Henkel Chembond Surface Technologies Ltd. vs C.C.E.

This appeal u/s 35G of the Central Excise Act, 1944 challenges the order dated 16 July, 2013 passed by the Customs, Excise and Service Tax Appellate Tribunal (the Tribunal), requiring the appellant to pre-deposit an amount of Rs. 1 Crore out of confirmed duty demand of Rs. 1.27 Crores, equivalent penalty and interest. The basic question that arises for our consideration in this appeal as formulated by the appellant is:

"Whether in the facts and circumstances of the case, the Appellate Tribunal was justified in directing the Appellant to pre-deposit Rs. 1,00,00,000/- u/s 35F of the Act?"

The brief facts relating to this appeal are that:

(a) The appellant is engaged in the manufacture of excisable goods as well as in trading of goods manufactured by other independent manufacturers. The traded goods were received by the appellant after having been cleared by the manufacturer thereof on payment of appropriate duty;

(b) The appellant avail of Cenvat credit under the Cenvat Credit Rules, 2004 in respect of Service Tax paid on the input services received by them. There input services are used by the appellant in relation to its manufacturing activities as well as its trading activities.

(c) On 5 December, 2011, a show cause notice was issued to the appellant seeking to recover an amount of Rs. 1.27 Crores being the Cenvat credit availed by the appellant on input services utilized in its trading activities for the period November, 2006 to March, 2011. The appellant contested the show cause notice on the ground that the manufacturer of the goods being traded by them were paying excise duty at the appellant''s selling price of the traded goods. Therefore, credit is admissible to them even in respect of traded goods. Besides it was contended that in any view of the matter they are entitled to enjoy Cenvat credit in respect of input services used in its manufacturing activities.

(d) By an order dated 26 December, 2012, the Commissioner of Central Excise confirmed the show cause notice demanding a sum of Rs. 1.27 Crores being the ineligible Cenvat credit availed and also imposed an equivalent penalty.

(e) Being aggrieved by order dated 26 December, 2012 the appellant filed an appeal before the Tribunal. The appellant also filed an application for dispensing with the requirement of pre-depositing the duty, penalty and interest as confirmed by the order dated 26 December, 2012 of the Commissioner of Central Excise for the purposes of its appeal being heard on merits.

(f) On 16 July, 2013 the Tribunal disposed of the appellant''s stay application by holding that Cenvat credit on input service during the period relevant to the proceeding was available only if the input services were used either in the manufacture of final product or in providing output services in terms of Rule 2(1) of the Cenvat Credit Rules, 2004. In this case it was held that prima facie the input services have been used in the appellant''s trading activity and not in manufacturing activity or providing output services. However, the Tribunal recorded the fact that the turnover of manufacture is 10% and remaining 90% is in respect of traded goods as stated by the appellant. Thus, the impugned order directed the appellant to deposit a sum of Rs. 1 Crore for the purpose of the appeal being heard on merits.

The appellant challenges the impugned order dated 6 July, 2013 and submits that in the present facts an unconditional stay from pre-deposit should have been granted for the hearing of the appeal on merits. It is submitted on behalf of the appellant that appellant was entitled to input credit in respect of service used in its trading activities as appellant was admittedly manufacturer of goods. Besides, the manufacturer of the traded goods had in any event paid excise duty on the appellant''s selling price of traded goods. Moreover, the appellant contends that the issue raised in the present appeal is covered in their favour by the order of the Tribunal on stay application in (2010) 21 STJ 14 and Ericsson India Pvt. Ltd. v. Commissioner of Central Excise - 2011 (24) S.T.R. 346 wherein it is contended that stay was granted in respect of Cenvat credit taken even in respect of services used in respect of goods which were being traded.

We find that in the matter of BHEL-GE Turbine Service Pvt. Ltd. (supra), the assessee had reversed the amount of Cenvat credit taken on common input services to the extent it was utilized in its activity of trading. Therefore, it was in the above context that the Tribunal had granted a stay of further deposit. The decision in Ericsson India Pvt. Ltd. (supra) has followed the Tribunal''s decision of BHEL (supra) and granted a stay of Service Tax on input services used for trading activities even though there was no reversal of credit as in the case of BHEL (supra). However, we find that both the aforesaid decisions dealt with the issue of restricting the use of input services credit to the extent of 20% in terms of Rule 6(3) of the Cenvat Credit Rules, 2004 and the issue whether the input services received by the appellant for use in traded goods satisfies the definition of input services in terms of Rule 2(1) of Cenvat Credit Rules, 2004 was not adverted to.

Further reliance was placed upon the decision of this Court in Coca Cola India Pvt. Ltd. Vs. The Commissioner of Central Excise, the issue formulated by the Tribunal in the impugned order was not the focus of the decision before the High Court. The appellant may at the stage of final hearing rely upon the above decision to establish its claim on merits. However, at the stage of the hearing of the stay application such in-depth examination is not expected. The appellant also placed reliance upon the decision of the Tribunal in 2012 (25) S.T.R. 268 we find that in this case also the Tribunal was concerned with Rule 6 and not Rule 2(1) of the Cenvat Credit Rules, 2004 as in this case (Although it does hold that the appellant before it is not entitled to input services in respect of non-dutiable goods).

As against the above, we find that an identical issue as framed by the Tribunal in the impugned order had come up for consideration before the Tribunal in 2011 (22) S.T.R. 504 where the Tribunal directed deposit of the proportionate input credit attributable to traded goods at the stage of stay application. In the present case, during the hearing before the Tribunal, the appellant have stated that 90% of its turnover is in respect of traded goods whereas 10% of its total turnover is in respect of manufactured goods. Keeping that in view, the pre-deposit of the confirmed demand of Rs. 1.27 Crores was reduced to Rs. 1 Crore. Thus, for all the above reasons, we find no reason to interfere with the order of the Tribunal in the facts of the present case at this stage. The submissions made on behalf of the appellant would require consideration in depth and the same could appropriately only be done at the time of final hearing of its appeal before the Tribunal.

In view of the above, we see no reason to entertain the present appeal. However, the time to make the pre-deposit stands extended from 30 November, 2013 to 31 January, 2014 and on producing evidence of the same before the Tribunal, the appeal would be taken up by the Tribunal for final disposal on merits in due course. Accordingly, appeal is dismissed with the above terms. No order as to costs.