1. This appeal is directed against the judgment of the Customs, Excise & Service Tax Appellate Tribunal dated 16.10.2017, whereby the appeal of the
appellant was dismissed.
2. The appeal was admitted for hearing on the following substantial question of law:
i) Whether in the facts and circumstances of the case, CENVAT credit of service tax paid on input services like Banking, Auditing, Security services
etc. can be denied under value added tax, CENVAT Credit Rules, 2004 prior to 1.4.2011 read with notification No. 3/2011 dated 1.3.2011 on the
ground that specified services were exclusively under for traded goods?
ii) Whether extended period can be applied on the matters of interpretation, and applicability of CENVAT Credit Rules, 2004 admissibility wherein no
intention to evade payment of duty coupled with suppression, fraud, mis-statement, collusion is in existence as required under section 11A of the
Central Excise Act and hence the demand as per settled position of law is barred by limitation?
3. Facts of the case are that the respondent-department issued a show cause notice to the appellant on 11.02.2010 for the period pertaining to
November, 2006 to August, 2008 alleging therein that it has wrongly availed input service tax credit amounting to Rs. 51,66,116/- in contravention of
Rule 3 and Rule 9(6) of the CENVAT Credit Rules, 2004. It was alleged that appellant has taken input service, which was used in relation to
excisable goods or traded goods. It was also stated in the show cause notice that extended period of limitation was invoked in Section 7A of the
Central Excise Act as the appellant availed CENVAT credit by not disclosing the fact to the department and not maintaining the separate records.
4 . Reply to the aforesaid show cause notice was filed on 26.3.2010 by the respondent contesting that position. It was stated in the reply that no
separate record was required to be maintained in respect of the trading of the goods in Rule 6(3)(b) of the CCR Rules and the said Rules are not
attracted even if input service credit have been utilized in the activity of trading of goods. Reliance was placed on the judgment in 2002 (12) STR page
252. It was stated that notice was barred by limitation as the period involved was November, 2006 to August, 2008 and the show cause notice was
issued after expiry of one year on 18.2.2010. There was no evidence of intention to evade payment of duty, nor there was any fraud, collusion, willful
misstatement, suppression to attract extended period u/s. 11Ax'. The demand was confirmed in entirety along with penalty of Rs. 10,000 vide order in
original 26/2011 dated 7.3.2011. Appellant preferred appeal, which was dismissed by the CESTAT vide order dated 16.10.2017. Shri Arjun Singh,
learned counsel for the appellant has argued that the matter is of interpretation whether amendment introduced vide notification No. 3/2011 dated
1.3.2011, whereby trading activity is a declared service or not, will be prospective/retrospective and will be taken as clarificatory notification or not is a
matter of interpretation and not of suppression, fraud, misstatement coupled with intention to evade payment of duty. It was argued that even
otherwise that nature of input service like auditing service, security service, banking service etc. cannot be held to have been used in manufacturing
activity and other part in trading activity is highly wrong and a misinterpretation and against the principles of commercial expediency. The trading
activity was not even notified service during the relevant period under the Finance Act. The allegation levelled in the show cause notice pertains to the
fact that the appellant has taken credit on the auditing service, security, service, banking service which was commonly used with the manufacturing
activity as well as trading activity and as per Rule 6 read with Rule 9, the same is not permissible. But it was only with effect from 1.4.2011 vide
notification No. 3/2011 dated 1.3.2011 that the trading activity was deemed to be declared as exempted service to invoke the provisions of Rule 6 read
with Rule 9 and 3 of the CENVAT Credit Rules. Reliance has been placed before the Tribunal on the judgment in 2011 (271) ELT 308, 2017 (52)
STR 155, which have not been properly considered. The appellant was duly registered and was maintaining the specified statutory records, which
were duly assessed from time to time and central excise audit was also conducted by the office on early basis. The extended period of
demand/limitation on account of fraud, suppression, concealment with intention to evade payment of duty could not be invoked. Reliance is placed on
the judgment of Apex Court in 40 ELT page 276, 216 ELT 177 (SC),189 ELT 257, 235 ELT 577 SC.
5. Shri Sandeep Pathak, learned counsel for the respondent opposed the appeal. As regards the first substantial question of law framed by the
appellant, it is submitted that in accordance with the CENVAT Credit Rules, 2004, CENVAT Credit can only be availed on ""input services"" as defined
in Rule 2(1), being services used in the process of manufacture of dutiable goods. The appellant was engaged in manufacture of goods as well as
dealing in traded good but was maintaining same account for both traded as well as manufactured goods. Further, CENVAT Credit was being availed
by the appellant on all such goods. The Supreme Court in the case of Maruti Suzuki Vs. CCE, Delhi - III, reported in (2009) 9 SCC 19 3has
categorically held that unless there is a nexus between service and manufacture of final goods, it would not qualify for input service. Further, as
regards Notification No. 3/2011 dated 01.03.2011, it is submitted that the amendment brought by way of the said notification is only clarificatory in
nature and does not affect the rights of the appellant prior to the issuance of the said notification in anyway. Therefore, in view of the submissions
made in the foregoing paras, it is submitted that the appellant has wrongfully availed CENVAT Credit on traded goods for the disputed period in
violation of the provisions of the CENVAT Credit Rules, 2004 and the same has rightly been demanded from the appellant by the respondent.
6 . As regards the second question of law framed by the appellant with respect to extended period of limitation, it is submitted that extended period of
limitation is applicable whenever there is suppression of material facts with the intention to evade Central Excise Duty. The Supreme Court in the case
of Union of India v. Rajasthan Spinning and Weaving Mills, reported in (2009) 13 SCC 448 has held that in case the non-payment etc. of duty is
intentional and by adopting any means as indicated in the proviso, then the period of notice and a priory the period for which duty can be demanded,
gets extended to five years. Further, the OIO dated 07.03.2011 categorically observes that vide letter dated 07.02.2011, the appellant was asked to
submit details regarding service tax paid. However, the information sought from the appellant was never provided. It is further submitted that the
appellant has nowhere pleaded that they were unaware about the provisions regarding CENVAT Credit. As such they were well aware that
CENVAT Credit could only be availed with respect to good manufactured by the assessee. The appellant has availed CENVAT Credit on services
utilized with respect to traded goods, which is in gross violation of the CENVAT Credit Rules, 2004. Therefore, in view of the provisions of the
CENVAT Credit Rules, 2004, Central Excise Act, 1944 and the judgment passed by the Supreme Court, it is submitted that extended period of
limitation has rightly been applied in the case of the applicant. It is therefore, most respectfully prayed that the appeal may be dismissed.
7. We have given our anxious consideration to the rival submissions and perused the material on record.
8 . The adjudicating authority held that Rule 6 disallows a manufacturer credit in respect of quantity of inputs or inputs services which are used for
manufacture of exempted goods or for provisions for exempted services. However, Rule 6(2) requires them to maintain separate accounts for receipt
and consumption of inputs as well as inputs services which are used for dutiable as well as exempted goods. It was held that the law even allows a
manufacturer or a service provider, who cannot maintain such a separate account, to pay an amount equal to a certain percentage of the value of
exempted goods or exempted services. Sub-rule (3) of Rule 6, as it existed at the relevant time, provided that where a manufacturer avails of
CENVAT credit in respect of any inputs or input services and manufacturers such final products which are chargeable to duty as well as exempted
goods but does not maintain separate account, he has to follow the procedure or avail the options available under that Rule. Since the assessee was
not manufacturing the exempted goods, so the CENVAT Credit Rules, 2004 was not attracted and accordingly reversal of certain percentage of the
value of 'traded goods' cannot be demanded thereunder. As regards the input service, the adjudicating authority held that it had three different parts.
The first part i.e. ""used by provider of taxable service for providing an output service"" was not applicable in this case. The second part of the definition
stipulates that it was ""used by the manufacturer from place of removal."" It was held that any service used by the manufacturer, whether directly or
indirectly in or in relation to the manufacture of final product and clearance of final product from/upto the place of removal is eligible to be called input
service. The specified input service would become eligible for credit only in respect of final product manufactured by the assessee.
9 . The appellant aggrieved by the aforesaid order of the Commissioner of Central Excise, Jaipur approached the CESTAT by filing the appeal. The
CESTAT upheld the order of the Commissioner, Central Excise dated 7.3.2011 in the following terms:
5. Admittedly, the appellants availed credit on various input services like security, banking and audit and they did not submit any records to show as
the manner of usage of such common input services in taxable activity as well as non-taxable activity. Their contention is that trading cannot be
considered as an exempted service prior to 1.4.2011 [(before issue of notification No. 3/2011-CE (NT) and as such, there is no application of Rule 6
of CCR for maintenance of separate records etc. We are not in agreement with such proposition. Admittedly, it is the responsibility of the assessee to
follow the provisions of Cenvat Credit Rules, 2004. Rule 9(6) of the CCR Rules states as below:-
Rule 9(6) The manufacturer of final products or the provider of output service shall maintain proper records for the receipt and consumption of the
input services in which the relevant information regarding the value, tax paid, CENVAT credit taken and utilized, the person from whom the input
service has been procured is recorded and the burden of proof regarding the admissibility of the CENVAT credit shall lie upon the manufacturer or
provider of output service taking such credit.
6. The appellants claimed that there is no application of Rule 6 as the trading cannot be considered as an exempted service prior to 1.4.2011. We note
that legal fiction given in the Explanation in order to remove doubts was introduced on 1.4.2011. Even if it is considered that trading is not an exempted
service, it is also a fact that it cannot be considered as a service within the scope of Finance Act, 1994 during the material time. Even in such situation,
the appellants cannot take credit on input services, which are utilized for trading activity. As trading is neither a service nor an exempted service
during the material time, the appellants are not covered by the Cenvat Credit Scheme with reference to such activity. In such situation, their
arguments that there is no application of Rule 6 for account maintenance is not tenable. As it is clear that Cenvat Credit Scheme itself is applicable to
the excisable finished goods and output services, the question of taking credit on services, which are utilized either wholly or partly to an activity,
which is not covered under service, is not tenable.
7. The appellants contested the demand on the ground of limitation also. The ld. Counsel submitted that it is a bona fide interpretation error and as
such, the extended period is not justifiable. We note that till the fiction was introduced stating trading is an exempted service, by ""Explanation
introduced w.e.f. 1.4.2011 in the Cenvat Credit Rules, 2004, trading, which is a sale of goods, could not have been considered as a taxable service or
an exempted service. The input services, on which credit was availed by the appellant, were consumed for trading activities and such credit could not
have been availed or taken for discharging service tax on the services provided by the assessee. As held by the Tribunal in the case of HCL
Infosystem Limited reported in 2014 (4) ECS (160) (Tribunal-Delhi), there is no scope for any interpretational misconceptional on this aspect.
Invocation of extended period is, therefore, without any error.
10. In our considered view also, the trading was neither a service, nor exempted service during the material time and therefore the appellant was not
covered by CENVAT credit scheme with reference to such activity. It cannot therefore be said that Rule 6 of CENVAT Credit Rules, 2004 would
not apply for account maintenance.
11 . The Tribunal in our view has rightly relied on its earlier judgment in HCL Infosystem Limited-2014 (4) ECS (160) (Tribunal-Delhi) and held that
there is no scope for any interpretational misconception on this aspect. Invocation of extended period was, therefore, held to be without any error.
12. We are in agreement with the view taken by the Tribunal.
13 . The appeal is therefore dismissed and the questions proposed are answered accordingly.
