2025 (4) TMI 509 - AT - Service Tax

CESTAT denies CENVAT credit on training services for other entity's employees but allows credit on cable housekeeping security telecommunication services

CESTAT NEW DELHI allowed the appeal partly. The tribunal upheld denial of CENVAT credit on training services provided to employees of another entity, ... Denial of CENVAT credit - invocation of extended period of limitation - demand of interest - Imposition of penalty under section 78. Admissibility of CENVAT Credit on the disputed services - Training Service provided by other institutions to employees of GAIL - HELD THAT:- The term “coaching and training” must be “coaching and training” of the employees of the assessee. Merely because the bills were paid by the assessee, the services provided by way of coaching and training of employees of GAIL do not become input services of the assessee. The submission of the appellant that the entire legal entity should be considered to determine eligibility of CENVAT credit and that the appellant was not distinct from GAIL deserves to be rejected. Unlike income tax, where the tax is assessed on the corporate entity combining all the incomes and expenses across all its units across the country, in Service Tax, every individual service providing entity is an assessee by itself. It has to pay service tax on the output services which it provides and it has no responsibility to pay service tax if some other unit of the same company had provided services. Similarly, every unit is entitled to take CENVAT credit on the inputs and input services which it uses in providing output services but it cannot take CENVAT credit of some input services used by some other unit of the same corporate entity. Simply because the bills are paid by the appellant, the training service will not become an input service for its output service which is commercial coaching and training. For all these reasons, the submissions by the appellant deserve to be rejected. Admissibility of CENVAT Credit on the disputed services - Cable service - Housekeeping service - Pest control service - Courier service - Insurance service - Manpower recruitment service - Photocopying service - Security service - Telecommunication service - Ticket booking service - Works contract/maintenance and repair service - Catering service - Hiring of vehicles service - HELD THAT:- No reason has been given in the SCN or in the impugned order to deny CENVAT credit on this service. Considering the nature of the service provided by the appellant, it is clear that the appellant is entitled to CENVAT credit of the service tax paid on the above services. Extended period of limitation - HELD THAT:- The Returns do not require invoice-wise details of CENVAT credit nor any justification or explanation about the credit availed on each of the invoices. Once the Return is filed, it is the responsibility of the Range Officer to scrutinize it and for this purpose, he can call for any records and accounts of the assessee. Had this been done, the officer would have found out on which services CENVAT was availed and could have acted on it. Apparently, the officer did not scrutinize the Returns as the audit did much later and found the alleged irregularities. All that this proves is that the Range officer had not done his job properly and it does not show that the appellant had suppressed anything. Therefore, there is no ground to invoke extended period of limitation at all. Demand of interest - HELD THAT:- If some CENVAT credit is recoverable, interest, at the appropriate rates also must be paid as per section 75. Penalty - HELD THAT:- The Commissioner imposed a penalty under section 78 of the Finance Act which can be imposed only if the service tax was not paid by reason of fraud or collusion or willful mis-statement or suppression of facts or violation of the Act or Rules made thereunder with an intent to evade payment of service tax. In other words, the same elements which are required to invoke extended period of limitation are also required to impose penalty under this section. Since none of these elements were present, the penalty needs to be set aside as well. Conclusion - The appeal is partly allowed by upholding the denial and recovery of CENVAT credit availed on training services within the normal period of limitation with appropriate interest and setting aside the rest of the demand and penalties. The matter is remanded to the Commissioner for the limited purpose of calculation of the CENVAT credit and interest to be recovered. Appeal allowed by way of remand. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:a) The admissibility of CENVAT credit on each of the disputed services.b) The invocation of the extended period of limitation for recovery of CENVAT credit.c) The imposition of a penalty under Section 78 of the Finance Act.ISSUE-WISE DETAILED ANALYSISAdmissibility of CENVAT Credit on the Disputed ServicesThe primary issue is whether the appellant was entitled to CENVAT credit on various services, particularly the training services provided to GAIL employees. The Revenue contended that the appellant wrongly availed CENVAT credit as these services were not 'input services' for the appellant's output services, which are commercial coaching and training services.The legal framework involves Rule 2(l) of the CENVAT Credit Rules, 2004, which defines 'input service.' The definition includes services used by a provider of output service for providing an output service and specifically includes coaching and training. However, the court emphasized that the services must be used by the assessee in providing output services.The appellant argued that the definition of 'input service' includes coaching and training, and since the appellant is part of GAIL, it should be entitled to the credit. The appellant also suggested that trained GAIL employees could provide training at the appellant's institute.The court rejected these arguments, clarifying that each service providing entity is an independent assessee for service tax purposes. The services must be used by the appellant to qualify as input services. Merely paying for the services does not suffice if they are not used to provide the appellant's output services. Therefore, the court upheld the Revenue's decision to deny CENVAT credit for training services provided to GAIL employees.Regarding other services like cable, housekeeping, pest control, courier, insurance, manpower recruitment, photocopying, security, telecommunication, ticket booking, works contract, catering, and vehicle hiring services, the court found no justification in the SCN or the impugned order for denying CENVAT credit. Considering the nature of the appellant's services, the court concluded that these services qualify as input services, and the appellant is entitled to CENVAT credit.Invocation of Extended Period of LimitationThe court examined whether the extended period of limitation was rightly invoked. Under Section 73 of the Finance Act, the extended period can be invoked if non-payment of service tax is due to fraud, collusion, willful misstatement, suppression of facts, or violation of provisions with intent to evade tax.The Revenue argued that the appellant suppressed facts regarding CENVAT credit availment, which was discovered only during an audit. However, the court noted that the appellant had recorded and reported the CENVAT credit in its Returns, which do not require invoice-wise details. The court criticized the Range Officer's failure to scrutinize the Returns timely, leading to the late discovery of alleged irregularities. The court concluded that there was no suppression of facts by the appellant, and thus, the extended period of limitation could not be invoked.Imposition of Penalty under Section 78The imposition of a penalty under Section 78 requires the same elements as invoking the extended period of limitation. Since the court found no fraud, collusion, willful misstatement, or suppression of facts, the penalty was deemed inappropriate and set aside.SIGNIFICANT HOLDINGSThe court upheld the denial and recovery of CENVAT credit availed on training services within the normal period of limitation, with appropriate interest. It set aside the rest of the demand and penalties, remanding the matter to the Commissioner for calculating the recoverable CENVAT credit and interest.'The submission of the appellant that the entire legal entity should be considered to determine eligibility of CENVAT credit and that the appellant was not distinct from GAIL deserves to be rejected.''Once the Return is filed, it is the responsibility of the Range Officer to scrutinize it and for this purpose, he can call for any records and accounts of the assessee.'The core principles established include the interpretation of 'input service' under the CENVAT Credit Rules and the criteria for invoking the extended period of limitation and penalties under the Finance Act.