case of National Steel & Agro Industries Limited (supra), in Final Order Nos. 51518-51519/2021 dated 25.05.2021 passed, wherein it has been held that credit taken on common input service used in the headquarters should be considered and not the entire credit attributed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee from following Rule 6(2) in respect of the inputs and input services where it is feasible to maintain separate records and follow Rule 6(3A) in case of such inputs or input services where it is not feasible to do so. It would have been a different situation if the appellant had not followed Rule 6(2) at all and took credit on all the inputs and input services regardless 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 28 E/51303/2019 with E/Cross/50043/2020 E/50236/2020 some mecha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. The legal position in this regard is well-settled. Illustratively a reference may be made to the decision in State of Tamil Nadu v. India Cements Ltd. (2011) 13 SCC 247 (SC). Specific to the Master Circular, a reference may be made to the judgment dated 9th February, 2018 passed by the High Court of Judicature at Madras in W.P. (C). 11858/2017 (Tube Investment of India Ltd. v. Union of India) [2018 (16) G.S.T.L. 376 (Mad.)]. In that case, after noticing that para 5.0 of the Master Circular was not adhered to, the High Court set aside the SCN challenged and delegated the parties to stage prior to the issuance of the SCN. 18. In the present case, the Court is satisfied that it was necessary in terms of para 5.0 of the Master Circular for the Respondent to have engaged with the Petitioner in a pre-SCN consultation, particularly, since in the considered view of the Court neither of the exceptions specified in para 5.0 were attracted in the present case." 12. In view of the foregoing discussions and analysis, and on the basis of the Orders of the Hon'ble High Courts and the decision of the Tribunal as discussed above, we are of the considered view that the impugned order dated 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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