Cenvat credit of excess duty paid by supplier unit found after finalization of provisional assessment

Case: CIPLA LTD v/s COMMISSIONER OF CUS. & C. EX., PUNE-III

Citation: 2011 (273) E.L.T. 391 (Tri. - Mumbai)

Issue: - Cenvat credit of excess duty paid by supplier unit found after finalization of provisional assessment – cannot be denied – quantum of duty determined by jurisdictional officers of supplier unit cannot be contested by officers in charge of recipient unit.

Brief Facts:- Appellant-assessee were denied Cenvat credit of the excess amounts of duty paid on their inputs by the manufacturers/suppliers of the inputs. For instance, in Appeal No. E/1407/2007, the assessee therein was denied Cenvat credit on inputs manufactured and supplied by their sister units. The sister units at Bangalore and Kurkumbh manufactured bulk drugs and stock-transferred the same, on payment of Central Excise duty, to the assessee's factory at Patalganga where CENVAT credit of the said duty was availed by the assessee and utilized for payment of duty on the medicinal formulations (final product) manufactured out of the bulk drugs (inputs). The payment of duty on the bulk drugs by the units at Bangalore and Kurkumbh was based on provisional assessment.

When provisional assessments were finalized, the Assessing Authority found that excess amounts of duty had been paid than what was leviable by those units at the time of clearance of the goods. If the amount of duty provisionally assessed and paid at the time of clearance of the bulk drugs was adjusted against the amount of duty found, upon finalization of the provisional assessment, to be payable, the excess amount of duty arising out of such adjustment could be claimed as refund by the manufacturer. The bulk drug manufacturers, however, did not claim any such refund.

Revenue issued show-cause notice to the Patalganga unit of Appellant on the ground that the Patalganga unit was not entitled to avail CENVAT credit of any amount of duty in excess of what was liable to be paid on the inputs (bulk drugs) by the other two units (input-manufacturers) as per the finalized assessments. Hence, the Cenvat credit of the differential amount of duty (i.e., difference between the duty paid on the inputs on the basis of provisional assessments and the duty found payable as per the finalized assessments) was sought to be denied to the assessee (Patalganga unit).

The Commissioner disallowed the credit to the assessee and ordered its recovery under Rule 12 of the Cenvat Credit Rules with interest under Section 11AB of the Central Excise Act. Penalty equal to duty was also imposed. Similar orders were passed by the Commissioner against certain other units of appellant. Hence, appeals are filed before the Tribunal.

Appeal No. E/1412/07 was filed by a functionary of the company against the penalty imposed on him.

Appeal No. E/1045/08 filed by the other assessee viz M/s. Meditab Specialities Pvt. Ltd. (M/s. MSPL) for denial of Cenvat credit amounting to Rs. 42,194/- by the Lower Authorities and against equal amount of penalty imposed by them. Assessee in this case had taken Cenvat credit of Rs. 42,194/- on their input supplied by Appellant (M/s. Cipla Ltd) who had paid the said amount of duty on the goods provisionally assessed under Rule 7 of the Central Excise Rules, 2002. When the provisional assessment was finalized by the proper officer of Central Excise, the assessable value of the goods decreased and consequentially the amount of duty paid by M/s. Cipla Ltd. was higher than what was leviable on the goods.

In the show-cause notice, it was alleged that the assessee (M/s. MSPL) were not entitled to Cenvat credit of the differential amount of duty (difference between the amount of duty paid by the input manufacturer on the basis of provisional assessment and the amount of duty payable as per final assessment) and, therefore, duty of Rs. 42,194/- was recoverable from them with interest thereon under Rule 14 of the Cenvat Credit Rules, 2004. Show-cause notice also proposed a penalty on M/s. MSPL under Rule 25 of the Central Excise Rules, 2002 read with Rule 15 of the Cenvat Credit Rules, 2004. M/s. MSPL contested these proposals.

The Original Authority disallowed the credit to M/s MSPL. An amount of Rs. 42,194/- already paid by the party was appropriated towards the demand. Equal amount of penalty was imposed on them under Rule 25. An appeal filed against the Order-in-Original was dismissed on merits by the Commissioner (Appeals). Appeal E/1045/08 of M/s. MSPL is directed against the Appellate Commissioner's order.

M/s. MSPL had also availed CENVAT credit of Rs. 1,66,098.26 on their inputs (bulk drugs) which were received from M/s. Cipla Ltd. (input manufacturer) during the period from 01-02 to 03-04. The credit was of the duty provisionally paid by M/s. Cipla Ltd under Rule 7 of the Central Excise Rules. When their provisional assessments were finalized by the proper officer of Central Excise, it was found that the amount of duty paid by them was higher than what was leviable on the goods cleared to M/s. MSPL. Subsequently, in a show- cause notice issued to M/s. MSPL, the department sought to recover the differennal amount of duty (difference between the amount of duty paid by the input manufacturer on the basis of provisional assessment and the amount of duty payable as per final assessment) which was allegedly taken in excess of the credit they were entitled to. Apart from demand of interest on duty under Rule 12 of the CENVAT Credit Rules, there was also a proposal to impose penalty under Rule 13(2) of the CENVAT Credit Rules.

In adjudication, the Original Authority confirmed the demand of duty of Rs. 1,66,098/- with interest against M/s. MSPL and imposed on them equal amount of penalty. Aggrieved, the party preferred an appeal to the Commissioner (Appeals).

The Commissioner (Appeals) allowed the appeal by holding that there is no dispute regarding the duty paid by Cipla and also there was no allegation that M/s Cipla Ltd has received refund of duty paid. Therefore, appellant was correct in taking credit of duty paid by M/s Cipla Ltd.

Department has filed appeal against this order.

Appellant’s Contention:- Appellant submitted that the substantive issue involved in this batch of appeals is no longer res integra after the Supreme Court's decision in the case of Commissioner v. MDS Switchgear Ltd [2008 (229) E.L.T. 485 (S.C.)]. In this judgment, it was held that the rules entitled the receipt manufacturer to avail of the benefit of duty paid by the supplier manufacturer. A quantum of duty already determined by the jurisdictional officers of the supplier unit cannot be contested or challenged by the officers of the charge of recipient unit.

The Supreme Court's decision was followed by the High Court of Bombay (Goa Bench) in Commissioner of Central Excise v. M/s. Betts India Ltd [Order dated 6-10-2008 in Excise Appeal Nos. 29 and 32 of 2008].

Reliance was also placed on decision in Advance Remedies Pvt Ltd and Anr v/s Commissioner of Central Excise, Vapi [2009-TIOL-186-CESTAT-Ahm] wherein it was held that the issue is no more res-integra and stand decided by various decisions of the Tribunal. In this case, reliance was placed on M/s Hero Cycles Ltd v/s CCE, Chandigarh [2003 (54) RLT 764 (CEGAT-Del)], CCE, Chennai v/s CEGAT, Chennai [2006 (202) ELT 753 (Mad), CCE v/s Jyoti Ltd [2008 (223) ELT 171 (Guj)]. Evergreen Engineering Co Pvt Ltd v/s CCER, Mumbai [2007 (215) ELT 134 (Tri-Mumbai)]. It was held that credit cannot be varied at recipient’s end on the ground that the supplier should have paid lesser duty. Denial of credit to the appellant was not justified.

Reasoning of Judgment:- The Tribunal perused the text of Rule 3 of CCR, 2002 and noted that the rule allowed credit of duty paid on inputs/capital goods rather than credit of duty payable on the goods. Therefore, whatever duty was paid by the input manufacturer/supplier should be available as CENVAT credit to the manufacturer of the final product.

In the result, the Tribunal held that the parties cannot be compelled to reverse the CENVAT credit availed on their inputs being credits of the amounts of duty paid by the input manufacturers/suppliers and covered by the statutory invoices issued by them. It goes without saying that the demand of duty from M/s. Cipla Ltd. and M/s. MSPL and the imposition of penalties on them are unsustainable in law and that the appeal filed by the Revenue is only liable to be dismissed.

Decision:- Appellant’s appeal allowed. Revenue’s appeal dismissed.
1pt;teS�lg(��;line-height:normal'>It was noted that Section 65(105) of the Finance Act, 1994 defines the term "taxable service" and term "taxable service" covers various services, as enumerated in the various clauses, provided to any person. Under Section 66 there shall be levy of tax on the services referred to in Section 65(105) at the rate mentioned in the section. From the reading of Section 65(105) and Section 66 it will be seen that service tax is attracted when the services as enumerated in Section 65 (105) are provided in India and since this section does not mention the nationality of the service provider, even foreign service provider providing the same taxable service to a person in India would be liable to pay service tax. During the period prior to 16-8-2002, as per proviso to Rule 6(1) of Service Tax Rules, 1994 in case of person who was non-resident or was outside India, not having any office in India, the service tax due on the service rendered by him could be paid by such person or on his behalf by another person authorized by him, who was required to submit to jurisdictional Central Excise Commissioner, a return containing the specific details.

It was seen that in the case of Kerala State Electricity Board, service tax demand from Kerala State Electricity Board had been made under the proviso to Rule 6(1) as it existed at that time, as Kerala State Electricity Board had been authorised by the Foreign Service provider to pay service tax on their behalf.

But with effect from 16-8-2002 the Service Tax Rules were amended and the above mentioned proviso to Rule 6(1) was deleted and instead of this, Rule 2(1)(d) was amended by introducing a clause (iv) which provided that in case of taxable service received from the foreign service provider not having office in India it is the service recipient in India, who would be liable to service tax. In this case, the dispute is for the period from 16-8-2002 when proviso to Rule 6(1) of Service Tax Rules had been deleted and hence judgment of the Apex Court in Kerala State Electricity Board which is with regard to proviso to Rule 6(1) as the same existed -prior to 16-8-2002 would not be applicable. It was noted that the Bombay High Court in the case of Indian National Shipowners Association v. Union of India has held that during the period prior to 18-4-2006, the recipient of taxable service in India, receiving service from offshore service provider, not having office in India, cannot be made liable to pay service tax only on the basis of Rule 2(1)(d) of Service Tax Rules as specific provision making the service recipient in India liable to pay service tax was introduced only with effect from 18- 4-2006 by inserting Section 66A in the Finance Act, 1994 and that during the period prior 18-4-2006, Rule 2(1)(d) without backing of statutory provisions in the Finance Act, 1994 was not valid. It is not the case of the department that the Foreign Service provider had some office or establishment in India or that the service had been provided by them in India. In view of the settled legal position on the issue involved in this case, the impugned order is not sustainable and the same is set aside.

Decision:- Appeal allowed

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PJ/Case Laws/2011-12/1459

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