2024 (7) TMI 1670 - AT - Service Tax

No Double Taxation on Out-Roaming Revenue; Cenvat Credit Allowed on Business Support Services and Capital Goods

M/s. Vodafone Mobile Services Limited (now changed as Vodafone Idea Ltd.) Versus Commissioner of CGST & Central Excise, Chennai

The CESTAT Chennai held that the demand for service tax on out-roaming revenue transferred from related entities cannot be sustained as service tax was ... Non-payment of Service Tax - consideration received for out-roamer from other entities - Non-reversal of Cenvat credit on Business Support Services reimbursed - Irregular availment of Cenvat credit on Capital goods - Irregular availment of input service credit on collection charges - Non reversal of Cenvat on capital goods destroyed by fire - Non-payment of service tax on out roaming services between VSL-VSL circle - Irregular cenvat credit availed on Inputs - Irregular Cenvat Credit passed on by debit notes raised to group concerns - Non-reversal of cenvat availed on input services for which Credit Notes received from Vendor - time limitation. Liability to pay service tax on the roaming revenue transferred from other Vodafone entities - HELD THAT:- The facts reveal that the department has quantified the out roaming revenue from the accounts maintained by the software system of the appellant. There is no allegation that along with E top up charges the service tax also has been transferred to the appellant. Even as per the SCN, only the out roamer revenue has been transferred to the appellant. The department has to say then as to what happened to the service tax collected. It is also not the case that those Vodafone entities which collected the tax have not paid to government exchequer. There is no evidence of any proceedings initiated against such other Vodafone entities in this regard. As per the audit report and facts after weighing the balance of probabilities the strong inference that can be drawn is that service tax has already been discharged on the out roamer revenue to the government exchequer. The service tax having been already discharged on the services provided to the subscriber, the department cannot again collect the service tax. In the case of Chotey Lal Radhey Shyam vs, CCE Lucknow [2015 (11) TMI 979 - CESTAT ALLAHABAD], similar issue as to demand of service tax on an assessee when the tax has already been discharged by another came up for consideration. The issue considered by the Tribunal in the said case was whether service tax is payable on the SIM cards sold by distributors. It was observed that since BSNL had already paid the service tax on SIM cards sold, the demand of service tax from the franchisee again would amount to double taxation. The facts reveal that according to the agreement signed by appellant therein with the Government of Andhra Pradesh (GOAP), the appellants were given permission to build and operate existing berths as well as to develop and operate additional berths etc. The appellant had collected the revenue for the operation services rendered by them and handed over the share of GOAP. Service tax was discharged by GOAP on the amount received by them. The demand was made on the appellant therein by the department alleging that in terms of Notification No.30/2012-ST the appellant is liable to pay the service tax under reverse charge mechanism. The Tribunal observed that since the service tax on the consideration has already been discharged by GOAP, the demand on the appellant again cannot sustain - the demand of service tax on out roamer revenue cannot sustain and requires to be set aside. Non-reversal of cenvat credit on Business Support Services (BSS) which were reimbursed - HELD THAT:- The department does not deny that appellant has used the services. So also, it is not denied that appellant has paid the service tax on the entire consideration. Merely because part of the consideration was reimbursed by other circles who had also used the services, the demand has been confirmed alleging that the appellant is eligible to avail proportionate credit only. It is pointed out by the Ld. Counsel for appellant that the definition of “input services” given in Rule 2(ℓ) of Cenvat Credit Rules, 2004 does not say that the entire input services should be used only by a single output service provider. It merely states that input service has to be used by the output service provider. In the present case, the services have been used by other circles who are also output service providers. It is found that the appellant having paid the service tax on the entire consideration and having consumed the services, the department cannot deny the credit alleging that the services are shared with output service providers of other circles. The appellant has availed credit on HDPE ducts under the category of ‘capital goods’. It is argued by the Ld. Counsel for appellant that the HDPE ducts are essential to the appellant’s business in as much as the HDPE ducts are used to provide a cover to the optical fibre cables. Though the appellant had availed credit under ‘capital goods’ they have put forward the plea before the adjudicating authority that these items would fall within the definition of ‘inputs’. As per Rule 2 (k) (iv) of CCR 2004, input means, ‘all goods used for providing any output service’. The Department has denied the credit alleging that the ducts are not used for providing telecommunication services and are only used as a resistant or protective cover for the optic fiber cables. Without collection of dues from customers, the appellant would not be able to run its business and provide output services. For these reasons, the credit availed on collection agent charges is legal and proper. CENVAT credit on various inputs like waste bin, paper rolls, diaries, award shields and ducts etc. under the category of “inputs” - HELD THAT:- The appellant reversed the credit of Rs.1,12,359/- along with applicable interest of Rs.84,641/- which is the credit availed in respect of waste bin, paper rolls, diaries, etc. However, they contested that the input credit availed in respect of ducts is eligible on the ground that these are used to get cover the buried the HDPE conduit which helps to provide protection from corrosion and thus eliminates maintenance. The Ld. Counsel submitted that they are contesting a demand of Rs.2,24,718/- being the amount pertaining to HDPE ducts only - the credit is eligible - the amount requires to be verified by the adjudicating authority. Irregular availment of cenvat credit passed on by debit notes to group concerns - HELD THAT:- The Department is of the view that the appellant is eligible to avail only proportionate credit for which they have borne the expenses (though service tax paid entirely) and the credit attributable to the amount which has been reimbursed by the group concern is to be reversed. The very same issue has been considered with regard to BSS. The appellant has argued that in any case, if they had obtained ISD registration they would be able to pass on the credit to their group concerns and it is only a procedural lapse. Thus it is found that the credit cannot be denied when the appellant has paid the service tax on the entire consideration in respect of these input services. Thus the credit is eligible. Credit has been denied in respect of input services for which credit notes were received from vendors - HELD THAT:- The service tax amount was already collected by ITL from the appellant on which the appellant has availed credit. The vendor M/s.ITL has issued a certificate stating that they have paid the service tax collected from appellant to the government exchequer and that they have not returned the service tax by issuing credit notes. The appellant has furnished a letter issued by M/s.ITL along with appeal paper book. Since the appellant has borne the burden of service tax, we are of the opinion that the appellant has righty availed the credit. The demand raised on this count cannot sustain and requires to be set aside. Time Limitation - penalties - HELD THAT:- There is no positive act of suppression alleged or established against the appellant. There is no allegation in the SCN that appellant did not cooperate with the department or that department had unearthed some hidden figures or parallel invoices. The appellant has filed periodical statutory returns and also discharged service tax. During special audit, the department has taken the view that out roaming revenue is subject to levy of service tax at the hands of appellant also and also raised objection of availment of certain credit. The show cause notice has been issued only on such interpretational issues - there is no ingredients to invoke the extended period or to impose penalties. Appeal allowed in part. 1. ISSUES PRESENTED and CONSIDERED 1. Whether service tax is payable by the appellant on out roamer revenue transferred from other entities and other circles within the same company, despite service tax having been paid by those entities/circles at the time of sale of e-top ups. 2. Legality of the demand for reversal of CENVAT credit on Business Support Services (BSS) expenses reimbursed by other circles. 3. Validity of the denial of CENVAT credit on capital goods, specifically HDPE ducts, and classification of such goods as inputs or capital goods under the CENVAT Credit Rules, 2004. 4. Legitimacy of the denial of input service credit on collection charges paid to collection agents, considering the nexus of such services with the output telecommunication services. 5. Whether the appellant is liable to reverse CENVAT credit on debit notes raised to group concerns for shared services and reimbursements. 6. Obligation to reverse CENVAT credit on input services where credit notes have been issued by vendors for deficient services. 7. Applicability of extended period of limitation and imposition of equal penalty in the present case. 8. Liability to pay interest on the disputed demands where the substantive demand is contested. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Liability to pay service tax on out roamer revenue transferred from other Vodafone entities and circles Legal Framework and Precedents: Service tax is leviable on services provided or agreed to be provided, with the person liable to pay tax being the service provider (Rule 2(1)(d)(ii) of Service Tax Rules, 1994). The concept of Adjusted Gross Revenue (AGR) under the license agreement excludes roaming revenue passed on to eligible providers and service tax paid. Precedents include the Tribunal's decision in Chotey Lal Radhey Shyam vs. CCE Lucknow, which held that once service tax is paid by the primary service provider, no further service tax can be demanded on the same transaction, to avoid double taxation. The decision was upheld by the High Court and is pending before the Apex Court without stay. Court's Interpretation and Reasoning: The Tribunal examined the telecom industry practice where roaming subscribers purchase prepaid e-top ups from distributors in roaming circles. Service tax is discharged by the entity in the roaming circle at the time of sale of such e-top ups. The revenue from such e-top ups, excluding service tax, is transferred to the home circle (appellant) for accounting and license fee computation as per TRAI and license conditions. The Tribunal noted that the appellant's contention that service tax has already been paid by the roaming circles/entities is supported by the facts and industry practice. The Department failed to produce documentary evidence to prove non-payment of service tax by other entities. The audit report acknowledged the appellant as the service provider but did not negate the appellant's claim of tax payment by other entities. The Tribunal found that demanding service tax again from the appellant on the same revenue would amount to double taxation, which is impermissible. Key Evidence and Findings: The appellant's detailed reply to audit objections, license agreement clauses on AGR, special audit report, and industry practices were considered. The Department's failure to produce evidence of non-payment of service tax by other entities was critical. Reliance was placed on judicial precedents disallowing double taxation. Application of Law to Facts: Since the other Vodafone entities/circles had discharged service tax at the time of sale of e-top ups, the appellant cannot be held liable to pay service tax again on the out roamer revenue transferred to it. The appellant's accounting entries for revenue transfer are for internal accounting and license fee calculation, not fresh service provision. Treatment of Competing Arguments: The Department argued that the appellant, as the service provider, is liable to pay service tax and that the other entities are not agents of the appellant. The Tribunal rejected this, noting absence of evidence that other entities had not paid service tax and that the appellant's contention is consistent with statutory provisions and industry practice. The Department's reliance on the definition of 'person liable' was distinguished on facts. Conclusion: The demand for service tax on out roamer revenue transferred from other entities and circles is unsustainable and set aside. Issue 2: Demand for reversal of CENVAT credit on Business Support Services reimbursed by other circles Legal Framework and Precedents: Rule 2(l) of the CENVAT Credit Rules, 2004 defines input services as services used by a service provider for providing output services. The appellant operates multiple circles with separate service tax registrations but under a single PAN. The decision in Greaves Cotton Ltd. held that credit cannot be denied merely because input services were used by multiple units of the same company. Dashion Ltd. held that procedural lapses like non-registration as Input Service Distributor (ISD) should not deny substantive credit rights. Court's Interpretation and Reasoning: The Tribunal found that the appellant paid service tax on the entire consideration for BSS input services, which were used to provide output services. The fact that other circles also used these services and reimbursed the appellant does not negate the appellant's right to credit. The requirement to reverse credit on reimbursed amounts was not supported by the CENVAT Credit Rules. Procedural lapses, such as non-registration as ISD, cannot justify denial of credit. Key Evidence and Findings: The appellant's payment of service tax on full consideration and use of services in output service provision was not disputed. The Department did not deny usage but demanded proportionate credit only. Application of Law to Facts: The appellant's entitlement to credit on full input service tax paid is upheld. The Department's demand for reversal of credit on reimbursed amounts is rejected. Treatment of Competing Arguments: The Department distinguished Greaves Cotton Ltd. on facts, arguing non-reversal of credit on reimbursed amounts is justified. The Tribunal found this distinction unsustainable. Conclusion: The demand for reversal of CENVAT credit on BSS reimbursed expenses is set aside. Issue 3: Eligibility of CENVAT credit on HDPE ducts classified as capital goods or inputs Legal Framework and Precedents: Rule 2(a) defines capital goods; Rule 2(k) defines inputs as all goods used for providing output services except those specifically excluded. The Delhi High Court in Vodafone Mobile Services Ltd. held that the test of functional utility determines eligibility as inputs. Modi Rubber Ltd. held that credit availed under wrong category (capital goods vs inputs) is not to be denied if the goods qualify under either category. Court's Interpretation and Reasoning: The Tribunal observed that HDPE ducts are essential for protecting optical fibre cables, indispensable for telecommunication services. Thus, they qualify as inputs under Rule 2(k). The appellant's inadvertent availing of credit under capital goods category does not disentitle credit. The Department's denial on the ground that ducts are not used for providing telecommunication service was rejected. Key Evidence and Findings: Technical explanation of HDPE ducts' use and protective function was accepted. The Delhi High Court's ruling was considered authoritative. Application of Law to Facts: The appellant is entitled to CENVAT credit on HDPE ducts as inputs. The demand for reversal is set aside. Treatment of Competing Arguments: Department argued ducts are not capital goods nor inputs; Tribunal disagreed based on functional utility and precedent. Conclusion: Credit on HDPE ducts is eligible and demand for reversal is set aside. Issue 4: Denial of input service credit on collection charges paid to collection agents Legal Framework and Precedents: Rule 2(l) of CCR defines input services as those used for providing output services. The definition was amended w.e.f. 01.04.2011 to exclude certain services but retains nexus requirement. Tribunal decisions in Commissioner, CGST Jaipur vs Bharti Hexacom India Ltd. and Vodafone Essar Cellular Ltd. held collection agency services as input services eligible for credit. Court's Interpretation and Reasoning: The Tribunal found that collection agents' services are essential for recovery of dues, enabling continued provision of telecommunication services. Therefore, these services have nexus with output services and qualify as input services. The denial of credit was contrary to settled legal position. Key Evidence and Findings: The appellant's explanation on the nature of collection services and relevant judicial pronouncements were accepted. Application of Law to Facts: Credit on service tax paid on collection charges is valid and demand for reversal is set aside. Treatment of Competing Arguments: Department argued lack of nexus post 1.4.2011; Tribunal rejected this based on case law. Conclusion: Credit on collection charges is eligible. Issue 5: Demand for reversal of credit on debit notes raised to group concerns for shared services Legal Framework and Precedents: Similar principles as for BSS credit apply. The appellant argued procedural lapse in not obtaining ISD registration. The Department contended that credit must be proportionate to actual use and reimbursement. Court's Interpretation and Reasoning: The Tribunal found that since the appellant paid service tax on the entire consideration and services were used for output services, credit cannot be denied. The procedural lapse of non-registration as ISD cannot defeat substantive credit rights. The demand for reversal on this ground is rejected. Application of Law to Facts: Credit availed on service tax paid on services passed on by debit notes to group concerns is valid. Conclusion: Demand for reversal of credit on debit notes to group concerns is set aside. Issue 6: Demand for reversal of credit on input services for which credit notes were issued by vendors Legal Framework and Precedents: Rule 4(7) of CCR requires reversal of credit when consideration is reduced by credit notes. However, if credit notes do not include service tax component and vendor has not claimed adjustment under Rule 6(3) of Service Tax Rules, credit reversal may not be required. Court's Interpretation and Reasoning: The appellant produced declarations from the vendor confirming that credit notes issued did not include service tax and that vendor had not adjusted service tax with the government. Therefore, the appellant bore the service tax cost and was entitled to credit. The demand for reversal was not sustainable. Application of Law to Facts: Credit on input services for which credit notes were issued without service tax component is valid. Conclusion: Demand for reversal of credit on such input services is set aside. Issue 7: Applicability of extended period of limitation and imposition of equal penalty Legal Framework and Precedents: Extended period of limitation and equal penalty require proof of suppression of facts or intent to evade tax. Decisions in Tally Solutions Pvt. Ltd., CCE vs Zyg Pharma Pvt. Ltd., Max Life Insurance Company Ltd., and International Merchandising Company LLC v. CST establish that mere interpretation disputes without fraudulent intent do not attract extended limitation or penalty. Section 80 of the Finance Act provides relief in deserving cases. Court's Interpretation and Reasoning: The Tribunal found that the appellant maintained proper records, cooperated with the department, and the issues involved complex statutory interpretation. No suppression or evasion was alleged. The demand was based on audit and statutory returns, not on undisclosed facts. Therefore, invocation of extended limitation and imposition of equal penalty was improper. Application of Law to Facts: Extended period and penalty demands are set aside. Conclusion: Extended limitation period and equal penalty are not applicable. Issue 8: Liability to pay interest on disputed demands Legal Framework and Precedents: Interest is payable on confirmed tax demands. If the substantive demand is unsustainable, interest liability does not arise. Court's Interpretation and Reasoning: Since the Tribunal set aside the substantive demands of service tax and CENVAT credit reversal, no interest liability can be fastened on the appellant. Conclusion: Demand for interest is set aside. 3. FINAL CONCLUSIONS (a) Demand of service tax on out roamer revenue transferred from other entities and circles is set aside. (b) Demand for reversal of CENVAT credit on Business Support Services reimbursed by other circles is set aside. (c) Demand for reversal of CENVAT credit on HDPE ducts is set aside, credit is allowed as inputs. (d) Demand for reversal of credit on collection charges paid to collection agents is set aside. (e) Demand for reversal of credit on debit notes raised to group concerns is set aside. (f) Demand for reversal of credit on input services for which credit notes were issued by vendors without service tax component is set aside. (g) Invocation of extended period of limitation and imposition of equal penalty is not justified and demands are set aside.