2018 (11) TMI 179 – CESTAT CHENNAI – TMI – CENVAT Credit – Scope of SCN – main contention put forward by the ld. counsel for the appellant is that the show cause notice itself cannot sustain for the reason that it invokes Rule 3 of CENVAT Credit Rules, 2004 to disallow the credit whereas the demand is made under Rule 14 of the said Rules disallowing credit attributable to trading as envisaged under Rule 6.
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Held that:- It is correct that show cause notice does not invoke Rule 6 of CCR, 2004. But it is to be noted that the provision for availing credit is envisaged in Rule 3 of CCR, 2004. The show cause notice proposes to deny the credit availed on trading as per Rule 3 of CCR, 2004. Rule 3 does not allow credit to be allowed on trading activity.
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The show cause notice invokes Rule 3 to disallow the credit for the reason that no credit can be availed on trading as per this provision. Undisputedly, the appellants have availed credit on trading activities. Therefore, the demand
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Sifycom) an associate enterprise of appellant got merged with the appellant with effect from 1.4.2008. Prior to merger, Sifycom were filing separate ST-3 returns upto March 2009. Consequent to merger, appellant filed ST-3 returns for the half-year ending September 2009 onwards including the transactions relating to Sifycom also. During the course of audit, it was noticed that appellants were providing erection, commissioning and installation to their customers in the form of establishing enterprise networking. 1.1 During the course of providing this service, they were also selling bought out goods like routers, interface cards, power adapters, cables etc. These goods are either imported on payment of duty or indigenously procured by appellants from wholesale sellers / dealers. No input credit was availed on such goods and these are mentioned as traded goods in the balance sheet. The materials sold are billed separately to the end-customer and thus were engaged in trading activity also.
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service and had calculated and reversed the proportionate credit of common input services alone, attributable to trading as per Rule 6(3)(ii) of CCR, 2004. However, since the activity of trading was not an exempted service, the credit attributable to trading activities is liable to be reversed as a percentage of income on trading vis-à-vis total income multiplied by the total input service tax credit availed during the period. The show cause notice thus demanded recovery of CENVAT credit of ₹ 13,00,75,361/- for the period from October 2005 to March 2010 (including credit pertaining to the trading activity undertaken by Sifycom during 2008 – 09 and 2009 -10) and for the period prior to merger i.e. 2006 – 07 and 2007 – 08 to be ₹ 89,39,470/-. Thus the total demand of ₹ 13,90,14,831/-. The amount already reversed by the appellant was proposed to be appropriated. The show cause notice also proposed to demand interest and impose penalties. After due process of law,
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s not an exempted service and therefore such reversal is not correct. The Hon ble High Court of Madras in the case of Ruchika Global Interlinks Vs. Commissioner of Central Excise – 2017-VIL-323-MAD-ST has held that prior to 1.4.2011 also trading is to be considered exempted service and that Rule 6 is applicable to demand the proportionate credit availed on trading. In the present case, the department has not invoked Rule 6 for disallowing the credit. Instead, they have invoked Rule 3 of CENVAT Credit Rules, 2004 and alleged that the credit availed on trading is wrong and ineligible. The recovery in the show cause notice is proposed under Rule 14 of CENVAT Credit Rules, 2004. When Rule 3 has been invoked to deny the credit, the department cannot invoke Rule 14 for recovery of proportionate credit as applicable under Rule 6. The show cause notice having not invoked Rule 6 to deny the credit, the recovery of credit attributable to trading cannot sustain. Show cause notice is the foundatio
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y the department before the Hon ble High Court of Allahabad and that though admitted, there is no stay granted by the High Court. He thus argued that the impugned order confirming the demand of credit attributable to trading is beyond the scope of the show cause notice as the show cause notice in para 10 specifically holds that Rule 6 cannot be applied to the facts of the case. He prayed that the appeal may be allowed. 2.2 The ld. counsel also argued on the ground of limitation. He argued that the issue is one of interpretational in nature. There were decisions holding that trading is an exempted service prior to 1.4.2011 and the same has been put to rest by the Hon ble High Court of Madras in Ruchika Global Interlinks (supra). In such scenario, the extended period is not invocable. Further, the proceedings for the disputed period was initiated after scrutinizing the returns filed and therefore the department had definite knowledge of the fact that the appellant is engaged in providing
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rading activity is ineligible under Rule 3 of CENVAT Credit Rules, 2004. The said rule lays down the conditions to avail credit. Since the activity of trading does not find mention in the said rule, the show cause notice has correctly invoked the said rule to deny the credit. The total credit attributable to trading in respect of appellant for October 2005 to March 2010 was quantified as ₹ 13,00,75,361/-, (which includes the credit pertaining to trading activity on Sifycom during the period 2008 – 09 and 2009 – 10) and credit attributable to trading in respect of Sifycom prior to its merger with appellant i.e. for the period 2006 – 07 and 2007 – 08 at ₹ 89,39,470/-. Thus the total reversal credit amounted to be ₹ 13,90,14,831/- to both appellant and Sifycom. In the present show cause notice, the allegation is not that appellant has to reverse the proportionate credit under Rule 6 of CENVAT Credit Rules, 2004. The allegation is wrong availment of credit which is not el
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itself cannot sustain for the reason that it invokes Rule 3 of CENVAT Credit Rules, 2004 to disallow the credit whereas the demand is made under Rule 14 of the said Rules disallowing credit attributable to trading as envisaged under Rule 6. Rule 14 speaks about recovery of CENVAT credit which is wrongly availed and utilized. Rule 14 as it stood during the relevant period is reproduced as under:- Where the CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output service and the provisions of sections 11A and 11AB of the Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries. 5.1 Rule 14 provides for recovery of wrongly availed credit. It does not mention about Rule 3 or Rule 6. An Explanation was added to Rule 2(e) with effect from 1.4.2011 making trading activity as an exempted service. Corresponding amend
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as exempt service and therefore Rule 6 of CCR, 2004 is not applicable and the reversal cannot be accepted. In para 8 of the show cause notice, the allegation is that the credit availed on trading is not eligible as per Rule 3(1) r/w Rule 2(l). There were earlier proceedings initiated against the appellants proposing to disallow credit availed by them. In such proceedings, it was noted that appellants were maintaining separate accounts for taxable and exempted services by dividing their entire organization into Strategic Business Units (SBUs). In the reply to the present show cause notice dated 6.1.2011, the appellant has explained and conceded the same. It is seen from the reply to the show cause notice that appellant splits its book of accounts into different SBUs which are named after the type of services / activities handled. Thus, these are SBUs such as Access Media, Web Hosting Services, forum Services, Online Services, Software Development and e-learning etc. It is also stated t
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ings were initiated alleging that they have not maintained separate books of account for taxable and exempted services as required under Rule 6(2) and thus have utilized credit in excess of 20% as provided in Rule 6(3) of CCR, 2004. The Tribunal vide Final Order No. 42328/2018 dated 31.8.2018 has upheld the demand on this score by holding the issue against the appellants. 5.3 In the present show cause notice, the credit availed on trading is sought to be disallowed. The main contention put forward by appellant is that the department having not invoked Rule 6 of CCR,2004, cannot disallow the proportionate credit availed on trading. For this, the appellant draws support from the decision of the Tribunal in the case of L.G. Electronics (supra). It is correct that show cause notice does not invoke Rule 6 of CCR, 2004. But it is to be noted that the provision for availing credit is envisaged in Rule 3 of CCR, 2004. The show cause notice proposes to deny the credit availed on trading as per
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8/2018 dated 31.8.2018 had occasion to consider an analogous issue. The relevant portion is reproduced as under:- 6.1 Ld. counsel has been at pains to convince us that these issues pertains to period prior to 1.4.2011 from which date trading was made a deemed exempted service. That nonetheless, even for the period of dispute the trading activity is required to be considered as an exempted service. To support this, he has relied upon the judgment of the Hon ble High Court of Madras in Ruchika Global Interlinks (supra) to contend that the trading activity can be categorized as exempted service even prior to 1.4.2011. From the perusal of the said judgment, we however find that the Hon ble High Court had only addressed the issue of apportionment as provided under Rule 6(3)(c) of the CENVAT Credit Rules, 2004. The Hon ble High Court had therefore found that before and after the amendment of Rule 2(e) of the Rules, exempted services meant those taxable services which were exempt from the who
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learly fallen foul of Rule 3 of the CENVAT Credit Rules, 2004 since that is the particular provision which lays down the types of duties or taxes or cesses suffered on input, input services etc. which alone can be availed as CENVAT credit. From the facts brought out in the show cause notice, it is evident that the impugned input services listed out in para 3.0 and 4.0 have all been availed in spite of the appellant having been involved in trading activity. Thus, there cannot be any credit that could be availed by the appellant ab initio and hence there is no need to examine the applicability of Rule 6 of the CENVAT Credit Rules, 2004 to their case. In any case, trading activity has been made deemed exempted service only with effect from 1.4.2011 and therefore we are not able to appreciate the argument of the ld. counsel that as per the decision of Hon ble High Court in Ruchika Global (supra) trading is held to be exempted service even prior to 1.4.2011 and therefore credit availed on t
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