Unreported Decisions – ST – February 2020

By Vinay Jain & Sachin Mishra, Advocates

1. Whether the formula prescribed under Rule 6(3) and (3A) w.e.f. 01-04-2011 for calculation of value of exempted service of trading shall be made applicable for the past period as well, otherwise how the value of such exempted service of trading will be calculated? Whether the rigours of reversal of CENVAT credit under Rule 6 of the CENVAT Credit Rules, 2004 will apply to the input services specified under Rule 6(5) of the CENVAT Credit Rules, 2004 attributable to trading activity?

Facts and Pleading: M/s. Mercedes Benz India Pvt. Ltd. (hereinafter referred to as the ‘appellants’) are inter alia engaged in the manufacture of motor vehicles and parts. The appellants were paying central excise duty on the said final products, manufactured and sold by them. The appellants also render taxable output service under applicable sub-clauses of Section 65(105) of Finance Act, 1994. The appellants were duly paying the applicable output service tax under said Finance Act, 1994. The appellants also import cars in fully manufactured condition (also called completely built unit (CBU)). The said vehicles are sold by the appellants through the dealer network to the ultimate customers. Since no manufacturing activity is undertaken in respect of these imported cars, no excise duty is paid on them at the time of their sale. No service tax is also paid or payable on their sale. The appellants were, taking credit of entire service tax paid on common input services used (a) in relation to manufacture and sale of cars and parts thereof, (b) provision of taxable output service and (c) those used commonly in its business of import and sale of completely built units (car).

According to the revenue, the appellants are not eligible for CENVAT credit of entire service tax paid on common input service, but is eligible only to the extent of common input services that are relatable to manufacture and sale of car and parts thereof or provision of taxable services. The Revenue alleged that if the CENVAT Credit is not used in providing taxable output services, credit availed on such services cannot be allowed in view of Rule 3 of the CENVAT Credit Rules, 2004, hence, Rule 6 (5) is not applicable. The revenue also contended that in absence of the meaning of ‘value’ of traded goods for the period prior to 01-4-2011, it should be the gross value of traded goods for the purpose of determination of the quantum of credit attributable to the exempted or nontaxable services.

The appellants submitted that the input services enumerated under Rule 6(5) of CENVAT Credit Rules, 2004 on which CENVAT credit has been availed by the appellants would be admissible, even if the same are used for both exempted services as well as taxable output service. The appellants further submitted that the formula provided w.e.f. from 01- 04-2011 is a well-known method of attribution and since the said formula being procedural in nature, needs to be applied for the past assessment years also. The appellant also submitted that as the common input services merely contributes to margin hence the in value of numerator as well as denominator, only margin should be considered including the manufacturing turnover. The appellants also submitted that the invocation of extended period and imposition of penalties is not sustainable in the present facts on the count that same relates to interpretation of law.

Judgment: The Hon’ble CESTAT has not considered the issue whether formula prescribed under Rule 6(3) and (3A) w.e.f. 01-04-2011 for calculation of value of exempted service of trading shall be made applicable for the past period. The Hon’ble CESTAT observed that for the period prior to 01- 04-2011, the value of exempt service of trading shall include the value of both trade/profit margin earned from the trading activity as well as the value of incidental and ancillary services incurred in the said activity. Further, the Hon’ble CESTAT agreeing with the submissions of the Appellants held that Rule 6 (5) of the CENVAT Credit Rules, 2004 lays down a fiction whereby services mentioned under the said Rule are deemed to have been used in providing only taxable service, and consequently the rigour of Sub-Rule (1), (2), (3) of CENVAT Credit Rules, 2004 has been made inapplicable. Thus, as per Hon’ble CESTAT the input services enumerated under Rule 6(5) of CENVAT Credit Rules, 2004 on which CENVAT credit has been availed by the Appellants would be admissible, even if the same are used for exempted service of trading. The Hon’ble CESTAT set aside the invocation of extended period and imposition of penalties including personal penalty on the count that the issue relates to pure question of interpretation of law and there is neither suppression nor misdeclaration on part of the appellants.

M/s. Mercedes Benz India Pvt. Ltd. vs. CCE, CESTAT, Mumbai decided on 31.01.2020 in the Final Order No. A/85162-85165/2020.

M/s. Mercedes Benz India Pvt. Ltd.

2. Whether refund under Rule 5 of CENVAT Credit Rules, 2004 can be rejected on the count that the same has been carried forward and has not been debited to TRAN-1 GST Regime and not debited the refund amount as required under condition 2(h) of the Notification No. 27/2012-CE (NT)?

Facts and Pleading: M/s. Zamil Steel Engineering India Pvt. Limited (hereinafter referred to as the appellants) was registered with the service tax department under Information Technology Software Services and were also engaged in the business of providing Consulting Engineering Service. They filed a refund claim of ` 6,42,299/- on 18-4-2018 being the unutilised CENVAT credit on services consumed in the export of services during the period from April 2017 to June 2017.

The department proceeded to reject the aforesaid claim for the reasons that on perusal of ST-3 returns for the relevant period, the appellant has not debited the amount claimed as refund in their CENVAT credit account. Secondly that they have carried forward the balance CENVAT account to TRAN- 1 GST Regime as on 30-6-2017; that in terms of Section 142 (4) of CGST Act, 2017, the refund claim is not admissible.

The appellant submitted that when the refund claim was filed, there was no existence of any facility for the appellant to file ST-3 returns. Since it was not possible for the appellant to file ST-3 returns showing the debit of the refund amount, they carried forward the refund amount to the GST TRAN-1 and thereafter filed refund claim. The appellant further submitted that the department does not have a case that the appellant is not eligible for the credit. However, the same is only rejected by technical reasons stating that appellant has carried forward the credit and therefore not eligible for refund. The appellant also submitted that they debited the amount claimed as refund in the input ledger in June 2018 reflecting the same in the GST TRAN-3. Therefore, the credit amount of which refund is claimed gets debited.

Judgment: The Hon’ble CESTAT agreed with the submissions of the appellant and observed that after introduction of GST, it was not possible for the assessee to file ST-3 returns. The Hon’ble CESTAT held that it was not required for the appellant to deduct the amount in the ST-3 returns as and when credit is availed, only if they intend to file refund claim they were required to debit the same. Therefore, the Hon’ble CESTAT negated the contention of department that assessee ought to have debited the amount during the existence of Finance Act, 1994 itself. Accordingly, the impugned order was set aside and appeal was allowed.

M/s. Zamil Steel Engineering India Pvt. Limited vs. Commissioner of CGST & Central Excise, Chennai, decided on 23-01-2020 in the Final Order No. 40077/2020.

M/s. Zamil Steel Engineering India Pvt. Limited