Calcutta High Court
Commissioner Of Service Tax-1 vs M/S. Surya Vistacom Private ... on 13 July, 2022
CEXA/11/2022
OD-6
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION (CENTRAL EXCISE)
ORIGINAL SIDE
HEARD ON : 13.07.2022
DELIVERED ON: 13.07.2022
CORAM:
THE HON'BLE MR. JUSTICE T.S. SIVAGNANAM
AND
THE HON'BLE MR. JUSTICE BIVAS PATTANAYAK
CEXA/11/2022
IA NO:GA/1/2022
COMMISSIONER OF SERVICE TAX-1, KOLKATA
Vs.
M/S. SURYA VISTACOM PRIVATE LIMITED
Appearance:
Mr. Kaushik Dey. Adv.
Mr. Tapan Bhanja, Adv.
...for the appellant.
Mr. Ankit Kanoria, Adv.
Ms. Megha Agarwal, Adv.
....for respondent.
(Judgment of the Court was delivered by T.S. Sivagnanam, J.)
1. This appeal filed by the appellant/revenue under Section
35G(1) of the Central Excise Act, 1944 read with Section 83 of
the Finance Act, 1994 is directed against the order dated 9th
CEXA/11/2022
November, 2021 passed by the Learned Customs, Excise and
Service Tax Appellate Tribunal, Kolkata (CESTAT) in service
tax appeal No.75642 of 2017.
2. The revenue has raised the following substantial
questions of law for consideration:
i) Whether in the facts and circumstances of the case
the Learned Tribunal is right and justified in
setting aside the demand of duty when the
respondent/assessee in spite of providing both
taxable and exempted service held to maintain
separate account as required under Rule 6(2) of
the Cenvat Credit Rules and also failed to
exercise option as stipulated under Rule 6(3) of
the Cenvat Credit Rules, 2004 ?
ii) Whether under Rule 6 of the Cenvat Credit Rules,
2004 the respondent is under obligation to reverse
proportionate Cenvat Credit in respect of trading
activity which is exempted in terms of Rule 2(e)
of the Cenvat Credit Rules, 2004 ?
3. We have heard Mr. Kaushik Dey, learned standing counsel
assisted by Mr. Tapan Bhanja, learned Advocate for the
appellant/revenue and Mr. Ankit Kanoria, learned counsel
assisted by Ms. Megha Agarwal, learned Advocate appearing for
the respondent/assessee.
CEXA/11/2022
4. The respondent/assessee was issued a show cause notice
dated 17th October, 2016 alleging that they have availed and
utilized Cenvat Credit of the amount of service tax paid by
them against renting of immovable property and security
services on the ground that they are recipient of the said
services. The assessing officer perused the balance-sheet of
the assessee and, after noting the details of income, pointed
out that the primary business of the assessee is trading of
goods and maintenance or repair is ancillary to the business
and service portion is less than 0.1% of the total income as
reflected in the balance-sheet. The allegation was the
assessee availed credit of total service tax that has been
paid by them as recipient of service of renting of immovable
property and security service. The assessing officer referred
to Rule 6(2) of the Cenvat Credit Rules where a provider of
output service avails Cenvat Credit on input/input services
and provides output services which are chargeable to tax as
well as exempted services, then, the provider of output
service shall maintain separate accounts for receipt and use
of input/input services. Further, it was pointed that Rule
6(3) of the said Rules, gives liberty not to maintain separate
account as prescribed under Rule 6(2), subject to the
condition that the assessee pays an amount equal to 6% of
CEXA/11/2022
value of the exempted services or pay an amount equivalent to
the Cenvat Credit attributable to inputs and input services
used in or in relation to the manufacture of exempted goods or
for provision of exempted service. Further, it was pointed
out that under the said scheme, the assessee has to intimate
in writing, to the Superintendent of Central Excise and pay
provisionally for every month under Rule 6(3A) of the said
Rules.
5. The assessing officer pointed out that the assessee is
not maintaining separate account/register for receipt and use
of input/input services as required under Rule 6(2) and, as
such, they are under obligation to pay an amount at the rate
of 6 per cent of the value of the exempted services. The
assessing officer, to justify the invocation of the extended
period of limitation as per proviso to Section 73(1)of the
Act, stated that the non-payment of service tax would been
undetected unless investigation was initiated and the assessee
has not disclosed any material fact to the department's
officer who checked the documents of the assessee during
investigation and, therefore, opined that the assessee had
made a wilful mistake with an intent to evade payment of
service tax. The documents which were noted during the
investigation, namely, the documents pertaining to M/s. Titan
CEXA/11/2022
Industries were held to be invalid documents. Accordingly,
the show cause notice proposed to recover a sum of
Rs.3,29,07,268/- under Section 73(1) of the Finance Act, 1994
read with Rule 14 of the Cenvat Credit Rules, 2004. Interest
was also proposed to levy as well as penalty.
6. The assessee filed their reply dated 4th November, 2016.
The primary submission made by the assessee by contending
that an audit was conducted by the audit wing of the
appellant department and the findings were recorded by the
audit party pointing out that the assessee were eligible to
take Cenvat credit of Rs.41,17,269/- as per the relevant
input service invoices produced by them but they have
availed credit to the tune of Rs.66,44,518/- resulting in
availment of inadmissible excess credit of Rs.25,27,249/-.
The audit party noted that the assessee, on their own
volition, well before the audit was undertaken, had reversed
Rs.23,45,135/-. Therefore, the assessee was directed to
reverse Rs.1,82,114/- and also pay interest and penalty as
applicable. The assessee accepted the lapse and voluntarily
paid the wrong credit availed by them to the tune of
Rs.1,82,114/- along with applicable interest of
Rs.1,35,318/- and penalty at the rate of 15% of the tax
being Rs.27,317/-. The assessee stated that due to
CEXA/11/2022
oversight and certain mistake in calculation, they had paid
the wrong credit of service tax along with appropriate
interest and penalty in terms of the CBEC Clarification
dated 18th August, 2015 and prayed that no show cause notice
may be issued and the matter may be treated to be closed.
The audit party has noted the said submission as could be
seen from the final audit report dated 24th October, 2016.
The assessee pointed out this fact and submitted that there
was no cause for issuing a show cause notice after the
matter stood concluded pursuant to the audit as recorded by
the audit wing of the appellant/department. That apart, the
assessee also contended that the extended period of
limitation could have been invoked as there was nothing
brought on record to show that the assessee had wilfully
suppressed facts with an intent to evade payment of duty.
To support such contention, decisions of the Hon'ble Supreme
Court were referred to. The assessee also submitted their
reply on the merits of the matter stating that they are
engaged in the business of trading of goods for M/s. Titan
Industries from many show rooms in Kolkata. However, the
assessee provided repair services only from two of such
units namely, Mani Square and Avani Mall and hence, if at
all the trading turn-over of the noticee has to be taken
CEXA/11/2022
into account, it cannot go beyond the turn-over of the above
two units and the department has mechanically taken the
entire sales turn-over of the assessee as reflected in the
balance sheet and calculated the value for trading turn-over
based on such figures of all units from where the assessee
does not provide any sort of taxable services. That apart,
the assessee also questioned the jurisdiction of the
assessing officer to invoke Rule 6(2) of the Act. Certain
decisions of the High Courts were relied on this aspect.
7. The appellant, while adjudicating the show cause notice,
did not agree submissions made by the assessee and rejected
the contention that the show cause notice could not have
been issued after the final audit report came to be passed.
Ultimately, the proposal in the show cause notice was
affirmed. Challenging the said order the assessee had
preferred appeal before the learned Tribunal.
8. The issue which falls for consideration before the
tribunal was whether the assessee was required to pay 6% on
the total sale value of the goods credited by them in terms
of Rule 6(3)(i) of the CCR, 2004. And, whether the Cenvat
Credit availed by the assessee for its Mani Square unit
qualifies as Cenvat credit for the purpose of Rule 6 of the
said Rules. Apart from that, the tribunal also considered
CEXA/11/2022
as to whether the extended period of limitation could have
been invoked.
9. We first take the second issue for consideration. The
tribunal pointed out that the audit department had issued
final audit report from which it is seen that the audit
report was issued on 24th October, 2016 whereas the order-in-
original was passed much later i.e., on 31st January, 2017
and the tribunal also noted that the audit report was placed
before the adjudicating authority. However, the same has
been ignored.
10. With regard to the aspect as to whether the extended
period of limitation could have been invoked, the tribunal
had referred to a co-ordinate Bench decision of the Calcutta
High Court in the case of Castrol India Ltd. vs.
Commissioner of CGST & CX, Kolkata South Commissionerate1 and
held that there was no justification for invoking the
extended period of limitation.
11. We have perused the show cause notice issued by the
adjudicating authority and we found that there is no
specific allegation against the assessee of any deliberate
suppression or misstatement with an intent to evade taxes.
2021-TIOL-405-CESTAT-KOL
CEXA/11/2022
At this juncture, it will be beneficial to take note of the
decision of the Hon'ble Supreme Court in Uniworth Textiles
Ltd. vs. Commissioner of Central Excise, Raipur2 wherein the
Hon'ble Supreme Court held that every non-payment/non-levy
of duty does not attract extended period and there must be
deliberate default. Further, it was held that the
conclusion that mere non-payment of duties is not equivalent
to collusion or wilful misstatement or suppression of fact
is untenable as the Act contemplates a positive action which
betrays a negative intent of wilful default. Further, in
Pushpam Pharmaceuticals Co. vs. CCE3 it was held that
misstatement or suppression of fact must be wilful since the
word 'wilful' precedes the words 'misstatement or
suppression of fact' which means with an intent to evade
duty. Bearing in mind the above legal principle, if we
examine the allegations in the show cause notice dated 17th
October, 2016, we find that there is no specific allegation
or prima facie finding of any wilful misstatement or
suppression on the part of the assessee. That apart, the
details have been culled out by the adjudicating authority
from the available records and there is no new or fresh
2013 (288) ELT 161 (SC)
1995 (75) ELT 721 (SC)
CEXA/11/2022
tangible materials available in the hands of the
adjudicating authority to make out a case of wilful
misstatement or wilful suppression. Therefore, the tribunal
was fully justified in holding that the extended period of
limitation could not have been invoked.
12. The issue as to whether the adjudicating authority could
have mechanically applied the 6% rule on the assessee, was
considered in the case of Tiara Advertising vs. Union of
India4 and it was held as follows:
"14. Further, we may reiterate that Rule 6(3) of the
Cenvat Credit Rules, 2004, merely offers options to
an output service provider who does not maintain
separate accounts in relation to receipt, consumption
and inventory of inputs/input services used for
provision of output services which are chargeable to
duty/tax as well as exempted services. If such
options are not exercised by the service provider,
the provision does not contemplate that the Service
Tax authorities can choose one of the options on
behalf of the service provider. As rightly pointed
out by Sri S.Ravi, Learned Senior Counsel, if the
petitioner does not abide by the provisions of Rule
6(3) of the Cenvat Credit Rules, 2004, it was open to
the authorities to reject its claim as regards the
disputed Cenvat Credit of Rs. 17,15,489/-."
13. As pointed out in the aforementioned decision, if
according to the adjudicating authority, the assessee did
2019 (30) G.S.T.L. 474 (Telangana)
CEXA/11/2022
not abide by the provisions of Rule 6(3) of the Rules, it
was open to the adjudicating authority to reject the
assessee's claim as regards the disputed Cenvat Credit and
it could not mechanically invoke 6% Rule on the assessee.
That apart, the tribunal also, on facts, noted that the
department mechanically applied 6% of the entire balance-
sheet turn over of the assessee without detailing as to why
the said turn over has been taken and why not the value of
trading that is provided in Rules, namely, the difference
between the sale price and the cost of goods sold or 10% of
the cost of goods sold whichever is more in terms of
Explanation-1 as contained in Rule 6(3A). This factual
finding could not be dislodged by the revenue before us and
we agree with the tribunal on the said aspect. That apart,
as pointed out by the learned Advocate appearing for the
respondent/assessee, a new rule has been introduced namely,
sub-rule 3(aa) in Rule 6 which came into force w.e.f. 1st
March, 2016 which states that where a manufacturer or
provider of output services has failed to exercise the
above, under sub-rule 3 and follow the procedure provided
under sub-Rule 3(a), the Central Excise Officer, competent
to adjudicate the case, based on amount of Cenvat Credit
involved, may allow such manufacturer or provider or output
CEXA/11/2022
service to follow the procedure and pay the amount referred
to in Clause 2(i) of sub-Rule (3) with interest calculated
at the rate of 15% per annum from the date of payment of
amount for each of the months till the date of payment
thereof. The adjudicating authority has not invoked the
said rule. That apart, what is important to note is that
the amount of legible Cenvat credit to the assessee was
Rs.41,17,269/- whereas the demand which was impugned before
the tribunal fastened a liability of Rs.3,29,07,268/- which
is not legally sustainable.
14. Thus, for the above reasons, we find that the learned
tribunal rightly allowed the assessee's appeal. In the
result, the appeal filed by the revenue (CEXA/11/2021)
stands dismissed and the substantial questions of law are
answered against the revenue.
15. Consequently, the connected application for stay (IA
No.GA/1/2022) also stands closed.
(T.S. SIVAGNANAM, J.)
I agree.
(BIVAS PATTANAYAK, J.)
A.Sadhukhan/S.Das
AR(CR)
