2022 (12) TMI 130 - AT - Central Excise

Tribunal grants relief to manufacturer in cenvat credit dispute

M/s TDK India Private Limited Versus Commissioner of CGST & Excise, Kolkata North

M/s TDK India Private Limited Versus Commissioner of CGST & Excise, Kolkata North - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether Cenvat/Credit on Air Travel Agency/Rail Travel Agent services availed by the assessee can be disallowed on the ground that such services were for personal use of employees. 2. Whether input Cenvat/Credit availed on Works Contract Service can be denied by applying the reverse charge Notification effective 01.07.2012 and related valuation/abatement Notification to a private limited company. 3. Whether Cenvat/Credit on Construction/Commercial Service can be disallowed on the ground that the service recipient failed to pay service tax on the value of such services within three months of invoice issuance, when that contention was not raised in the show-cause notice or original adjudication. 4. Whether the adjudicating authority's order is sustainable where findings are cryptic, lack discussion/justification, or travel beyond the scope of the show-cause notice. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of disallowance of Cenvat/Credit on Air Travel Agency/Rail Travel Agent services (business vs. personal use) Legal framework: Cenvat credit is allowable for service tax paid on input services used in relation to manufacture/clearance; denial is predicated on services being for personal consumption of employees. Precedent treatment: The Tribunal referred to prior tribunal/authority decisions supportive of allowing credit where air travel was used by company executives for business objectives (earlier authorities were cited by the Tribunal in support). Interpretation and reasoning: The Court reasons that if travel were truly for personal use/consumption by employees, the company would not record/debit such expenditure in its books; debiting in the company's accounts indicates business exigency. The adjudicating authority's order was described as cryptic and devoid of discussion to justify the conclusion that the services were for personal use, and thus the denial lacked evidential foundation. Ratio vs. Obiter: Ratio - where records show travel expenditures debited in company books and services are used by company executives to achieve business objectives, Cenvat credit cannot be denied on the mere conjecture of personal use absent cogent evidence. Obiter - general observation on company accounting practices as indicative of business purpose. Conclusion: Disallowance of credit on Air Travel Agency/Rail Travel Agent services cannot be sustained in absence of evidence showing personal use; credit is allowable. Issue 2 - Applicability of reverse charge and valuation/abatement Notifications to Works Contract Service for a private limited company Legal framework: Notifications introduced reverse charge mechanism for Works Contract Service effective 01.07.2012, and separate notifications address valuation/abatement; applicability depends on the class of service recipient/supplier defined in the Notifications. Precedent treatment: The Tribunal analyzed the language of the Notifications themselves rather than relying on other authority, distinguishing their application based on the category of assessee. Interpretation and reasoning: The Tribunal found that the reverse charge Notification expressly applies to individuals, partnership firms and Hindu Undivided Families (HUF), and not to corporate assessees. The appellant being a private limited company and the service supplier likewise being a private limited company, the reverse charge Notification does not apply. Similarly, the valuation/abatement Notification relied upon by the Commissioner (Appeals) was found not applicable to the facts. The adjudicating authority's confirmation of demand under Works Contract Service therefore lacked legal basis. Ratio vs. Obiter: Ratio - a statutory Notification imposing reverse charge applies only to the assessees/categories expressly covered by its wording; it cannot be extended to corporate entities not included in the Notification. Obiter - commentary on non-applicability of related valuation/abatement Notification as a factual determination. Conclusion: Disallowance of credit attributable to Works Contract Service under the impugned Notifications is set aside; credit is allowable for the corporate assessee. Issue 3 - Disallowance of Cenvat/Credit on Construction/Commercial Service for alleged failure to remit service tax within three months where the issue was not in show-cause notice Legal framework: Liability to pay service tax on certain services and consequences of failure to pay within prescribed timelines are relevant to admissibility of Cenvat credit; however, adjudication must remain within scope of show-cause notice. Precedent treatment: The Tribunal applied the principle that adjudicatory bodies should not travel beyond matters raised in the show-cause notice or order-in-original, and that issues raised for the first time at appeal must meet procedural fairness requirements. Interpretation and reasoning: The Tribunal accepted the appellant's submission that the Commissioner (Appeals) introduced the contention concerning payment within three months for the first time and that this aspect was neither in the show-cause notice nor in the Order-in-Original. In the absence of that contention being put to the appellant earlier, the appellate authority could not sustain disallowance on that ground. Moreover, the appellant maintained that payments were made within the normal period. Ratio vs. Obiter: Ratio - a disallowance based on a ground not raised in the show-cause notice or original adjudication cannot be sustained if raised first at appeal; adjudication must adhere to the scope of the notice. Obiter - remarks on normal payment practices where not contested on record. Conclusion: Disallowance of credit on Construction/Commercial Service on the newly raised ground of delayed payment is unsustainable and is set aside. Issue 4 - Sufficiency of reasons and scope of adjudicating authority's order Legal framework: Administrative orders must contain reasoned findings and address material issues; conclusory or cryptic orders without discussion are vulnerable to reversal. Precedent treatment: The Tribunal applied the principle that confirmation of demand requires justification in the order; mere repetition of the show-cause notice allegations without reasoned analysis is inadequate. Interpretation and reasoning: The Tribunal found the adjudicating authority's order to be cryptic, lacking discussion to justify conclusions, and in at least one instance proceeding to confirm demand without addressing evidentiary or legal points. Where the impugned order failed to apply the correct legal provisions (e.g., misapplication of Notifications) or to consider whether matters were within the scope of the show-cause notice, it could not be sustained. Ratio vs. Obiter: Ratio - adjudicating orders must contain reasoned findings addressing the points raised in the show-cause notice; failure to do so renders the order liable to be set aside. Obiter - general observation that debiting in books is a relevant indicator of business purpose (cross-referenced to Issue 1). Conclusion: The impugned order is unsustainable for being cryptic, for misapplying Notifications to a corporate assessee, and for raising new grounds at appeal; the Tribunal set aside the order and allowed the appeal with consequential relief as per law.