Education Cess cannot be used for discharging SHEC

By | November 29, 2015

As per First Proviso to rule 3(7)(b) of the CENVAT Credit Rules, 2004, credit of EC on excisable goods and EC on taxable services can be used only for payment of EC on finished excisable goods or EC on taxable service; hence, credit of EC cannot be used for discharging SHEC

CESTAT, AHMEDABAD BENCH

Diamond Power Infrastructure Ltd.

v.

Commissioner, Central Excise & Service Tax, Vadodara – II

H.K. THAKUR, TECHNICAL MEMBER

ORDER NOS. 11082-11083 OF 2015
APPEAL NOS. E/12930-12931/2013-SM

JULY  22, 2015

Willingdon Christian, Adv. for the Appellant. G. Jha, AR for the Respondent.

ORDER

1. These appeals have been filed by the Appellants with respect to Orders-in-Appeal No. PJ/121 & 122/VDR II/2013, dt. 24.05.2013, passed by the Commissioner (Appeals), Vadodara as First Appellate Authority. Under these Orders-in-Appeal, the First Appellate Authority has upheld the Order-in-Original.

2. Shri Willingdon Christian (Advocate) appearing on behalf of the Appellants argued that the CENVAT Credit had been denied on the following:—

(i) Credit with respect to M.S. Bars, Angles, Channels, Plates, Steel Sheets, Cement & Plastic Sheets used in making support structures of capital goods,
(ii) CENVAT Credit paid on Consultancy Services availed by the Appellant.
(iii) CENVAT Credit balance of Education Cess utilized for payment of Secondary & Higher Education Cess as not admissible.

2.1 Regarding in-admissibility of CENVAT Credit on M.S. Bars, Angles, etc, learned Advocate argued that at this stage, he is contesting the issue only on time bar nature of Show-Cause Notice in demanding duty. It was his case that the admissibility of CENVAT Credit on these items was the subject matter of dispute and different Courts were giving different views on this issue. That the issue was decided by CESTAT Larger Bench in the case of Vandana Global Ltd. v. CCE 2010 (253) ELT 440 (Tri. – Delhi.). It was his case that once an issue is resolved by the Larger Bench in the year 2010, then the extended period cannot be invoked against the Appellants for earlier periods when such credit was availed. That the demand period is from May 2009 to May 2010, whereas the Show-Cause Notice is issued on 11.08.2011, which is beyond the normal period of one year under Section 11A of the Central Excise Act, 1944 for demanding duty. He relied upon the following case laws to argue that on the same issue, the appeals have been allowed on time bar issue:—

(a) CCE v. Rajaram Maize Products 2010 (258) ELT 539 (Tri. – Delhi)
(b) CCE v. Orion Ferro Alloys (P.) Ltd. [2010] 1 taxmann.com 510 (New Delhi)
(c) CCE v. Lofty Laboratories (P.) Ltd. [2010] 1 taxmann.com 392 (Bang. – CESTAT)

2.2 Regarding the admissibility of Service Tax credit paid on Consultancy Services, it was argued by the learned Advocate that the Appellant is having two factories at Vadodara and Silvassa. That majority of the manufacturing activity is being undertaken at Vadodara unit. That Service Tax invoice raised by the service provider was in the name of Vadodara unit and, therefore, the credit was correctly taken. That there was no provision under the CENVAT Credit Rules at that relevant time, that CENVAT Credit of such services has to be reduced to the extent of 50%. It was argued by the learned Advocate that proportionate taking of CENVAT Credit on the basis of certificates issued by ISD was made under Rule 7 of CENVAT Credit Rules, 2004 w.e.f. 17.03.2012 only. That before this amendment, entire service tax credit could be utilized by the Appellant in a particular factory of the Appellant.

2.3 That payment of Secondary and Higher Education Cess from CENVAT balance of Education Cess is admissible.

3. Shri Govind Jha (A.R.) appearing on behalf of the Revenue argued that as per the provisions of Rule 3(7)(b) of CENVAT Credit Rules, 2004, Secondary and Higher Education Cess cannot be debited from the CENVAT Credit balance of Education Cess. That an amount of Rs. 2,74,771.00 utilised from credit balance of Education Cess was not proper. It was also argued by the learned A.R. that an amount of Rs. 40,000.00 was taken as excess credit by the Appellant which was subsequently reversed/debited in the RG23A Part II. It was argued that the interest on this amount is required to be paid by the Appellant.

4. Heard both the sides and perused the case records. The first issue involved in these proceedings is regarding the admissibility of CENVAT Credit on items like M.S. Bars, Angles, Channels, Plates, etc used in making of support structures for the capital goods. It is the case of the Appellant that the demand pertaining to these items is time bar as the issue was settled by the Larger Bench in the case of Vandana Global Ltd. (supra) only in the year 2010. He relied upon the case law of Rajaram Maize Products (supra), Lofty Laboratories (P.) Ltd. (supra), where such demands were held to be time barred. It is observed that the items involved in this issue were M.S. Plates, Angles, Channels, etc which were the subject matter of conflicting decisions. This issue was settled by the Larger Bench in the case of Vandana Global Ltd.(supra) in the year 2010. When an issue was disputable, then no intention to evade payment of duty or taking of wrong CENVAT Credit can be attributed on the part of the Appellant. Accordingly, 5 years extended period under Section 11A Proviso cannot be invoked. The demand period is from May 2009 to May 2010, whereas the Show-Cause Notice was issued on 11.08.2011, which is clearly beyond the normal limitation period of 1 year and is required to be set aside. Accordingly, no penalties are imposable by the Appellant.

5. Second issue is regarding taking of CENVAT Credit on certain Consultancy Services availed by the Appellant. A total of Rs. 36,72,000.00 was involved as CENVAT Credit on these services out of which 50% credit (Rs. 18,36,000.00) were allowed and remaining was disallowed by the lower authorities on the ground that the services availed also included services provided with respect to second unit situated at Silvassa and also on account of trading activity undertaken by the Appellant. It is observed from Rule 7 of CENVAT Credit Rules, 2004 that there was no restriction on distribution of credit before 17.03.2012 when Rule 7 of CENVAT Credit Rules, 2004 was amended. Legally, Appellant was eligible to take CENVAT Credit on the entire amount in one unit as the period involved is prior to 17.03.2012. Similar view has also been taken by the Hon’ble Karnataka High Court in the case of CCE v. ECOF Industries P. Ltd. [2012] 34 STT 33 (Kar.). Hon’ble Karnataka High Court passed following observations while dismissing the appeal filed by the Revenue:—

‘4. The assessee had availed the Service tax credit based on the invoices issued by the Chennai office indicating that the Service tax are taken by their unit at Malur. That the Service tax paid by the Chennai unit pertains to advertisement of their product ‘Sabena Dish Wash Bar’ which was manufactured by their Cuttack unit and not by the unit at Malur. Therefore, the assessee was dealing with the very same product. Rule 7 of the Cenvat Credit Rules governs procedure/manner of distribution of credit by input service distributor by imposing two conditions therein, which are as follows:

“a. Credit distributed under the invoice of ISD does not exceed the amount of Service tax paid.
b. Credit of Service exclusively used for exempted goods or exempt service is not distributed.”

5. Therefore, the assessee is entitled to distribute the Cenvat credit on the input services on its manufacturing unit or other units providing the output services. The view taken in the order in appeal that the distribution of credit is for the advertisement of the product, which is not at all manufactured at Malur unit, therefore, cannot be accepted. The finding recorded by the Appellate Authority that the assessee is entitled to take credit only in the unit where the product is manufactured is therefore not the mandate of Rule 7 of the Cenvat Credit Rules.

6. Under these circumstances, we confirm the view taken by the Tribunal. We do not see any substantial question of law that arises for consideration in this appeal. Accordingly, the appeal being devoid of merits is dismissed.’

6. In view of the above observations and the settled proposition of law, the appeals filed by the Appellant are required to be allowed on this account.

7. So far as the admissibility of payment of Secondary and Higher Education Cess from the CENVAT Credit balance of Education Cess is concerned, it is observed from the First Proviso to Rule 3(7)(b) of CENVAT Credit Rules, 2004 that credit of Education Cess on excisable goods and Education Cess on taxable services, can be utilized only for payment of Education Cess on finished excisable goods or payment of Education Cess on taxable service. Accordingly, the stand of the Appellant that there is no bar on utilization of Education Cess credit balance for discharging Secondary and Higher Education Cess, is not correct. The same is required to be paid by the Appellant, with the liberty of taking equivalent amount of credit in the account of Education Cess.

8. Regarding payment of interest on Rs. 40,000.00 credit taken in excess, it is observed that the same has not been taken as a ground of appeal by the Appellant.

9. In view of the above observations, appeals filed by the Appellants are allowed to the extent indicated hereinabove.

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