M/S. Dell India Pvt. Ltd vs Commissioner Of Service Tax ...

[Arising out of Order-in-Appeal No. JMJ/46/2011 dated 11/10/2011 passed by the Commissioner (Appeals), Large Tax Payer Unit, Bangalore.]

For approval and signature:

HON'BLE SHRI ASHOK K ARYA, TECHNICAL MEMBER

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 the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 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

M/s. Dell India Pvt. Ltd Divyashree Greens, Ground Floor, No.12/1, 12/2A, 13/1A, Challaghatta Village, Varthur Hobli, Bangalore South, Bangalore - 560 071. Appellant(s)

Versus

Commissioner of Service Tax Bangalore-service Tax 1ST TO 5TH FLOOR, TTMC BUILDING, above BMTC BUS STAND, DOMLUR BANGALORE  560 071. KARNATAKA

Respondent(s)

Appearance:

Mr. Raghavendra. B, Advocate V. LAKSHMIKUMARAN & V. SRIDHARAN WORLD TRADE CENTRE NO.404-406, 4TH FLOOR, SOUTH WING BRIGADE GATEWAY CAMPUS NO.26/1, DR. RAJKUMAR ROAD, MALLESWARAM .

BANGALORE - 560 055 KARNATAKA For the Appellant

Mr. Mohd. Yousaf, Addl. Commissioner (AR) For the Respondent

Date of Hearing: 21/10/2015

Date of Decision: 21/10/2015

CORAM:

HON'BLE SHRI ASHOK K ARYA, TECHNICAL MEMBER

Final Order No. 22073 / 2015

Per : ASHOK K ARYA

Both the parties have been heard in detail.

2. Matter concerns with the liability of interest and the penalty on unauthorized availment/taking of CENVAT credit by the appellant.

3. The appellant viz., M/s. Dell India Pvt. Ltd. through their learned advocate pleads that Rule 14 of CENVAT Credit Rules was amended w.e.f. 1.4.2012 clarifying that the liability of interest and penalty will be applicable only when the CENVAT credit taken is utilized. He says that in their case they had only taken the CENVAT credit erroneously but had sufficient balance in their account of CENVAT credit and had utilized only small portion of the same for which they have already deposited interest; therefore for the unutilized portion they should not be punished by levy of interest and equivalent penalty.

3.1 The learned advocate citing the Honble Madras High Courts decision in the case of CCE, Madurai vs. Strategic Engineering (P) Ltd.: 2014 (310) E.L.T. 509 (Mad.) says that Honble Madras High Court clarified that as the Rule 14 of CENVAT Credit Rules was subsequently amended, they do not have liability of any interest and penalty unless the CENVAT credit taken is utilized by them. He says that as they did not utilize certain portion of their CENVAT credit, in that case, interest and penalty is not liable to be paid by them. In support, he is also citing decision of the Honble Karnataka High Court in the case of CCE & S.T., LTU, Bangalore vs. Bill Forge Pvt. Ltd. decided on 5.4.2011 and reported in 2012 (279) E.L.T. 209 (Kar.). He also cites in support the decision of the CESTAT, Bangalore in the case of BEML vs. CCE, Bangalore vide M.O. No.22674-22675/2014 dated 7.10.2014 and the decision in the case of M/s. ABB Ltd. vs. CCE, LTU, Bangalore: 2015-TIOL-1010-CESTAT-BANG.

4. The learned AR appearing for the respondent viz., Commissioner of Service Tax, Bangalore argues that the provisions of Rule 14 as existed for the relevant period are very clear saying that wherever CENVAT credit has been wrongly taken or utilized or erroneously refunded, the liability of interest and equivalent penalty would arise on the assessee in the said cases. Learned AR refers to the decision of the Honble Supreme Court in the case of UOI vs. Ind-Swift Laboratories Ltd.: 2011 (265) E.L.T. 3 (S.C.) saying that Rule 14 then specifically provided that wherever CENVAT credit had been wrongly taken or wrongly utilized or has been erroneously refunded, the same was to be recovered along with interest from the concerned manufacturer or the provider of the output services.

4.1 The learned AR argues that the matter concerns with the period prior to the amendment made in Rule 14 of CENVAT Credit Rules i.e., before 1.4.2012, therefore interest and penalties are leviable in this case. Learned AR is also citing in support the decision of the Honble Bombay High Court in the case of CCE, Pune-I vs. GL & V India Pvt. Ltd. decided on 27.4.2015 and reported in 2015 (321) E.L.T. 611 (Bom.) and says that this decision quoted and followed the Honble Supreme Court decision made in the case of Ind-Swift (supra). He further argues that the decision of Honble Madras High Court in the case of CCE vs. Strategic Engg. (supra) was also quoted and considered by Honble Bombay High Court.

5. After considering the facts on record and the submissions of both the sides, it is found that the date 1.4.2012 is the watermark i.e., the activities and the operations of an assessee (manufacturer or service provider) have to follow the provisions of Rule 14 of CENVAT Credit Rules as they existed then (before 1.4.2012); and after 1.4.2012 when the subject amendment was made, an assessee would be entitled to the benefit as provided by the said amendment. The Honble Supreme Court in the case of UOI vs. Ind-Swift (supra) and Honble High Court of Bombay in the case of CCE, Pune-I vs. GL & V India Pvt. Ltd. (supra) make the position clear that one cannot do away with the wording OR as appeared in Rule 14 twice prior to the watermark date 1.4.2012 and one cannot replace the said wording OR with the wording AND and reading it so. In order to make matter more clear, let us quote Honble Supreme Courts decision, which pronounced as below:

17.?We have very carefully read the impugned judgment and order of the High Court. The High Court proceeded by reading it down to mean that where CENVAT credit has been taken and utilized wrongly, interest should be payable from the date the CENVAT credit has been utilized wrongly for according to the High Court interest cannot be claimed simply for the reason that the CENVAT credit has been wrongly taken as such availment by itself does not create any liability of payment of excise duty. Therefore, High Court on a conjoint reading of Section 11AB of the Act and Rules 3 & 4 of the Credit Rules proceeded to hold that interest cannot be claimed from the date of wrong availment of CENVAT credit and that the interest would be payable from the date CENVAT credit is wrongly utilized. In our considered opinion, the High Court misread and misinterpreted the aforesaid Rule 14 and wrongly read it down without properly appreciating the scope and limitation thereof. A statutory provision is generally read down in order to save the said provision from being declared unconstitutional or illegal. Rule 14 specifically provides that where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest would be recovered from the manufacturer or the provider of the output service. The issue is as to whether the aforesaid word OR appearing in Rule 14, twice, could be read as AND by way of reading it down as has been done by the High Court. If the aforesaid provision is read as a whole we find no reason to read the word OR in between the expressions taken or utilized wrongly or has been erroneously refunded as the word AND. On the happening of any of the three aforesaid circumstances such credit becomes recoverable along with interest.

18.?We do not feel that any other harmonious construction is required to be given to the aforesaid expression/provision which is clear and unambiguous as it exists all by itself. So far as Section 11AB is concerned, the same becomes relevant and applicable for the purpose of making recovery of the amount due and payable. Therefore, the High Court erroneously held that interest cannot be claimed from the date of wrong availment of CENVAT credit and that it should only be payable from the date when CENVAT credit is wrongly utilized. Besides, the rule of reading down is in itself a rule of harmonious construction in a different name. It is generally utilized to straighten the crudities or ironing out the creases to make a statute workable. This Court has repeatedly laid down that in the garb of reading down a provision it is not open to read words and expressions not found in the provision/statute and thus venture into a kind of judicial legislation. It is also held by this Court that the Rule of reading down is to be used for the limited purpose of making a particular provision workable and to bring it in harmony with other provisions of the statute.

5.1 Honble Bombay High Court in the case of CCE, Pune-I vs. GL & V India Pvt. Ltd. (supra) has also considered this issue in detail and held that the word OR cannot be substituted with the word AND though after clarification of the matter, the Honble High Court of Bombay remanded the subject matter back to the Tribunal for consideration on merits. The Honble High Court of Bombay in this case inter alia stated as below:

16.?In so far as the judgment passed by the Madras High Court is concerned, the Madras High Court has taken a view that mere taking of Cenvat credit facility is not at all sufficient for compelling the assessee to pay interest as well as penalty. With great respect to the Honble Judges of the Madras High Court, we may say that this is not what has been held by their Lordships of the Apex Court. The Apex Court has in clear terms held that the interpretation as paced by the Punjab and Haryana Court for invoking the provisions of Rule 14, there has to be taking as well as utilizing is not correct in law. The Apex Court has held that such an interpretation is totally impermissible. In that view of the matter, the said judgment would be of no assistance to the case of the assessee.

6. The learned advocate appearing for the appellant though cited the decision of Honble Madras High Court in the case of CCE, Madurai vs. Strategic Eng. (supra), Honble Bombay High Court in the above quoted decision has clarified the matter following Honble Supreme Court on the issue. When the liability is very clear and the amendment made effective from 1.4.2012 and not been made effective retrospectively, in terms of Honble Supreme Courts above decision and Honble Bombay High Courts decision quoted above, one cannot do away the law as it was in existence, when such wrong or erroneous credit was taken by the assessee.

7. The learned advocate for the appellant further argues that they should be given relief in case of penalty imposed on them as there was no intention to evade payment of service tax by them. The advocate says that immediately when wrong taking or erroneous taking of CENVAT credit and its utilization was pointed out by the Department, they reversed the said CENVAT credit and there was no intention to evade payment of tax on their part. The Respondent viz., Commissioner of Central Excise and Service Tax, LTU, Bangalore has not been given any evidence other than the fact of taking wrong or erroneous CENVAT credit to prove appellants intention to evade payment of service tax. When no intention to evade payment of service tax is proved beyond doubt it will not be right to impose penalty on the appellant under Section 78 read with Rule 15(3) of CENVAT Credit Rules, 2004. Consequently on the issue of penalty, the appellant deserves relief and the impugned order in respect of penalty imposed on the appellant is hereby set aside.

8. Considering the facts on record and the discussions made above and the decisions of the Honble Supreme Court and Honble Bombay High Court quoted above, appeal does not succeed on the issue of interest but the appellant will get relief on the penalty part as the penalty imposed on them has been set aside by this order.

9. The appeal decided and disposed of in above terms.

(Order pronounced in open court)

ASHOK K ARYA TECHNICAL MEMBER

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