2024 (7) TMI 1743 - AT - Service Tax

Liability of subcontractor for service tax and Cenvat credit denial affirmed as prospective change; pre amendment demands and credit refusal set aside

Benefit of administrative circulars applied: under the 1997 circular a subcontractor was not liable for service tax where the main consultant paid tax; ... Benefit of administrative circulars - liability of subcontractor for service tax - retrospective application of clarificatory circular - date of provision of service as taxable event - allowability of Cenvat credit on invoices of service provider - Benefit of administrative circulars - HELD THAT:- In view of 1997 circular the sub-contractor was not supposed to pay the service tax in a case where the main consultant is paying the service tax. In the present case the appellant have enclosed the certificate from the main consultant who have declared that they have discharged the service tax on the total value including the value paid to the appellant. The 1997 circular was amended and as per new circular No. 96/7/2007-ST dated 23.08.2007 it was clarified that the sub-contractor is also required to pay the service tax irrespective whether the main contractor discharge the service tax. Accordingly, from 23.08.2007 the appellant being a sub – consultant became liable to pay the service tax. Prior to this date during the currency of 1997 circular, the appellant is not liable to pay the service tax as settled by the Hon’ble Apex Court in various judgments that the benefit flowing from the circular cannot be denied and the circular dated 23.08.2007 cannot be made applicable retrospectively. Therefore, we hold the demand of service tax prior to 23.08.2007 is not sustainable. Date of provision of service as taxable event - There is one more issue that though the service was provided prior to 23.08.2007 but the payment thereof was received by the appellant after this date, therefore, as per the department the said consideration is liable to service tax. In this regard it is a settled legal position that at the relevant time it is the date of provision of service, the service tax is leviable. In the present case admittedly the service was provided prior to 23.08.2007 for which the demand was raised on the ground that the payment was received after 23.08.2007. We are of the view that as per date of provision of service if it is prior to 23.08.2007 even though the payment was received after 23.08.2007, the demand will not sustain. However, this aspect needs to be verified by the Adjudicating Authority. Demand of cenvat credit - HELD THAT:- We find that the Adjudicating Authority has made a serious error in as much as the cenvat credit was denied invoking the Rule 9 (1) (g) of Cenvat Credit Rules, 2004 read with Rule 4 A(ii) of Service Tax Rules, 1994. This provision is applicable to only in a case where cenvat credit is availed on input service distributor's invoice whereas as per the fact the appellant have availed the cenvat credit on the invoice of service provider. Therefore, the entire basis for denial of cenvat credit is wrong and the credit was wrongly denied. The only discrepancy in the invoice is that the service provider has not mentioned the service tax registration which in our view is merely a procedural lapse particularly when there is no case of department that the service tax on such invoice was not paid by the service provider. Therefore on this basis the lower authorities have wrongly denied the cenvat credit, which we set aside. Thus, the impugned order stands modified to the above extent. Appeals are allowed in above terms. Issues: (i) Whether demand of service tax on consultancy services provided by the appellant (sub/associate consultant) prior to 23.08.2007 is sustainable; (ii) Whether denial of cenvat credit of Rs. 61,200/- by invoking Rule 9(1)(g) of the Cenvat Credit Rules, 2004 read with Rule 4A(ii) of the Service Tax Rules, 1994 was justified.Issue (i): Whether demand of service tax on services provided prior to 23.08.2007 is sustainable when main/prime consultants discharged service tax under Trade Notice No. 53-CE (Service Tax)/97 dated 04.07.1997 and Circular No. 96/7/2007-ST dated 23.08.2007 later made subcontractors liable.Analysis: The earlier Trade Notice/Circular of 04.07.1997 exempted subcontractors from liability where the main consultant discharged service tax on the total value including amounts paid to the subcontractor. Circular No. 96/7/2007-ST dated 23.08.2007 changed the position prospectively by making subcontractors liable. The governing test is the date of provision of service; benefit of an existing circular cannot be denied retrospectively. Evidence submitted included certificates from main consultants declaring payment of service tax on total value.Conclusion: Demand of service tax for services provided prior to 23.08.2007 is not sustainable and is ruled in favour of the assessee. The question whether payment received after 23.08.2007 renders earlier services taxable must be verified by the Adjudicating Authority based on date of provision of service.Issue (ii): Whether cenvat credit of Rs. 61,200/- was rightly denied by invoking Rule 9(1)(g) of the Cenvat Credit Rules, 2004 read with Rule 4A(ii) of the Service Tax Rules, 1994.Analysis: Rule 9(1)(g) of the Cenvat Credit Rules, 2004 and Rule 4A(ii) of the Service Tax Rules, 1994 apply to credit in the context of input service distributors. In the present facts the appellant availed credit on invoices received directly from the service provider, not on distributor invoices. The only defect in the invoice was non-mention of the service provider's registration number; there was no finding that service tax was not paid by the provider. Denial of credit on the incorrect legal basis and for a mere procedural lapse was therefore not justified.Conclusion: Denial of cenvat credit of Rs. 61,200/- is set aside and ruled in favour of the assessee.Final Conclusion: The impugned order is modified to the extent that (i) service tax demands relating to services provided prior to 23.08.2007 are not sustainable and (ii) the denial of cenvat credit of Rs. 61,200/- is set aside; appeals are allowed in these terms.Ratio Decidendi: Where an earlier administrative circular exempts subcontractors from liability and is in force at the time of provision of service, the benefit of that circular cannot be denied retrospectively; and cenvat credit cannot be denied by misapplying provisions applicable to input service distributors or for mere procedural invoice deficiencies when there is no finding that the service tax was unpaid by the provider.