2019 (10) TMI 1042 - AT - Service Tax

Tribunal allows Cenvat credit post-Voluntary Compliance Scheme application: discharge certificate key

M/s. Sun Pharmaceuticals Industries Ltd. Versus Commissioner of GST & CE

The Tribunal ruled in favor of the appellant, overturning the disallowance of Cenvat credit post-Voluntary Compliance Encouragement Scheme (VCES) ... CENVAT Credit - disallowance of credit taken by the appellant after availing the benefit VCES - credit dined on the ground that, the availment of credit on the basis of the discharge certificate dated 02.07.2014, is incorrect and also time-barred. - HELD THAT:- While understanding the VCES, we have to note that the admitted liability is paid by the assessee vide challans even before making the application. The department has to scrutinize the application and, thereafter, only if satisfied as to the declaration made, the discharge certificate is issued. In case there is any discrepancy or if the department is not satisfied with the liability declared, the application is liable to be rejected. Thus, the tax paid by the appellant becomes final under VCES, only when the discharge certificate is issued. The appellants can then take the credit on the basis of discharge certificate only. Under VCES, the challans being an intermediary payment, such documents cannot be a conclusive document for availment of credit. Further, the assessee cannot be found fault with when the department vide Circular dated 20.01.2014 has shied away from unequivocally clarifying as to whether the asssessee can avail credit on challan for tax paid before filing VCES application or the discharge certificate issued after acceptance of declaration - the credit availed on the discharge certificate is legal and proper. The Board’s Circular also clarifies that Cenvat credit is eligible on the tax paid under VCES. As discussed, only when the tax is finally accepted by department and the document is issued, the assessee would be able to avail the credit. For these reasons, the credit availed on the discharge certificate is legal and proper. The disallowance of credit is unjustified. Appeal allowed - decided in favor of appellant. Issues: Disallowance of Cenvat credit post VCES applicationAnalysis:1. The appellants, engaged in bulk drug manufacturing, filed a VCES application on 30.12.2013, which was accepted the same day. They paid the admitted liability via challans and availed Cenvat credit on input services on 31.10.2014. Subsequently, a show-cause notice alleged incorrect credit availment based on the discharge certificate issued on 02.07.2014, claiming it was time-barred.2. The appellant's counsel argued that credit availed on 31.10.2014 was within the limitation period as per section 107(2) of Finance Act, 2013. She cited Rule 9 of Cenvat Credit Rules, 2004, emphasizing that the discharge certificate, not the challans, should be the basis for credit availment. Referring to a circular, she asserted that Cenvat credit on VCES tax payments is permissible, supported by a relevant case law.3. The Revenue's representative contended that Rule 9 mandates challans as valid documents for credit, highlighting the challan dates (27.12.2013) and credit availed date (31.12.2014) exceeding the six-month limit. Both sides presented their arguments before the Tribunal.4. The core issue revolved around whether credit should be availed based on the challans or the discharge certificate post-VCES application. Rule 9 specifies challans as credit documents, but lacks clarity on VCES tax payments. A circular implied credit eligibility on VCES tax payments, yet ambiguity persisted on challan vs. discharge certificate for credit availment.5. The Tribunal analyzed a similar case where credit denial based on challans post-discharge certificate acceptance was deemed unjustified. It emphasized that credit becomes valid only upon discharge certificate issuance, aligning with the Circular's intent. Thus, the Tribunal ruled in favor of the appellant, allowing the appeal and overturning the disallowance of credit.6. The judgment underscored that under VCES, credit on discharge certificates post-declaration acceptance is legitimate, rejecting the notion of challan-based credit availment. By aligning with precedent and Circular guidelines, the Tribunal deemed the disallowance of credit unwarranted, setting aside the impugned order and granting consequential reliefs to the appellant.