2022 (10) TMI 1165 - AT - Service Tax

Tribunal overturns recovery orders due to incorrect CENVAT Credit claim.

M/s. Bajaj Allianz General Insurance Co. Ltd. Versus Commissioner of CGST & CE, Pune-I

The Tribunal set aside the orders confirming the demand for recovery of CENVAT Credit, interest, and penalties against the appellant. The investigation ... Cenvat credit - ineligible input services - bogus input credit invoices issued by the automobile dealers of various automobile manufacturers which were not actually provided by them - HELD THAT:- In the case of M/S. CHOLAMANDALAM MS GENERAL INSURANCE CO. LTD. VERSUS THE COMMISSIONER OF G.S.T. & CENTRAL EXCISE, CHENNAI [2021 (3) TMI 24 - CESTAT CHENNAI], the Tribunal has dealt with the same issue and has held that unless and until the assessment made by the dealer is revised, the credit at the recipient's end cannot be denied. There are no merits in the impugned order - appeal allowed - decided in favour of appellant. Issues Involved:1. Ineligibility of CENVAT Credit availed by the appellant.2. Confirmation of demand and recovery of CENVAT Credit.3. Imposition of interest and penalties.4. Validity of invoices and actual provision of services.5. Compliance with IRDA regulations.Issue-wise Detailed Analysis:1. Ineligibility of CENVAT Credit:The primary issue revolves around the ineligibility of CENVAT Credit availed by the appellant. The Commissioner determined that the appellant availed CENVAT Credit based on invoices issued by automobile dealers and manufacturers for services that were not actually provided. The investigation revealed that the services mentioned in the invoices, such as infrastructure expenses, display charges, and transaction fees, were not rendered by the dealers. The officials of the appellant admitted that the services were not provided as described in the invoices, and the rates were calculated based on a percentage of the Own Damage (OD) premium.2. Confirmation of Demand and Recovery:The Commissioner confirmed the demand for recovery of CENVAT Credit amounting to Rs. 94,65,20,833/- and Rs. 49,26,42,431/- for different periods, as the appellant contravened the provisions of Rule 14(1)(ii) of the CENVAT Credit Rules, 2004, read with Section 73(1) of the Finance Act, 1994. The demand was confirmed as the invoices did not reflect the true nature of the services, and no actual services were provided by the dealers.3. Imposition of Interest and Penalties:Interest on the confirmed CENVAT Credit amounts was ordered to be recovered under Rule 14(1)(i) of the CENVAT Credit Rules, 2004, read with Section 75 of the Finance Act, 1994. Penalties were imposed under Rule 15(3) of the CENVAT Credit Rules, 2004, read with Section 78 of the Finance Act, 1994, and Section 76 of the Finance Act, 1994, for different periods. However, an option was given to the appellant to pay a reduced penalty of 25% if the entire amount of CENVAT Credit, along with interest and reduced penalty, was paid within 30 days.4. Validity of Invoices and Actual Provision of Services:The investigation revealed that the invoices raised by the dealers were fabricated as per the directions of the appellant. The dealers admitted that they did not provide any services as mentioned in the invoices. The officials of the appellant also admitted that the payouts to the dealers were calculated based on the OD premium and not on the actual services provided. The Tribunal referred to the decision in the case of Cholamandalam MS General Insurance Co. Ltd., which held that the denial of credit at the recipient's end cannot be justified without reopening the assessment at the dealer's end.5. Compliance with IRDA Regulations:The Commissioner noted that the IRDA regulations do not allow any person other than insurance agents and brokers approved by IRDA to sell vehicle insurance policies. The maximum brokerage/commission payable for selling insurance policies is capped at 10% of the premium. To circumvent these regulations, the appellant asked the dealers to raise invoices for services that were not provided. The Tribunal referred to the guidelines issued by IRDAI, which recognized the role of automobile dealers in distributing and servicing motor insurance policies and capped the distribution fees.Conclusion:The Tribunal found that the issue is squarely covered by the decisions in the case of Cholamandalam MS General Insurance Co. Ltd. and Modular Auto Ltd. The denial of credit at the recipient's end cannot be justified without reopening the assessment at the dealer's end. The impugned orders were set aside, and the appeals were allowed.