2021 (12) TMI 1533 - AT - Service Tax

NPCI certificates not recognized under Rule 9(1) CCR; adjudicator must verify actual service tax payment before allowing CENVAT credit

Commissioner of CGST, Mumbai Central Versus M/s. HDFC Bank Ltd.

CESTAT MUMBAI - AT allowed the appeal by remanding the matter to the original adjudicating authority. It held that certificates issued by NPCI are not ... CENVAT Credit - credit availed on the strength of the document which is not the prescribed document for availment of CENVAT Credit - Rule 9(1) of the CENVAT Credit Rules, 2004 - documents issued by National Payment Corporation of India Ltd. (NPCI) in respect of service tax paid on Interchange Fee - proper document or not - HELD THAT:- Admittedly the document the certificate issued by NPCI do not qualify as prescribed document in terms of Rule 9(1) of the CENVAT Credit Rules, 2004. Respondents have labored hard during the course of the entire proceedings to establish that the document against which the CENVAT Credit has been claimed qualify to be prescribed document in terms of Rule 9 (2) of the CENVAT Credit Rules, 2004 read with Rule 4A of the Service Tax Rules, 1994. They also succeeded before the Commissioner. It is settled law that the credit could not be allowed, if the fact of payment of tax cannot be established. In the present case what needs to be examined is not the admissibility of the document against which the credit has been claimed but the fact of payment of tax needs to be established. In his statement recorded on 22.03.2017, the Chief Financial Officer of NPCI, on being asked as to whether NPCI is raising any invoices for Interchange Fees and the Service Tax payable thereon, stated that NPCI does not raise any invoices in respect of Interchange Fee and the Service Tax payable thereon, however, NPCI do provide daily settlement report which contains amongst other information the Interchange Fees and Service Tax thereon - From the above statement the obvious conclusion is that NPCI is not paying any service tax the credit, but only engaged in issuing of the certificate against which the CENVAT Credit has been availed by the respondent. If the NPCI was not issuing any invoices in respect of this amount claimed as credit, these amount would not reflect in the ST-3 returns filed by NPCI. In case there is anything contrary to this the same needs to be established from the ST-3 returns filed by NPCI during the relevant period. In the present case it would be for the respondent to establish the payment of the service tax by the NPCI/ acquiring banks for which they have claimed the credit. In the case of Citi Bank NA [2021 (12) TMI 483 - SUPREME COURT], relied upon by the authorized representative Hon’ble Supreme Court has clearly observed 'The contradiction in the submissions made before the Apex Court on the issue of double taxation and the claim of credit by the respondent who is the issuing bank lead to inevitable conclusion that verification of the service tax paid for which credit is claimed is required to be made by the jurisdictional authorities.' Respondents have relied upon series of decisions to argue the case in their favour. It is not found that any of these decisions to state that CENVAT Credit can be allowed in respect of the service tax, payment of which cannot be established by the proper documentary trail. The factum of payment needs to be established and verified. If this fact can be established through the documentary trail then the credit will be admissible to the respondent as claimed. The matter needs to be reconsidered by the original authority on this ground alone, and satisfaction in this regard needs to be recorded in an objective manner by the adjudicating authority after considering all the evidences available and that the respondents may produce in support of their claim to credit - appeal allowed by way of remand. 1. ISSUES PRESENTED AND CONSIDERED - Whether CENVAT credit can be availed by a provider of output service on the basis of statements/certificates issued by an intermediary (NPCI) rather than invoices/bills/challans issued by the actual service providers (acquiring banks), having regard to Rule 4A of the Service Tax Rules, 1994 and Rules 3, 4 and 9 of the CENVAT Credit Rules, 2004. - Whether the factual prerequisite for allowing CENVAT credit - namely, payment of service tax by the input service provider - was established by objective documentary evidence (e.g., ST-3 returns or invoices) and where the burden of proof lies when the prescribed documents are not of the type listed in Rule 9(1). - Whether the proviso to Rule 4A and Rule 9(2) operate to relax prescribed documentary requirements for banks/financial institutions and, if so, whether that relaxation extends to e-statements or settlement reports issued by an intermediary acting as agent of the acquiring bank. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of CENVAT credit based on NPCI-issued statements (Legal framework) - Legal framework: Rules 3, 4 and 9 of the CENVAT Credit Rules, 2004 set conditions for taking credit and prescribe admissible documents (Rule 9(1)); Rule 9(2) permits allowance even if a document lacks some particulars provided certain core details exist and the jurisdictional officer is satisfied. Rule 4A(1) of the Service Tax Rules, 1994 prescribes invoice/bill/challan requirements and contains a proviso permitting banks/financial institutions to use 'any document, by whatever name called' so long as required information is present. - Precedent treatment: The Tribunal and some benches have allowed credit on e-statements or agent-issued documents (e.g., Karur Vysya Bank, NP Publicity), while revenue relied on higher court pronouncements mandating strict/plain meaning interpretation in taxing statutes (Dilip Kumar larger bench principle as invoked) to argue against liberal treatment. - Interpretation and reasoning: The Court (Commissioner in original order) analysed the nature and statutory role of the intermediary (NPCI), its agreements with member banks, the settlement mechanism and the content of the statements. It held that where statements issued by NPCI contain all particulars required by Rule 4A (or Rule 9(2) core details) and NPCI functions under mandate/coordination with RBI facilitating settlement (including collection/pass-through of interchange and tax), denying credit solely because the document is issued by NPCI would be unfair and contrary to the object of the rules. The Tribunal, however, emphasized that NPCI is not a statutorily specified issuer under CENVAT Rules and that the admissibility ultimately depends on objective proof of tax payment by the actual service provider. - Ratio vs. Obiter: Ratio (as upheld by the Commissioner): where an intermediary issues a document that contains required particulars and the intermediary operates as authorised/mandated facilitator under bank agreements, such document may not be treated as invalid per se. Obiter: broader comments on policy unfairness and coordination with RBI as sufficient to treat intermediary documents as statutory invoices in all circumstances. - Conclusion: Documents issued by NPCI can qualify as valid for CENVAT purposes only if they contain the requisite particulars and there is objective satisfaction/verification that the tax has been paid by the service provider; mere issuance by NPCI does not automatically convert the statement into a prescribed invoice under Rule 9(1) absent documentary proof of tax payment. Issue 2 - Burden of proof and establishment of payment of service tax by input service provider - Legal framework: Rule 9 mandates that CENVAT credit be based on specified documents; Rule 9(2) allows discretion to permit credit where documents lack particulars but contain core details and the Deputy/Assistant Commissioner is satisfied that tax has been paid and inputs used; Rule 6 places burden of proof regarding admissibility on the claimant. - Precedent treatment: Authorities cited indicate that CENVAT credit cannot be allowed where payment of tax by provider cannot be established (precedents emphasising documentary trail and jurisdictional satisfaction). Some benches permitted credit when jurisdictional authority had recorded satisfaction after verification (Pragati Steels, certain CESTAT benches). - Interpretation and reasoning: The Tribunal stressed that the fundamental requirement of the CENVAT regime is proof of payment of tax by the input service provider. The CFO of NPCI admitted NPCI did not raise invoices or itself pay service tax on interchange fees but issued settlement reports. Therefore the fact of payment must be traced to either NPCI (if it paid) or to the acquiring banks (whose ST-3 returns or invoices should reflect payment). Where the document relied upon is not a prescribed invoice of the service provider, the claimant must produce verifiable documentary trail (ST-3 returns, acquiring bank invoices, evidence of remittance) to satisfy the jurisdictional officer objectively. Subjective satisfaction without documentary verification is inadequate. - Ratio vs. Obiter: Ratio: admissibility of credit turns on objective verification of tax payment by the service provider; burden on claimant to establish such payment where supporting document is not itself a prescribed invoice. Obiter: remarks on inconsistency of parties' positions before different fora (e.g., claiming non-taxability in other appeals while claiming credit here) as strengthening need for verification. - Conclusion: The CENVAT credit claim must be remanded for objective verification of payment of service tax by the service provider (NPCI/acquiring bank) through verifiable documentary trail; absent such proof credit cannot be sustained. Issue 3 - Interaction of Rule 4A proviso and Rule 9(2) (documentary relaxations for banking sector) - Legal framework: Proviso to Rule 4A(1) allows banks/financial institutions to issue 'any document' (whether serially numbered or containing address) provided it contains other required information; Rule 9(2) provides discretionary allowance where documents lack particulars but include core details and jurisdictional officer is satisfied of payment and receipt. - Precedent treatment: Some decisions have read the proviso and Rule 9(2) harmoniously to allow e-statements or agent-issued statements as sufficient where jurisdictional authority records satisfaction; others caution that statutory prescriptions cannot be expanded by judicial interpretation and strict reading in tax matters is required. - Interpretation and reasoning: The Tribunal held both provisions must be read together: the proviso relaxes format requirements for banking documents, and Rule 9(2) permits allowance despite missing particulars subject to jurisdictional satisfaction. However, such harmonised reading does not abolish the core requirement of establishing payment of tax by the input service provider. Where an intermediary issues statements as agent under contract, those statements may qualify if they carry requisite particulars and payment is verifiable; but the intermediary's mere issuance does not supplant the requirement that the acquiring bank must have discharged the tax liability (or that NPCI has done so and reported same in returns). - Ratio vs. Obiter: Ratio: proviso to Rule 4A and Rule 9(2) can provide procedural relaxation for banks but do not negate requirement of verifiable tax payment; Obiter: commentary on when remand versus larger-bench reference would have been preferable regarding conflicting coordinate bench decisions. - Conclusion: Harmonised interpretation permits acceptance of bank sector documents where they satisfy core criteria and jurisdictional verification confirms payment; otherwise the claim must be re-examined and cannot succeed purely on liberal construction. Final disposition and operative conclusion - The appellate forum allowed the revenue appeal to the limited extent of remanding the matter to the original/adjudicating authority for objective verification of the payment of service tax by the service provider (NPCI and/or acquiring bank) on the basis of verifiable documentary trail (e.g., ST-3 returns, invoices), with directions to decide the matter within a specified time. The ultimate admissibility of the contested CENVAT credit depends on the outcome of that verification. This remand forms the dispositive order; findings holding the NPCI-issued statements sufficient without documentary proof of payment were set aside for fresh, documented verification.