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Judgment
The present appeal is directed against the impugned order passed by the Commissioner of Central Tax, Mangalore whereby the Commissioner has
confirmed the following demands:-
i. The proceedings initiated for disallowance of the cenvat credit of Rs.12,34,448/- for not qualifying as input service in terms of Rule 2(l) of Cenvat
Credit Rules, 2004 (CCR for short), in the Order-in-Original No. MLR-EXCUS-000-COM-MS-012-13-14 dt. 06/20.03.2014 are ordered to be
dropped, as the cenvat credit of the same is allowable.
ii. I disallow and order recovery of the cenvat credit of Rs.33,248/- for not qualifying as input service under Rule 14 of CCR, 2004 and Section 11A of
Central Excise Act, 1944 read with Rule 2(l) and Rule 9(g) of CCR, 2004 and Rule 4A(2) of the Service Tax Rules, 1994;
iii. I order that the demand confirmed of Rs.32,82,878/- along with interest and penalty vide Order-in-Original No. MLR-EXCUS-000-COMMS-012-
13-14 dt. 06/20.03.2014 shall stand unaffected as there was not appealed against. I also order recovery of the same.
iv. An amount of Rs.32,82,878/- as discussed in the Order-in-Original No. MLR-EXCUS-000-COM-MS-012-13-14 dt. 06/20.03.2014 is appropriated
against the demand mentioned at Sl.No.(iii) above.;
v. I confirm the demand of interest on the ineligible cenvat credit disallowed at (ii) above under Rule 14 of the Cenvat Credit Rules, 2004 read with
Section 11AB/11AA of the Central Excise Act, 1944.
vi. I impose the penalty of Rs.33,248/- under Rule 15 of the Cenvat Credit Rules, 2004.
Briefly, the facts of the present case are that the appellant is a public limited company engaged in the business of refining and manufacturing of
petroleum products falling under Chapter 27 of the Central Excise Tariff Act, 1985 and it’s refinery is situated at Mangalore. Appellant availed
cenvat credit under CCR, 2004 on input services, inputs and capital goods used in or in relation to the manufacture of petroleum products. The records
of the appellant were audited by the Departmental audit officers and found certain discrepancies in the documents on which credit was availed. The
appellant was issued a show-cause notice by the Commissioner of Central Excise, Mangalore dt. 24/03/2011 proposing to treat cenvat credit of
Rs.4,73,88,162/- availed as irregular and proposing recovery of the same with interest and penalty. Appellant filed detailed reply asserting that they
have rightly availed the cenvat credit. After following the due process, the Commissioner of Central Excise, Mangalore vide Order-in-Original
No.15/2011 dt. 24.10.2011 granting partial relief of Rs.1,11,27,124/- and disallowing a major portion amounting to Rs.3,06,62,161/- (as services which
do not qualify as input services) and Rs.23,15,993/- (for incomplete documentation) and Rs.32,82,878/- (for excess credit availed). Aggrieved by the
Order-in-Original, the appellant preferred appeal before the Tribunal and the Tribunal vide its Final Order No.25209/2013 dt. 21.03.2013 remanded the
matter back to the adjudicating authority to re-examine the matter afresh. Thereafter in pursuant to the Final Order dt. 21.03.2013, the Commissioner
of Central Excise heard the matter and passed Order-in-Original dt. 06/20.03.2014 allowing the cenvat credit of Rs.3,17,10,458/- and rejecting an
amount of Rs.12,67,696/-. It was also held that the demand of Rs.32,82,878/- ordered for recovery in Order-in-Original dt. 24.10.2011 was confirmed
in terms of Rule 14 of CCR, 2004 (read with Section 11A of the CEA, 1944) and was appropriated as the appellant has reversed said credit vide
Entry No.2/2011-12. The said Order-in-original also imposed a penalty of Rs.45,50,574/- under Rule 15 of the CCR, 2004. Aggrieved by the said
order, appellant preferred appeal before the Tribunal contesting the demand of cenvat credit as well as imposition of penalty. Tribunal, after hearing
both the parties vide Final order No.21307/2014 dt. 18/07/2014, remanded the matter after directing the appellant to make a predepsoit of Rs.5 lakhs.
Appellant complied with the direction by predepositing Rs.5 lakhs. Thereafter the Commissioner heard the matter and passed the impugned order.
Aggrieved by the same, appellant is before this Tribunal.
Heard both sides and perused the records.
4.1. Learned counsel appearing for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without
properly appreciating the facts, law and the binding judicial precedent. Further he submitted that this is the third time, the appellant has approached the
Hon’ble Tribunal having been subject to an utterly casual and lackadaisical approach at the hands of the Departmental officers during each round
of adjudication. He further submitted that the appellant being a public sector undertaking has been providing all support to the Departmental officers to
verify the documents but the Department has repeatedly, without proper appraisal of facts, continued to adjudicate the matter confirming the demands.
He further submitted that the demand in the show-cause notice at the commencement of the first of the earlier two rounds of litigation, was for
Rs.4,73,88,162/- and after two rounds of litigation, the amount of demand of duty has come down to Rs.33,248/- without any additional facts being
presented, which shows that the Departmental officers have been less apathetic and little merciful on the appellant. He further submitted that the
Department could have verified the facts much earlier and avoided this endless harassment to the appellant. He further submitted that the direction of
the Tribunal dt. 18/07/2014 regarding the predeposit of Rs.5 lakhs was promptly complied with on 14.08.2014. however, the Departmental authorities
kept the denovo adjudication pending for nearly six years and finally passed the denovo order on 22.05.2020 which itself speaks volumes on how the
matter has been dealt with by the Departmental authorities causing needless painful and endless harassment to the appellant. The learned counsel also
submitted that the demand for the subsequent period having the same issues has been completely dropped by the Department and the show-cause
notice for the amount of Rs.4,13,60,093/- for the period October 2011 to June 2012 was dropped by the Order-in-Original dt. 27.04.2020. He further
submitted that the earlier Order-in-Original dt. 06/20.03.2014 being no more in existence having merged with the Final Order No.21307/2014 dt.
18.07.2014 could not have formed the premise for imposition of penalty in the impugned Order-in-Original. He further submitted that the findings of
the respondent at para 20 of the impugned Order-in-Original, is completely erroneous and based on the failure to appreciate the position in law that
when the appeal has been disposed off with directions and the respondent is conducting a denovo adjudication, the earlier order passed by the
respondent, having merged with the Final Order No.21307/2014 dt. 18.07.2014 of the Tribunal ceases to have any continued existence in law. He
further submitted that the findings of the respondent at para 21 of the impugned order is also wholly untenable on account of the fact that the earlier
order has merged with the Final Order No.21307/2014 dt. 18/07/2014. He also submitted that the findings rendered by the respondent viz ‘that the
findings in the earlier Order-in-Original merits no interference, is wholly incorrect and illegal and therefore liable to be set aside. For this submission,
learned counsel placed reliance upon the following decisions:-
i. SS Rathore Vs. State of MP [1989(43) ELT 790 (SC)]
ii. State of Tamilnadu Vs. Tvl. Jeevanlal Ltd. [1997(91) ELT 268 (SC)]
iii. Kuhayammed Vs. State of Kerala [2001(121) ELT 11 (SC)]
iv. CCE, New Delhi Vs. LML Ltd. (Scooter Division) [2002(143) ELT 431 (Tri. LB)]
4.2. Learned counsel further submitted that the respondent has misconstrued the direction in the Final Order No.21307/2014 dt. 18/07/2014 to be
limited remand and not a open remand. He further submitted that the learned Commissioner has not considered the observation of the Tribunal in para
5 wherein the Tribunal has observed as “In view of the foregoing discussions, I am of the considered view that the disputed services indicated
above should merit consideration as ‘input service’, since those services are used in relation to the business of manufacture of final product by
the appellantâ€. He further submitted that the findings of the respondent that the appellant is liable to pay interest and penalty on the premise that the
same having been confirmed in the earlier Order-in-Original of the Commissioner of Central Excise, Mangalore is untenable, illegal in law and is liable
to be set aside. Learned counsel further submitted that the learned Commissioner has failed to appreciate the spirit of the beneficial scheme of
Modvat / Cenvat credit which is a beneficial scheme in the nature of a privilege of the assessee and has been converted into a disadvantage by the
respondent. He further submitted that the input services on which cenvat credit has been denied has been held to be input services by various
decisions of the Tribunal and the High Court. Learned counsel also submitted that the period involved in the present dispute is March 2010 to October
2010 and at that time the definition of input service as provided in Rule 2(l) of CCR, 2004 had a very wide connotation and included any input service
which is availed in relation to the business of the assessee. Learned counsel took up the input services one-by-one and justified the same to be input
services in view of the various decisions of the Tribunal upholding them as input service.
4.3. As far as demand of interest is concerned, the learned counsel for the appellant submitted that the appellant has reversed the credit without
utilizing the same and had sufficient balance in their cenvat credit account which has not been disputed by the Department at any point of time; hence
the demand of interest and penalty is not justified in view of the decision of the Karnataka High Court in the matter of CCE&ST, LTU, Bangalore Vs.
Bill Forge Pvt. Ltd. [2012(26) STR 204 (Kar.)] wherein it has been held that reversal of cenvat credit amounts to non-taking of the credit on the
inputs and hence interest is not applicable. Learned counsel also submitted that while passing the impugned order, the Commissioner has ignored the
fact that for the previous period December 2007 to February 2009, the Commissioner vide Order-in-original No.10/2013 dt. 27.02.2013 has allowed
the credit availed in all the cases in toto without disputing the validity of the credit taken in each of the cases. The matter has not been further
challenged by the Department in the court of law. Thus though the issue remains the same, the demand has been confirmed, without the Department
establishing how its findings are now different from the one already settled. He further submitted that the Department has been continuously reducing
the confirmed demand based on the directions of the Hon’ble Tribunal leading to the shrinking of the demand from Rs.4,73,88,162/- to Rs.33,248/-
after two rounds of litigation which clearly shows failure of application of mind on the part of the respondent. He further submitted that imposition of
penalty in such a scenario without an iota of evidence of fraud or intention to evade duty, tantamounts to unfair harassment of the appellant. He
further submitted that the appellant has not concealed any material facts from the Department with intent to evade payment of duty and Department
had earlier issued show-cause notice also and was aware of the details of the input services availed by the appellant; hence the imposition of penalty
by holding that appellant has an intention to evade payment of duty is untenable. In support of his submission, he relied upon the following decisions:-
i. CCE, Chandigarh Vs. Pepsi Foods Ltd. [2010(260) ELT 481 (SC)]
ii. Uniworth Textiles Ltd. Vs. CCE, Raipur [2013(288) ELT 161 (SC)]
4.4. Learned counsel also submitted that the learned Commissioner has failed to appreciate that no malafide or mens rea can be attributed to the
appellant who is a public sector undertaking and hence the question of levy of penalty cannot and does not arise in view of the decision of the Tribunal
in the case of IOC Vs. CCE, DelhiII [2017(4) GSTL 190 (Tri. Del.)]. He further submitted that specific sub-rule of Rule 15 under which the penalty
has been imposed has not been stated by the respondent rendering the imposition of penalty untenable. For this, he relied upon the decision in the case
of Amrit Foods Vs. CCE, UP [2005(190) ELT 433 (SC)] and Raymond Apparel Vs. CCE, Thane-I [2013(294) ELT 151 (Tri. Mumbai)]. Learned
counsel also cited the decision of the Principal Bench of the Tribunal in the case of CCE, Jaipur-II Vs. Hindustan Zinc Ltd. [2020-TIOL-1563-
CESTAT-DEL] wherein also, it has been held that once the assessee has reversed the proportionate cenvat credit wrongly availed before utilization,
penalty cannot be imposed.
On the other hand, the learned AR defended the impugned order.
6.1. After considering the submissions of both the parties and perusal of the material on record, I find that this is third round of litigation and the
demand which was initially made in the first showcause notice was Rs.4,73,88,162/- and reduced to Rs.33,248/- in the impugned order after two
rounds of litigation which clearly shows the complete lack of application of mind on the part of the respondent. Further I find that the learned
Commissioner has completely ignored the fact that for the previous period from December 2007 to February 2009, the Commissioner vide Order-in-
Original No.10/2013 dt. 27.02.2013 has allowed the credit availed in all the cases in toto without disputing the validity of the credit taken in each of the
cases and the Department did not file appeal and accepted the decision of the Commissioner. Further I find that the learned Commissioner has totally
ignored the various decisions cited by the appellant wherein all the input services on which cenvat credit has been denied has been held to be input
services and cenvat credit is admissible. The learned Commissioner has failed to appreciate that the period involved in the present appeal pertains to
March 2010 to October 2010 during that time, the definition of input service had a wide connotation and it is only after the amendment in the definition
of input service w.e.f. 01.04.2011, the scope of the input service has been restricted to some extent by creating certain exclusions.
6.2. Now, coming to the individual services, I find that as far as air travel charges are concerned, the same has been used for the purpose of business
trips undertaken by the company officials /guests for business related purposes and the same has been held to be input service in the case of Arm
Embedded Technologies Pvt. Ltd. Vs. CCE, Cus &ST, Bangalore [2016(45) STR 133 (Tri. Bang.)] and in Goodluck Steel Tubes Vs. CCE, Noida
[2013(32) STR 123 (Tri. Del.), CCE Vs. Fine Care Systems [2009(16) STR 701 (Tri. Ahmd.)]. Further as far as canteen services are concerned, I
note that the outdoor catering was held to be input service prior to 01.04.2011 and during the disputed period, the same fall in the definition of input
service. Similarly expenses incurred for hiring furniture for the guest house fall under the definition of input service as the guest house is used for
business purposes. Further I find that this Tribunal in Final Order No.21307/2014 dt. 18/07/2014 held this service being an input service being activity
in relation to appellant’s business of manufacture of final goods. Further I hold that the cenvat credit availed in relation to service of subscription
of periodicals is an input service. The Department without seeking any clarification/submission, chose to take soft option of confirming demand without
going into merits. Similarly denying the cenvat credit on cable operator service and vehicle repair service is not tenable in view of the decisions in the
cases of Gulf Oil Corporation Ltd. Vs. CCE&ST, Vapi [2016(43) STR 220 (Tri. Ahmd.) and Surfa Coats Ltd. Vs. CCE, Bangalore [2016(46) STR
354 (Tri. Bang.)].
6.3. Further I find that the appellant in compliance of the Final Order No.21307/2014 dt. 18/07/2014 deposited Rs.5 lakhs on 14/08/2014 but the
learned Commissioner in spite of two reminders by the appellant, took nearly six years to pass the impugned order, which speaks volumes on how the
matter has been dealt by the Department causing unnecessary harassment to the appellant which is a public sector undertaking and is a big revenue
contributor in the jurisdiction of Mangalore. I also note that for the subsequent period, having the same issue, the Department completely dropped the
demand in the show-show cause notice for the amounts Rs.4,13,60,093/- for the period October 2011 to June 2012 vide Order-in-Original dt.
27.04.2020. I fail to understand that if the Department has dropped the demand on identical issue for the previous period as well as the subsequent
period, then why for the disputed period, appellant had to fight three rounds of litigation. Further I find that the Commissioner has taken a narrow view
of the Final Order dt. 18.07.2014 passed by the Tribunal wherein impugned order set aside and as per the law, the earlier decision dt. 20.03.2014, does
not remain in existence and has merged with the Final Order No.21307/2014 dt. 18/07/2014 and could not have form the premises for imposition of
penalty in the impugned Order-in-Original. Further I find that the Karnataka High Court in the case of Bill Forge Pvt. Ltd. cited supra, held that
reversal of cenvat credit amounts to non-taking of credit on the inputs and hence interest is not payable. In the present case also, it is not disputed that
the appellant has not utilized the cenvat credit and reversed the same as soon as it was pointed out and the fact of availing of cenvat credit was very
much in the knowledge of the Department because the appellant has been filing the returns regularly, so I hold that interest is not payable. Further as
far as imposition of penalty is concerned, I find that the decision of the Supreme Court in the case of Uniworth Textiles Ltd. cited supra, will apply in
this case also. In the said case, Hon’ble Supreme Court has elucidated that the burden of proof to establish the malafide, rest heavily with the
person who is alleging the malafide. The appellant being a public sector undertaking cannot be attributed to have a malafide intention or mens rea to
evade the payment of taxes as held in the case of IOC Vs. CCE, Delhi-II cited supra.
Therefore, in view of my discussion above and by relying upon the ratio of the decisions cited supra, I am of the considered view that the impugned
order is not sustainable in law and therefore I set aside the impugned order by allowing the appeal of the appellant with consequential relief, as per
law.
(Order was pronounced in Open Court on 18/06/2021)