N.R. Wires Pvt. Ltd vs C.C.E., Raipur

Arising out of the order in appeal No.8/ST/RPR-II/2011 dated 7.4.2011 passed by the Commissioner of Central Excise (Appeals), Raipur.

For approval and signature:

Honble Mr. Justice G. Raghuram, President

1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 26 of the CESTAT (Procedure) Rules, 1982?

2 Whether it should be released under Rule 26 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3 Whether their Lordships wish to see the fair copy of the Order?

4 Whether Order is to be circulated to the Departmental authorities?

N.R. Wires Pvt. Ltd. .. Appellant

Vs.

C.C.E., Raipur . Respondent

Appearance:

None for appellant

Present Shri B.B. Sharma, A.R.. for the respondent

Coram: Honble Mr. Justice G. Raghuram, President

Final Order No. 52610/2015

Per Justice G. Raghuram:

Notice for hearing of this appeal on 19.6.2015 was served on the appellant and its Counsel. On request by Counsel for the appellant, on 19.6.2015 in the presence of Counsels representative Ms. Tuhina, hearing was adjourned to this date. Today when the matter is taken up for hearing there is no representation on behalf of the appellant. Hence the appeal is disposed of on its merits after perusing the memorandum of appeal, the Primary and the lower Appellate orders and after hearing the ld. A.R. for the respondent/Revenue.

2. The assessee is in appeal against the Order of the ld. Commissioner (Appeals), Central Excise, Raipur II dated 7.4.2011 whereby assessees appeal against the Primary adjudication order dated 31.9.2010 passed by the Additional Commissioner, Central Excise, Rapur, was rejected.

3. Proceedings were initiated pursuant to an audit of the assessees business which revealed that during 2007-08 and 2008-09 (upto October 2009), assessee earned specified amounts towards commission and brokerage and also paid brokerage to its sub-brokers at rates which were substantially higher than what the assessee received from the manufacturer. On this intelligence revealed during audit, Revenue presumed that goods on which the appellant received commission were not the same as shown in the Bills of some of the sub-brokers and that the assessee had also irregularly and fraudulently claimed cenvat credit, in excess of its entitlement for what were not turely input services in respect of its output services provided.

4. The Primary and the lower Appellate authorities concurrently found on analysis of the materials on record, that service tax credit taken by the assessee on input services received from its sub-brokers was not admissible since neither was assessees established between input services and provision of output services nor was the rate and quantum of commission paid to sub-brokers in consonance with realistic business practices thus legitimizing an inference of fraudulent transactions in the matter of payment of commissions to sub-brokers. Analyses in the impugned order at paras 5.2 to 5.4 capture the basis for the concurrent conclusion by the authorities below. These analyses read as below:

5.2 I have gone through the agreement dated 25.3.2008 undertaken by the appellant with M/s Prakash Industries Ltd, Gogaon, Raipur and find that the brokerage will be paid to them @ Rs.350/- to Rs.450/- per MT, whereas in the agreement undertaken with M/s Pawan Indutries will be decided at the time of sale. Further, on going through the Invoice No.COM/17 dated 3.3.2009 of M/s Nalwa Steel & Power Pvt. Ltd., Raigarh I find that the appellant earned commission @ Rs.50/- PMT.Further, on going through the Invoice No.COM/STR/01 dated 1.5.2008 of M/s Pawan Industries, I find that M/s Pawan Industries has charged commission at the rate of Rs,1100/- , Rs.1300/- from the appellant in lieu of goods sold by them on behalf of the appellant. It is also a fact that during the period 2007-08 , and 2008-09 (upto 10/2008) the appellant earned Rs.3,18,63,889/- and Rs.2,65,36,158/- against Commission and Brokerage @ Rs.50/- to Rs.300/- during the year 2007-08 and Rs.50/- to Rs.400/- during the year 2008-09 (upto 10/2008). But it was found that the appellant had paid brokerage to their sub-broker M/s Pawan Industries @ Rs.200/- to Rs.400/-, @ Rs.1100 and @ Rs.1300/- vide their Bill No.Com/STR/01 dated 1.5.2008 which is much higher than what they received from the manufacturer i.e. Rs.50/- to Rs.400/- PMT.

Further, on going through invoices, I find that in many a case, it has not been mentioned for which purpose and for which goods sold they have paid the commission, in absence of such particulars, it cannot be ascertained whether the said bills are raised for overvalued brokerage of sales of maerial for wich the appellant have earned commission from the manufacturer. I further find from the invoice dated 28.3.2008 to 31.3.2008 of M/s Mahalaxmi Steel Industries and M/s G.P. Gloval Industries Pvt. Ltd, that the appellant received commission for sale of goods at the rate of Rs.200/- where as they have paid commission to M/s Pawan Industries at the rate of Rs.400/- to Rs.1300/- for sale of such goods during the same period as evident from bill dated 29.3.2008 to 31.3.2008 and 1.5.2008 which shows that the commission paid to the sub-broker is not for the goods for which the appellant earned commission but for any other purpose. Thus services received by the appellant from his sub-broker is not in relation to the service they have provided to the manufacturer from whom they got commission as a broker, in other word the service received from the sub-broker is not an input service for providing output service to the manufacturer.

Therefore, the service tax credit taken on such input service received from the broker is not admissible being no nexus with providing of output service. It is also a fact that the passage of time and clear pronouncement of law by Apex Court in case of Maruti Suzuki Ltd. 2009 (240) ELT 641 (SC) holding that the output when depends on the inputs and both have integral connections, nexus and intimacy as well as relevancy, the appellant shall be allowed cenvat credit on that input. In the instance case as there is no nexus between the input service received by the appellant with the output service provided, therefore , the service received by the appellant from sub-broker cannot be treated as input service and hence service tax credit taken on such input service is also not admissible. Held accordingly.

5.3 Further, the goods on which the appellant received commission is not the same as shown in the bill of Pawan Industries and the service thus rendered by the sub-broker is not an input service as defined in Rule 2(l) of Cenvat Credit Rules, 2004 as they have not been used in providing output services provided by the appellant. Therefore, I agree with the findings of the adjudicating authority , who has disallowed Cenvat Credit of Rs.15,29,858/- taken during the year 2007-08 and Rs.63,870/- in 2008-09 (upto 10/2008) on such bills has rightly been disallowed by the adjudicating authority. Also being asked by the jurisdictional Range Superintendent vide his letter F.No.J-I. S.Tax/SAIAR/Pt-III/364 dated 9.3.2009 regarding wrong availment of cenvat credit of Rs.15,93,638/-, the appellant vide his letter dated 16.3.2009 replied that they have availed cenvat credit on input service amounting to Rs.15,75,754/- during 2007-08 and Rs.65,694/- during 2008-09 (upto 8/2010), therefore, there is no dispute regarding the amount of service tax involved. The appellant being failed to establish the proper reasons with documentary evidences for paying excess commission to their sub-broker than the commission earned, the contention of the appellant at para 3(a) to 3(j) above are not acceptable.

5.4 I also find that the appellant suppressed the fact of paying more commission to their sub-broker than the commission earned and the fact that the services rendered by the sub-broker is not an input service for providing output service by them. The facts remained unnoticed if the same would have not been detected by the department. Therefore, the appellant suppressed the vital facts and contravened the provision of Rule 2(l) and 2(p) of the Cenvat Credit Rules, 2004 with intent to evade payment of duty and hence they are also liable for penal action for their such act. In view of above, I agree with the order impugned of the adjudicating authority disallowing the cenvat credit amounting to Rs.15,75,754/- taken during 2007-08 and Rs.65,694/- during 2008-09 (upto 8/2010) invoking extended period under Section 73(1) of the Finance Act, 1994 and imposing penalty of Rs.16,41,448/- upon the appellant under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 78 of the Finance Act, 1994. Held accordingly.

On a careful consideration of the material on record and the analyses and conclusions recorded by the authorities below, I find no perverseity in the process of reasoning or in the conclusion recorded, warranting appellate interference with the impugned order. The appeal is without merits and is accordingly dismissed. No costs however.

(Justice G. Raghuram))

President

scd/

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