2016 (2) TMI 215 - AT - Service Tax

Tribunal rules in favor of appellant in service tax credit dispute

M/s MRF Ltd. Versus Commissioner of Central Excise, Chennai

The Tribunal ruled in favor of the appellant in a dispute over the entitlement to avail credit of service tax paid to a sub-contractor. The judgment ... Credit of service tax - whether the contractor which had engaged sub-contractor to provide the services and the services so provided suffered service tax, shall disentitle the contractee to avail credit of the service tax so paid to the sub-contractor by the contractor? - Held that:- There is no difference on the fact that the services of CHA who were M/s. SRS Cargo International and others was availed by M/s. MRF Ltd., through its agency M/s. VPC Freight Forwarders (P) Ltd., who in turn engaged M/s. SRS Cargo International and others to clear the imports of M/s. MRF Ltd. The service provider M/s. SRS Cargo International and others were no doubt engaged by M/s. VPC Freight Forwarders (P) Ltd., to cater to the need of M/s. MRF Ltd. That is not in doubt. Once there is no question on provision of service and that is attributable to the goods imported by appellant, denial of the credit of the service tax paid by appellant to M/s. VPC Freight Forwarders (P) Ltd., shall be prejudicial to the interest of justice. Department should have enquired as to whether any service tax paid by M/s. VPC Freight Forwarders (P) Ltd., to M/s. SRS Cargo International and others and such taxes have gone to the treasury. For no such enquiry, the appeals where penalty was imposed on the Head Office of M/s. MRF Ltd., those are allowed; waiving such penalties as well as setting aside that part of the impugned orders and the appeals which involved the disallowance of Cenvat credit with interest and penalty are also allowed which are in respect of different units of M/s. MRF Ltd. setting aside the impugned order on that count. Issues:1. Dispute regarding entitlement to avail credit of service tax paid to sub-contractor by the contractor.2. Whether the Cenvat credit is allowable to the appellant.Analysis:1. The appeal dealt with the question of whether a contractee can avail credit of service tax paid to a sub-contractor by the contractor. The appellant claimed credit of service tax based on invoices from a contractor who engaged sub-contractors to provide services. The dispute arose when bills were raised by sub-contractors on the contractor, who then passed the liability to the appellant. The Revenue contended that the possibility of the contractor availing Cenvat credit could not be ruled out, but no departmental inquiry was conducted to establish this. The appellant argued that the service tax paid to sub-contractors was for the same services provided to the appellant and that no Cenvat credit was claimed. The Tribunal found that denial of credit would be unjust as there was no doubt about the provision of services related to the goods imported by the appellant.2. It was established that the services of the Customs House Agent (CHA) were availed by the appellant through the contractor, who engaged the sub-contractors to clear imports. The Tribunal noted that the services provided by the sub-contractors were for the benefit of the appellant, and denying credit of the service tax paid by the appellant to the contractor would be prejudicial to justice. The Tribunal emphasized that the Revenue should have inquired whether the service tax paid had reached the treasury. Consequently, the penalties imposed on the appellant were waived, and the disallowance of Cenvat credit with interest and penalty for different units of the appellant was set aside. The Tribunal directed that any consequential relief should follow as per the law.In conclusion, the judgment addressed the dispute over the entitlement to avail credit of service tax paid to a sub-contractor and ruled in favor of the appellant, emphasizing the importance of justice and proper inquiry by the Revenue.