Admissibility of Cenvat Credit

PJ/Case Law/2019-2020/3591

M/s Mafatlal Industries Limited Final Order No. A/11029/2020 dated 01.06.2020.
Issue:

Whether Cenvat credit can be denied on the ground that
- Separate Accounts as per Rule 6 of Cenvat Credit Rules are not maintained and credit has been availed of Input service used for both exempted and dutiable clearances.
- Invoices issued did not carry either serial number of invoices or service tax Registration of the service tax.
- ISD invoices issued for services were availed by the said unit prior to the date on which ISD registration was granted to the said unit.

Whether Cenvat credit can be transferred by appellant's various branches to the Nadiad unit under centralised, without issuance of proper documents by each unit.

Whether credit can be availed by the appellant on Input services such as Medi-claim, Canteen Services, Vehicle Insurance, Vehicle Hiring Service, CHA Bills, Guest House expenses, Residential Premise services and Membership services.

Brief Facts: The appellant is manufacturer of Cotton Yarn, Fabrics etc. They have availed exemption Notification No. 29/04-CE and Notification No. 30/04-CE dated 09.07.2004. For the period April 2005 to march 2011 accounts were audited and a few objections were raised by the audit party. The objections are as follows.

Separate Accounts as per Rule 6 of Cenvat Credit Rules not maintained and availed credit of Input service used for both exempted and dutiable clearances.

Certain invoices issued in respect Consultancy ManagementService and Security Services on which Cenvat credit was availed by the appellant did not carry either serial number of invoices or service tax Registration of the service tax.

Cenvat credit could not have been transferred by appellant's various branches to the Nadiad unit under centralised, without issuance of properdocuments by each unit.

Cenvat credit availed by the appellant on Input services such as Medi-claim, Canteen Services, Vehicle Insurance, Vehicle Hiring Service, CHA Bills, Guest House expenses,Residential Premise services and Membership services.

Cenvat credit has been wrongly availed on ISD invoices issued by the appellant's Ahmedabad and Mumbai branch for services availed by the saidunit prior to the date on which ISD registration was granted to the said unit.

Appellant’s Contention: With respect to the above mentioned allegations, the appellant provides the below contentions

The appellant submits that as per Rule 6, when the appellant has not maintained separate accounts for exempted and dutiable goods, then the assessee has an option to –
1. pay an amount equal to 10% /5% of the exempted goods, or
2. pay proportionate amountas per formulae provided under Rule 3(A) of Rule 6 or
3. pay an amount equivalent to Cenvat credit attributable to Input service used in the manufacture of exempted goods.

He also submits that various courts and judgments has also accepted that if the proportionate Cenvat credit attributed to exempted goods is reversed along with payment of interest then there is no case of delay i.e. duly compliance of Rule 6. Accordingly, the demand for Cenvat Credit @10/5% will not sustain.He further submits that it is a settled legal position in the seriesof judgments that reversal of proportionate Cenvat credit to exempted goodsalong with interest which is paid even if belated, it results in a situation as ifthe assessee had not taken any Cenvat credit. It was also held by theCourts that it is on the assessee to decide which rule to follow under Rule 6and said option can be exercised by the assessee even at the later stage. Moreover, the appellant has reversed Cenvat credit reversible under Rule 6 along with interest and therefore, there is noquestion of applicability of Rule 6 (relevant to 10/5% ) of Cenvat Credit Rules.

With regard to the second point the appellant submits that demand on this count is without jurisdiction in as much as the demand confirmed is for the period even beyond five years. As is evident from the show cause notice, theinvoices are from the period January 2005 to February 2011 whereas theshow cause notice was issued by the department only on 07.09.2011.Therefore, the demand which is beyond five years is illegal. As regards thediscrepancies in invoices, it is stated that there is no suggestion in theimpugned order that the service tax has not been paid on the said invoicesor alternatively an excess amount of Cenvat credit has been availed by theappellant. Therefore, the said discrepancy is only a technical infraction andfor this reason, Cenvat credit cannot be denied. He also placed reliance onthe decision by this Tribunalin the case Novozymes South Asia Pvt. Limited vs. CCE Bangalore - 2015 (38) STR 204 (Tri. Bang.).

Moving to the third allegation, the appellant submits that it is not a case of department thatan excess amount of Cenvat credit has been availed by the appellant at Nadiad unit i.e. amount in excess of Cenvat credit originally availed in otherbranches. It is also not a case of the department that transferring unutilised such Cenvat credit as initially transferred unit appellant was also tax/duty paid unit. The only objection of the department is that no documentswere issued while making the said transfer to the Nadiad unit. In this regards, he submits that in the Tribunal decision in the case of Central Bankof India vs. CCE, Bhopal - 2019 (365) ELT 565 (Tri. Delhi.)which is onidentical facts and circumstances, has set-aside the demand by holding thatsuch objection is merely a technical error on the part of the appellant andthere is no revenue loss to the department on account of such error. The Tribunal also held that there is no document specified under law for saidtransfers and therefore, the case can be established on the basis of statutory documents of the assessee and it cannot be said that there has been anyviolation on the part of the assessee. He further submits that statutory documentsmaintained by the appellant’s Nadiad branch as well as other branchesclearly shows that there has been transfer of credit from appellant's one unit to another. Therefore, the demand is not sustainable.

Coming to the fourth point the appellant submits that this demand also includes demand for the period beyond five years, which is without jurisdiction of the adjudicating authority. He submitsthat the demand is otherwise not legal inasmuch as all the aforesaid services have been held to be legally permissible and having nexus to the manufacturing activity.

With respect to fifth allegation the appellant submits that the issue of distribution of input service credit prior to obtaining registration is no longer res-integra and is settled by various decisions of the Tribunal holding that availment of Cenvat credit on such ISDinvoices is proper and legal.

As regards invocation of extended period, he submits thatdepartment has failed to bring on record any evidence to show that the present case concerns any contravention or infraction on the part of the appellant with intention to evade duty. He submits that in the present case, there is not even iota of evidenceconfirming any infraction was committed by the appellant with intention toevade any payment of duty. Therefore, he submits that all the demands are not sustainable and the appellant to reverse only proportionate credit attributable to exempted goods and interest for the delay in reversal thereof.

Reasoning of Judgement:
The tribunal has provided the following judgements with respect to the above mentioned points

As per option available under Rule 6, one of the option is that appellant is required to reverseproportionate credit in terms of sub-Rule 3(A) of said Rule on the inputs andinput service attributed to exempted goods and therefore, in the presentcase, when the appellant have reversed the credit, which should beproportionate credit on the common input service attributed to the exemptedgoods and also paid interest. The entire demand raised under Rule 6 will not sustain. This issue has been considered by this Tribunal time and again in various judgments. In the present case, the appellant have reversed Cenvat credit which is more than the proportionate creditattributed to exempted goods. Therefore, the demandraised invoking Rule 6 will not sustain. We further make it clear that as perthe option available under Rule 6, the appellant is required to reverse Cenvat credit in respect of common input service along with interest and nothing more than that. As per submission of the appellant they have reversed excess credit. In this position, the adjudicating authority should recalculate the proportionate credit during the period of show cause noticeand thereafter, if any amount of excess reversal and interest thereof arise, the same shall stand refundable to the appellant.
With respect to second point they find that this is atechnical infraction and moreover this error is not on the part of theappellant but on the part of the service provider who issued the invoices. Itis not a case of the department that in said invoices, no service tax was paidand there is no dispute about receipt and use of the services, which are themain criteria for allowing Cenvat credit on input service. Therefore, in ourview, credit, only on the technical infraction should not be denied.
On the ground that proper documents under centralised registration was not issued for transfer of credit cannot be denied.
This issue has been considered time and again by this Tribunal and credit of all the services have been allowed in various judgments. The details of judgment along with relevant services are given as below:-

(a) For Mediclaim - CST, Chennai vs. Spectrasoft TechnologiesLimited - 2019 (24) GSTL 224 (Tri. Chennai) and CST, Mumbaivs. FIL Capital Advisors (India) Pvt. Limited - 2015 (40) STR1073 (Tri. Mumbai)

(b) For Canteen and Insurance Services- CCE, Bangalore vs. StanzenToyotetsu India (P) Limited - 2011 (23) STR 444 (Kar.)

(c) For Vehicle Insurance - Vinayak Steels Limited vs. CCE & ST, Hyderabad - 2017 (4) GSTL 188 (Tri. Hyderabad)
In view of the above judgments, we find that Cenvat credit in respect of all the services has been allowed by this Tribunal.
5.We find that Hon’ble High Court of Karnatakain the case of mPortal (I) Wireless Solutions (P) Limited vs. CST, Bangalore– 2012 (27) STR 134 (Kar.) has considered the issue of ISD invoices issued prior to registration and held that for this reason Cenvat credit cannot be denied. It has been settled that even for ISD invoices issued for the distribution of input service credit prior to the registration, the same cannot be denied.

Prepared By- CA Akanksha Anchaliya

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PJ/Case Law/2019-2020/3591

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