2018 (8) TMI 1691 - HC - Service Tax

Court allows Cenvat Credit for MPLS service tax, rejects extended limitation period, rules in favor of appellants.

M/s. Modular Auto Limited Versus Commissioner of Central Excise, Chennai

The High Court allowed the appeals, holding that the appellants were entitled to claim Cenvat Credit for the service tax paid on MPLS services provided by ... CENVAT Credit - Jurisdiction - Whether the department as well as Tribunal could have held what was availed by the assesseess as credit is only a reimbursement and it is an attempt of BIL to pass costs incurred by them towards Multi Protocol Label Switching (MPLS)? - The department alleged that the services are rendered by BSNL and Reliance Communications Limited and received by BIL, whereas the BIL have raised the bill on the assessees claiming reimbursement of the above said MLPS charges with the Service Tax. The department pointed out that the invoice was raised for reimbursement of expenses incurred and it appears that no service was rendered by BIL and the availment of credit on the said Service Tax based on the invoices issued by BIL by the assessees is incorrect. Thus, the department opined that the assessees have contravened the provisions of Rule 3 of the Cenvat Credit Rules, 2004, inasmuch as the services were not received by the assessees. Held that:- In the instant cases, it is not in dispute that whatever the portion of Service Tax component which was collected from the assessees by BIL was only the amount on which the CENVAT credit has been claimed by the assessees. Therefore, unless and until the assessment made on BIL was revised, which obviously could have been done, at this juncture, on account of the expiry of the period of limitation, the interpretation given by the Commissioner (Appeals) as well as the Tribunal with regard to the nature of invoice raised on the assesses is unsustainable - If the impugned orders are allowed to stand, then it would in effect mean that the jurisdictional assessment officers of the assesses are sitting in the judgment over the assessment made on BIL, over which, they have no jurisdiction. Appeal allowed - decided in favor of assessee. Issues Involved:1. Jurisdiction of the Tribunal to question the service provided by the service provider.2. Eligibility of the appellant to claim credit for service tax paid.3. Interpretation of transactions and invoices related to MPLS services.4. Invocation of the extended period of limitation.5. Reassessment of the nature of transactions by the Commissioner (Appeals) and Tribunal.Issue-wise Detailed Analysis:1. Jurisdiction of the Tribunal to question the service provided by the service provider:The Tribunal questioned whether the service provider had actually provided services to the appellant, even though the service provider had been assessed to service tax under Business Support Service for the service rendered to the appellant. The High Court found that the Tribunal should not have questioned the nature of the service provided by the service provider when the service tax assessment on the service provider was not in dispute.2. Eligibility of the appellant to claim credit for service tax paid:The appellants, job workers for a company (BIL), claimed Cenvat Credit for the service tax paid on MPLS services received from BIL. The department argued that the credit was ineligible because the services were received by BIL and not directly by the appellants. The High Court held that the appellants were entitled to claim Cenvat Credit for the service tax paid, as the services were indirectly used by them for their manufacturing activities.3. Interpretation of transactions and invoices related to MPLS services:The department alleged that the invoices raised by BIL on the appellants were for reimbursement of expenses and not for actual services rendered. The High Court disagreed, stating that the invoices were for services provided by BIL, which included retrieval of data necessary for the appellants' operations. The court emphasized that the nature of the transaction should be interpreted based on the actual services rendered and the payment made, rather than the terminology used in the invoices.4. Invocation of the extended period of limitation:The department invoked the extended period of limitation, alleging that the appellants had suppressed facts. The High Court found that the appellants had disclosed the credit availed in their ER1 returns as required, and there was no suppression of facts. Therefore, the invocation of the extended period of limitation was not justified.5. Reassessment of the nature of transactions by the Commissioner (Appeals) and Tribunal:The Commissioner (Appeals) and the Tribunal reinterpreted the nature of the transactions and concluded that the services provided by BIL were not input services for the appellants. The High Court held that this reinterpretation was beyond the scope of the show cause notices and was not justified. The court emphasized that the assessment of service tax on BIL was final and could not be questioned by the jurisdictional officers of the appellants.Conclusion:The High Court allowed the appeals, holding that the appellants were entitled to claim Cenvat Credit for the service tax paid on MPLS services provided by BIL. The court found that the Tribunal and the Commissioner (Appeals) had erred in questioning the nature of the services and the eligibility of the credit. The court also held that the invocation of the extended period of limitation was not justified. The substantial questions of law were answered in favor of the appellants, and the orders of the Tribunal and the Commissioner (Appeals) were set aside.