Whether allegation of non-maintenance of separate records for inputs without inspection of records proper?

PJ/CASE LAW/2016-17/3163

Case:- TANAY LANDCON INDIA PVT. LTD. VERSUSCOMMR. C. EX. & S.T., JAIPUR

Citation:- 2015 (40) S.T.R. 608 (Tri. - Del.)

Brief Facts:-As we shall establish in the following analysis, the impugned order is grossly perverse and of minimal analysis of relevant facts and the material on record.
On 18-10-2012, show cause notice was issued to the appellant/assessee proposing recovery of Rs. 73,68,121/- for irregular/unauthorized availment of Cenvat credit in violation of Rule 6 of the Cenvat Credit Rules, 2004, on the ground the appellant was providing both taxable and exempted services but failed to maintain separate accounts in respect of these services and availed Cenvat credit on inputs which were commonly used for both taxable and exempted services.
In response, the assessee vide the response dated 4th February 2014 clearly and categorically pleaded in paragraph 6(c) of the reply that the allegation of availment of Cenvat credit on common inputs and common input services is incorrect and baseless and it had availed credit only in respect of inputs and input services used for providing taxable services. Appellant also categorically pleaded that the show cause notice failed to reveal any basis for the allegation of irregular availment of credit on inputs related to both taxable and exempted services.
In the adjudication order, after reproducing contents of the show cause notice in paragraph 1 to 8, the response of the assessee is set out in paragraphs 9 to 22 including contentions urged by the appellant during personal hearing. In para 16 of the impugned order, the specific contention of the appellant regarding non-availment of Cenvat credit on common inputs and input services used for both taxable and exempted goods is duly noticed. The impugned order sets out the provisions of Rule 6 in para 25. In para 26, the order jumps to the conclusion, un-substantiated by any evidentiary analysis, that the appellant failed to establish or prove that credit was not availed on inputs and input services used for providing both taxable and exempted services.
In para 27 the Authority records an observation that the appellant did not dispute to be engaged in providing both taxable and exempted services and to have availed Cenvat credit on input/input services such as cement, insurance of vehicle, advertising services which are common. We find no basis whatsoever for this conclusion recorded by the Authority. The appellant nowhere admitted to have availed Cenvat credit on common inputs/input services used for providing both taxable and exempted output services. This finding by the Authority, of an admission by the appellant is perverse, contrary to the categorical denial by the appellant, of availment of common inputs/input services as contained in para 6(c) of its reply dated 4-2-2014 to the show cause notice and is therefore a finding which is contrary to the record.
In para 27, the Authority observes that “it is not the duty of the Department to establish that the appellant have not maintained separate records”. This observation is fallacious. Revenue had alleged that the appellant failed to maintain separate accounts. The appellant disputed this allegation and specifically pleaded to have maintained separate accounts and to have used only, those inputs/input services which were used for providing taxable services. If there was a doubt either regarding maintenance of separate accounts or utilizing credit on common inputs/input services, as required under Rule 6(2) of the Cenvat Credit Rules, the authorities ought to have summoned the appellants records or should have verified from the appellant’s premises, whether assessee had incorrectly pleaded to have maintained separate records while it did not. In the absence of any such notice issued and in view of the failure to have inspected the appellant’s records, law does not authorize a conclusion of non-maintenance of separate accounts, without any basis. The mis-conception subtracting the impugned order, that it is the appellant’s burden to establish maintenance of separate accounts, when Revenue alleges such non-maintenance and alleges utilization of credit on common inputs, is fatal to the validity of the impugned order.

Appellant contentions:-Learned Counsel for the appellant refers to the judgment of this Tribunal in Okay Glass Industries v. CCE, Kanpur reported in 2015 - TIOL - 428 - CESTAT - DEL. = 2015 (324)E.L.T. 735 (Tri.-Del.) to alternatively urge that even if the appellant had availed Cenvat credit on inputs or input services which were common to both taxable and exempted services, the demand could legally be confined only to the extent of the credit availed on exempted services. Learned Counsel has provided an executive summary whereby it is claimed that the total credit availed during the period 2008-2009 to September 2010 is Rs. 3,17,604/- including Rs. 1,36,218/- availed in respect of capital goods on which no reversal is required to made under Rule 6(4); and that a credit of Rs. 1,81,386/- is alone, if at all, attributable to inputs and input services which amount is in fact relatable to inputs/input services used for taxable services, but not inputs or input services used for providing non-taxable services. On the basis of this submission it is contended, that if it was found that the appellant had availed credit on inputs and input services which are common to both taxable and exempted services, the demand should be restricted to Rs. 1,81,386/-, which is the position that obtains on the basis of Okay Glass Industries v. CCE, Kanpur (supra).

Respondent contentions:-Learned DR would contend that the show cause notice dated 18-10-2012 is accompanied by three RUDs i.e., Annexure A, the Assessee’s letter dated 4-1-2011 and IAR No. 906 of 2010; that these RUD’s constitute the basis for issuance of the show cause notice and these are conclusive proof of the fact that the appellant failed to maintain separate accounts in respect of taxable and exempted services and of availment of credit on common inputs and input services.

Reasoning of Judgment:-The contention that RUD is conclusive proof that appellant failed to maintain separate accounts in respect of taxable and exempted services is rejected. An Annexure to a show cause notice do not per-se provide a legal basis for a conclusion in an adjudication that the appellant violated provisions of Rule 6(2) by failing to maintain separate accounts in respect of taxable and exempted services or had utilized common inputs/input services. There is not a single sentence in the entire adjudication order which records the evidence or material on the basis of which the Adjudicating Authority records the finding that the appellant failed to maintain separate accounts. We have earlier noticed that in para 27 it is observed that it is not the burden of Revenue to establish that the appellant maintained separate accounts. In the absence of the Adjudicating Authority recording a clear finding that the assessee failed to maintain separate accounts and on the basis of some evidence in support of such conclusion, the inference of a failure to maintain separate accounts, is a finding of fact based on no evidence. It is therefore perverse. We have earlier also noticed a mis-statement of fact in para 27, i.e., the observation that the appellant admitted to have availed Cenvat credit on common inputs and input services.
For the aforesaid reasons, the impugned order cannot be sustained.
On the analysis above, we set aside the impugned order. Normally we would have allowed the appeal in toto based on the perverse finding in para 27 of the order inference of availment of credit on common inputs/input services based on an admission (non-existent) of the appellant, of having availed Cenvat credit on common inputs and input services of both taxable and exempted services and the other finding regarding the burden of proof being on appellant to establish that it had not maintained separate records. However, such a course of disposition of an appeal would not enable adjudicating authorities to pursue judicial discipline in recording adjudication orders and eschew perversity in adjudicating functions.
The principal is too well established that reasons are the links between material on which conclusions are based and the eventual conclusions, vide Union of Indiav. M.L. Capoor - AIR 1974 SC 87.
In the circumstances, we quash the impugned order and remit the matter to the respondent for passing a fresh adjudication order in the light of the observations herein. The respondent shall record the material/evidentionary basis for a conclusion that the appellant failed to maintain separate accounts as mandated by Rule 6(2) of the Cenvat Credit Rules, 2004 and for a conclusion that it had utilized credit of inputs/input services utilized for providing exempted output services, if the respondent is satisfied that such conclusions are warranted. No costs.

Decision:-Appeal disposed of.

Comment:-The substance of the case is that without any evidences, conclusion cannot be drawn by the revenue authorities. Since in the present case, the revenue department failed to establish the fact that the appellant did not maintain separate records of inputs and have availed cenvat credit of inputs used in exempted goods/exempted services, the appeal was allowed by way of remand so that the allegation leveled by the revenue department is substantiated by evidences.

Prepared By: Anash Kachaliya

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PJ/CASE LAW/2016-17/3163

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