2025 (1) TMI 1210 - AT - Service Tax

CESTAT allows appeal, sets aside CENVAT credit demands worth Rs.2.39 crore citing proper credit utilization and no suppression

M/s. General Manager, GMTD, BSNL Versus Commissioner of CGST, Customs & Central Excise – Dehradun

CESTAT New Delhi allowed the appeal challenging demands for excess CENVAT credit availment. The Tribunal held that discrepancies between credit register ... CENVAT Credit - input services - gardening services - excess availment of Cenvat credit on capital goods, in violation of the Cenvat Credit Rules - discrepancies between the credit register and ST-3 returns - availment of credit without any supporting document in violation of Rule 9(5) of the CCR - short-paid Education Cess and Secondary & Higher Education Cess by cross-utilizing available credit - interest on late payment of service tax for September 2011 - Short payment of Service tax during the period from April 2012 to June 2012 - Non-payment of amount under Rule 6(3) of the Credit Rules related to exempted village panchayat telephones - Non-payment of amount under Rule 3(5A)(b) of the Credit Rules on sale of capital goods as scrap - Non-payment of interest due to date of tax liability as per the POT Rules - extended period of limitation. CENVAT Credit on the basis of the difference noticed in the ST-3 returns and the Cenvat Credit Register - HELD THAT:- The difference between the amount of Cenvat credit availed as reflected in the Cenvat Credit Register than the one recorded in the ST-3 returns is an admitted fact, however, the contention of appellant is that the Cenvat Credit Register shows that 100% credit was taken by the appellant during the period in dispute in their credit register but only 50% thereof as has been utilized is reflected in their ST-3 returns. The difference is due to the balance 50% of the amount which was not utilized and therefore was not shown in the ST-3 returns - The perusal makes it clear abundantly that it was the statutory mandate on the appellant-assessee to utilize only 50% of the Cenvat credit availed on the capital goods. The department has not produced any evidence to falsify the same. In the case of J.K. TYRE & INDUSTRIES LTD. VERSUS ASST. COMMR. OF C. EX., MYSORE [2016 (11) TMI 911 - CESTAT BANGALORE - LB], Tribunal Large Bench has come to the conclusion that interest liability would not arise when the assessee had merely availed credit and had reversed the same before utilizing the availed credit for remittance of duty. The noticed difference was statutorily permissible and has been denied to be ground for raising the demand of reversal. The unutilized credit has clearly been held as good as the non availed Cenvat credit. In the light of this discussion, there are no justification when the demand is confirmed based on the noticed difference in ST-3 returns than to the credit register. The demand of excess Cenvat credit of Rs.1,79,11,286/- is therefore set aside. CENVAT credit - Input services including the security services are not the eligible input services - availment of Cenvat credit on the input services has been denied for the reason that there is no mention of supply of any security services on the invoices based whereupon the Cenvat credit has been availed and no evidence about supply of skilled manpower - HELD THAT:- The difference of supply of unskilled and skilled labour has wrongly been created by the adjudicating authority below as the same is not relevant to decided as to whether the service provided shall qualify for input service or not. It appears to be an admitted fact that manpower was supplied by the service provider to M/s. BSNL for being deployed at various offices of BSNL/appellant. The work power irrespective skilled or unskilled was meant to facilitate M/s. BSNL to render their output telephonic services. The service provided is eligible input service. Hence, denial of availment of Cenvat credit on the eligible input services is wrong. The findings in the order under challenge are liable to be set aside to this extent as well. The demand of Cenvat credit amounting to Rs.59,94,339/- is therefore set aside. Cenvat credit availed on capital goods was required to be reversed in terms of Rule 3(5A) of Cevat Credit Rules, 2004 - HELD THAT:- The Rule 3(5A) cannot apply in a situation where Cenvat credit has not been availed on capital goods. In the present case, the appellant’s plea is that the scrap material in question pertains to those capital goods on which the appellant had not availed the Cenvat credit, as majority of those capital goods were purchased prior to 2004 i.e. prior the enactment of Cenvat Credit Rules. The details of those capital goods were duly been provided by the appellants. The onus was of the department to prove that the appellant has availed the Cenvat credit on the capital goods which later got cleared as scrap but there is no such evidence produce. Hence, there is no rebuttal to the said contention of the appellant - The sale of capital goods as waste in the impugned show cause notice is with respect to those capital goods on which the appellant had not availed the Cenvat credit. The confirmation of demand is therefore not sustainable. Extended period of limitation - HELD THAT:- The appellant had been regularly filing its ST-3 returns and its records were being regularly audited by the department. Thus, the entire material was already to the notice of the department. In such circumstances, the appellant cannot be held accountable for not disclosing the activity of making provision made by it, specifically, when the same was not required in the law. It is held that suppression of facts has wrongly been alleged against the appellant - This Tribunal in the case of INDIAN OIL CORPORATION LTD. VERSUS COMMISSIONER OF C. EX., AHMEDABAD [2013 (9) TMI 310 - CESTAT AHMEDABAD] held that PSU cannot have mala fide intentions for non-disharge of duty and there cannot be an allegations of intention to evade duty. Hon’ble High Court of Punjab & Haryana in the case of COMMISSIONER VERSUS MARKFED REFINED OIL & ALLIED INDUS [2009 (7) TMI 1204 - PUNJAB AND HARYANA HIGH COURT] held that once the assessee is government organization, it is not easy to infer any evasion of duty much less its intention to do so - The suppression of facts was wrongly alleged, and the extended period for issuing the show cause notice was unjustified. Conclusion - i) There are no justification when the demand is confirmed based on the noticed difference in ST-3 returns than to the credit register. The demand of excess Cenvat credit of Rs.1,79,11,286/- is therefore set aside. ii) The work power irrespective skilled or unskilled was meant to facilitate M/s. BSNL to render their output telephonic services. The service provided is eligible input service. Hence, denial of availment of Cenvat credit on the eligible input services is wrong. The findings in the order under challenge are liable to be set aside to this extent as well. iii) The sale of capital goods as waste in the impugned show cause notice is with respect to those capital goods on which the appellant had not availed the Cenvat credit. The confirmation of demand is therefore not sustainable. iv) The suppression of facts was wrongly alleged, and the extended period for issuing the show cause notice was unjustified. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe Tribunal considered several core legal issues in this case:(a) Whether the appellant wrongly availed Cenvat credit on gardening services, which are not covered under the definition of 'input services' as per Rule 2(l) of the Cenvat Credit Rules, 2004.(b) Whether there was excess availment of Cenvat credit on capital goods, in violation of the Cenvat Credit Rules, due to discrepancies between the credit register and ST-3 returns.(c) Whether the appellant availed inadmissible credit without any supporting documents or details of input services.(d) Whether the appellant short-paid Education Cess and Secondary & Higher Education Cess by cross-utilizing available credit.(e) Whether the appellant was liable for interest on late payment of service tax for September 2011 and other short payments.(f) Whether the appellant failed to pay the amount under Rule 6(3) of the Credit Rules related to exempted village panchayat telephones.(g) Whether the appellant failed to pay the amount under Rule 3(5A)(b) of the Credit Rules on the sale of capital goods as scrap.(h) Whether the extended period of limitation was rightly invoked for issuing the show cause notice.ISSUE-WISE DETAILED ANALYSISIssue No. 1: Excess Availment of Cenvat Credit on Capital GoodsThe appellant contended that the discrepancy between the credit register and ST-3 returns was due to recording 100% credit on capital goods in the credit register but utilizing only 50% in the first year, as allowed by Rule 4(2)(a) of the Cenvat Credit Rules, 2004. The Tribunal found that the statutory mandate allowed only 50% utilization, and the department failed to provide evidence to contradict this. The Tribunal relied on precedents, including the Bill Forge Pvt. Ltd. case, which clarified that unutilized credit is equivalent to non-availed credit. Thus, the demand for excess Cenvat credit of Rs. 1,79,11,286/- was set aside.Issue No. 2: Inadmissible Credit on Input ServicesThe Tribunal examined the definition of input services under Rule 2(l) of the Cenvat Credit Rules. It noted that post-2011, the definition included a main part, inclusive part, and exclusive part. The adjudicating authority had denied credit based on the absence of evidence for skilled manpower supply. However, the Tribunal held that the distinction between skilled and unskilled labor was irrelevant for determining eligibility as input services. The Tribunal concluded that the services provided were eligible input services, and the denial of Cenvat credit amounting to Rs. 59,94,339/- was incorrect.Issue No. 3: Sale of Capital Goods as ScrapThe demand of Rs. 19,83,893/- was confirmed for the sale of capital goods as scrap by invoking Rule 3(5A) of the Cenvat Credit Rules. The Tribunal found that Rule 3(5A) was not applicable during the relevant period (prior to its amendment in 2013). Additionally, the appellant claimed that the scrap pertained to capital goods on which no Cenvat credit was availed. The department failed to provide evidence to counter this claim. The Tribunal held that Rule 3(5A) could not apply to capital goods without availed credit and set aside the demand.Issue No. 4: Invocation of Extended Period of LimitationThe Tribunal observed that the appellant regularly filed ST-3 returns and was subject to departmental audits. The department was already aware of the relevant facts. The Tribunal relied on the principle that PSUs are not presumed to have mala fide intentions. It concluded that suppression of facts was wrongly alleged, and the extended period for issuing the show cause notice was unjustified.SIGNIFICANT HOLDINGSThe Tribunal set aside the demands for excess Cenvat credit, inadmissible credit on input services, and the sale of capital goods as scrap. It emphasized that unutilized credit is equivalent to non-availed credit and that the department bears the burden of proof for claims of availed credit. The Tribunal also held that the invocation of the extended period of limitation was unjustified, given the appellant's status as a public sector undertaking and the lack of evidence for suppression of facts.The appeal was allowed with consequential relief.