By TIOL News Service

MUMBAI, SEPT 25, 2014: THE appellant is a manufacturer of excisable goods and also provider of taxable services. They also undertook trading activities which is an exempted service. During April 2011 to March 2012, the appellant availed CENVAT Credit amounting to Rs.1,80,44,714/- in respect of services which were solely used in the manufacture of excisable goods. Similarly, they availed input service credit in respect of services solely used in rendering of taxable output services amounting to Rs.18,87,88,934/-. They also availed input service credit in respect common input services used in the manufacture of dutiable goods, taxable output services and exempted output services amounting to Rs.2,07,66,032/- as they were not able to maintain separate records.

SCN came to be issued on 27/05/2013 proposing denial of CENVAT credit amounting to Rs.8,62,06,300/- in respect of common input services taken during April 2011 to March 2012 in terms of Rule 6(3A)(c)(iii). The demand was confirmed along with interest and equivalent penalty by CCE, Pune against the appellant.

Before the CESTAT the appellant submitted that it is not disputed that that common input service credit taken was only Rs.2,07,66,032/-& the other credits taken were used solely for either for the manufacture of dutiable goods or for rendering of taxable output services. Therefore, while considering the reversal required to be made under Rule 6(3A), only the CENVAT Credit attributable to common input services alone should be taken and if this is done then the liability of appellant to reverse the credit would be only about Rs.78,19,162/- against which the appellant has already reversed a credit of Rs.61,76,635/-. Therefore, the balance of credit required to be reversed by the appellant would be only Rs.16,42,527/- and therefore, stay be granted subject to pre-deposit of this amount. Reliance is placed on the decisions in Sify Technologies Ltd. - 2014-TIOL-958-CESTAT-MAD and 2014-TIOL-60-CESTAT-MAD MIRC Electronics Ltd. - 2013-TIOL-1761-CESTAT-MUM in support.

The AR adverted to the formula contained in rule 6(3A)(c)(iii) and submitted that the appellant having opted for a payment under sub-rule (3A), the payment has to be made as per the prescribed formula and, therefore, the demand determined in accordance with the formula cannot be faulted.

The Bench observed that the question for consideration is the factor "P" and whether it should it be the value of common input services credit as contended by the appellant or should it be the value of total CENVAT credit taken on input services.

After reproducing sub-rule (3A) of Rule 6 of the CCR, the CESTAT observed -

++ Three factors are required for determination of the CENVAT Credit attributable to exempted goods and exempted services. The first factor is "M" which denotes the total value of exempted services provided plus the total of exempted goods manufactured. The second factor is "N" which denotes the total value of taxable and exempted services provided plus the total value of dutiable and exempted goods manufactured and the third factor is "P" which denotes the total CENVAT Credit taken on input services during the financial year.

++ It should be noted that "P" denotes the total CENVAT Credit taken on input services during the financial year and not the total of the CENVAT Credit taken on common input services. This is also evident from other two factors, namely, "M", "N" which provides for taking into account, the total of the value of services provided and the total value of goods manufactured. The same principle applies in the case of determination of provisional credit required to be reversed every month.

++ In this view of the matter, the confirmation of demand applying the formula provided in sub-rule (3A) of the Rule 6 by the adjudicating authority cannot be faulted at all.

++ It is a well settled position in law that while interpreting statutes, no words can be added or removed/deleted from the statute. As held by Rowlatt J., "in a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." If, we apply this principle to the formula prescribed in sub-rule (3A), there is no scope for interpreting the term "P" otherwise. If the formula leads to an anomalous situation, the remedy lies in amending the provisions of the statute and the judiciary is helpless.

++ In the present case, it is a fact that the total CENVAT Credit taken on common input services is only Rs.2.07 crore (approx) whereas if we apply the formula the amount of credit required to be reversed works out to Rs.8.62 crore. But if we consider the first option of payment of an amount @ 5% of the value of the exempted services, the liability of the appellant would work out to about Rs.13 crore which is much higher than that arrived at by applying the formula. This also conforms the views we have taken on interpretation of the term "P" prescribed in the formula.

Nonetheless, observing that in view of the fact that if the appellant had chosen not to avail CENVAT Credit on common input services, the liability would have been only Rs.2.07 crore and as the appellant had already reversed an amount of Rs.62 lakhs (approximately), the Bench directed the appellant to make a pre-deposit of Rs.1.40 crore within a period of eight weeks and report compliance.

(See 2014-TIOL-1825-CESTAT-MUM)