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Judgment
Sr No,Unit,Activity,"Credit availment for eligible input
services",,
1,Kalwa Factory Unit,Manufacturing,Full credit availed,,
2,Chennai unit,"Provision of services
(export)",Full credit availed,,
3,Powai unit,"Provision of services
(export)",Full credit availed,,
Sr No,Particulars,2008-2009,2011-2012,2012-2013,
A,Sale of Traded goods,"398,29,81,356","840,12,24,945","1001,31,35,248",
B,Purchase of Traded goods,"398,76,88.849","717,55,14,914","818,37,39,833",
C,Profit on sale of Traded goods,"-47,07,493","122,57,10,031","182,93,95,415",
D,"10% of Sale of traded goods
(A)","39,82,98,136",84 01.22.495,100.13.13.525,
E,"Exempted Turnover whichever
is higher of C or D","39,82,98,136","122,57,10,031","182,93,95,415",
F,TOTAL TURNOVER,"377,73,58,505","716,09,19,491","852,19,33,057",
G,"% age of reversal of
Proportionate basis as per rule
6(3A) (E/F%)",10.54,17.12,21.47,
H,"Total Cenvat Credit taken on
input Services","29,32,66,892","15,24,77,434","53,93,95,172",
I,"% age of reversal of
proportionate basis as per Rule
6(3A) (H * G%)","3,09,23,106","2,60,99,039","11,57,91,458",
J,Amount already reversed,"2,07,51,736","2,30,87,251","2,24,68,589",
K,Difference (I-J),"1,01,71,370","30,11,788","9,33,22,869",
,Total Difference,"10,65,06,027",,,
Particulars,2008-09,2012-13,,,
Total CENVAT Credit taken as per the ST-3 filed,"19,70,14,028","20,97,82,023",,,
CENVAT credit taken as per SCN,"29,32,66,892","53,93,95,172",,,
Credit sought to be recovered as per SCN,"1,01,71,370","9,33,22,869",,,
Reversal to be made as per actual Credit taken,"13,543","2,25,71,611",,,
Difference,"1,01,49,244","7,07,57,747",,,
Sr No.,Particulars,2008-2009,2012-2013,,
A,"Cenvat Credit actually reversed by the Appellant
and reflected in the ST-3 return","2,39,21,7311","2,48,67,9741",,
B,"Cenvat Credit reversal considered by the
Department in the Show Cause Notice","2.07,51,736/-","2,24,68,589/-",,
(A-B),"Therefore, Credit actually reversed by the
company, not considered by the department","31,70,021/-","23,99,385/-",,
,Total,"55,69,406/",,,
We, Dow Chemical International Private Limited ('DCIPL' or 'the Company refer to the captioned letter for Personal Hearing (*PH')",,,,,
granted to us.,,,,,
Firstly, we would like to thank you for granting us the PH in relation to our reply to the captioned Show Cause Notices (SCNs). The SCNs",,,,,
issued proposed to levy service tax of Rs. 10.65.06.027 for the period 2008-09. 2011-12 and 2012-13. Rs 1,14,81,987 for the period 2013-",,,,,
14 and Rs 3,79,36,983 for the year 2014-15 alleging that the company has provided exempted services and since no separate books of",,,,,
accounts as required as per provisions of Rule 6(2) of CENVAT Credit Rules, 2004 (CENVAT Rules"") are maintained, the company has not",,,,,
reversed the credit as required under Rule 6(3) of the CENVAT rules on common input services availed for providing taxable and exempted,,,,,
services.,,,,,
In regards to the above allegations, we would like to make submissions in respect Whitening to the SCNs to support our argument which are",,,,,
without prejudice to each other as under:,,,,,
Statement of facts,,,,,
1 The company has a manufacturing facility at Kalwa which is engaged in manufacture of taxable goods for which it has obtained,,,,,
registration under the Central Excise Law,",,,,,
2 The company does not manufacture any exempted goods. The goods manufactured at Kalwa are either sold directly or from warehouses,,,,,
to customers. These warehouses are also used for storage and sale of traded goods.,,,,,
3 The company provides taxable services from Chennai and Powai to entities located outside India. There are no exempted services,,,,,
provided from these locations. The service centre at Powai provides services to its group entities located within and outside India.,,,,,
4 The company provides Business Auxiliary Services from the Vikhroli location (Chembur location till April 2012) and also provides support,,,,,
services to its group companies. Further, the traded goods of the company are sold from the warehouse of the company.",,,,,
5 Considering that the company has centralized accounting, it has obtained centralized registration for its service centres providing various",,,,,
taxable services. Further, being head office of manufacturer and service provider, the company has also obtained service tax registration as",,,,,
Input Service Distributor (ISD) for the purpose of distributing the common credit to its manufacturing and service locations.,,,,,
6 The company has regularly filed service tax returns for the period under dispute, in which it has reported the CENVAT credit availed.",,,,,
7 The company has intimated the method used for calculation of reversals under Rule 6(3A) and the list of input services in respect of which,,,,,
full CENVAT credit is availed and the list of common input services in respect of which CENVAT credit is availed after making the,,,,,
CENVAT credit reversal as prescribed under Rule 6(3) of the CENVAT rules. The copy of the said letters are attached herewith as,,,,,
Annexure I.,,,,,
Our submissions,,,,,
At the outset, it is submitted that the proposals made in the SCNs to levy service tax along with interest and penalty on non-payment of",,,,,
amount as required under Rule 6(3) of CENVAT Rules is baseless, contrary to the facts and incorrect in law. We are submitting our detailed",,,,,
replies to the various allegations made in the impugned SCNs which are without prejudice to each other.,,,,,
Year,Particulars,"Centralised
Registration",ISD Registration,Total,
2008- 09,"Availment of Credit
2008- 09","10,18,44,194","9,51,69,834","19,70,14,028",
,"Reversal under
Rule 6(3)","2,39,21,757","2,39,21,757",,
,Net Credit Availed,"7,79,22,436","9,51,69,834","17,30,92,271",
2011- 12,"Availment of Credit
2008- 09","6,13,62,081","13.78,63,876","19,92,25,957",
,"Reversal under
Rule 6(3)","2,31,012","1,51,11,723","1,53,42,735",
,Net Credit Availed,"6,11,31,069","12,27,52,153","18,38,83,222",
2012- 13,"Availment of Credit
2008- 09","6,04,08,958","14,93,73,065","20,97,82,023",
,"Reversal under
Rule 6(3)","8,00,105","2,40.67,869","2,48,67,974",
,Net Credit Availed,"5,96,08,853","12,53,05,196","18,49,14,049",
2013- 14,"Availment of Credit
2008- 09","5,82,69,043","15,88,42,990","21,71,12,033",
,"Reversal under
Rule 6(3)","14,88.780","2.20.12,485","2,35,01,265",
,Net Credit Availed,"5,67,80.263","13,68,30,505","19,36,10,768",
2014- 15,"Availment of Credit
2008- 09","15,65,09,343","22,62,54,529","38,27,63,872",
,"Reversal under
Rule 6(3)",,"4,81.08,335","4,81,08,335",
,Net Credit Availed,"15,65,09,343","17,81,46,194","33,46,55,537",
15 Further, since ISD is neither a manufacturer nor a service provider, there is no question of ISD being liable to pay any excise duty or",,,,,
service tax. Therefore, there is no question of assessment or self-assessment by ISD. There is no rule in service tax law which provides",,,,,
assessment or self-assessment by ISD,,,,,
16 In this regard, the company would also like to submit that the issue about the jurisdiction to issue SCN to ISD has already been clarified",,,,,
by CBEC vide letter F.No.137/68/2013-S.T. dated 10/03/2014. The relevant portion of the said letter is reproduced below:,,,,,
Attention is drawn to Rule 14 of the Cenvat Credit Rules, 2004 which stipulate that, where the cenvat credit has been taken and 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 Section 11A and 11AA of the Central Excise Act, 1944 or Section 73 and 75 of the Finance Act shall",,,,,
apply mutatis mutandis for effecting such recoveries.,,,,,
Since there is no other provision for recovery, it is evident that recover can be made only from the manufacturer or service provider. There",,,,,
is no provision in the Cenvat Credit Rules, 2004 to issue SCNs to ISD's.""",,,,,
17 Reliance is also placed on the decision of Clariant Chemicals (1) Limited V/s Commissioner of Central Excise Raigad, (2015-TIOL-",,,,,
2510-CESTAT-MUM), wherein it has been held that the role of ISD is restricted to receive and distribute the input tax credit and since,",,,,,
there is no provision enabling an ISD to avail Cenvat credit as he acts only as a distributor and therefore recovery of wrongly availed credit,,,,,
can also not be done by issuing a notice to him.,,,,,
18 Therefore considering the above circular and the judgment, issuance of show cause notice regarding credit availment under ISD",,,,,
registration is against the provisions of law.,,,,,
Reversal needs to be done at unit where credit has been distributed,,,,,
19 It is clear from the definition of the ISD that it does not avail the CENVAT credit on input services. Its role is limited to receiving the,,,,,
invoice on which input credit is paid and then distributing the credit paid to the eligible units. Hence, provisions of Rule 6(3) regarding",,,,,
reversal of CENVAT credit is not applicable for the ISD. The contention of the company is also supported in the CBEC Circular No.,,,,,
868/6/2008-CX dated 9 May 2008 wherein the board has issued clarifications regarding certain queries. In question no 5 of the said,,,,,
circular, the board has explicitly mentioned that since ISD does not provide any service, the question of availing either option (i) or option",,,,,
(ii) under Rule 6(3) of the Credit Rules does not arise. Copy of the said circular is attached herewith as Annexure II.,,,,,
20 In line with the above submission pertaining to jurisdiction and recovery, the company would like to apprise you with the fact that",,,,,
verification has already been conducted by the excise officers regarding the credit of Kalwa including the credit distributed to Kalwa unit by,,,,,
ISD for the disputed period. Accordingly orders have been issued to the company wherein it is specifically mentioned that the jurisdiction,,,,,
regarding verification of credit availment under ISD is with the excise office under which the unit to whom credit distributed falls, Copies of",,,,,
the said order issued regarding the credit availment at Kalwa unit is attached herewith as Annexure III. Thus raising demand for credit,,,,,
distributed to Kalwa which has been reported under ISD registration would lead to duplication of demand and therefore amount reported,,,,,
under ISD registration and covered under the impugned SCN needs to be dropped.,,,,,
Amounts mentioned in the SCN for the period 2008-09 and 2012-13 is incorrect,,,,,
21 The company would like to submit that the amounts mentioned in the SCN for the period 2008-09 and 2012-13 is incorrect and,,,,,
accordingly the authorities have erred in calculating the amount of reversals to be made under Rule 6(3). The correct amounts which should,,,,,
be taken under consideration are as follows:,,,,,
Submissions for 2008-09:,,,,,
a. Incorrect calculation of amount taken as credit on input services,,,,,
22 The company submits that the authority has also erroneously calculated the total cenvat credit availed on input services for FY 12-13. In,,,,,
the impugned SCN, it has been alleged that the company has availed total cenvat credit on input service of Rs 29,32,66,892. However, the",,,,,
company would like to submit that it has availed credit on input services only to the tune of Rs 19,70,14.028 (ie. Rs 10,18,44,194 under",,,,,
centralised registration and Rs 9.51,69,834 under ISD registration.)",,,,,
23 The company would like to submit that during its internal review, it was observed that while filing the returns for centralized and ISD",,,,,
registration for the period April 2007 to September 2009, it had reported the aggregate of Cenvat credit pertaining to both the registration,",,,,,
instead of reporting separate details of Cenvat credit for each of the registration, The said error was rectified by the company while filing",,,,,
the return for the period April 2009 to September 2009 and the same was also intimated to the department.,,,,,
24 In this regards. SCN was issued to the company in relation to the said error and after due verification of the documents an Order-In-,,,,,
Original was issued by the Commissioner of Service Tax - Mumbai VII wherein in para no 17, the commissioner as mentioned the amount of",,,,,
cenvat credit taken for the period April 2008 to September 2008 and October 2008 to March 2009 for the Centralised and ISD registration,,,,,
which in total is equivalent to the credit of Rs 19,70,14,028 as mentioned above. Copy of the said order is attached herewith as Annexure IV.",,,,,
b. Incorrect reversal of credit in respect of services mentioned in Rule 6(5) of Cenvat Credit Rules, 2004:",,,,,
25 Notwithstanding to the above submissions with regards to the jurisdiction over ISD. the company would like to submit that the Cenvat,,,,,
credit for the period 2008-09 reported under ISD registration includes services notified under Rule6(5) of CCR, 2004. In this regard the",,,,,
provision of Rule 6(5) of CCR, 2004 is produced hereunder for ready reference:",,,,,
Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in",,,,,
sub-clause (g), (p), (9), (d), (v), (w). (za), (zm), (zp), (zy), (zzd), (zzg), (zzh). (zzi), (zzl), (zzq) and (zzr) of clause (105) of section 65 of the",,,,,
Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing,,,,,
exempted services"".",,,,,
26 Thus credits availed under Rule 6(5) are fully allowed unless such services are used exclusively in relation manufacture of exempted,,,,,
goods.,,,,,
Unit,Activity,"Credit
availment",Service Tax,6(3)Reversal,Net Credit
Chennai,"Export of taxable
services","Full credit
availed","19,952,074",,"19,952,074
Pune,"Export of taxable
services","Full credit
availed","10,666,435",,"10,666,435
Vikhroli,"Market Support
Services","Full credit
availed","20,251,865",,"20,251,865
Unit,Activity,"Credit
availment",Service Tax,"6(3)
Reversal",Net Credit
Chennai,"Export of taxable
services","Full credit
availed","45,171,143",,"45,171,143
Powai,"Export of taxable
services","Full credit
availed","6,365,199",,"6,365,199
Pune,"Export of taxable
services","Full credit
availed","7,798,483",,"7,798,483
Head
Office",Common Services,"Proportiona te
credit
availed","1,994,708","227,204","1,767,504
Common
Location",,"Proportiona te
credit
availed","32,549","3,808","28,741
Credit pertaining to FY 2014-15 availed
under centralized registration",,,"61,362,081","231,012","61,131,070
Less,"Credit pertaining to 2010-11
reversed based on revised ratio",,,"298,354","(298,354)
Total Credit availed under Centralized
Registration (A)",,,"61,362,081","529,365","60,832,716
Unit,Activity,"Credit
availment","Service
Tax","6(3)
Reversal",Net Credit
Chennai,"Export of taxable
services","Full credit
availed","44,405,699","414,714","43,990,985
Powai,"Export of taxable
services","Full credit
availed","6,095,245",,"6,095.245
Pune,"Export of taxable
services","Full credit
availed",,,
Vikhroli,"Market Support
Services","Proportiona te
credit availed","7,761,387","1,073,895","6,687,492
Head
Office",Common Services,"Proportiona
te credit
availed","6,711",170,"6,542
Credit pertaining to FY 2014-15 availed
under centralized registration",,,"58,269,043","1,488,780","56,780,263
Add,"Credit pertaining to 2012-13
availed",,,"-77,617","77,617
Add,"Credit pertaining to 2013-14
availed based on revised ratio",,,"-91,945","91,945
Total Credit availed under Centralized
Registration (A)",,,"58,269,043","1,319,218","56,949825
Pune,"Export of taxable
services","Full credit
availed","1,371,911",,"1,371,911
Vikhroli,"Market Support
Services","Full credit
availed","2,419.513",,"2.419,513
Credit pertaining to FY 2014-15 availed
under centralized registration",,,"156,471,159",,"156,471,159
Add,"Credit pertaining to 2013-14
availed based on revised ratio",,"38,184",,
Total Credit availed under Centralized
Registration (A)",,,"156,509,343",,"156,509,343
deficit amount by 30th June of the succeeding year or, in case of excessive amount, carry forward the said amount as credit for future set-",,,,,
off.,,,,,
44 Sub-rule (3A) of Rule 6 of CENVAT Rules prescribes a formula based on exempted turnover and total turnover. The formula indicates,,,,,
that the attempt is to ascertain input credit relatable to exempted activities out of common inputs/input services. Logically the ratio should be,,,,,
applied to the credit on inputs/input services used in a mixed up manner for both taxable and exempted activities. That the formulation of,,,,,
rule 6(3) of CENVAT Rules would apply to common inputs and input services and not to the inputs and input services, which are exclusively",,,,,
used for taxable services, is done out by insertion of Explanation-II in rule 6(3) for ""removal of doubt"". This explanation clarifies that credit",,,,,
shall not be allowed on inputs and input services used for the manufacture of exempted goods or exempted services. That means, such",,,,,
credit is outside the scheme of rule 6(3). This implies that such in would not participate in the allocation formula. On the same logic, the",,,,,
input credit relatable to inputs and input services used exclusively for taxable services should also be outside the purview of rule 6(3).,,,,,
45 Further Rule 613) of CENVAT Rules started with the expression *Notwithstanding anything contained in sub-Rules (1) and (2)"". That",,,,,
means, the provision of sub-Rule (3) to Rule 6 of CENVAT Rules would apply only to the extent of sub-Rules (1) and (2) to Rule 6 of",,,,,
CENVAT Rules contained something contrary. A reading of sub-Rules (1) and (2) to Rule 6 of CENVAT Rules showed that credit on,,,,,
common inputs and input services cannot be taken if these were used for exempted services, and input credit could be fully used on inputs",,,,,
and input services exclusively used for providing taxable services. Only when the service provider does not maintain separate accounts for,,,,,
the common inputs and input services, he had to follow the mechanism prescribed in sub-Rule (3).",,,,,
46 The said view is also supported by circular issued by Central Board of Excise & Customs (""Board') (Circular No. 754/70/2003-CX.,",,,,,
dated 9-10-2003) wherein it has been clarified that Rule 6 of CENVAT Credit Rules, 2002 is only for common inputs and input services and",,,,,
the 8% reversal is only for common inputs and input services alone.,,,,,
The relevant extract is as under:,,,,,
“2. ..............Thus, it is clear that the option to maintain the separate accounts or payment of 8% of the price of the exempted goods can",,,,,
be exercised only in respect of common inputs used for the manufacture of dutiable and exempted goods. ........""",,,,,
47 In this connection the company would like to refer and rely on the judgement of Commissioner of Central Excise (Appeals), Chennai",,,,,
(Commr. Appl.') in the case of Chennai Petroleum Corporation Ltd. 2014 (35) S.T.R. 169 (Commr. Appl.)].,,,,,
In the said case, the issue was whether in the determination of the CENVAT credit attributable for exempted goods and exempted services,",,,,,
the value of goods and services that were exclusively used in the manufacture of dutiable goods and taxable services was also to be taken,,,,,
into account. The Commr. Appl. held that:,,,,,
i) There was no necessity to take into account the value of inputs and input services that were used exclusively for the manufacture of,,,,,
dutiable goods/taxable services, while determining the attributable CENVAT credit for exempted goods and exempted services.",,,,,
ii) The credit to be reversed as per the provision of Rule 6(3)(ii) of CENVAT Rules subject to the conditions and procedure specified in sub-,,,,,
rule (3A) is the credit attributable to the manufacture of exempted goods only.,,,,,
iii) The contention of the Lower Adjudicating Authority (LAA') that the wording used in Rule 6(3A) is the total CENVAT credit taken"" and",,,,,
therefore, the entire CENVAT credit including also those CENVAT credit of inputs and input services used exclusively in dutiable goods is",,,,,
incorrect.,,,,,
iv) There is no question of including other credits which are not at all covered by the provisions of Rule 6(3) of CENVAT Rules because the,,,,,
credit of service tax paid on inputs or input services which are exclusively used in providing exempted services automatically get excluded,,,,,
because of the provision of Rule 6(1) of the CENVAT rules. If the view of the LAA is accepted, it would lead to a situation of denying part of",,,,,
CENVAT credit on inputs and input services which are used exclusively used for manufacture of dutiable goods/ taxable services, which is",,,,,
not the intention of the said rules.,,,,,
v) The values for ""L"" and ""P"" given in the Rule are to be read in the context and not in isolation and the impugned order giving artificial",,,,,
meaning and values for the factors in the formula is incorrect. The impugned order reads point (ii) and (iii) of sub-clauses (c) of Rule 6(3A),,,,,
in isolation and not the sub-clause (c) as a whole which reads as under:,,,,,
(c) the manufacturer of goods or the provider of output service, shall determine finally the amount of CENVAT credit attributable to",,,,,
exempted goods and exempted services for the whole financial year in the following manner viz.,,,,,
i) The amount of CENVAT credit attributable to inputs used in or in relation to the manufacture of exempted goods, on the basis of total",,,,,
quantity of inputs used in or in relation to the manufacture of said exempted goods, denoted as H;",,,,,
ii) ........ and L denotes total CENVAT credit taken on inputs during the financial year minus H;,,,,,
iii) ....... and P denotes total CENVAT credit taken on input services during the financial year.""",,,,,
The impugned order reads the underlined portions of (i) and (iii) which is disconnected to the underlined portion of (c) above. By making,,,,,
such an isolated reading, the impugned order denies the recredit of excess reversal of attributable CENVAT credit. The purpose of sub-",,,,,
clause (c) is to find out the attributable CENVAT credit in the manufacture of exempted goods and rendering of exempted services in the,,,,,
manner specified. Hence, there is no need to take into account the CENVAT credit on inputs and input services that were exclusively used",,,,,
for manufacture of dutiable goods and rendering of taxable service.,,,,,
48 In light of the above analysis of Rule 6(3) and Rule 6(3A) of CENVAT Rules and relying on the above judgment, we wish to submit that",,,,,
credit of input services used exclusively for taxable activities should be fully allowed. The formula prescribed in rule 6(3A) would apply to,,,,,
those input services which are used for both taxable and exempted activities, where the assessee does not maintain separate accounting for",,,,,
such input services.,,,,,
49 Thus in the impugned SCNs, the authorities have erred in calculating the reversal of CENVAT credit by applying the ratio of reversal on",,,,,
the entire amount of CENVAT credit on input services availed under centralized as well as ISD registration for the disputed period,,,,,
irrespective of the said credit being exclusively used for taxable services / manufacture of goods.,,,,,
Demand is proposed based on audit. The audit has not been conducted by chartered accountant. Hence, demand based on such audit is bad",,,,,
in law.,,,,,
50 We would like to highlight that impugned SCN is solely based on objections raised by the audit team during the course of EA-2000 Audit.,,,,,
The audit was conducted by the officers of the excise department. The said audit was not conducted by a Chartered Accountant. Hence, the",,,,,
said audit is bad in law in as much as the same is in violation of Rule 5A of the Service Tax Rules, 1994. Once the audit report falls, the",,,,,
show cause notice is rendered futile and the subsequent order passed by the Ld. Commissioner becomes ineffective and hence, the entire",,,,,
case of the department falls.,,,,,
51 In support of the above submission, the Appellant place reliance on recent ruling of the Hon'ble Allahabad High Court in the case of",,,,,
ACL Education Centre Private Limited V/s Union of India reported in [2014-TIOL-120-HC ALL-ST). In the cited decision, the Hon'ble",,,,,
Allahabad High Court held as under:,,,,,
....It is Commissioner on whose behalf, the officer will collect the material and the Auditor will perform the audit. In any case, the final",,,,,
report duly signed by the Chartered Accountant will be submitted to the Commissioner. In case of Government Autonomous Body, the",,,,,
function of the audit has been assigned to the Comptroller and Auditor General of India.""",,,,,
From the above, it is crystal clear that in case of private assessee, the Commissioner will refer the matter to an officer to collect the material",,,,,
or Chartered Accountant for the purpose of audit. Thus, for the purpose of audit, the material can be collected either by the officer",,,,,
authorized by the Commissioner or by the Auditor himself. But, audit will be performed only by the Chartered Accountant. It is pious duty of",,,,,
the assessee to make available the record as mentioned in Rule 5A i.e. trial balance or its equivalent; and the income-tax audit report, if",,,,,
any, under Section 142(2A) of the Income Tax Act, 1961, for the scrutiny of the officer or the Audit Party, as the case may be.....",,,,,
Thus, we find that there is no inconsistency in Rule 5A and section 72A of the Finance Act, 1994. The said provision is not arbitrary. The",,,,,
manner for conducting the audit is as per the accounting standard provided by the Institute of Chartered Accountant of India. The audit,,,,,
report will be made available to the assessee, as per law."" (Emphasis supplied)",,,,,
52 In light of the above ruling, the Company submit that the officers of the service tax department are not legally authorized to carry out",,,,,
audit. The officers can only call for materials required for the audit and then the audit has to be conducted by independent chartered,,,,,
accountants. Evidently the same has not been done in the present case. The demand is not sustainable which is based solely upon the said,,,,,
audit report.,,,,,
The SCN is time barred for the period 2008-09 and 2011-12,,,,,
53 In the impugned SCN, the company has been asked to show cause as to why service tax short paid/not paid, for the period April 2008-09",,,,,
and 2011-12 should not be demanded and recovered from them under Section 73(1) of the Finance Act.,,,,,
54 In this regard, it would be relevant to read through the section which is reproduced below for easy reference:",,,,,
Section 73 (1): Where any service tax has not been levied or paid or has been short - levied or short - paid or erroneously refunded, the",,,,,
Central Excise officer may, within eighteen months from the relevant date, serve notice on the person chargeable with the service tax which",,,,,
has not been levied or paid or which has been short levied or short paid or the person to whom such tax refund has erroneously been made,",,,,,
requiring him to show cause why he should not pay the amount specified in the notice: Provided that where any service tax has not been,,,,,
levied or paid or has been short - levied or short - paid or erroneously refunded by reason of - Fraud; or Collusion; or Wilful mis-statement;,,,,,
or Suppression of facts; or Contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade,,,,,
payment of service tax, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if,",,,,,
for the words ""eighteen months"", the words ""five years"" had been substituted.",,,,,
The said period of eighteen months for the issue of notice was effective from 28 May 2012. Up to 27 May 2012, the period prescribed for",,,,,
issue of notice was one year.,,,,,
55 As per section 73(6)(i)(a) of Finance Act, relevant date in case where taxable service in respect of which service tax has not been levied",,,,,
or paid or has been short-levied or short-paid, would be the date of filing of periodical service tax return where such return is filed.",,,,,
56 In the present case, the company would like to submit that periodical return for the year 2008-09 and 2011-12 were filed in the year",,,,,
2009-10 and 2012-13 respectively. Therefore, the time limit of one year as was prevailing up to 27 May 2012 has already expired before",,,,,
the date of issuance of the SCN i.e. 23 May considering the same, the SCN dated 23 May 2014 received by the company on 23 May 2014 is",,,,,
time barred and the demand for the years 2008-09 and 2011-12 is invalid and should be out rightly quashed.,,,,,
57 It can be seen from section 73(1), that for invoking an extended period of limitation the department should not only show that there was a",,,,,
short levy on account of fraud, collusion, misstatement or suppression it must also be shown that this fraud, collusion, misstatement or",,,,,
suppression must have been made with the intent to evade the payment of duty. The said contention is also upheld by the tribunal in the case,,,,,
of CCE, Chandigarh Vs Allied Industries [2000 (XC3)-GJX-0675-CEGAT).",,,,,
58 In the present case, the company had duly filed service tax returns for the period under dispute. In the returns, the company had",,,,,
disclosed the amount of cenvat credit availed as well as reversals made. Thus from the information available in the returns it is clear that,,,,,
the company had made reversals only on the common credit availed and not on the entire credit.,,,,,
59 Further the company had also intimated the authorities in respect of the method of ratio adopted for Rule 6(3) and also regarding the,,,,,
finalization of ratio and amount reversed under Rule 6(3) at the year-end after finalization of books of accounts. In the said intimations too,",,,,,
it is clear that the company had made reversals only on account of common input services,",,,,,
60 Therefore it is evident from above that the authorities had all the necessary information on record and thus it would be incorrect to hold a,,,,,
view that the company had intention to evade service tax. Further, there is no material on record from which it could be inferred or",,,,,
established that the company has suppressed the value of taxable and exempted turnover and accordingly suppressed value of reversals in,,,,,
Sr. No.,SCN Reference,Period,Amount Short Paid (Rs.),,
1,"ST-11/Dn-V/Gr.1/Audit/Dow
Chem/2013","01.04.2008 to
31.03.2013","10,65,06,027/-",,
2,"ST-VII/Dn-1/Gr-111/Audit/Dow
Chem/ 2015","1.04.2013 to
31.03.2014","1,14,81,987/-",,
3,"ST-VII/Dn-1/Gr-11I/Audit/Dow
Chem/ 2015","1.04.2014 to
31.03.2015","3,79,36,983/-",,
rule 6(3). Rule 6(3) of CCR, 2004 starts with the expression ""Notwithstanding anything contained in sub-rules (1) and (2)"". That means, the",,,,,
provision of sub-rule (3) would apply only to the extent of sub-rules (1) and (2) contain something contrary. A reading of sub-rules (1) and,,,,,
(2) shows that credit on common inputs and input services cannot be taken if these are used for exempted services, and input credit can be",,,,,
fully used on inputs and input services exclusively used for providing taxable services. Only when the service provider does not maintains,,,,,
separate accounts for the common inputs and input services, he has to follow the mechanism prescribed in sub-rule (3).",,,,,
4.1.3 In light of the above analysis or Rule 6(3) and Rule 6(3A) of CCR, 2004, noticee submitted that credit of input services used",,,,,
exclusively for taxable activities should be fully allowed. The formula prescribed in rule 6(3A) would apply to those input services which are,,,,,
used for both taxable and exempted activities, where the assessee does not maintain separate accounting for such input services.",,,,,
4.2 Noticee further stated that demand is proposed based on audit. The audit has not been conducted by chartered accountant. Hence,",,,,,
demand based on such audit is bad in law. Noticee's statement regarding this is reproduced as under:,,,,,
4.2.1 Noticee stated that impugned SCN is solely based on objections raised by the audit team during the course of EA-2000 Audit. The,,,,,
audit was conducted by the officers of the excise department. The said audit was not conducted by a Chartered Accountant. Hence, the said",,,,,
audit is bad in law in as much as the same is in violation of Rule 5A of the Service Tax Rules, 1994. Once the audit report falls, the show",,,,,
cause notice is rendered futile and the subsequent order passed by the Ld. Commissioner becomes ineffective and hence, the entire case of",,,,,
the department falls.,,,,,
4.2.2 In support of the above submission, the Appellant place reliance on recent ruling of the Hon'ble Allahabad High Court in the case of",,,,,
ACI., Education Centre Private Limited v/s Union of India reported in [2014-T][OL-120-HC- ALL-ST]. In the cited decision, the Hon'ble",,,,,
Allahabad High Court held as under:,,,,,
“......It is Commissioner on whose behalf, the officer will collect the material and the Auditor will perform the audit. In any case, the final",,,,,
report duly signed by the Chartered Accountant will be submitted to the Commissioner. In case of Government Autonomous Body, the",,,,,
function of the audit has been assigned to the Comptroller and Auditor General of India. """,,,,,
4.2.3 In light of the above ruling, the noticee submitted that the officers of the service tax department are not legally authorized to carry out",,,,,
audit. The officers can only call for materials required for the audit and then the audit has to be conducted by independent chartered,,,,,
accountants. Evidently the same has not been done in the present case. The demand is not sustainable which is based solely upon the said,,,,,
audit report,,,,,
In view of the above submissions, stated that extended period, penalty and recovery of interest is not sustainable.",,,,,
As regards the plea of the noticee that they were maintaining separate records with reference to common input services used in,,,,,
taxable/exempted services. I find that except making such a bald claim they failed to tender any documentary evidence to establish their,,,,,
claim. They ought to have furnished the evidence in the form of various records maintained by them in respect of different services used by,,,,,
them in taxable/exempted services. This apart their claim that certain input services are utilised fully in taxable services, is also not",,,,,
supported by any documentary evidence. Moreover the demand of short payment has been based on their own documents i.e. Balance Sheet,,,,,
and hence their claim that demands are in correctly worked out is also not acceptable. I therefore reject their claim of maintenance of,,,,,
separate records.,,,,,
The noticee's claim that they are entitle to avail full CENVAT credit on the services notified under Rule 6(5) of CCR, 2004 is also not",,,,,
convincing in as much as they have not furnished the actual details of such services along with supporting authenticated records maintained,,,,,
by them. It is observed that they have furnished bulky details of only input services from their various vendors but have failed to furnish the,,,,,
vital information and documentary evidence thereof to show the nexus that such input services are used in output services as specified in the,,,,,
said rule. In the absence of such documentary evidence, it would be difficult for me to consider their said plea. Hence, the same is rejected.",,,,,
The case law referred by the noticee in this regard are therefore strictly not applicable in their case.,,,,,
It is the noticee's contention that the demand in impugned SCNs is based on audit objections raised by the departmental officers and not,,,,,
by the Chartered Accountant. Hence, they stated that such demands are bad in law. In support, they relied upon the ruling of Hon'ble",,,,,
Allahabad High Court in the case of ACI., Education Centre Private Limited v/s Union of India reported in [2014-T][OL-120-HC- ALL-ST].",,,,,
In the cited decision, the Hon'ble Allahabad High Court held as under:",,,,,
......It is Commissioner on whose behalf, the officer will collect the material and the Auditor will perform the audit. In any case, the final",,,,,
report duly signed by the Chartered Accountant will be submitted to the Commissioner. In case of Government Autonomous Body, the",,,,,
function of the audit has been assigned to the Comptroller and Auditor General of India.""",,,,,
In this regard, I find that Service Tax is an indirect tax administered by the Service Tax and Central Excise Department. Accordingly,",,,,,
an 'Auditor' means a Central Excise/ Service Tax officer entrusted with the duty of conducting audit. Normally it will mean an Inspector or,,,,,
Superintendent of Central Excise/ Service Tax. Service providers of taxable services in the entire country are also required to be audited.,,,,,
The relevant enabling provisions for this are,",,,,,
(i) Section 65(121) of the Finance Act, 1994 provides that words and expressions used but not defined in Chapter V of the said Finance Act",,,,,
and defined in the Central Excise Act, 1944 of the rules made there under, shall apply, so far as may be in relation to Service Tax as they",,,,,
apply in relation to a duty of excise.,,,,,
(ii) Rule 212) of the Service Tax Rules, 1994 lays down that all words and expressions used but not defined in Service Tax Rules but defined",,,,,
in the Central Excise Act, 1944 and the rules made thereunder shall have the meanings assigned to them in that Act and Rules.",,,,,
[Notification No. 2/94-ST,dated 28.06.1994]",,,,,
(iii) The definition of ""Central Excise Officer"" as contained in the Section 2(b) of the Central Excise Act, 1944 will also apply to the Central",,,,,
Excise officers conducting Service Tax audit and shall also include Service Tax officers. Thus, a Central Excise officer assigned the duties",,,,,
of Audit in Service Tax in a proper officer for conduct of Service Tax audit.,,,,,
Vide Service Tax Circular No. 775/8/2004-CX, dated 17.02.2004 (F.No.206/03/2003-CX), the Board directed the audit of all services",,,,,
subjected to levy of service tax. Subsequently, vide Service Tax Circular No. 97/8/2007-ST, dated 23.08.2007 [F.No. 135/87/2007-CX4), at",,,,,
S.No.11, the Board issued instructions for selective audit of Service taxpayers and other assesses like input service distributors etc.",,,,,
The Service Tax Law through the Finance Act, 1994 and Service Tax Rules, 1994 do not prescribe any specific records to be",,,,,
maintained by the taxpayer. However, Rule 5 of the said Rules deals with records. In this regard,",,,,,
(I) Rule 5(1) of the Service Tax Rules, 1994 mentions that the records (including computerised data) as maintained by a taxpayer in",,,,,
accordance with various laws in force from time to time shall be acceptable.,,,,,
(II) Rule 5(2) of the Service Tax Rules. 1994 requires every taxpayer to furnish to the Superintendent of Central Excise, at the time of filing",,,,,
his return for the first time or the 31"" day of January 2008, whichever is later, a list of all the records prepared of maintained by the",,,,,
taxpayer for accounting of transactions specified therein relating to Service Tax including all other financial records maintained in the,,,,,
normal course of business.,,,,,
(iv) Rule 5A(1) of the Service Tax Rules, 1994 empowers an officer authorised by Commissioner to have access to any premises registered",,,,,
under the rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of",,,,,
revenue.,,,,,
Further, under Rule 5A(2) the assessee shall on demand make available to the officer or audit party deputed by the Commissioner, within",,,,,
15 days. ( the records mentioned in Rule 5(2), (ii) the trial balance or its equivalent and (iii) the income tax audit report under Section 44AB",,,,,
of the Income Tax Act, 1961. (iv) Besides, Rule 9(5) and 9(6) of the Cenvat Credit Rules, 2004 provides for maintenance of records by a",,,,,
provider of output service with respect to receipt and consumption of inputs, capital goods and input services in addition to submission of",,,,,
periodical returns prescribed under Rule 9(9) to Rule 9(11) ibid in respect of credit availed.,,,,,
In view of the above, all records and documents pertaining to the business of rendering taxable service and records relating to availment",,,,,
of credit, including computerised accounts, can be appropriately examined by the officers while conducting audit. Hence, I am of the view",,,,,
that noticee's above contention is not legally tenable. The facts and circumstances of the case law relied upon by the noticee are of no,,,,,
assistance to their case.,,,,,
As regard interest liability under Section 75, based on the Hon'ble Supreme Court's decision in the case of Commissioner of Trade Tax,",,,,,
Lucknow Vs Kanhai Ram Thekedar, 2005(185)ELT 3 (SC), it has been held in several matters that interest liability accrues automatically",,,,,
from confirmation of demand of duty/tax as recoverable. In the instant case, it has already been confirmed hereinabove that the noticee,",,,,,
who was liable to pay Service Tax in terms of Section 68 of Finance Act, 1994 and the rules framed thereunder, did not pay Service Tax on",,,,,
the correct value of services provided by them, in the manner laid down under the aforesaid Act/Rules. Therefore, the noticee is liable to pay",,,,,
interest under Section 75 of the Finance Act, 1994, on the amount of Service Tax determined under Section 73(2) of the Finance Act, 1994,",,,,,
as recoverable in respect of the demand of Service Tax made in the impugned Show Cause Notices.,,,,,
As regards, penalty proposed in respect of SCN F. No. ST-11/Dn-V/Gr.1/Audit/Dow Chem/2013 dated 23.05.2014, the question whether",,,,,
the penalty under Section 78 is attracted, I find that under the scheme of Service Tax levy, the self assessment system casts a responsibility",,,,,
on the noticee to declare truthfully and comply with all requirements of law. The noticee has, as already discussed above, deliberately",,,,,
refrained from declaring the true and correct amount of reversal under Rule 6(3A) of Cenvat Credit Rules, 2004 as discussed above. Had it",,,,,
not been for the detection carried out by the departmental audit officers of Service Tax, Mumbai, the evasion of Service Tax by the noticee",,,,,
would not have come to light. As such penalty under Section 78 is warranted for misdeclaration of the amount payable under said rule,,,,,
leading to evasion of Service Tax. Hence, noticee is liable for penalty under Section 78 of the Finance Act, 1994, in respect of the said SCN.",,,,,
However, in respect of (i) SCN F. No. ST-VII/Dn-1/Gr-11/Audit/Dow Chem/ 2015 dated 07.04.2015; and (ii) SCN F. No. ST-VII/Dn-",,,,,
1/Gr-111/Audit/Dow Chem/ 2015 dated 16 2016: penalty under Section 76 is attracted for failure to pay the correct amount in accordance,,,,,
with the provisions of Rule 6(3A) of Cenvat Credit Rules, 2004, the noticee is liable to penalty under Section 76 ibid also.",,,,,
Penalty has also been proposed under Section 77 under the impugned Show Cause notice bearing (i) SCN F. No. ST-VII/Dn-1/Gr-,,,,,
111/Audit/Dow Chem/ 2015 dated 202015. and (ii) SCN F. No. ST-VII/Dn-1/Gr-111/Audit/Dow Chem/ 2015 dated 2016 This penalty is,,,,,
attracted where, among other things, any person liable to Service Tax fails to keep/maintain proper accounts/documents in accordance with",,,,,
the Finance Act, 1994 or the Rules made thereunder or contravenes any of the provisions of the said Act/Rules for which no separate",,,,,
penalty is provided. In the instant case, the noticee has contravened the provisions of Section 70 of the Finance Act, 1994 read with Rule 7",,,,,
of Service Tax Rules, 1994, in as much as they have failed to file Returns declaring the correct taxable value and correctly assessing the",,,,,
Service Tax due on the services provided by them. Therefore, the noticee is liable to penalty under Section 77 of the Finance Act, 1994.",,,,,
In view of the foregoing discussions and findings, I pass the following Order-“",,,,,
4.4 Even authorized representative has during the course of argument has not made any single submission contradicting the claim made by the,,,,,
appellants. His entire submission is based only on the non production of the documents. However we find that in para 34 of their reply reproduced by,,,,,
us earlier, appellant clearly state that they have provided the records year wise in as per Annexure VII, to that letter to the adjudicating authority.",,,,,
Commissioner in the impugned order do not contradicts the same nor records any finding in respect of the Annexure VII. In fact in the reply submitted,,,,,
by the Appellant then claimed in respect of the calculation errors, in the show cause notice, if these calculation errors while computing the demand are",,,,,
taken into account then major chunk of demand itself cannot survive. However we find that these calculation errors themselves have not been,,,,,
considered and adjudicated by the impugned order. Authorized representative has in his submissions referred to the decision of the Hon’ble Apex,,,,,
Court in case Dilip Kumar [2018-TIOL-302-SC-CUS-CB], without even indicting how the said decision is relevant to the facts of this case. It seems",,,,,
reliance has been placed just for the reason that decision exists even without examination of the applicability/ relevance of the same to the present,,,,,
case.,,,,,
4.5 On the examination of the impugned order we can only observe that impugned order cannot be called a speaking order in any manner. Except for,,,,,
the brief discussion in para 6 and 7, in the “Discussion and Findings†recorded by the Commissioner we do not find anything anywhere in the",,,,,
entire order, considering the allegations made in the show cause notice and the submissions made by the appellants while contesting the same. The",,,,,
only reason for the rejection of the claims made by the appellants is that they have not furnished the relevant information. However interestingly,,,,,
Commissioner has recorded the submissions made by the appellant in para “B Submissions of the noticeeâ€, and we have in para 4.2 above",,,,,
reproduced the entire submissions made. We wonder what and where were these submissions considered in the order! However in absence,,,,,
of any finding on consideration of the above submissions we are left with no other option but to hold that the impugned order fails all the test laid down,,,,,
by the Hon’ble Apex Court for considering an order to speaking order, in case of Kranti Associates Pvt Ltd [2011 (273) E.L.T. 345 (S.C.)].",,,,,
Stressing on the need to record the reasons Hon’ble Apex Court observed as follows:,,,,,
“51. Summarizing the above discussion, this Court holds :",,,,,
(a) In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone",,,,,
prejudicially.,,,,,
(b) A quasi-judicial authority must record reasons in support of its conclusions.,,,,,
(c) Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to,,,,,
be done as well.,,,,,
(d) Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even,,,,,
administrative power.,,,,,
(e) Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous,,,,,
considerations.,,,,,
(f) Reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by,,,,,
judicial, quasi-judicial and even by administrative bodies.",,,,,
(g) Reasons facilitate the process of judicial review by superior Courts.,,,,,
(h) The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions,,,,,
based on relevant facts. This is virtually the Life blood of judicial decision making justifying the principle that reason is the soul of justice.,,,,,
(i) Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions,,,,,
serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important,,,,,
for sustaining the litigants’ faith in the justice delivery system.,,,,,
(j) Insistence on reason is a requirement for both judicial accountability and transparency.,,,,,
(k) If a Judge or a quasi-judicial authority is not candid enough about his/her decision making process then it is impossible to know whether,,,,,
the person deciding is faithful to the doctrine of precedent or to principles of incrementalism.,,,,,
(l) Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or ‘rubber-stamp reasons’ is not to be",,,,,
equated with a valid decision making process.,,,,,
(m) It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision making not,,,,,
only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in,,,,,
Defence of Judicial Candor (1987) 100 Harward Law Review 731-737).,,,,,
(n) Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement is now",,,,,
virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See (1994) 19 EHRR 553, at 562 para 29",,,,,
and Anya v. University of Oxford, 2001 EWCA Civ 405, wherein the Court referred to Article 6 of European Convention of Human Rights",,,,,
which requires, “adequate and intelligent reasons must be given for judicial decisionsâ€.",,,,,
(o) In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law,",,,,,
requirement of giving reasons for the decision is of the essence and is virtually a part of “Due Process.,,,,,
52.for the reasons aforesaid, we set aside the order of the National Consumer Disputes Redressal Commission and remand the matter to the",,,,,
said forum for deciding the matter by passing a reasoned order in the light of the observations made above. Since some time has elapsed,",,,,,
this Court requests the forum to decide the matter as early as possible, preferably within a period of six weeks from the date of service of this",,,,,
order upon it.â€,,,,,
4.5 In view of the above we do not find any merits in impugned order as it is devoid of any reasoning and is without consideration of the submissions,,,,,
made by the appellant.,,,,,
5.1 The appeal is allowed setting aside the impugned order. The matter is remanded back to the original authority for consideration of the same in light,,,,,
of the submissions made by the appellant.,,,,,
5.2 Since the matter is quite old, the adjudicating authority should decide the matter within three months of receipt of this order, after affording the",,,,,
opportunity of hearing to the appellants and following the principles of natural justice.,,,,,
(Order pronounced in the open court on 25.11.2021),,,,,