Delcam Software India Pvt. Ltd vs Pune I

[Arising out of Order-in-Appeal No: PUN-EXCUS-001-APP-13-14-15 dated 23/04/2014 passed by the Commissioner of Central Excise (Appeals), Pune  I.]

For approval and signature:

Honble Shri C J Mathew, Member (Technical)

1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? : No 2. Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? : No 3. Whether Their Lordships wish to see the fair copy of the Order? : Seen 4. Whether Order is to be circulated to the Departmental authorities? : Yes

Delcam Software India Pvt. Ltd.

Appellant Vs

Commissioner of Central Excise

Pune  I

Respondent

Appearance:

Shri TC Nair, Advocate for the appellant

Shri SV Nair, Asstt. Commissioner (AR) for the respondent

CORAM:

Honble Shri C J Mathew, Member (Technical)

Date of hearing: 21/08/2015 Date of decision: 19/02/2016

ORDER NO: ____________________________

M/s Delcam Software (India) Pvt Ltd, being aggrieved by the order-in-appeal no. PUN-EXCUS-001-APP-13-14-15 dated 23rd April, 2014 of Commissioner of Central Excise (Appeals), Pune I, is before the Tribunal seeking the quashing of the impugned order. The first appellate authority had modified the order of the Assistant Commissioner of Central Excise, Service Tax Cell, Pune I, by reducing the tax liability to Rs 2,34,788/- with interest thereon after granting benefit of Rule 6(5) of CENVAT Credit Rules, 2004 to the extent of Rs1,10,005/- and setting aside the penalty imposed under Rule 15(3) read with section 78 of Finance Act, 1994.

2. The appellant is registered as provider of various services, besides trading in packaged software, and the issue in dispute pertains to the period from December 2007 to March 2011. It is alleged that the appellant availed credit on all inputs and input services used by them without exception during the relevant period even though some portion of these input services were attributable to trading activity which is an exempted service which is contrary to the CENVAT Credit Rules, 2004.

3. The appellant had, at all the preceding stages, questioned the propriety of denial of the disputed CENVAT credit claiming that trading is not covered by the definition of exempted goods or exempted service and hence the restrictive provision relating to availment of credit was not applicable to them. The computation of the ineligible credit was also challenged along with the rejection of reversal of CENVAT credit as appropriate payment of the amount held as due.

4. The appellant claims that they were not required to reverse a proportionate quantum of credit as trading is not equated with exempted goods or exempted service. It is further contended that the incorporation of clarification that trading is an exempt service with effect from 1st April 2011 clearly indicates that it was not intended for coverage as exempt service. Decisions in re Faber Heatkraft Industries [2008(232)ELT182(CommrApp)], Chetan Traders v Commissioner of Central Excise, Jaipur [2009(13)STR419(Tri-Del)] and Orion Appliances Ltd v Commissioner of Service Tax, Ahmedabad [2010(19)STR205(Tri-Ahd)] respectively.

5. The dispute here is about whether trading is an exempted service. However, that dispute has arisen in the context of services used by the appellant for rendering output service as well as exempted service. Both sides are in agreement that trading is not an output service. Therefore, the implication of the context is whether the services used in common for providing output service and trading can be availed in full by the appellant for discharge of tax liability on provision of output service.

6. The sole contention of appellant is that trading is not an exempted service because it did not qualify as service in the first place and the apportionment of credit was mandated only for exempted service. The amendment effected in April 2011 to deem trading as exempted service was claimed to be prospective and also impliedly indicative of legislative intent to keep trading out of the definition of service till then.

7. Admittedly, the appellant is in the business of providing different services in addition to trading in packaged software. It is pointed out by the appellant, the activity of trading has been deemed as an exempted service by incorporation in Rule 2(e) of CENVAT Credit Rules, 2004 vide an Explanation with effect from 1st April 2011. According to the appellant, the ratio of decision in Indian National Shipowners Association v Union of India [2009(14)STR289(Bom)] should apply to this insertion as an Explanation and render it prospective. That decision dealt with taxation of services whereas the present dispute relates to the nature and scope of an Explanation whose impact is only indirectly related to tax by the consequence of recovery proceedings.

8. Learned Counsel for appellant also placed reliance on the decision of the Tribunal in Mahindra & Mahindra Ltd v Commissioner of Central Excise, Mumbai [2007(211)ELT481(Tri-Mumbai)] to contend that, as held in relation to insertion of Explanation III (as it then was) to Rule 6(3) of CENVAT Credit Rules, 2004 for denial of credit of duty/tax paid on inputs/input services used exclusively for manufacture of exempt goods/providing of exempt services, the date of effect of the amendment in the amending notification precluded it from having retrospective effect. Reliance was also placed on the decision of this Tribunal in Mercedes Benz India Pvt Ltd v Commissioner of Central Excise Pune  I [2014 (36) STR 704 (Tri-Mumbai)]

9. Having perused the various decisions, it is possible to conclude that most of these do not shed light on the manner in which the present dispute may be resolved. The decision in re Indian National Shipowners Association relates to revelation of legislative intent to tax specific services only from the date of incorporation in section 65 of Finance Act, 1994. Others deal with the retrospective application of amendments in subordinate legislation that do not appear to have been contemplated in the main legislation; in particular, the retrospective application of insertions through Explanations in Rules or notifications.

10. The decision of the Tribunal in re Mercedez Benz India Pvt Ltd is in almost identical circumstances and has examined most of the cited decisions before arriving at the findings therein. In the said matter, the assessee was importing cars for sale in the domestic market while manufacturing cars for sale in the same market. Service such as advertising, business auxiliary services and support services of business or commerce were used in relation to sale of these cars.

11. That the Explanation inserted in Rule 2(e) of CENVAT Credit Rules, 2004 is prospective is the unambiguous conclusion of the Tribunal in that case. Such finding was in the context of the attempt by Revenue to take recourse to this amendment for the earlier period. At the same time, the Tribunal, having found that trading was not service, held that the portion of tax paid on input services that was not attributable to output services could not be allowed to be availed. As held by the Tribunal:

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 xxxxxxxx 17 In view of the above analysis, in our view, it would be appropriate to apportion the credit of service tax on input service in the ratio as is the turnover of manufactured cars and imported and traded cars.

12. In view of the clearly articulated findings in the decision of the Tribunal supra, the credit that may be availed of the tax paid on services used in common for output services and trading during the relevant period is to be so apportioned and appropriate reversals effected. As the turnover has been the basis for apportionment, there is no reason to interfere with the impugned order.

13. The impugned order is, therefore, proper and equitable. The appeal is rejected.

(Pronounced in Court on19/02/2016)

(C J Mathew) Member (Technical)

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