2019 (9) TMI 888 - AT - Service Tax

Cenvat Credit Case: Employee Services and Debit Notes

The case involved two issues: 1) Availment of Cenvat credit on input services for employees' personal use, and 2) Availment of Cenvat credit based on ... CENVAT Credit - input services - services which are used for the personal use of their employees - HELD THAT:- As far as these services are concerned, the employees are their service recipients and they are the service providers. They are not in an employer-employee relationship as far as these services are concerned. For the services which they have rendered to their employees, they have collected amounts along with service tax and paid the same to the exchequer and reflected these amounts in their ST-3 returns - Merely because a person happens to be their employee he does not cease to be a service recipient. If the employees were not a service recipient, no amounts would have been recovered from them and no service tax would have been paid on the same. Conversely, the appellant cannot get any exemption from payment of service tax if he has rendered services, even if such services are rendered to their own employees for a consideration - CENVAT Credit allowed. CENVAT Credit - credit available on the basis of debit notes which are not eligible documents - Rule 9 of CCR, 2004 - HELD THAT:- The learned counsel has taken me through samples of the documents to demonstrate that credit was not taken on debit notes by them. Debit notes were only raised by them on their employees to recover amounts. They have not availed any Cenvat credit on the basis of such debit notes - demand not sustainable. Appeal allowed - decided in favor of appellant. Issues:1. Availment of Cenvat credit on input services meant for personal use of employees.2. Availment of Cenvat credit based on debit notes.Issue 1: Availment of Cenvat credit on input services meant for personal use of employees:The appellant, a Public Limited Company registered for service tax, availed Cenvat credit on input services like internet, mobile, D2H, insurance, and mediclaim for employees' personal use. The department alleged the credit was wrongly availed under Rule 2(l) of Cenvat Credit Rules, 2004, and sought recovery under Rule 14 and section 73 of the Finance Act, 1994. The appellant contended that employees were service recipients, not just employees, as they paid for the services, and the appellant paid service tax on the amounts collected. The appellant cited a draft CBEC circular to support their argument that services provided to employees for consideration are eligible for credit. The department argued that personal use services are excluded from input services and relied on a Tribunal judgment. The Member found in favor of the appellant, emphasizing that employees were service recipients, not just employees, and the appellant was entitled to credit for services provided to them.Issue 2: Availment of Cenvat credit based on debit notes:The appellant raised debit notes on employees to recover amounts for services provided, but did not avail Cenvat credit based on these notes. The department contended otherwise, but the Member found that the appellant did not avail credit based on debit notes. Consequently, the demand was deemed unsustainable, and the impugned order was set aside, allowing the appeal with any consequential relief.In conclusion, the judgment favored the appellant, ruling that Cenvat credit on services provided to employees for consideration was permissible, and credit was not availed based on debit notes. The Member set aside the demand and allowed the appeal with any necessary relief.