2025 (12) TMI 510 - AT - Central Excise

No reverse charge service tax; e-auction scrap services held input under Rule 2(l), extended limitation rejected

CESTAT Kolkata allowed the appeal in entirety. It held that no service tax was payable under reverse charge for technological and operational services ... CENVAT Credit - technological and operational services rendered by the foreign entity in the years 1998 and 1999 - e-auction services received towards sale of scrap from the factory premises - time limitation. Technological and operational services rendered by the foreign entity in the years 1998 and 1999 - HELD THAT:- It is found that in respect of the overseas services rendered in 1998 and 1999, in the first place, there was no Service Tax liability, as has been correctly canvassed by the Ld. Authorized Representative representing the Revenue - The Hon’ble Bombay High Court in the case of Indian National Shipowners Association v. Union of India r[2008 (12) TMI 41 - BOMBAY HIGH COURT], duly affirmed by the Hon’ble Supreme Court in [2009 (12) TMI 850 - SC ORDER], has held that no Service Tax is payable for the services rendered by overseas entities till 17.04.2006. Therefore, technically speaking, no Service Tax is required to be paid on reverse charge basis for the services rendered during 1998 and 1999. It was found that the appellant had been negotiating with the overseas service provider, who has raised the invoice only in the year 2008, for which the payment has been done in 2008. By this time, reverse charge mechanism (RCM) procedure had already been notified for such overseas services. Therefore, the appellant cannot be faulted for making the Service Tax payment on RCM basis - the demand of Rs.34,61,434/- set aside. Denial of CENVAT Credit on the e-auction services - HELD THAT:- Rule 2(l) allowed all services used directly or indirectly, in or in relation to manufacture to be eligible for CENVAT Credit. Scrap is generated in the process of manufacture and then, the same is required to be cleared from time to time, in order to continue the manufacturing process. Therefore, there are no substance in the allegation made by the Revenue. Accordingly, the demand of Rs.25,82,950/-, set aside on merits. Time limitation - HELD THAT:- There are sufficient force in the appellant’s argument that the Revenue could not have invoked the extended period provisions in this case. The appellant has been declaring the CENVAT taken in their monthly Returns and even the audit had pointed out these issues way back in 2009. Therefore, the Department could not have taken more than three years to issue the Show Cause Notice. Holding that no case of suppression has been made out against the appellant, the confirmed demands set aside even on account of time-bar. Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether CENVAT credit is admissible on Service Tax paid under reverse charge in 2008 on technological and operational services rendered by an overseas service provider during 1998-1999. 1.2 Whether CENVAT credit is admissible on Service Tax paid on e-auction services used for sale of scrap generated in the manufacturing process. 1.3 Whether the extended period of limitation was validly invoked for recovery of the disputed CENVAT credit, in view of the disclosures made in statutory returns and audit proceedings. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: CENVAT credit on Service Tax paid under reverse charge for overseas services rendered in 1998-1999 but invoiced/paid in 2008 Legal framework (as discussed) 2.1 The Court noted the law laid down in Indian National Shipowners Association v. Union of India, affirmed by the Supreme Court, to the effect that no Service Tax was payable on services rendered by overseas entities prior to 17.04.2006. 2.2 It was noted that reverse charge mechanism for such overseas services was introduced subsequent to the period 1998-1999 and was in force in 2008 when the payment was made and tax was discharged. 2.3 It was further noted that the Department did not dispute that the technological and operational services in question qualify as 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004. Interpretation and reasoning 2.4 The Court accepted that though the services were rendered in 1998-1999, the commercial negotiations regarding the amount payable continued and concluded only in 2008, when the overseas entity raised an invoice and payment was made. 2.5 By 2008, the reverse charge mechanism for taxable services received from abroad had already been prescribed. The Court held that in these circumstances, the assessee cannot be faulted for discharging Service Tax on reverse charge basis on the 2008 payment. 2.6 While acknowledging that, technically, no Service Tax was exigible in 1998-1999 as per the Indian National Shipowners ruling, the Court observed that if the Department's stand was that no tax was payable for that period, it ought not to have accepted the tax payment made on reverse charge basis in 2008. 2.7 As the Department did not contend that the nature of the services was outside the scope of 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004, the credit could not be denied on that ground. Conclusions 2.8 CENVAT credit of Service Tax paid in 2008 on overseas technological and operational services rendered during 1998-1999 is admissible, there being no dispute on the input service nature of the services and no valid basis to deny credit once tax has been accepted by the Department; the demand of Rs. 34,61,434/- was set aside. Issue 2: CENVAT credit on e-auction services used for sale of scrap Legal framework (as discussed) 2.9 The Court referred to Rule 2(l) of the CENVAT Credit Rules, 2004, under which all services used directly or indirectly, in or in relation to the manufacture of final products, are eligible as 'input service'. Interpretation and reasoning 2.10 The Court found that scrap is generated in the course of manufacture and must be cleared from time to time to enable the continuation of manufacturing activities. 2.11 The e-auction services were used for organizing sale of this scrap from the factory premises, which the Court treated as integrally connected with the manufacturing and clearance operations. 2.12 On this basis, the Court rejected the Department's contention that such e-auction services were unrelated to manufacturing activity. Conclusions 2.13 E-auction services used for sale of scrap generated in the manufacturing process and cleared from the factory qualify as 'input service' under Rule 2(l); CENVAT credit on such services is admissible on merits. The demand of Rs. 25,82,950/- was set aside. Issue 3: Validity of invocation of extended period of limitation for recovery of CENVAT credit Legal framework (as discussed) 2.14 The Court proceeded on the basis of the extended period provisions requiring suppression, mis-statement, or similar contumacious conduct by the assessee for invocation of a longer limitation period. Interpretation and reasoning 2.15 The Court noted that the assessee had consistently declared the CENVAT credit taken in its monthly returns. 2.16 It was specifically observed that departmental audit had already pointed out the alleged ineligibility of the disputed credits in December 2009. 2.17 In this backdrop, the Show Cause Notice issued on 24.09.2013 was considered to have been issued after an inordinate delay of more than three years from the audit objection, despite full disclosure in returns. 2.18 The Court held that, in such circumstances, there was no material to sustain an allegation of suppression or willful mis-statement against the assessee so as to justify invocation of the extended limitation period. Conclusions 2.19 The extended period of limitation was not validly invoked, as no case of suppression or similar misconduct was made out; the confirmed demands were therefore also liable to be set aside as time-barred. 2.20 Consequently, all demands, interest and penalties arising from the impugned order were set aside, and the appeal was allowed with consequential relief in accordance with law.