V. Padmanabhan, Technical Member.
1. The present appeal is filed against Order-in-Original No. RPR/Excus/000/COM/031/2017 dated 21.09.2017 passed by the Principal Commissioner, CGST, CE & Customs, Raipur.
2. The appellant is engaged in the manufacture of sponge iron, billets, rolled items and other goods falling under Chapter 72, 73 etc. The dispute covers the period 2011-12 to 2014-15 (upto August, 2015). The appellant availed cenvat credit on inputs, capital goods and input services. In addition, to manufacture and clearance of excisable goods, the appellant avail loans from various Banks as well as other ‘Banking and other Financial Services’ from overseas service provider. For such services, they paid service tax under reverse charge mechanism and part of such service tax was allocated to the appellant unit by their corporate office under the registration as input service provider. The departmental officers during the course of audit observed that the appellant did not maintain separate record of input and input services used to provide taxable service under the category of ‘Banking and other Financial Services’ and hence Revenue was of the view that the appellant was required to reverse 50% of the cenvat credit on input and input service taken, on monthly basis as stipulated under Rule 6(3B) of the Cenvat Credit Rules, 2004. On the above lines show cause notice dated 28.04.2016 was issued which resulted in the impugned order in which cenvat credit amounting to Rs. 3,52,37,222/- was ordered to be reversed alongwith interest and penalty equal to the duty. Aggrieved by the decision, the present appeal has been filed.
3. With the above background, we heard Sh. B. L. Narasimhan, ld. Advocate for the appellant and Sh. M. R. Sharma, ld. AR for the Revenue.
4. The arguments of the appellant are summarised below:
(i) The requirement of reversal of 50% of the credit availed, finding place in Rule 6(3B) is applicable only to Banking Company and a Financial Institution including a ‘Non Banking Financial Company’. Since the appellant does not fall within any of the above categories, the requirement of reversal of 50% is not applicable.
(ii) The definition of the term ‘Banking Company’, ‘Financial Institution’, and ‘Non Banking Financial Company’, in terms of the relevant sections of the Reserve Bank of India Act, 1934 makes it clear that the appellant does not fall within any of those categories inasmuch as they are engaged primarily in the business of manufacture of goods and not banking operations.
(iii) He elaborately took us through the definitions in the Reserve Bank of India Act to press the above point.
(iv) It is settled principle of law that taxing statute are to be interpreted literally. The adjudicating authority has recorded in the impugned order that the reversal @ 50% is applicable to the appellant, even though they do not fall in any of the categories, since they have undertaken the activities carried out by the above institutions. Finally, he submitted that the impugned order may be set aside.
5. Learned AR justified the impugned order. He submitted that the restriction of cenvat credit to 50% is to be made applicable to the appellant inasmuch as the activities carried out undoubtedly fall within the category of ‘Banking and other Financial Services’.
6. We have heard both sides at length and perused the record.
7. The dispute pertains to the financial lease agreement entered into by the corporate office of the appellant with foreign service providers. The appellant was required to make payment of service tax under the category of ‘Banking and other Financial Services’ for the services procured from such service providers, on reverse charge basis. The Department is of the view that such cenvat credit availed is required to be restricted to 50% on a monthly basis. Accordingly, demands stand raised.
8. The provisions of Rule 6(3B) ibid are reproduced below for ready reference:
'(3B) Notwithstanding anything contained in sub-rule (1), (2) and (3) a Banking Company and a Financial Institution including a Non-Banking Financial Company, providing taxable service specified in sub-clause (zm) of clause (105) of Section 65 of the Finance Act, shall pay for every month an amount equal to 50% of the cenvat credit availed on inputs and input services in that month.
Rule 6(3B) of the Cenvat Credit Rules, 2004 post 01.07.2012 reads as under:
[(3B) A Banking Company and a Financial Institution including a Non-Banking Financial Company, engaged in providing services by way of extending deposits, loans or advances, in addition to options given in sub-rules (1), (2) and (3), shall have the option to pay for every month an amount equal to fifty per cent of the CENVAT credit availed on inputs and input services in that month'.
From a reference to the above provisions it is clear that the above non obstante clause that the above sub rule is applicable only to a Banking Company and a Financial Institution including a ‘Non Banking Financial Company’. The claim of the appellant is that, even though they have provided the services which are covered within the definition of ‘Banking and other Financial Services’, the provisions of Rule 6(3B) will not be applicable to them since they do not fall within any of the categories specified in the above rule. To evaluate the claim of the appellant it is necessary to consider the definition of the above terms. Rule 2(t) of the Cenvat Credit Rules, 2004 it is stipulated that:
'2(t) words and expressions used in these rules and not defined but defined in the Excise Act or the Finance Act shall have the meanings respectively assigned to them in those Acts'.
9. In the Finance Act, 1994, Section 65(11), (45) and (74) specify that the meaning of the terms ‘Banking Company’, ‘Financial Institution’ and ‘Non Banking Financial Company’ will have the meaning assigned to it as per the various Sections of the Reserve Bank of India Act, 1934 which are as under:
'Banking Company means a banking company as defined in Section 5 of the Banking Regulation Act, 1949 (10 of 1949) and includes the State Bank of India, any subsidiary bank as defined in the State Bank of India (subsidiary Bank) Act, 1959 (38 of 1959), any corresponding new bank constituted by Section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) and any other Financial Institution notified by the Central Government in this behalf'.
Further, reference in this regard has also been made to the Section 5(c) of Banking Regulation Act, 1959 which defines Banking company as follows:
'Banking Company means any company which transacts the business of Banking in India.
Explanation- any company which is engaged in the manufacture of goods or carries on any trade and which accept deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause'.
Further, the word ‘Banking’ which is defined in Section 5(b) of Banking Regulation Act, 1949 reads as-
'Banking means accepting deposits for the purpose of lending or investment of deposits of money from the public repayable on demand or otherwise and withdraw able by cheque, draft order or otherwise'.
It is, thus, evident that company, which accepts deposits from public for the purpose of lending or investment, will be considered as banking company.
5. In view of the Explanation to Section 5(c) of the Banking Regulation Act, 1949, the appellant will not fall within the category of ‘Banking Company’ since they are primarily engaged in the manufacture of iron steel items.
It is submitted that the definition of NBFC under Section 55(f) of the RBI Act is as under:
'55(f) ‘non-banking financial company’ means-
(i) a financial institution which is a company;
(ii) a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner;
(iii) such other non-banking institution or class of such institutions, as the Bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify';
10. Since the appellant’s principal business is not receiving deposits and lending money in any manner, it cannot be said that they fall within the category of NBFC as above.
The definition of ‘financial institution’ under clause (f) of the Section 451 of the RBI Act is as under:
'(c) Financial Institution' means any non-banking institution which carries on its business or part of its business by any of the following activities namely;
(i) The financing whether by way of making loans or advances or otherwise of any activity other than its own;
(ii) The acquisition of shares, stock, bonds, debentures or securities issued by a Government or local authority or other marketable securities of a like nature.
(iii) Letting or delivering of any goods to a hirer under a hirepurchase agreement as defined in clause (c) of Section 2 of the Hire Purchase Act, 1972 (26 of 1972).
(iv) The carrying on of any class of insurance business;
(v) Managing conducting or supervising as foreman agent or in any other capacity of chits or juries as defined in any law which is for the time being in force in any state or any business which is similar there to;
(vi) Collecting for any purpose or under any scheme or arrangement by whatever name called monies lump-sum or otherwise by way of subscriptions or by sale of units or other instruments or in any other manner and awarding prizes or gifts whether in cash or kind or disbursing monies in any other way to person from whom monies are collected or to any other person.
But does not include any institution, which carries on as its principal business.
(a) Agricultural operations; or
(b) Industrial activity; or
(c) The purchase construction or sale of immovable property so however that no portion of the income of the institution is derived from the financing of purchases constructions or sales of immovable property by other persons;
Explanation------- for the purposes of this clause industrial activity means any activity specified in sub-clauses (i) to (xviii) of clause (c) of Section 2 of the Industrial Development Bank of India Act, 1964'.
Appellants activity being industrial, which falls under the exclusion category of financial institu
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tion, they will not be covered within the definition of ‘Financial Institution’ as above. 11. We have already observed that the provisions of Rule 6(3B) will be applicable only to a banking company and financial institution including a non banking financial company. Since the appellant does not fall within any of the categories, we are of the view that the provisions of Rule 6(3B) will not be applicable to the appellant. 12. The adjudicating authority has observed that even though the appellant is not registered as a banking company, non banking financial company or a financial institution, but they have undertaken the activities falling therein and hence will be covered by Rule 6(3B). We are unable to agree with the findings of the adjudicating authority. It is fairly well settled that in the case of any taxing statute, the same is required to be interpreted literally. Since the appellant does not fall within any of the categories for which the restriction of 50% has been specified in Rule 6(3B), we are of the view that the same will not be applicable to the appellant. Consequently, the impugned order merits to be set aside and we do so. 13. In the result appeal is allowed.