Commissioner Of Service Tax vs Ruchika Global Interlinks

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH CHENNAI

Appeal No.ST/88/2010 & ST/CO/7/2010

[Arising out of Order-in-Appeal No.99/2009 [M-ST] dt.9.11.2009 passed by the Commissioner of Central Excise (Appeals), Chennai]

Commissioner of Service Tax, Chennai Appellant

Versus

Ruchika Global Interlinks Respondent

Appearance:

Shri B.Balamurugan, AC (AR) For the Appellant

Shri M. Masilamani, Consultant For the Respondent

CORAM :

Honble Shri R. Periasami, Technical Member

Date of Hearing/Decision : 19.02.2015

FINAL ORDER No.40175/2015

Per R. Periasami

Revenue filed appeal against the Order-in-Appeal dt. 9.11.2009.

2. The brief facts of the case are that the respondents were registered with service tax as commission agents and also engaged in trading of M.S. Scraps, M.S. Angles and CTD Bars. During audit of the records, it was noticed that respondent had availed cenvat credit of Rs.7,01,979/- on certain ineligible input services as well as utilised excess credit of Rs.6,78,459/- on common input services used for both trading as well as taxable service. On being pointed out the respondents paid the entire amount along with interest and subsequently filed refund claim. The appellants also had taken credit of Rs.6,78,459/- paid by them in their cenvat credit account. The adjudicating authority has issued a show cause notice dt. 3.3.2009 for rejection of the claim. Vide OIO No.33/2009 dt. 29.4.2009, the adjudicating authority has rejected the refund claim under the provisions of Rule 6 (3) (c) and Rule 2(1) of Cenvat Credit Rules, 2004. On appeal filed by the respondents, the Commissioner (Appeals), has allowed their appeal and set aside the impugned order with consequential relief. The Revenue filed the present appeal against the impugned order.

2. Heard both sides.

3. Ld. AR reiterated the grounds of appeal and the findings of the OIO. Since the respondents are carrying out both taxable service under BAS and trading of the goods, they are not eligible to avail credit as common input services and they have not maintained separate accounts and they are entitled only to 20% of the total service tax payable as credit on common input services. The amount paid by the respondents is only credit amount in excess of 20% which was already allowed. He also submits that respondents also availed credit on the ineligible inputs services viz. banking services, maintenance and repair services, insurance service, fire insurance service, testing and analysis service, clearing and forwarding agent services. All these services have no nexus with the output service rendered by the respondent which is a commission agent service. He relied on the Tribunal's decision in the case of Mercedes Benz India Pvt. Ltd. Vs CCE Pune-I - 2014 (36) STR 704 (Tri.-Mumbai).

4. On the other hand, Ld. Consultant for the respondent submitted written submissions and reiterated the findings of OIA at paragraphs 15 to 17. He also submits that the Committee of Commissioners have not given any opinion on the correctness of the order. He relied on the following decisions :-

(i) CCE Siliguri Vs Mall Eximp (P) Ltd. -

2009 (15) STR 107 (Tri.-Kol.)

(ii) Lacto Cosmetics (Vapi) Pvt. Ltd. Vs CCE Daman 2013 (30) STR 107

(iii) CCE Ahmedabad Vs Cadila Healthcare Ltd.  2013 (30) STR 3 (Guj.)

5. Heard both sides and perused the records.

6. As regards the preliminary objection raised by consultant on the authorisation to file appeal by the Committee of Commissioners, I do not find any infirmity as the Committee of Commissioners have clearly brought out the grounds. As regards the time-bar issue raised by the consultant, I find that Revenue has filed appeal on 15.2.2010, the impugned order was dated 9.11.2009 and the date of communication was 16.11.2009. Therefore, the appeal has been filed within 3 months from the date of receipt of the order. The preliminary objection raised by consultant is overruled.

7. On merits of the case, I find that Revenue is aggrieved on the impugned order of Commissioner (Appeal) where in the OIO was set aside with consequential relief. The Lower Appellate Authority held that respondents are eligible for full credit on the common input services used for trading as well as taxable service. The revenue's contention is that LAA has also allowed credit on various input services as there is no nexus on the output service rendered by the respondent which is a commission agent service. The other contentions by the Revenue that respondents are not eligible for the input service which is purely for trading as it is clearly covered under the definition of Rule 2 (l) of CCR. On perusal of the case records, I find that respondent have availed ineligible credit on the common input services Rs.6,78,459/- and Rs.7,01,979/- on other input ineligible services. On being pointed out, the respondents paid the amount in cash and also reversed the credit and also paid the interest amount in cash. The amount paid in cash towards excess credit availed on common input in excess of 20% was again taken as recredit by the respondents.

8. As regards credit availed on certain ineligible input services, the respondents availed credit on the following input services :-

1. Banking services for commission amounts involved in opening/extension of letter of credit for buying goods traded by them

2. Maintenance and repair services of officer vehicles

3. Insurance on vehicles.

4. Fire Insurance for storage of vehicles

5. Testing & analysis charges on sample like Iron ore, sold by them.

6. Project feasibility charges for production of steel billets.

7. Clearing and forwarding agent charges for clearing of goods purchased by them.

9. Respondents are registered under Business Auxiliary Service and also discharging service tax for rendering output service under BAS. The LAA in the impugned order has discussed the issue in detail and relied Tribunal decision while allowing the credit as the above services are used in relation to output service rendered by the respondent. The Hon'ble High Court of Gujarat in the case of CCE Vs Cadila Healthcare Ltd. (supra) has allowed the credit of various services viz. Testing and Analysis, C&F services, repair and maintenance services etc. The ratio of the said judgement is squarely applicable to the present case. Accordingly, the respondents are eligible for the input credit of Rs.7,01,979/-. Therefore, I do not find any infirmity in the order of Commissioner (Appeals) to the extent of allowing credit on input services.

10. As regards the excess credit of Rs.6,78,459/- availed by the respondents on the common input services, used for both output service as well as for trading activity, I find that the respondents holding centralised registration and not maintained separate accounts of input services for the trading activity as well as for the taxable service. I find from the records and findings of the OIO, there is no dispute on the fact that respondents are carrying out both trading activity and taxable service under BAS as commission agents. The Division Bench of the Tribunal in the case of Mercedes Benz India Pvt. Ltd. Vs CCE Pune-I (supra) has clearly held that entire credit on trading activity is not eligible and only proportionate credit with reference to turnover is eligible. The relevant portion of the said judgement is reproduced as under :-

"16.?In view of the above, we have come to the conclusion that trading was not a service and therefore, cannot be considered as an exempted service during the period prior to 1-4-2011 and the amended provision with effect from 1-4-2011 will not have retrospective effect. The next issue to be decided is how to apportion the credit of input service taken by the appellant, where such input services have been used both in the manufactured goods and trading activities of the imported goods. It is in this context that the ld. Sr. Advocate for appellant has argued that the same should be computed with reference to clause (c) of Explanation I appended after Rule 6(3D) of Cenvat Credit Rules, 2004. The said provision as noted earlier was inserted with effect from 1-4-2011. The argument of the ld. Sr. Advocate is that the said explanation only provides the procedure for computation and since this change is procedural in nature it will have a retrospective effect. Ld. Sr. Advocate also argued that in case of traded goods, the value addition by the appellant is only the difference between the sale price and the purchase price of the goods which is not so in the case of manufactured goods.

On a query by the Bench that since ld. Sr. Advocate is arguing that only the value addition should be taken in respect of the traded goods, then why the same criteria should not be applied in the case of manufactured goods i.e. take the differential amount between the selling price and cost of various raw materials. Ld. Sr. Advocate stated that in case of manufactured goods so many things go into production process like labour, electricity and many other services and it will not be appropriate to take the value addition. In support of his contention that in case of traded goods only value addition should be taken, ld. Sr. Advocate took us through the judgment of the Court (5th Chamber) dated 14-7-1998 in case C-172/96 which was passed on a reference under Article 177 of the EC Treaty by the High Court of Justice of England and Wales, Queens Bench Division. We have gone through the said judgment carefully. In the said case, the issue was how to determine the turnover for purpose of value added tax in case of transactions in different currencies by the First National Bank of Chicago. The Bank used to purchase various currencies at a certain rate in other currencies.

Similarly, the Bank used to sell various currencies in other currencies. The difference between the two is generally understood as spread and would be the income of the Bank. The question was what should be considered as the turnover for purpose of VAT. It is in that context, the said court has held that the spread, the difference between the selling price and purchase price should be taken for the purpose of VAT. In the present case, the dispute is not relating to computation of turnover for purpose of charging a tax as there is no tax liability in case of traded goods. The question is how to apportion the credit of tax on the input service between the manufactured goods and the traded goods, whether we should take the turner of the manufactured goods and traded goods for apportioning the credit of the service tax on input services or some other criteria should be followed. We, therefore, do not find any applicability whatsoever of the said judgment in the facts and circumstances of the present case. Another judgment quoted by the ld. Sr. Advocate is the judgment of the Honble Supreme Court in the case of Commissioner of Wealth Tax, Meerut v. Sharvan Kumar Swarup & Sons reported in (1994) 6 SCC 623. In this case, wealth-tax was applicable on various assets.

A new rule was inserted with effect from 1-4-1979 to determine the market value of properties. The question was whether the new inserted rule can be used for determining the value of properties for earlier period and hence determine the wealth-tax. It is in this context that the Honble Supreme Court has taken a view that the same would be applicable to all the proceedings pending at the time of its enactment. In the present case, as mentioned earlier, it is not the computation of tax but apportionment of the credit of service tax on input services availed for manufactured goods and traded goods. As we have already held that trading was not a service and therefore cannot be considered as an exempted service before 1-4-2011, therefore, the substantive provision itself did not exist before the said date. Under the circumstances, we are of the view that the said judgment is not applicable in the facts and circumstances of the present case."

11. The Division Bench of Tribunal's decision (supra) is squarely applicable to the present case and the respondents are not eligible for the entire credit availed on the common input services. Since the department rightly demanded the excess credit of Rs.6,78,459/- which is in excess of 20% of the total service tax payable, the respondents paid the excess amount and they are not eligible to take re-credit in cenvat account nor they are eligible for refund. The adjudication order rejecting the refund of Rs.6,78,459/- and the interest amount is upheld and the L.A.A. order allowing credit is liable to be set aside.

12. In view of the above discussions, the revenue appeal is partly allowed and the impugned order to the extent of allowing credit of excess credit on common input services is set aside and original adjudication order is restored. The revenue appeal is disposed of in the above terms. The cross objection filed by respondent also gets disposed of.

(Dictated and pronounced in open court)

(R. PERIASAMI) TECHNICAL MEMBER

gs 7