2022 (5) TMI 431 - AT - Service Tax

Tribunal allows appeal on Cenvat Credit; interest and penalties not applicable

M/s. Trimurty Landcon Versus COMMISSIONER (APPEALS) Central Excise & CGST, Jaipur

The Tribunal allowed the appeal, determining the appellant's entitlement to claim Cenvat Credit on service tax paid, despite the inclusion of VAT in the ... Wrongful availment of CENVAT Credit - inclusive of service tax contract - Construction of residential complex service - amount on which the Service tax has been charged was inclusive of VAT or not? - recovery of interest - levy of penalty - HELD THAT:- In view of the admitted facts when read in the light of Rule 3 of Cenvat Credit Rules, it becomes clear that once the service tax has been paid by the contractor and the invoices mentioning the said amount of service tax have been issued to the appellant, the appellant was very much entitled to have credit of the service tax paid. The appellant has availed Cenvat credit of service tax charged on the invoices. The impugned show cause notice as reflected in table one ‘18’ such invoices with the total amount of each invoices in the last column of said table. Further perusal shows that the said total / gross value of each invoice includes the value of free issue material at such rate as were provided by the appellant himself (Relied upon invoices as RUD 3 i.e. invoice No. 149 dated 20.3.2015). In the said invoices, service tax @ 4.80% has been charged on the gross value which is nothing but the sum total of steel and cement received by the contractor M/s. Ramavat Energy Pvt Ltd. from the appellant. Based upon the total value of the cement received vide 18 invoices of table No. 1 that the total amount of Rs.3,60,14,605/- has been worked out for cement - Credit availed by the appellant on the total amount of cement issued to the contractor freely by him is Rs.2,55,405/-. Similar are the findings with respect to all other items provided free to the appellant by the contractor and similar are the observations with respect to all 18 number of invoices. The contract price paid to the contractor by the appellant was @ Rs.4.78 per sq ft (26.29 lakh for construction of 5.50 sq ft. The said amount mentioned to have been inclusive of works contact tax / VAT. There is nothing on record to show that from the gross value of the invoices which appears to have been inclusive of VAT, there has been any deduction of the said amount of VAT - the service tax has been deducted based upon the said gross value and the Cenvat Credit has been availed by the appellant on the said amount of service tax. Reverting to Rule 2A of Service Tax (Determination of Value) Rules, 2006 as has been reproduced in Show Cause Notice as well as in the Order-in-Appeal, it is clear that the value of concerned service portion in execution of works contract shall be the gross amount charged for the works contract less the value of property in goods transferred in execution of said works contract. The explanation thereof makes it clear that the gross amount shall not include VAT. It has already been held that appellant shall be entitled to take Cenvat Credit on the amount of service tax paid by the contractor. Since the service tax has already been paid on the gross value /the total value, appellant cannot be denied availment of credit proportionate to the said value till the occasion arises for refund of the said service tax on the ground that the gross value on which the service tax was paid was inclusive of VAT. It is not the case of Department that excess Service Tax paid by the contractor has been refunded or has paid applied by the payee for the refund - the Commissioner (Appeals) has wrongly denied the entitlement of the appellant for claiming the Cenvat Credit on the service tax paid by his contractor. The order accordingly is held liable to be set aside. However discretion is given to the department to recalculate if refund of excess service tax paid is to be processed and in that situation, differential credit availed can be recovered from the appellant. Recovery of Interest - Levy of penalty - HELD THAT:- Hon’ble High Court of Karnataka in the case of COMMISSIONER OF CENTRAL EXCISE, BANGALORE-II VERSUS PEARL INSULATION LTD. [2012 (11) TMI 912 - KARNATAKA HIGH COURT] and in case of THE COMMISSIONER OF CENTRAL EXCISE, MADURAI VERSUS M/S. STRATEGIC ENGINEERING (P) LTD. [2014 (11) TMI 89 - MADRAS HIGH COURT] has held that provision of Rule 14 of Cenvat Credit Rules, 2004 for recovery of interest on said Cenvat Credit i.e. the credit availed on excess amount of service tax paid will not be attracted. Hence the Revenue’s stand for recovery of interest under said Rule and imposition of penalty can not succeed. Appeal allowed - decided in favor of appellant. Issues:1. Alleged irregular availment of Cenvat Credit on VAT.2. Dispute regarding the inclusion of VAT in the service tax amount.3. Interpretation of Rule 2A of Service Tax (Determination of Value) Rules, 2006.4. Entitlement of the appellant to claim Cenvat Credit on service tax paid.5. Refund of excess service tax paid and recovery of differential credit.6. Applicability of interest and penalty on the disputed Cenvat Credit amount.Issue 1: Alleged irregular availment of Cenvat Credit on VATThe appellant was alleged to have wrongly availed Cenvat credit of service tax charged on invoices for free supply of building material as an input service, including VAT. The Department issued a Show Cause Notice alleging an irregular Cenvat Credit amounting to Rs.726,010. The initial proposal was confirmed, and subsequent appeals were rejected.Issue 2: Dispute regarding the inclusion of VAT in the service tax amountThe appellant argued that the show cause notice contained incorrect allegations as the invoices did not mention VAT separately. They contended that the credit was rightfully availed on the service tax amount paid, not on VAT. The Department, however, maintained that the gross value in the invoices included VAT, making the credit availed on VAT impermissible.Issue 3: Interpretation of Rule 2A of Service Tax (Determination of Value) Rules, 2006The Tribunal analyzed the admitted facts, including the contract terms and invoices, to determine whether the service tax amount charged included VAT. The Tribunal referred to Rule 2A, emphasizing that the value for service tax calculation should exclude VAT. The invoices were scrutinized to ascertain if VAT was deducted from the gross value, which was not found to be the case.Issue 4: Entitlement of the appellant to claim Cenvat Credit on service tax paidThe Tribunal acknowledged that the appellant was entitled to Cenvat Credit on the service tax paid by the contractor. It was held that the appellant cannot be denied credit based on the inclusion of VAT in the gross value, as long as the service tax was paid. The Tribunal cited legal precedents supporting the appellant's entitlement to credit when appropriate duty has been paid.Issue 5: Refund of excess service tax paid and recovery of differential creditThe Tribunal granted discretion to the Department to recalculate if a refund of excess service tax paid was warranted. It held that the appellant could claim Cenvat Credit on the service tax paid, and any excess credit availed could be recovered if a refund of excess service tax was processed.Issue 6: Applicability of interest and penalty on the disputed Cenvat Credit amountThe Tribunal concluded that the Revenue's stand for recovery of interest and imposition of penalties on the disputed Cenvat Credit amount was not sustainable. Citing legal precedents, it highlighted that recovery of interest and penalties would not apply when duty has been paid in excess or when Cenvat Credit has been rightfully claimed.This judgment analyzed the dispute over alleged irregular Cenvat Credit availed on VAT, interpreting relevant rules and legal precedents to determine the appellant's entitlement to claim credit on service tax paid, while addressing the issue of VAT inclusion in the service tax amount. The Tribunal set aside the order under challenge, allowing the appeal and emphasizing the appellant's right to claim credit on the service tax paid, subject to any necessary recalculations for refund of excess amounts.