Sulekha Beevi C.S. ORDER
Sulekha Beevi C.S., Member (J)
1. Brief facts are that the appellants are engaged in providing 'Beauty Treatment Service' and 'Health Club and Fitness Service'. They are also engaged in trading activity and selling their products, mainly cosmetics, to their customers. Their trading activity was deemed to be an exempted service with effect from 01.04.2011.
2.1 Since appellants were using common inputs/input services for their trading activity also, the Department was of the view that they are not eligible to avail the entire Credit. Though the appellants had reversed Credit as per Rule 6(3)(ii) of the CENVAT Credit Rules (CCR), 2004, the Department took the view that the appellant has to pay 5%/6% respectively of the value of exempted services, as required under Rule 6(3)(i) of the CCR, 2004.
2.2 Show Cause Notices were issued for different periods raising the above allegations and proposing to demand the differential tax along with interest and also for imposing penalties. After due process of law, the Original Authority confirmed the demand, interest and imposed penalty. In appeal, the Commissioner (Appeals) vide impugned Orders dated 25.11.2016 and 30.07.2018, upheld the same. Hence, these appeals.
3.1 On behalf of the appellant, Ld. Consultant Shri Abhinav Kalra submitted that the appellant has been using common input services as well as inputs for trading as well as for providing output services. They have been reversing the proportionate Credit as applicable under Rule 6(3)(ii) as provided under the CCR, 2004. Thus, the appellant has reversed the Credit amount of Rs. 19,879/- in Appeal No. ST/40366/2017, wherein the impugned Order has confirmed a demand of Rs. 31,600/- holding that the appellant is liable to pay an amount of 6% of the value of the exempted services.
3.2 He argued that though the appellant had been maintaining separate accounts, in order to absolve confusion they have opted to reverse the proportionate Credit relating to trading. Thus, they have reversed an amount of Rs. 19,879/- for the period from July 2012 to October 2013. The Department does not dispute the fact that whether the amount so reversed is erroneous as per the application of formula under Rule 6(3A). However, the demand is made by alleging that the appellant has to pay 6% of the value of exempted services; that this is erroneous interpretation of law.
3.3 He argued that the appellants had written a letter dated 16.05.2013 to the Superintendent of Service Tax and Central Excise, Range-II Division, Chennai-IV, informing that they have not been availing the Credit on the proportionate value of trading activity. Further, they had disclosed the entire reversal of Credit in their ST-3 returns as well as their trial balance sheet.
3.4 He relied upon the decision in the case of M/s. Mercedes Benz India (P) Ltd. Vs. Commissioner of C.Ex., Pune-I - MANU/CM/0203/2015 : 2015 (40) S.T.R. 381 (Tri. - Mum.) to argue that when the appellant has reversed the Credit as per Rule 6(3A)(ii) of the CCR, 2004, the Department cannot insist that the appellant has to pay an amount equal to 6% of the value of the exempted services/products.
4.1 Ld. AR Shri L. Nandakumar appearing on behalf of the respondent supported the findings in the impugned Orders. He adverted to paragraph 6(i) of the impugned Order dated 25.11.2016 to argue that thought the appellants have contended that they have maintained separate accounts for inputs used for providing taxable services as well as exempted services, they have not furnished any such materials or documents to prove their contention. Therefore, it is established that the appellants have not been maintaining separate accounts.
4.2 He further submitted that the appellants have not exercised any option provided under Rule 6(3A) wherein it is stated that the jurisdictional Officer has to be intimated about the exercise of the option to reverse proportionate Credit. Therefore, they are liable to pay 6% of the value of exempted goods. The confirmation of demand, interest and imposition of penalties are therefore legal and proper.
5. Heard both sides.
6. The issue that arises for consideration in all these appeals is whether the appellant is liable to pay an amount equal to 6% of the value of exempted services or products when they have opted to reverse the proportionate Credit in respect of the trading activity (exempted service).
7.1 The Department alleges that since the appellants have not maintained separate accounts, they have to pay an amount equal to 6% of the value of their exempted clearances for the reason that they have not intimated the Department about exercising the option. Rule 6(3A) provides for intimating the Department by issuing a letter as to the exercise of option of reversal of proportionate Credit. In the decision relied by the Ld. Consultant for the appellant, it has been held that the said requirement is only procedural in nature and the substantive benefit cannot be denied on such grounds.
7.2 Further, in this case, the appellants have in fact issued a letter dated 16.05.2013 to the jurisdictional Range Officer, explaining that they were availing only the proportionate Credit on the value of taxable services, which is also reflected in their balance sheet as well as their ST-3 returns.
8. For these reasons, the Department ought to have taken note of the fact that the appellant has exercised the option. The Department cannot force the assessee to pay 5% or 6% of the value of exempted services when the assessee has exercised the option of reversing the proportionate Credit. Appreciating the facts placed before me as well as the decision in the case of M/s. Mercedes Benz India (P) Ltd. (supra), I find that the demand raised cannot sustain and requires to be set aside, which I hereby do. The impugned Orders are set aside.
9. The appeals are allowed with consequential reliefs, if any, as per law. The Miscellaneous Application filed by the Department for change of cause title is allowed.
(Dictated and pronounced in open court)
© Manupatra Information Solutions Pvt. Ltd.