2009 (10) TMI 434 - AT - Service Tax

Tribunal grants relief for centralized billing, finding denial of credit for Service tax unjustified.

MANIPAL ADVERTISING SERVICES PVT. LTD. Versus CCE., MANGALORE

The Tribunal allowed the appeal, finding that denying the appellant credit for Service tax paid based on invoices in the name of branch offices was ... Cenvat Credit of Service tax- a show cause notice was issued demanding the reversal of such service tax credit, with interest and penalty was sought to be imposed on the ground that the appellant contravene the provisions of Rule 9 of Cenvat Credit Rule, 2004 as much as they have availed credit during the period 1-4-2005 to 31-5-2005 on the documents which are not addressed to the appellants but addressed to the other premises of the appellants at Bangalore, New Delhi, Adjudicating authority confirmed the demand and imposed penalties and also confirmed payment of interest. Held that- in the light of the decision of heavy Chemicals Ltd., credit allowed. 1. ISSUES PRESENTED AND CONSIDERED Whether a provider of taxable services registered at premises where centralized billing and/or centralized accounting systems are located may avail Cenvat credit of Service tax paid on input services where invoices for those input services are addressed to the provider's branch offices (not separately registered), without separate registration of those branch offices. Whether the absence of Service tax registration in the name of branch offices (to which input-service invoices are addressed) precludes the registered assessee at the centralized premises from availing Cenvat credit under the Cenvat Credit Rules, 2004 and Service Tax Rules, 1994. Whether prior Tribunal decisions concerning Cenvat/modvat credit on central excise duty where invoices were addressed to branch offices but consumed at factory/registered premises are applicable by analogy to Service tax input-credit claims. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Entitlement to Cenvat credit where invoices are addressed to branch offices but accounting/billing and Service tax registration are at centralized premises Legal framework: Rule 4 of the Service Tax Rules, 1994 (notably sub-rule (2)) permits an assessee who provides taxable services from multiple premises or receives such services in multiple premises and has centralized billing or centralized accounting systems located in one or more premises to, at his option, register the premises from where those centralized systems are located. The Cenvat Credit Rules define 'input service' and govern availment of credit on service tax paid on input services. Rule 9 of the Cenvat Credit Rules, 2004 sets out conditions for availing and utilizing Cenvat credit (issue arose as alleged contravention of Rule 9). Precedent treatment: Coordinate Tribunal decisions dealing with central excise Cenvat/modvat credit have allowed credit where invoices were addressed to branch offices but the goods/services were consumed and paid for at the registered/centralized premises. Those decisions were relied upon as analogous authority. Interpretation and reasoning: The Court examined whether registration taken at the premises that house centralized billing/accounting (here, Manipal) conforms to Rule 4(2) and whether, once registered and discharging Service tax liability from that registered premises, the assessee can be denied Cenvat credit merely because invoices are in the name of branch offices. The Tribunal reasoned that Rule 4(2) gives an assessee an option to register the centralized billing/accounting premises; where the assessee has exercised that option and discharges Service tax liability from the registered premises, the factual form of the invoice addressee (branch office) does not defeat entitlement to credit, provided the invoices relate to services paid from the registered premises and the centralized system is genuine. The opposing argument - that failure to register the branch offices prevents verification whether branches also availed credit - was rejected because it cannot bar credit where the registered premises is legitimately discharging the tax liability and payments originate from that registered premises. Ratio vs. Obiter: Ratio - Where an assessee has validly registered the premises housing centralized billing/accounting pursuant to Rule 4(2) and discharges Service tax liability from that registered premises, the assessee is entitled to avail Cenvat credit on input-service invoices addressed to branch offices, when the services are paid from and consumed at the registered/centralized premises; the mere fact that branch offices are not separately registered does not by itself preclude credit. Obiter - Observations on administrative verifiability concerns (e.g., SDR's submission regarding difficulty of verification when branches are unregistered) are persuasive but not determinative of the statutory entitlement where centralization and payment from the registered premises are established. Conclusions: The impugned conclusion that credit must be denied solely because invoices were addressed to branch offices lacking separate registration is unsustainable where (a) the assessee has valid registration under Rule 4(2) at the premises with centralized billing/accounting, and (b) the service invoices were paid from and consumed at that registered premises. Credit therefore may be allowed with consequential relief. Issue 2: Applicability of prior Tribunal decisions on central excise Cenvat/modvat credit to Service tax input-credit disputes Legal framework: The Cenvat Credit Rules and Service Tax Rules share similar objectives regarding input tax credit mechanisms for indirect taxes; the Court considered whether jurisprudence developed under central excise credit rules is analogous and applicable to service-tax input-credit situations. Precedent treatment: Prior Tribunal decisions under central excise Cenvat/modvat (where invoices addressed to branches were accepted for credit when consumption/payment occurred at factory/registered premises) were cited by the appellant and treated as directly applicable by analogy. Interpretation and reasoning: The Tribunal treated those earlier decisions as squarely applicable to the instant Service tax context. The reasoning is that the principle underlying allowance of credit - that credit should follow the economic reality of consumption/payment and the place of registration for tax discharge - is equally relevant to service-tax credit. Therefore, the ratio of those central-excise decisions supports allowing Cenvat credit here. Ratio vs. Obiter: Ratio - The legal principle from the earlier central-excise decisions regarding allowability of credit despite invoices being in the name of branch offices is applicable by analogy to Service tax/Cenvat credit disputes where centralized registration and payment from the registered premises are shown. Obiter - Any distinctions between goods and services contexts not raised or articulated in detail remain obiter and were not treated as overruling the analogous application. Conclusions: The Tribunal's prior authorities on central excise credit were followed and applied by analogy to permit credit in the Service tax context; no contrary precedent was found to displace that approach. Cross-reference: See Issue 1 analysis for treatment of Rule 4(2) registration and its interaction with Cenvat credit entitlement when invoices are addressed to branch offices. Final outcome: The Tribunal set aside the impugned demand and penalties regarding denial of Cenvat credit on the grounds that the assessee had valid centralized registration and paid/discharged Service tax from the registered premises; credit was held allowable with consequential relief.