2012 (12) TMI 924 - AT - Central Excise

Denial of CENVAT Credit - Credit taken on invalid invoices - Held that - Cenvat credit, in question, has been taken on the basis of four invoices issued by M/s. Karanveer Singh & Brother in March, 2008 in respect of the services provided by them during the period of June, 2005 till Feb., 2008. Prima facie, the contention of the department that the invoices in question, having been issued after 14 days from the date of providing taxable services are not valid for cenvat credit, does not appear to be correct as these invoices have to be treated as supplementary invoices and the cenvat credit could be denied only when the non-payment of service tax by the service provider was due to fraud, suppression of facts, intentional contravention of the rules with intent to evade payment of service tax. However, since the service tax demand itself against the service provider was dropped by the original adjudicating authority and that order of the original adjudicating authority was upheld by the Commissioner (Appeals), the department s allegation that non-payment of service tax by M/s. Karanveer Singh was due to fraud, wilful mis-statement, intentional contravention of rules is prima facie not sustainable. The only ground on which the cenvat credit could be denied to the appellant is that after dropping of the service tax demand the service provider has taken its refund, but this is not the contention of the department. In view of this, I am of the prima facie view that the Appellant have strong prima facie case - Stay granted.

Summary

Issues:
1. Validity of cenvat credit based on invoices issued by unregistered service provider.
2. Allegations of wilful suppression and intentional contravention of tax rules.
3. Imposition of penalty on the appellant and service provider.

Issue 1: Validity of cenvat credit based on invoices issued by unregistered service provider

The appellant, a manufacturer of insulated wires and cables, availed services of cargo handling and packaging from an unregistered service provider, M/s. Karanveer Singh & Brothers, between 2005 and 2008. The service provider was not registered with central excise authorities for taxable services during this period. The appellant took cenvat credit of service tax paid by the service provider on the basis of invoices issued in March 2008. However, a show cause notice alleged that the invoices were issued after the prescribed 14-day period and were not valid for cenvat credit. The department contended that the invoices should be treated as supplementary invoices, and cenvat credit could only be denied if non-payment of service tax was due to fraud or intentional contravention of rules. The original adjudicating authority dropped the service tax demand against the service provider, indicating that the allegation of intentional contravention was not sustainable. The appellate tribunal held that the appellant had a strong prima facie case, waiving the requirement of pre-deposit for the appeal and staying recovery pending appeal disposal.

Issue 2: Allegations of wilful suppression and intentional contravention of tax rules

The show cause notice issued to the appellant alleged that they wrongly took cenvat credit based on invoices issued by the unregistered service provider, M/s. Karanveer Singh & Brothers, after the 14-day period. The notice also claimed that the invoices were not valid under Rule 9(1) of the Cenvat Credit Rules, 2004, due to wilful suppression of facts and contravention of tax provisions with intent to evade payment. The original adjudicating authority confirmed the demand, imposed a penalty on the appellant, but dropped penal proceedings against the service provider. The appellant argued that since the service provider's non-payment of service tax was not intentional contravention, cenvat credit should not be denied. The tribunal agreed, stating that the department's allegation of intentional contravention was not sustainable, leading to the waiver of pre-deposit requirements for the appeal.

Issue 3: Imposition of penalty on the appellant and service provider

The show cause notice not only sought recovery of service tax and interest but also proposed penalties on both the appellant and the service provider, M/s. Karanveer Singh & Brothers. While the penalty on the appellant was upheld by the adjudicating authorities, the penal proceedings against the service provider were dropped. The appellant argued that since the service provider was not intentionally contravening tax rules, cenvat credit should not be denied. The tribunal found in favor of the appellant, stating that the service provider's non-payment of service tax was not due to fraud or intentional contravention, leading to the waiver of pre-deposit requirements for the appeal and a stay on recovery pending appeal disposal.

This detailed analysis of the legal judgment highlights the issues involved, the arguments presented by both sides, and the tribunal's decision regarding the validity of cenvat credit, allegations of intentional contravention of tax rules, and the imposition of penalties on the appellant and the service provider.