- 32 - F.No. V.32/15-17/Bodal/OA-I/10-11
BRIEF FACTS OF THE CASE
M/s. Bodal Chemicals Ltd. (Unit-IV) situated at Plot No.C-1/252,253,254, Phase-II, GIDC, Vatva, Ahmedabad (hereinafter referred to as the “said assessee”) are registered with the Central Excise department having Central Excise Registration No.AAACD5352MXM004. The said assessee is also registered with Service tax Department and paying service tax under the category of Business Auxiliary Services. The assessee also receives Cenvat credits of Service tax paid on the services utilized, through their Input Service Distributor, M/s. Bodal Chemicals Ltd. (Head Office), Plot No.123,124 & C-1-B 111-114, Phase-I, G.I.D.C., Vatva, Ahmedabad-382445, registered as Input Service Distributor (‘ISD’) with the Service Tax Department and holding Distribution No.SD/AH/ISD/130/2005.
2/- During the course of Service Tax audit of M/s. Bodal Chemicals Ltd. (ISD), conducted by the officers of Service Tax (Audit), Ahmedabad, it was noticed that the ISD assessee had wrongly distributed Cenvat credit on the Service Tax invoices-
(1) For input service received from Clearing & Forwarding agents for clearance of goods for export and service tax paid as a recipient under Section 66A,
(2) For commission paid to Foreign Agent in respect of exported goods,
(3) For commission paid to the foreign Bank in foreign currency for realization of money of exported goods.
The wrong Cenvat credit distributed amounts to Rs.96,85,814/- during 2005-06 to 2007-08, on the input services related to and used for export of excisable goods. The said Cenvat credit had been distributed by the ISD assessee to their various excisable units (i.e. Unit I to Unit. VII). Out of such distribution, Cenvat credit of Rs.23,19,043/- for the period from April 2007 to January 2009, was distributed to M/s. Bodal Chemicals Limited (Unit-IV), i.e. the said assessee.
3/- Based on the above audit report, on further inquiry with the said assessee, the assessee had submitted the data regarding receipts of Cenvat credit of Service tax wrongly distributed by their Input Service Distributor Unit and wrongly taken and utilized by them during April 2007 to January 2009 which worked out to the tune of Rs.23,19,043/-. Thus the said assessee had received and utilized wrongly distributed Cenvat credit of Service Tax, totaling to Rs. 23,19,043/-, which pertained to the service tax paid on services mentioned at Para 2 hereinabove.
4/- The definition of the term “input service” as given at Rule 2(l) of Cenvat Credit Rules, 2004, is reproduced below:
“(l) "input service" means any service,-
(i) used by a provider of taxable service for providing an output service; or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,
and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal;”
5/- Further, the provisions of Rule 3(1) of Cenvat Credit Rules, 2004, allowing a manufacturer or producer of final product or a provider of taxable service to take CENVAT Credit of various duties/taxes leviable under different provisions of law are reproduced below for ready reference:
“RULE 3. CENVAT Credit. - (1) A manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of -
(i) the duty of excise specified in the First Schedule to the Excise Tariff Act, leviable under the Excise Act;
(ii) the duty of excise specified in the Second Schedule to the Excise Tariff Act, leviable under the Excise Act;
(iii) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act,1978 ( 40 of 1978);
(iv) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 ( 58 of 1957);
(v) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001);
(vi) the Education Cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004);
(via) the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007);
(vii) the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v) (vi) and (via);
(viia) the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act,
Provided that a provider of taxable service shall not be eligible to take credit of such additional duty;
(viii) the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003);
(ix) the service tax leviable under section 66 of the Finance Act; and
(x) the Education Cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004),
(xa) the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007); and
(xi) the additional duty of excise leviable under section 85 of Finance Act, 2005 (18 of 2005 )
paid on-
(i) any input or capital goods received in the factory of manufacture of final product or premises of the provider of output service on or after the 10th day of September, 2004; and
(ii) any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004,
including the said duties, or tax, or cess paid on any input or input service, as the case may be, used in the manufacture of intermediate products, by a job-worker availing the benefit of exemption specified in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 214/86- Central Excise, dated the 25th March, 1986, published in the Gazette of India vide number G.S.R. 547 (E), dated the 25th March, 1986, and received by the manufacturer for use in, or in relation to, the manufacture of final product, on or after the 10th day of September, 2004.”
6/- From the above, it is clear that the credit of any input service can be taken by a manufacturer of final product, but with a condition that such input service should be received for use in, or in relation to the manufacture of final product.
7/- In the present case, the assessee had wrongly taken Cenvat credit distributed on the basis of the invoices in respect of service tax paid on input service received from Foreign Bank for realization of money of export goods and paid commission in foreign Currency, which was chargeable to Service tax under the category of “Business Auxiliary Service.” The service received from Foreign Bank and commission paid to the Foreign Bank fall under the category of “Business Auxiliary Service” and can not be termed as “Input Service” for the assessee with reference to manufacture and therefore, the credit taken and utilized is required to be recovered under the provisions of Rule 14 of Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944.
8/- A statement of Shri Alkesh Jani, Manager (Excise) of M/s. Bodal Chemicals Ltd., was recorded under Section 14 of CEA, 1944 on dated 15.03.2010 wherein he interalia stated that the Service Tax Credit was taken by them in M/s. Bodal Chemicals Ltd, Unit-IV, on the basis of challans issued by their Input Service Distributor i.e. M/s. Bodal Chemicals Limited, Plot No. 123-124, Phase I, GIDC, Vatva, Ahmedabad, which they knowingly continued to avail till they commenced to claim Service Tax refund under Notification No. 41/2007- ST dated 06.10.2007. He also added that no intimation regarding availment of service tax credit category wise / service wise had been intimated to the department.
9/- It was observed that while wrongly availing/utilizing Cenvat credit during the period in question, they had neither submitted any document /information to the department nor had disclosed any fact relevant to the issue. Thus, it appeared the assessee while acting with malafide intention of wrong availment /utilization of Cenvat credit in respect of such service, had thereby rendered themselves liable to penal action under Rule 15(3) of Cenvat Credit Rules, 2004.
10/- Since, the said assessee had not informed the details of the above wrongly taken credit and utilization thereof, to the department, with an intent to utilize the same towards payment of Central Excise duties, which otherwise, has to be paid from their PLA and therefore, their this very act justifies invocation of extended period of Five Years for recovery under proviso to Section 11A of the Central Excise Act, 1944 and applies in this case, as made applicable by Rule 14 of the Cenvat Credit Rules, 2004.
11/- Since, the said assessee had wrongly taken and utilized inadmissible Cenvat Credit as discussed hereinabove, they had violated the provisions of Rule 3 read with Rule 2(l) of the Cenvat Credit Rules, 2004, with an intent to evade the payment of Central Excise duty as discussed hereinabove. This very act, constitute an offence of the nature and type as described under Rule 15(3) of the Cenvat Credit Rules, 2004 and renders them liable for penalty under provisions of Rule 15(3) of Cenvat Credit Rules, 2004.
12/- Hence, M/s. Bodal Chemicals Ltd., Unit-IV, Plot No. C-1/ 252, 253, 254, Phase-II, GIDC, Vatva, Ahmedabad, were issued the Show Cause Notice wherein they were called upon to show cause, as to why :-
(a) Credit of Service Tax of Rs.22,52,455/- and Education Cess of Rs.45,049/- and SH. Education Cess of Rs.21,539/- (Totaling to Rs.23,19,043/-, Rupees Twenty-three lakh Nineteen thousand Forty-three only) for the period from April-07 till January -09 taken/utilized on ineligible services should not be held ineligible and recovered from them under Rule 14 of the Cenvat Credit Rules, 2004, read with the Proviso to Section 11A of Central Excise Act, 1944 along with interest at applicable rate as prescribed under Section 11AB of Central Excise Act, 1944.
(b) Penalty as provided under Rule 15(3) of Cenvat Credit Rules, 2004 should not be imposed on them on the grounds and evidences mentioned above.
PERSONAL HEARING & DEFENCE REPLY:
13. Personal Hearing in the matter was held on 11.03.2011 which was attended by Shri N. K. Tiwari, Authorised Representative of the assessee. During the course of personal hearing he submitted a written reply dated 11.03.2011, wherein the assessee inter alia stated that the entire case of the department has been based on an audit objection; that the Audit Objection No 133/09-10, was forwarded to them by the Assistant Commissioner (Audit), Service Tax, Ahmedabad under his letter F. No. ST/4-283/AP-IV/08-09, dated 21.12.2009; that in the said Audit Report, a Procedural Para No. 1 was raised for wrong distribution of Cenvat credit under the category of Input Service Distributor; that the said para further alleges that the assessee, M/s Bodal Chemicals Ltd., had wrongly distributed the Cenvat credit; that the audit report did not specify that the Cenvat credit was not admissible; that it only alleged that it had wrongly been distributed and accordingly, a procedural para was raised; that the term procedural para has not been defined under the Central Excise Act or Rules, and as such, the normal meaning has to be assigned to it; that the normal meaning would be that the proper procedure has not been followed, but there is no revenue implication; that the audit para being procedural, the demand of any amount based on such procedural para is legally not sustainable; that it is an undisputed fact that they have taken Cenvat credit on the basis of Challans issued by the ISD; that the Hon'ble Tribunal in the case of Indian Plastics Ltd. Vs. CCE reported at 1988 (35) ELT 434 (T) and in the case of Swastik Tin Works Vs. Collector of Central Excise, Kanpur reported at 1986 (25) ELT 198 (Tribunal) held that the show cause notice issued merely on the basis of audit objection is invalid; that applying the ratio of the above decision in the present proceedings, the subject notice having been issued solely on the basis of audit objection without any investigation is legally not tenable.
14. They further stated that the subject notice was received by them on 15.07.2010 seeking to recover Cenvat Credit under Rule 14 of the said Rules read with section 11 A of the said Act; that the credit sought to be recovered pertains to period from 2005-06 to 2008-09 ; that the recovery is proposed to be made for a period beyond one year; that the said recovery can be made after invoking the extended period of limitation of five years provided under section 11 A of the said Act; that the extended period of limitation of five years can be invoked only in case of fraud or collusion or willful mis-statement or suppression of facts, or contravention of any of the provisions of Central Excise Act or Rules with an intent to evade the payment of duty of excise; that on going through the subject notice, it is revealed that at para 7 the allegation of willful suppression of the fact with an intention to avail inadmissible CENVAT credit has been made; that the subject notice did not reveal as to what has been suppressed by them; that in order to demand duty under section 11 A of the said Act by invoking extended period of five years, something positive other than mere failure or inaction on the part of the manufacturer or producer or conscious or deliberate withholding of any information which the manufacturer otherwise knew, is required to be established; that the department had full knowledge about the facts and the manufacturer's actions or inactions are based on their belief that they were required or not required to carry out such action or inaction, the period beyond one year cannot be made applicable; that in support of their above contention, they place reliance on the decision of the Hon'ble Supreme Court in the case of Chemphar Drugs reported at 1989 (40) ELT 276 (SC); that the entire activity was known to the department; that not only that, the details of CENVAT credit taken by them was furnished along with the monthly returns; that the CENVAT credit was taken by them on the amount of service tax paid by ISD on various services; that there was no suppression of any fact or any inaction on their part, as such, the extended period of limitation cannot be invoked for recovery from them.