M/s. Surya Vistacom Private Limited vs Commissioner Of Service Tax-I, Kolkata

The present appeal has been filed by the Appellant being aggrieved with the Order-in-Original dated 31/01/2017 passed by the learned Commissioner, whereby he has confirmed the demand of recovery of Cenvat credit of Rs.3,29,07,268/- under Rule 6 of the Cenvat Credit Rules, 2004 for the period 2011-12 to 2014-15, along with interest and imposition of penalty as proposed in the show cause notice dated 17/10/2016.

Briefly stated, the facts of the case are that the Appellant is engaged in the business of trading of goods and runs various retail stores as franchise of M/s.Titan Industries Limited. It is also engaged in provision of 'maintenance and repair services' along with 'Business support service' for one of it store located at Mani Square Mall wherein it operates the store under an agreement with M/s.Titan Industries Limited. As per the letter of intent dated 26/06/2007 issued by Titan to the Appellant, the Appellant would be entitled to recover the rental and maintenance charges of its store at Mani Square Mall from Titan. Hence the Appellant has paid service tax on the said amounts recovered from Titan in its ST-3 returns filed for the period under dispute. The Appellant has also availed Cenvat credit of input services on invoices of Mani Square Limited towards rental charges and maintenance charges and has used the same to set off its service tax liability on the above recovery made from Titan. Under the above circumstances, the service tax audit of the Appellant was conducted for the period from 2011-12 to 2014-15, wherein it was alleged that the Appellant though entitled for the Cenvat credit was not able to produce proper invoices for the claim of Cenvat credit of Rs.182,114/-out of the total claim of Rs.41,17,269/- for the period under dispute. The Appellant had thus reversed the said amount along with interest based on the memo issued by the Service Tax Audit Department. The penalty imposed for incorrect classification of its output services as 'Renting Services' instead of 'Business Support Services' as per the audit department's memo in this regard was also deposited. The above facts were also noted in the Final audit report issued by the office of the Commissioner of Service Tax, Audit, Kolkata dated 24/10/2016 issued to the Appellant. However, the Appellant was in the meantime served with a Show Cause Notice based on the proceedings of anti evasion wing of the Service Tax Department alleging non reversal of Cenvat credit as per Rule 6 of the Cenvat credit Rules, 2004 (CCR 2004) as the Appellant was engaged in both provision of service as well as trading of goods which was an exempt service and hence the show cause notice was issued demanding 6% of the trading turnover as ineligible Cenvat credit availed by the Appellant during the period under dispute. The said SCN dated 17/10/2016 culminated into the impugned order. Hence the present appeal before the Tribunal.

Shri Ankit Kanodia, the learned Advocate, appeared on behalf of the appellant. He submitted that the present dispute is only in respect of the fact whether the Appellant is at all required to reverse any Cenvat credit under Rule 6 of the CCR, 2004 as confirmed by the Adjudicating Authority when the Service Tax Audit Department had already issued a final report to the Appellant stating the Cenvat credit eligible in this regard and the Appellant has already reversed the Cenvat credit stated to be ineligible by the audit department which is evident from the final audit report issued by the audit department. He further states that the lower authorities have erred in the issuance of SCN as the same has been issued without considering the final audit report which clearly provides that the Appellant was eligible for Cenvat credit. It is also his submission that when the total Cenvat credit itself availed by the Appellant is Rs.41,17,269/- during the period under dispute, then confirmation of demand of Rs.3,29,07,268/- under Rule 6 of the Cenvat Credit Rules, 2004 itself speaks of the non-application of settled judicial pronouncements in this regard by the lower authorities. He relied on the judgment of the Tribunal in the case of M/s MERCEDES BENZ INDIA (P) LIMITED VS COMMISSIONER OF CENTRAL EXCISE, PUNE-I 2015-TIOL-1550-CESTAT-MUM wherein it has been held that the recovery cannot exceed the amount of Cenvat credit availed by the Appellant.

The learned Advocate also stated that the Appellant company runs thirteen stores in Kolkata and the Cenvat credit has only been availed in respect of its one store at Mani Square Mall, the letter of intent of which has been placed on record. It is his submission that notwithstanding the demand being bad in its entirety, if at all proportionate reversal under Rule 6 is called for, the same has to be restricted to the turnover of its Mani Square unit only and the entire turnover as per the balance sheet for the period under dispute cannot be resorted to. He thus states that the lower authorities have erred in confirmation of the demand and the entire calculation is also incorrect as per the submission of the learned Advocate.

He also relied on the following decisions in his support:

a. M/s CASTROL INDIA LTD Vs COMMISSIONER OF CGST & CX, KOLKATA SOUTH COMMISSIONERATE 2021-TIOL-405-CESTAT-KOL

b. ETRANS SOLUTIONS PVT. LTD. Versus COMMR. OF CGST & C. EX., BBSR, KOLKATA 2020 (372) E.L.T. 867 (Tri.- Kolkata).

c. FABWORTH (I) LIMITED Versus COMMISSIONER OF C. EX. & CUS., NAGPUR 2007 (213) E.L.T. 136 (Tri. - Kolkata)

d. Kirloskar Pneumatic Co. Ltd. Versus Commissioner of C.Ex., Pune- III [2010 (254) E.L.T.328 (Tri.-Mumbai)]

The learned Advocate further submits that it is not provided under the law that if there is any procedural infraction in availing the option of Rule 6(3)(ii), the option provided under Rule 6(3)(i) shall automatically apply. Two options have been provided under the law to the assessee. It is the choice of the assessee which option is to be availed. In the present case, the appellant admittedly availed the option available under Rule 6(3)(ii) read with Rule 6(3A). Therefore, the department cannot insist on availing the option of Rule 6(3)(i) and demand huge amount of money which is otherwise not payable by the appellant, nor it is part of Cenvat credit availed by the appellant. He submits that when the options have been provided, the assessee is at liberty to choose any of the options. Therefore in the present case, the appellant has opted for the option available under Rule 6(3)(ii) of Cenvat Credit Rules. The department has no role in deciding the options available under the Rules.

It is his submission that the entire availment of Cenvat credit on provision of 'Business Support Services' was within the knowledge of the department and that the same cannot be treated as common credit for the purposes of Rule 6 of CCR, 2004 as the same is directly in relation to the output service tax liability for its Mani Square unit. It is also submitted that the Anti Evasion wing had issued the captioned SCN without any investigation while the service tax audit wing had conducted a detailed scrutiny of the entire records of the Appellant and arrived at the said conclusion that the Cenvat credit of the Appellant is eligible to be availed. He thus states that extended period of limitation cannot be invoked in the case of the Appellant and the entire demand is liable to be dropped on this ground alone.

Shri T. Mondal, learned Authorized Representative for the Respondent Revenue, while supporting the impugned order passed by the Commissioner, reiterated the findings made therein.

Heard both sides through video conferencing and perused the appeal records.

The short issue that arises for consideration in the instant appeal is whether appellant is required to pay 6% of total sale value of the goods traded by them in terms of Rule 6(3)(i) of the CCR, 2004 and whether the Cenvat credit availed by the Appellant for its Mani square unit qualifies as common Cenvat credit for the purposes of Rule 6 (supra).

6.1 We find from the appeal records that the Appellant has availed Cenvat credit of Rs.41,17,269/- during the period under dispute while the confirmation of demand for recovery is Rs.3,29,07,268/-. In this regard we are in agreement with the decision of the Tribunal in the case of Mercedes Benz (supra), wherein it has been held and stated as under-

"5.4 ................................................... We are also of the view that Rule 6 of the Cenvat Credit Rules is not enacted to extract illegal amount from the assessee. The main objective of the Rule 6 is to ensure that the assessee should not avail the Cenvat Credit in respect of input or input services which are used in or in relation to the manufacture of the exempted goods or for exempted services. If this is the objective then at the most amount which is to be recovered shall not be in any case more than Cenvat Credit attributed to the input or input services used in the exempted goods. It is also observed that in either of the three options given in sub rule (3) of Rule 6, there is no provisions that if the assessee does not opt any of the option at a particular time, then option of payment of 5% will automatically be applied. Therefore, we do not understand that when the appellant have categorically by way of their intimation opted for option provided under sub-rule (3)(ii), how Revenue can insist that option (3)(i) under Rule 6 should be followed by the assessee."

In the instant case of the Appellant, it is not disputed by the Revenue that the Appellant has availed Cenvat credit only to the extent of Rs. Rs.41,17,269/- during the period under dispute. Hence, we are of the opinion that the demand as confirmed by the Adjudicating Authority cannot be sustained at all.

6.2 We further observe that the prayer of the Appellant regarding the calculation of the Department is correct as it is seen that the Department has mechanically applied 6% of the entire balance sheet turnover of the Appellant without detailing as to why the said turnover has been taken and why not the value of trading as provided in the Rules viz. the difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or ten percent of the cost of goods sold, whichever is more. Thus, we find that the entire computation of demand in the instant case has been done without applying the legal provisions and hence the same cannot be sustained in our view.

6.3 Further, it is also on record that the service tax audit department had issued a Final audit report to the Appellant which has been placed at Page 13 of the written statement produced by the Appellant. On perusal of the same it is seen that the audit report is signed on 24/10/2016 whereas the Order-in-Original was passed on 31/01/2017 and the said final audit report was also placed before the learned Adjudicating authority. However the same has been ignored by the Adjudicating authority and hence we are of the view that when the audit wing had already verified the books of accounts of the Appellant and had sought reversal of Cenvat credit of Rs.1,82,114/- along with interest and penalty which was subsequently paid by the Appellant, then issuance of the instant SCN seeking reversal of Cenvat credit under Rule 6 of CCR 2004 by invoking extended period of limitation cannot be sustained. In this regard we rely on the judgment of M/s CASTROL INDIA LTD Vs COMMISSIONER OF CGST & CX, KOLKATA SOUTH COMMISSIONERATE 2021-TIOL-405-CESTAT-KOL wherein it was held as under:-

"9. The learned Counsel has also argued on the ground of limitation. The appellants have been issued show cause notices for earlier periods on identical issue. The appellants have disclosed the credit availed in the returns filed by them. They had submitted all the documents called for by the department and I do not find any evidence to saddle the appellants with willful suppression of facts with intention to evade payment of duty. It is also noted that the jurisdictional Commissioner had passed an order holding that the credit was to be reversed based on proportionate value of traded goods. Based on the above order, the appellants had been reversing the credit availed on common input services and informed the department whenever the details were asked for. Thus the department was fully aware that the appellants were conducting trading activity. I therefore find that the demand raised invoking the extended period is without any factual or legal basis. The appeal succeeds on limitation also."

In the instant case of the Appellant also we find that the service tax audit for the said period had been conducted and all aspects of Cenvat credit has been verified by the department.

Further the Appellant was also made to pay penalty for incorrect classification of its services as 'Renting of Immovable Property Service' as the audit department had classified the same as 'Business Support Services' and the entire service tax input services of the Appellant was in the nature of claim against the said 'Business Support Services' under the letter of intent issued by Titan to the Appellant. It is also not disputed that the Appellant has not availed any Cenvat credit apart from the same used for its Mani Square unit for which it was paying Service Tax. Hence we are of the view that the invocation of extended period of limitation to invoke the demand cannot be sustained.

In view of the above discussions and the settled legal judicial precedence and provisions contained in statutes referred to above, the demand cannot be sustained and is therefore set aside. Thus, the appeal filed by the Appellant is allowed with consequential relief, if any, as per law.

(Order pronounced in the open court on 09 November 2021.)