Wanbury Limited And Others vs Commissioner Of Central Excise, Customs & Service Tax

C J Mathew, Member (T)

These two appeals of assessee, M/s Wanbury Ltd, relating to recovery of duties of central excise leviable on manufacture of ‘active pharmaceutical ingredient (AQI - also known as bulk drugs)’, and Shri Anand Dhoka, an employee of assessee alleged to be actively involved in irregular availment of Rs. 71,98,764 under CENVAT Credit Rules, 2004 as credit of tax paid towards services procured by their head office that was assigned as ‘input service distributor (ISD)’ exclusively to their Patalganga plant between 1st April 2005 and 30th April 2008. According to the findings in order[order-in-original no. 91/MAK (91) COMMR/RGD/13-14 dated 7th November 2013] of Commissioner of Central Excise, Raigad, the consideration for ‘art designing, design & artwork, consultancy, credit card, membership subscription, professional charges, rent of hotel, security charges, share transfer agent, stock broking, courier, insurance, maintenance, payroll, placement, customs house agent, freight, commission, other commission and brokerage’ which bore no relationship to the manufacture of goods at Patalganga was not in conformity with the definition of ‘input services’ in section 2(l) of CENVAT Credit Rules, 2004. The adjudicating authority relied upon the exposition by Central Board of Excise & Customs (CBEC) in circular no.943/04/2011-Cx dated 29th April 2011 and statement of the appellant-individual endorsing the concurrence of Mr Sachin Madan who had affirmed ineligible availment as alleged by the investigating unit.

The impugned proceedings commenced with audit pointing out ineligibility for Rs. 2,12,785 towards credit of tax paid on ‘security services’ and ‘stock broker services’ that was reversed immediately by the assessee; subsequent scrutiny led to reversal of Rs. 40,11,622 expended on services procured for the ‘formulation division’ and Rs. 29, 74,356 for similar ‘cost centres’ of the appellant. The appellant-assessee had claimed that Rs. 14,07,546 had been erroneously debited requiring restoration of credit to that extent which, according to the adjudication authority, was not supported by material evidence and further bereft of proof of eligibility at the hearing stage leading to confirmation of the amount as proposed in the show cause notice.

It was alleged that such assigning by ‘input service distributor (ISD)’ was unjustified as the ‘cost centres’ were unconnected with their manufacturing activity. Learned Counsel for appellant disparaged the approach of the adjudicating authority who, relying upon statements, observed that these, not having been retracted, were conclusive evidence as held by the Tribunal in Gopal Industries Ltd v. Commissioner of Central Excise, Indore [2007 (214) ELT 19 (Tri-LB)]. It was further contended that each of the services were, directly or indirectly, related to manufacture and that rule 7 of CENVAT Credit Rules, 2004 stipulated only two conditions which they were in compliance with. He argued further that date of registration as ‘input service distributor (ISD)’ was not relevant as long as services had been procured towards eligible manufacture or rendering of service as held by the Tribunal in Commissioner of Central Excise, Vapi v. Samita Conductors Ltd [2012 (278) ELT 492 (Tri-Ahmd)], in Doshion Ltd v. Commissioner of Central Excise, Ahmedabad [2013 (288) ELT 291 (Tri-Ahmd)], which was affirmed by the Hon’ble High Court of Gujarat in Commissioner of Central Excise v. Doshion Ltd [2016 (2) TMI 183 – GUJARAT HIGH COURT], and in Oil & Natural Gas Corporation Ltd v. Commissioner of Central Excise, Customs and Service Tax, Raigad [2015-TIOL-1571-CESTAT-MUM].

Learned Counsel claimed that assigning of credit was singularly an internal arrangement constrained only by rule 7 of CENVAT Credit Rules, 2004 as upheld in decisions of the Tribunal in Nestle India Ltd v. Commissioner of Customs & Central Excise, Goa [2017 (5) GSTL 294 (Tri- Mumbai)] and in Pfizer Ltd v. Commissioner of Central Excise & Service Tax (LTU), Mumbai [2022 (66) GSTL 122 (Tri-Mumbai)].

It was contended by Learned Authorised Representative that the Hon’ble High Court of Delhi, in Lally Automobiles Pvt Ltd v. Commissioner (Adjudication), Central Excise [2018 (17) GSTL 422 (Del)], had clearly excluded ‘trading’ from being entitled to be claimed as activity eligible for availment of credit and further claimed coverage under decision of the Tribunal in Commissioner of Central Excise, Mumbai-III v. Unideritend Ltd [2018-TIOL-266-CESTAT-MUM] on incorrectness of assigning credit exclusively to one manufacturing facility.

We find that the impugned order has fastened recovery of credit availed during the disputed period by relying upon statements on the premise of being tenable merely for not having been retracted. It is seen that reliance had been placed on the statement of Shri Anand Dhokia and which, by its contents, was held as having absorbed the statement of Sachin Madan with it. With the former having been made a noticee and response thereto being denial of the charges, that could well be deemed to be retraction that neutralizes the presumption that the adjudicating authority relied upon for conclusion as facts. Furthermore, Learned Counsel has placed before us justification for availment of credit of tax paid on procurement of each of the services. We are unsure if the same had been preferred before the original authority even as are not certain if the entirety of submissions found its way into that proceeding but was not recorded. Disallowance of credit cannot rest upon statements but must stand the test of definition of ‘input service’ in rule 2(l) of CENVAT Credit Rules, 2004 on facts which is sorely lacking in the impugned order. The observation of the adjudicating authority that it is upto the assessee to establish eligibility is, in our view, not a correct appreciation of CENVAT Credit Rules, 2004 inasmuch as recovery, initiated under rule 14 of CENVAT Credit Rules, 2004, must engage the assessee with evidence to justify such recovery which is only then open to disputation.

In view this less than adequate disposal of the issue in the proceedings, a fresh determination is warranted. To enable that, we set aside the impugned order and remand the matter back to the original authority to decide the charges afresh in the light of facts set out by noticee and judicial decisions cited now before us.