2020 (4) TMI 71 - AT - Central Excise

Denial of cenvat credit overturned due to lack of proof of service providers' misconduct. (1)(bb)

The denial of cenvat credit under Rule 9(1)(bb) of Cenvat Credit Rules, 2004 was overturned by the Member (Judicial) as suppression of facts by the ... CENVAT Credit - duty paying invoices - invoices issued but service tax on such invoices not discharged - Rule 9(1)(bb) of Cenvat credit Rules, 2004 - HELD THAT:- Undisputed facts is that though the service provider at the time of issuing of invoices did not pay the service tax but subsequently they discharged the service tax and no proceeding was initiated against the service provider, the entire matter was closed. Since, there is no SCN issued to the service provider nor any adjudication order was passed, it cannot be said that there is suppression of facts on the part of the service provider. The suppression of facts needs to be established only by way of issuing the SCN invoking proviso to Section 73 (1) and thereafter, by the adjudication if the suppression of facts is established. In the present case no such exercise was carried out, it is clear that the department has accepted that there is no suppression of facts. To establish suppression of fact, there is no option for the department except to issue a SCN and adjudicate the matter, therefore, at the appellants end on availment of cenvat credit and the suppression of facts on the service provider can neither be alleged nor can be decided, therefore, Rule 9(1)(bb) is not applicable. The appellant is clearly entitled for the cenvat credit as the case is not covered under Rule 9(1)(bb) - Appeal allowed - decided in favor of appellant. Issues:Denial of cenvat credit under Rule 9(1)(bb) of Cenvat Credit Rules, 2004 due to alleged suppression of facts by service provider.Analysis:The appellant availed cenvat credit based on invoices from service providers who had not paid service tax initially. Upon being informed, the service providers paid the tax. The denial of cenvat credit was proposed under Rule 9(1)(bb) due to alleged suppression of facts by the service providers. The adjudicating authority and Commissioner (Appeals) upheld the denial, leading to the present appeal.The appellant argued that suppression of facts by the service providers was not proven, as no show cause notice (SCN) or adjudication order was issued against them. Without formal proceedings against the service providers, it was contended that Rule 9(1)(bb) should not apply. The appellant cited various judgments to support this argument.The Revenue representative reiterated the findings of the impugned order, supporting the denial of cenvat credit under Rule 9(1)(bb).Upon review, the Member (Judicial) found that the denial of cenvat credit under Rule 9(1)(bb) was not justified. It was noted that although the service providers initially did not pay service tax, they later rectified this without facing any formal actions. Since no SCN or adjudication was pursued against the service providers, the Member concluded that suppression of facts was not established. The Member emphasized that to prove suppression of facts, issuing an SCN and subsequent adjudication were necessary steps, which were absent in this case. Therefore, it was determined that Rule 9(1)(bb) did not apply, and the appellant was entitled to the cenvat credit.Consequently, the impugned order denying the cenvat credit was set aside, and the appeal was allowed.