CENVAT - Distribution of ST through ISD is only facility provided under Rules and does not deal with recovery - credit, if taken wrongly, has to be recovered from person who has availed - Pre-deposit ordered: CESTAT
By TIOL News Service
MUMBAI, JULY 16, 2014: THE appellant was denied CENVAT credit of Rs.1.31 crores by CCE, Raigad on the ground that the credit is attributable to trading activities undertaken by the appellant. Penalties have also been imposed along with interest.
Before the CESTAT, the appellant took the following stand -
+ CENVAT credit has been taken on the strength of the invoices issued by their Head Office, which was registered as an Input Service Distributor (ISD) with the department and, therefore, without putting the ISD to notice, the impugned demand could not have been confirmed. It is his contention that if there is a wrong distribution of credit, it is the ISD who is responsible for paying back the wrongly distributed credit and not the appellant who has actually availed the credit. Reliance is placed on the decisions in Godfrey Philips India Pvt.Ltd. - 2009-TIOL-269-CESTAT-AHM & United Phosphorous Ltd. 2013-TIOL-793-CESTAT-AHM.
+ It is with effect from 01/04/2011 that trading has been deemed as an “exempted service” and this deeming is by way of an explanation and the explanation states that it is for the removal of doubts. Therefore, it should be presumed that the explanation would operate retrospectively. Reliance is also placed on the Board Circular No. 943/4/2011-CX dated 29/04/2011 where to the question “What shall be the treatment of credit of input and input services used in trading before 01/04/2008”, the clarification offered is:-
“Trading is an exempted service. Hence, credit of any inputs or input services used exclusively in trading cannot be availed. Credit of common inputs and input services could be availed subject to restriction of utilization of credit upto 20% of the total duty liability as provided for in extant Rules.”
+ In as much as the appellant is entitled for the credit taken on trading activities as per the formula prescribed with effect from 01/04/2011 and in this view of the matter they were under the bonafide belief that credit could be taken in respect of trading service. The Delhi High Court decision in Lally Automobiles Pvt. Ltd. Vs. CCE - 2013-TIOL-818-HC-DEL-ST is adverted to wherein 50% pre deposit was ordered without interest.
The Revenue representative referred to the Board letter No.137/68/2013-ST dated 10/03/2014 to emphasize that it is the jurisdictional excise authorities, (who are in charge of the unit which has taken credit) who are the competent authorities to adjudicate the matter and hence the argument of the appellant on the first count does not survive. Reliance is also placed on the decision in Mercedes Benz India Pvt. Ltd. vs. CCE, Pune - 2014-TIOL-476-CESTAT-Mum wherein it is held that the explanation inserted in Rule 2 (e) of CCR, 2004 clarifying that “exempted services” includes trading is only prospective and trading is not a service prior to 01/04/2011; it is further held that for the period prior to 01/04/2011, the credit of Service Tax paid on common input services should be apportioned in the same ratio as the turnover of the manufactured and traded items. Therefore, the appellant should be put to terms.
The Bench after extracting rule 14 of CCR, 2004 observed -
++ It is the appellant manufacturer who has taken the credit and, therefore, the recovery of wrongly taken credit has to be effected from him. The distribution of service tax through ISD is only a facility provided under the Rules and does not deal with recovery. Therefore, the credit, if taken wrongly, has to be recovered from the person who has taken credit. Thus, in view of the clarification given by the Board vide Circular dated 10-3-2014, read with provisions of Rule 14 of the CCR, 2004, it is absolutely clear that it is the jurisdictional excise authority over the unit availing the credit, who should initiate the proceedings and we hold accordingly. As regards the reliance placed by the appellant on a few of the decisions of this Tribunal in this regard, the said decisions were rendered before the issue of the present clarification by the Board. Further these decisions did not examine the provision of Rule 14 for recovery of wrongly taken credit. Therefore, no reliance can be placed on these decisions.
++ In view of decision in Mercedes Benz India Pvt. Ltd. case (supra) the demand for reversal of input service tax credit by adopting the ratio of the turnover of trading activity and manufacturing activity, in the impugned order, cannot be faulted.
++ In the matter of the reliance placed on the Delhi High Court decision in Lally Automobiles Pvt. Ltd., the Bench enquired as to whether the appellant was pleading any financial hardship to which the appellant answered in the negative.
The Bench, therefore, observed that in the absence of a prima facie case and financial hardship, the balance of convenience lies in favour of Revenue. Taking note of the decisions in Dunlop India Ltd 2002-TIOL-156-SC-CX and SQL Star International 2012-TIOL-146-HC-AP-ST where it is held that the interest of revenue needs to be protected, the CESTAT directed the appellant to make a pre deposit of the entire demand of Rs.1.31 crores and report compliance for obtaining stay.
(See 2014-TIOL-1255-CESTAT-MUM)
