2026 (1) TMI 715 - AT - Service Tax

Cenvat credit claimed on input services from fictitious vendors disallowed u/r 4(7); Rs.20,07,497 demand reinstated

Dominant issue: whether CENVAT credit claimed on input services issued by fictitious vendors was lawfully admissible. Reasoning: under Rule 4(7) Cenvat ... Fraudulent availment of CENVAT Credit on input services - companies were mainly conduits for generating bogus invoices with fictitious bank accounts and employees acting as proxies for directors - service tax charged on these invoices was neither deposited nor remitted to the Government - applicability of time limitation - HELD THAT:- The Commissioner (Appeals) has noted that from perusal of the input service invoices and output service invoices submitted by the respondent that the major input service and output service of the party is of same description. However, the Commissioner (Appeals) has observed that there was some discrepancy in the 'month' of service as in input service invoice, the same is mentioned as 'April', while in output service invoice it is mentioned as December. However, it is found that the Commissioner (Appeals) has erred in comparing the input invoice for the month April to the output invoice for the month of December. It is abundantly clear that the input invoice was for the month of April, whereas the output invoice was for the month of December and as such the nature of service is that it could have been availed for the month it pertained to. It is noted that the nature of input and output service are similar that it is received and provided in the same month. Consequently, the Commissioner (Appeals) has erred in his findings. Further, it is found that the Commissioner (Appeals) has held that mere return of 'speed post' letters need not to be taken as a conclusive piece of investigation, holding that the postal authorities remarks 'left' or 'no such company exist' does not means that the addresses did not exist or that the company is untraceable. It is found that as per Rule 4(7) of Cenvat Credit Rules, 2004 as applicable during relevant period, the CENVAT credit in respect of input service was allowed, on or after the day which payment is made of the value of input service shall be allowed, on or after the day which payment is made of the value of input service and the service tax paid or payable as is indicated in invoice, bill or, as the case may be, challan referred to in Rule 9. Thus, it was the obligation on the part of respondent to provide proof of payment of value of input service and the service tax paid or payable as is indicated in the invoices. It is on record that M/s SVAM Software Ltd., the respondent could not provide tax payment evidence in respect of services in question, as they did not receive any service from the above mentioned non-existing vendors except invoices. The Rajasthan High Court in Vodafone Digilink Limited vs. Commissioner of Central Excise, Jaipur-II [2012 (11) TMI 955 - RAJASTHAN HIGH COURT] held that cenvat credit is a conditional and statutory concession and not an absolute right, consequently, subject to strict compliance with the said Rules. Similarly in Akik Dychem Private Limited vs. Commissioner of Central Excise [2013 (9) TMI 415 - CESTAT AHMEDABAD], this Tribunal upheld the demand of cenvat credit fraudulently availed along with interest and penalties finding evidence of its fraudulent nature. Further, it is settled law that fraud vitiates everything, which is a fundamental legal doctrine which means that any act obtained through deliberate description is void and a nullity. In the instant case, it is on record that the firms which had purportedly supported the input services were fictitious. The Commissioner (Appeals) had erred in setting aside the demand of Rs. 20,07,497/- - the impugned order is set aside - appeal allowed. Issues: (i) Whether the demand of Rs. 20,07,497/- relating to CENVAT credit for the period 01.04.2006 to 30.09.2006 is time-barred or is recoverable from the respondent under the provisions of the Finance Act, 1994 and Cenvat Credit Rules, 2004.Analysis: The material shows that input service invoices were issued by entities established by investigations to be fictitious suppliers; the respondent did not produce evidence of receipt of services or payment of service tax as required by Rule 4(7) and the burden under Rule 9(6) to prove admissibility of CENVAT credit was not discharged. The respondent provided both exempt and taxable services without maintaining segregated records as required by Rule 6(3), engaging the limitations on utilization of credit. The respondent also recovered service tax from clients but failed to deposit the same to the Government, bringing Section 66, Section 68, Section 70 and Section 73A of the Finance Act, 1994 into play. Where credit is fraudulently availed or supported by invoices from non-existent firms and tax collected has not been deposited, recovery is permissible under Section 73(1) read with Section 73A(1) and Rule 14 of the Cenvat Credit Rules notwithstanding limitation, consistent with the principle that fraud removes limitation defenses.Conclusion: The demand of Rs. 20,07,497/- for the period 01.04.2006 to 30.09.2006 is not time-barred and is recoverable; conclusion is in favour of the Revenue.Final Conclusion: The appellate order that set aside the demand for Rs. 20,07,497/- is set aside and the Department's appeal is allowed, confirming recoverability of the specified demand under the cited statutory provisions.Ratio Decidendi: Where CENVAT credit is supported by invoices from fictitious suppliers and the recipient fails to prove receipt of services or payment of service tax, such credit is inadmissible and amounts recovered or sums collected as service tax may be recovered under Section 73(1) read with Section 73A(1) of the Finance Act, 1994 and applicable Cenvat Credit Rules despite limitation rules.