2021 (3) TMI 1201 - AT - Service Tax

Tribunal Upholds CENVAT Credit on Service Tax with Emphasis on Due Process

The tribunal allowed the appeal of the appellant, confirming the admissibility of CENVAT credit on service tax paid based on supplementary invoices issued ... CENVAT Credit - Cargo Handling Services - duty paying invoices - supplementary invoices - the show-cause notice, adjudication order and the Order-in-Appeal have not mentioned anything regarding the issuance of show-cause notice by the Proper Officer for recovery of service tax from the service provider - applicability of exceptions contained in Clause (bb) of Rule 9(1) to restrict the credit - HELD THAT:- Admittedly in the present case, no proceedings have been initiated against the service provider Shri K. Basavaraj by issuing any notice and there is no adjudication order against the service provider who paid the service tax on the advice of the jurisdictional Superintendent and issued the supplementary invoices dated 4.3.2016 and the appellant on the basis of the said supplementary invoices has taken the CENVAT credit. Further, as per Rule 9 of CENVAT Credit Rules, 2004, supplementary invoices issued by the service provider is a valid and prescribed document for taking CENVAT credit and the only embargo for taking CENVAT credit is when the amounts as contained in the supplementary invoices become recoverable from the provider of service on account of non-levy or non-payment or short-payment or short-levy by reason of fraud, collusion, wilful mis-statement or suppression of facts and contravention of any of the provisions of the Finance Act, 1994 or Rules made thereunder with intention to evade payment of service tax as specified in Clause 9(1)(bb) of CENVAT Credit Rules, 2004. It has been consistently held by the Tribunal in the various decisions that in the absence of show-cause notice and determination that the additional amount of duty or tax become recoverable, the tax amounts paid by the service provider cannot be denied on the ground that provisions of Rule 9(1)(bb) of CENVAT Credit Rules, 2004 are attracted. Further, the allegations of adjudicating authority that the appellant have violated the provisions of Rule 4A(1) of CENVAT Credit Rules, 2004 and Rule 3 of the Point of Taxation Rules, is also erroneous because the said Rules are applicable to service provider and not to service recipient. The CENVAT credit of ₹ 25,54,522/- paid voluntarily by the service provider on the strength of supplementary invoices is admissible to the appellant as credit in terms of Rule 9(1)(bb) of CENVAT Credit Rules, 2004 - Appeal allowed - decided in favor of appellant. Issues:- Eligibility of CENVAT credit on service tax paid by the appellant based on supplementary invoices issued by the service provider.- Interpretation of Rule 9(1)(bb) of CENVAT Credit Rules, 2004 regarding the admissibility of CENVAT credit.- Compliance with the issuance of show-cause notice and determination for recovery of service tax from the service provider.- Applicability of Rule 4A(1) of Service Tax Rules, 1994 and Rule 3 of Point of Taxation Rules, 2013 to the appellant.Analysis:Issue 1: Eligibility of CENVAT credit on service tax paid by the appellant based on supplementary invoicesThe appellant, a manufacturer of pig iron and un-machined castings, availed CENVAT credit on service tax paid by the service provider, Shri K. Basavaraj, for Cargo Handling Services. The department raised concerns about the eligibility of this credit under Rule 9(1)(bb) of CENVAT Credit Rules, 2004. The appellant argued that the service tax was paid by the service provider on advice and without any show-cause notice or determination against them. The tribunal found that the supplementary invoices were valid documents for credit, and in the absence of proceedings against the service provider, the credit was deemed admissible.Issue 2: Interpretation of Rule 9(1)(bb) of CENVAT Credit Rules, 2004The tribunal analyzed Rule 9(1)(bb) which restricts CENVAT credit when amounts in supplementary invoices become irrecoverable due to specific reasons like fraud or contravention of tax laws. The appellant contended that since no action was taken against the service provider for non-payment of service tax, the credit should not be denied. The tribunal agreed, emphasizing the necessity of a show-cause notice and determination for recovery before invoking Rule 9(1)(bb).Issue 3: Compliance with show-cause notice and determination for recovery of service taxThe tribunal highlighted the absence of any proceedings initiated against the service provider by issuing a notice or obtaining an adjudication order regarding the recovery of service tax. Citing legal precedents, the tribunal emphasized the importance of following due process, including issuing a specific show-cause notice to the assessee before demanding any tax or duty.Issue 4: Applicability of Rule 4A(1) of Service Tax Rules, 1994 and Rule 3 of Point of Taxation Rules, 2013The appellant argued that the allegations of contravening these rules were not applicable to them as they pertained to the service provider. The tribunal concurred, stating that such rules are relevant to service providers and not service recipients, thereby dismissing the department's contentions regarding the appellant's violation of these rules.In conclusion, the tribunal set aside the impugned order, allowing the appeal of the appellant and confirming the admissibility of the CENVAT credit on the service tax paid based on the supplementary invoices issued by the service provider.