Cenvat Credit of Service Tax paid on Input service used in manufacturing exempted goods

PJ/Case Laws/2012-13/1008

Cenvat Credit of Service Tax paid on Input service used in manufacturing exempted goods - availability of

Case:- COLGATE PALMOLIVE (I) LTD. VERSUS COMMISSIONER OF C. EX., MUMBAI- I

Citation: - 2012 (25) S.T.R. 268 (Tri.- MUMBAI.)

Issue: - Whether assessee eligible for availment of Cenvat Credit of Service Tax paid on input service which was received by them in manufacturing of exempted goods?

Brief fact: - Appellant are engaged in the manufacture of excisable goods i.e. cosmetics and toilet preparation and compound of aromatic chemicals and essential oil and mixture of odiferous substances. They also import finished goods on payment of duty. During the course of the business M/s CPIL availed number of service which are used in relation of the manufacture of final products as well as in relation to selling and marketing of the final products etc. As the appellant are having their head office situated in Mumbai which are registered as the “Input Service Distributors” as per 69(2) of the Finance Act, 1994 read with Service Tax (Registration of special category of person) Rules, 2005. M/s CPIL received various service which distributed to a various factory as input service distributor by issue of invoice in term of Rule 4A(2) in terms of Service Tax Rules, 1994. The credit so distributed and availed by M/s CPIL at various factory is utilise to discharge the excise duty liability to various factory on various final product manufactured by them. On 7-7-2005 M/s CPIL informed to the department for availing the credit of various services. Thereafter a Show Cause Notice was issued on 30-6-2006 for disallowance of the credit and recovery for them under Rule 14 of CCR, 2004 read with 11 A of the Central Excise Act along with interest and penalties for denial of input services credit on exempted final products. Thereafter demand were confirmed and penalties were imposed.

Appellant contention: - Appellant submit that at the relevant time, in terms of Rule 6 (1) read with Rule 6(2) and Rule 6(3) including Explanation III thereto (now renumbered as Explanation II), credit of tax paid on input service can be denied only to the extent, such quantity of input services are exclusively used in manufacture of exempted goods. All the input service relate to “activities of business” of the appellant and being common to the business of the appellant, cannot be said to be exclusively used in manufacture of exempted goods. Hence there is no bar to the appellant availing full credit of the service tax paid on all the common input service. He further clarified that while availing the credit, the appellant have not taken the credit of Service Tax paid on Input Services in the following cases

·                      Service which are exclusively related to manufacture, distribution and sale of tooth powder.
·                      Services which were used for manufacture of toothpaste at our Baddi unit
·                      Service which was used in the manufacture of tooth paste at our Aurangabad unit was also excluded except for the service mentioned in Rule 6(5) of the Cenvat Credit Rules.
·                      Services which are exclusively related to the product purchased on the Principal to Principal basis or imported products were excluded e.g. goods transport from Location etc.
·                      Services which are exclusively used in the manufacture of Exempted products/nil Duty products in a unit were also considered for credit /distribution.

Appellant further submitted that as there is no suppression of fact or willful mis- statement as the appellant has informed to the department for availment of input service credit vide letter dated 7-7-2005, no penalty imposable as issue involved is of interpretation of law

Respondent contention: -Contention of the department is that as the above services are common input service therefore whole of the credit cannot be allowed. Department submitted that the provision of Rule 6 of CCR, 2004 are very much clear that in case of exempted goods the assessee is required to reverse 8% 10% of the value of the goods cleared in case the assessee is not able to maintain separate account of inputs/input services for dutiable as well as non- dutiable products. Hence the input service credit is not available to them at all

Reasoning of Judgment: - The Tribunal perused the provision of Rule 6 of CCR, 2004 and was of the view that appellants are not entitled to avail input service credit in full but they have to reverse input service credit proportionately, which is the intent of the law. Tribunal agreed with the contention of appellants that input service credit is available for toothpaste manufactured by contract manufacturer based on MRP as these input service credit has been taken on the goods which are taxable and the assessable value has been arrived as per Section 4A of the Central Excise Act, 1944.

In view of the above discussion, it was held that re-quantification of the amount of reversal is required to ascertain the proportionate inadmissible input service credit availed by the appellant for exempted final product. For the said purpose, the matter is sent back to the adjudicating authority to requantify the amount of inadmissible input service credit as discussed above.

It was further held that as the issue involved in this case is a matter of interpretation of the admissibility of input service credit, no penalties are warranted in these appeals. Hence the penalties are dropped. The appellants shall pay interest also (as applicable).

Decision: -Appeal disposed off.

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PJ/Case Laws/2012-13/1008

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