M/s. Sify Technologies Ltd., Chennai Versus Comm. (Central Ex. & S.T.), LTU, Chennai (Presently Known as “The Commr. GST, CCE, Chennai south Commissionerate”)
Service Tax
2018 (11) TMI 1148 – CESTAT CHENNAI – TMI
CESTAT CHENNAI – AT
Dated:- 12-9-2018
ST/MISC[CT]/41712/2017 & Appeal No. ST/103/2012-SMC – Final Order No. 42420/2018
Service Tax
Mr. V. Padmanabhan, Member (Technical) And Ms. Sulekha Beevi, Member (Judicial)
Sh. Raghavan Ramabadran, Advocate for the appellant
Sh. K. Veerabhadra Reddy, JC AR for the Respondent
ORDER
Per: V. Padmanabhan
1. The present appeal is against the Order-in-Original No. 374/2011 dated 17.11.2011. The period of dispute is June 2007 to March 2010. The impugned order denied the cenvat credit availed by the appellant on common input services used to render taxable as well as exempted services. It is relevant to record that the appellant, M/s. Sify Technologies Ltd. (SFL) got merged with M/s. Sify Communication Ltd. (SCL),
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credit on common input services should not exceed 20% of the output service tax liability. This restriction was done away w.e.f. 01.04.2008 when Rule 6(3) was amended and Rule 6(3A) was included providing for reversal on proportionate basis. After issue of show cause notice dated 06.01.2011, the adjudicating authority passed the impugned order dated 17.11.2011 in which the entire cenvat credit availed on common input services was ordered to be reversed. Aggrieved by the decision, the present has been filed.
3. With the above background heard Sh Raghavan Ramabadran, ld. Advocate for the appellant as well Sh. K. Veerabhadra Reddy, JC (AR) for the department.
4. The arguments advanced by the ld. Advocate are summarized below:-
a. An identical issue in respect of SFL prior to it merger with SCL had already been raised by Revenue by way of show cause notice no. 48/2006 dated 12.10.2006 which was decided by issue of Order-in-Original dated 30.09.2009. The appeal against the said Order-in-
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atisfies the provisions of Rule 6 (3) and consequently the Revenue is not justified, to order reversal of the entire credit availed on common input services.
c. The ld. Advocate further reiterated the submissions made in Appeal ST/00028/2010 to the effect that only Rule 6 (3)(c) is applicable in respect of common inputs/ input services and that Rule 6(2) and Rule 6(3) can operate concurrently.
d. The ld. Advocate also argued that out of the total demand confirmed amounting to Rs. 1,56,36,250/- an amount or Rs. 1,01,12,140/- pertains to the credit of input services specified in Rules 6(5) of CCR, 2004 for which cenvat credit in full is eligible to be availed. He submitted that this amount cannot be ordered for reversal.
e. The ld. Advocate also contested the allegation of suppression of facts on the part of the appellant as well as the order for payment of penalties.
5. The ld. DR justified the impugned order and opposed the arguments advanced on behalf of the appellant. He emphasiz
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rence to common input services. He emphasized that the appellant has chosen the option of maintaing separate account as required under Rule 6(2) and has availed the credit in full in respect of the taxable services and NIL in respect of services exclusively used for exempted services. He submitted that in spite of the amendments carried out on 01.04.2008, the appellant will not be entitled to any credit on common input services.
(d) Even though the appellant has carried out proportionate reversal of common input services as per Rule 6(3A), the appellant cannot be allowed to avail the cenvat credit on common input services since they have opted to follow Rule 6(2).
6. Heard both sides and carefully perused the record.
7. For the period up to 31.03.2008, both sides agree that the issue on merit is identical to the issue decided in order in original dated 30.09.2009. The appellant has challenged the said order in appeal no. ST/00028/2010, which was heard on 06.08.2018. Subsequently the
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pression, the taxpayer have argued that the ingredients mentioned in proviso to Sec. 73(1) is not present in their case and hence extended period of limitation cannot be invoked for demanding wrongly availed cenvat credit beyond period of one year. Also they have stated that earlier notices had been issued to Sify Technologies on the same issue and the Department was aware of the facts and hence another notice cannot be issued invoking suppression of facts. In this regard, I find that the present notice, eventhough addressed to Sify Technologies, pertains to the wrongly availed excess credit by Sify Communications, which was earlier a separate entity and got merged with Sify Tech only w.e.f. 01.04.2008 and the consolidated returns for both the companies were filed only w.e.f 01.04.2009. The earlier notices had been issued only to Sify Technologies for wrong availment of Cenvat Credit on common input services when they had claimed to maintain separate set of accounts. The presence of si
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ith an intent to avail excess credit to which they are not eligible. I therefore hold that extended period of limitation under Rule 14 of CCR read with proviso to Sec. 73(1) for demand of excess credit availed has been rightly invoked.”
Since SCL and SFL remained as separate entities prior to their merger, we are of the view that invoking the extended period of limitation in the second show cause notice dated 06.01.2011 will not be against the order of the Supreme Court in the Nizam Sugar case.
10. On the main issue of common input services for the period upto 01.04.2008, the relevant findings of the Tribunal vide Final Order No. 42327/2018 dated 30.08.2018 are reproduced below.
“9. We have heard both the sides and perused appeal records. The facts of the case are not in dispute. It is only the application of provisions of Rule 6 to the facts of the case which are in dispute. Admittedly, the appellants were using inputs / input services which are common for exempted as well as taxa
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the provisions of that rule.
(2) Where a manufacturer or provider of output service avails CENVAT credit in respect of any Inputs or input services and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take CENVAT credit only on that quantity of input or input service which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax is payable.
(3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer or the provider of output service, opting not to maintain separate accounts, shall follow ei
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/provider of an output service availing CENVAT Credit, but manufactures/provides output services which are both chargeable to duty as well as exempted. Sub-rule (2) requires the manufacturer/provider of output service to maintain separate accounts for inputs/input services which are used for manufacture of dutiable goods/providing taxable service as well as those which are used towards the exempted goods/services. In terms of the sub-rule (2), the assessee is allowed to take CENVAT Credit only in respect of inputs/input services used towards dutiable goods/services. Sub-rule (3), on the other hand, caters to the circumstances where the manufacturer/service provider does not maintain separate accounts as per sub-rule (2). The procedure which is required to be followed in such circumstances is outlined in sub-rule (3).
11. The appellants have relied on the principle laid down by the Hon'ble Supreme Court in Gujarat Narmada Fertilizers Co. Ltd.(supra). However, they have relied on t
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ntioned in sub-rule (2). In other words, it is very clear that plenary provision of sub-rule (1) is giving exception to a situation envisaged in sub-rule (2). Sub-rule (2) is for a 'manufacturer' or 'provider of output service' who shall maintain separate accounts for receipt, consumption and inventory of input and input services meant for use in the manufacture of dutiable final products or in providing output service as well as those exempted. A combined reading of provisions of Rule 6 makes it clear that CENVAT credit shall not be allowed for input services both for exempted as well as taxable output services, maintains separate accounts in respect of consumption of such input services on which credit is availed.
12. Sub-rule (3) of Rule 6 is another option available to the assessee who opts not to maintain separate accounts under sub-rule (2). Thus sub-rule (3) provides for a situation when a manufacturer / service provider who is using common inputs for dutiable and exempted pro
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opinion that will defeat the very mandate of the main provision under sub-rule (1).
13. We note that mechanism adopted by the appellant for following both sub-rule (2) and sub-rule (3) in respect of different common input services defeats the very restrictions placed under different conditions of sub-rule (3). As seen in the present case itself that appellant invoked clause (c) of sub-rule (3) and submitted that they were not hit by restriction of 20% in utilizing credit on tax liability of final output services, on the ground that total credit availed under sub-rule (3) falls short of the same. We note this claim is misleading and ignoring the fact that they have maintained separate accounts and availed full credit in respect common input services attributable to taxable output services in terms of sub-rule (2). In other words, it would lead to a situation where the assessee can choose to maintain separate account in respect of common input services under sub-rule (2) and, at the s
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rule (2) and sub-rule (3) simultaneously. Hence the question of irregularly availing and disputing the reversal due to lack of legal machinery is not tenable. In other words, the appellants should follow legal provision as per Rule 6. Having not followed, they cannot take a plea that there is no provision to deny credit already availed. When the appellants maintained separate accounts for common input services and availed credits under sub-rule (2) of Rule 6, then there is no question of another option for common input services under sub-rule (3) of Rule 6″
11. By following our order (supra) in respect of the appellant we hold that appellant will not be entitled to credit on common input services. Turning to the period post 01.04.2008, we note that Rule 6(3) has been amended from this date and Rule 6 (3A) has been inserted in place of the erstwhile Rule 6(3) (c) which had prescribed a limit of 20% on the common input services credit. Rule 6(3A) has prescribed the procedure for propor
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ertion of sub Rule 3A.
13. The only issue which remains to be addressed before we conclude the matter is in respect of the argument advanced that the appellant is entitled to the full cenvat credit in respect of input services specified in Rule 6(5) of the Cenvat Credit Rules. This sub rule permits full credit of 17 services specified therein. We see no reason for denying the above credit. It is also relevant to record that in the earlier proceeding culminating in the Order In Original dated 30.09.2009, the full credit of services under Rule 6(5) was in fact allowed by the adjudicating authority.
14. In view of the above detailed discussions the appeal of the appellant is decided as follows:-
1 The invoking of extended period in terms of the Rule 14 of the CCR, 2014 read with the proviso to section 73 (l) is upheld.
2. The demand raised and confirmed in the impugned order is sustained. However the appellant will be entitled to the entire credit claimed under Rule 6(5). The adjudica
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