2019 (8) TMI 1647 - AT - Service Tax

Recovery of irregularly availed CENVAT credit - Revenue contended that the appellant was unable to comply with the terms in the remand order that the jurisdictional official be enabled to satisfy himself about consumption of the input services and that the obligation entailed by Rule 9(1) of Cenvat Credit Rules, 2004 was not fulfilled - HELD THAT - It is not in doubt that the appellant had not included the Deonar premises in the registration which continued with the Thane location. At the time of the original adjudication, the decision in MPORTAL INDIA WIRELESS SOLUTIONS (P.) LTD. VERSUS COMMISSIONER OF SERVICE TAX 2011 (9) TMI 450 - KARNATAKA HIGH COURT did not appear to have been available to guide the outcome. From the record of proceedings before the Tribunal on the previous occasion, it would appear that this decision was not placed for consideration then. Not unnaturally, after taking note of the Cenvat Credit Rules, 2004, the Tribunal was inclined to refer the matter back to the original authority for ascertainment of utilisation of the input service by the assessee as a feasible alternative. The adjudicating authority appeared to have concluded from this that the issue of relevance of registration was not in question any longer and that process of enquiry prescribed in Rule 9 of Cenvat Credit Rules, 2004 was to be undertaken for its own sake. Nothing could be farther from the intent of the direction of the Tribunal. Rule 9 of Cenvat Credit Rules, 2004 is to be read in conjunction with Rule 3 and definition of input service in Rule 2 of Cenvat Credit Rules, 2004. The entitlement to avail and take credit of taxes included in the value of input service deployed for providing output service against prescribed documentation is enabled by Rule 3 of Cenvat Credit Rules, 2004 without reference to, or permission from, jurisdictional officials; in the event of such documentation being incomplete, from the point of view of the jurisdictional officials, subjective satisfaction of receipt and the deployment can affirm availment. Impliedly, the want of such satisfaction empowers the jurisdictional officials to proceed with denial of credit as having been wrongly availed. It was in this context that the Tribunal required that the process be undertaken before the appellant herein was denied eligibility for credit on the technical ground of non-registration. In effect, the Tribunal had discarded the ground of non-registration as irrelevant to availment of credit. Registration of person liable to pay the service tax is mandated by Section 69 of Finance Act, 1994 read with Rule 4 of Service Tax Rules, 1994 prescribing the procedures thereof. It does not, as an essential qualification for availment of credit, prescribe that the recipient be registered. Undoubtedly, with the eligibility to avail credit being restricted to providers of output service , it is but natural that any assessee availing credit would, normally, be registered. However, such registration is not mandated in Cenvat Credit Rules, 2004 which is a legal framework to operationalise the scheme for setting off taxes/duties to obviate the cascading effects of taxation and, except for relying upon the general power, under Section 94 of Finance Act, 1994, to frame rules, is independent of Service Tax Rules, 1994 and Finance Act, 1994 save for the expression in such manner in Section 68 of Finance Act, 1994. Availment of credit is, thus, contingent only upon compliance with the scheme embodied in Cenvat Credit Rules, 2004. There could be no clearer exposition of the legal provision that militates against the ground on which proceedings were initiated against the appellant herein. It was open to the jurisdictional officials to establish that the impugned services were not input service within the meaning of the Rule 2 of Cenvat Credit Rules, 2004. It is not for the provider of output service to satisfy the jurisdictional official but for the jurisdictional official, on the basis of ascertainment, to satisfy itself on the deployment of such service and to initiate proceedings in the absence of such satisfaction. Neither does the show cause notice adduce any evidence of that and nor did the jurisdictional official do so under the latitude afforded by the direction in the remand order of the Tribunal - The irrelevance of registration for the privilege of availment of Cenvat credit is now settled law. There is no evidence that the impugned input services were not utilised for the provision of output services. The denial of credit, therefore, does not find sustenance of law. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
Challenge to disallowance of Cenvat credit under Rule 14 of Cenvat Credit Rules, 2004 read with Section 73 of Finance Act, 1994; imposition of penalty under Section 78 of Finance Act, 1994; relevance of registration for eligibility to avail Cenvat credit.

Analysis:

1. The appellant challenged the disallowance of Cenvat credit amounting to &8377; 1,94,91,562, along with the penalty, based on Rule 14 of Cenvat Credit Rules, 2004 and Section 73 of Finance Act, 1994. The Tribunal noted that the appellant had shifted premises without updating registration promptly, leading to the disallowance. However, the Tribunal emphasized the need to ascertain utilization of 'input services' by the appellant before denying credit solely based on non-registration.

2. The Tribunal highlighted the misconception by the adjudicating authority regarding the relevance of registration for availing Cenvat credit. The appellant's compliance with Rule 9(1) of Cenvat Credit Rules, 2004 was questioned, but the Tribunal clarified that registration was not a prerequisite for credit eligibility. The Tribunal referred to legal precedents emphasizing that registration is not mandatory under Cenvat Credit Rules, 2004, and credit availment hinges on compliance with the said rules.

3. The judgment reiterated that the entitlement to Cenvat credit is not contingent upon registration but on adherence to the Cenvat Credit Rules, 2004. The Tribunal emphasized that the denial of credit based solely on non-registration was legally untenable. The Tribunal criticized the adjudicating authority for overlooking the appellant's tax liability discharge on 'output service,' which warranted credit availment under the Cenvat scheme.

4. The Tribunal concluded that the denial of Cenvat credit due to non-registration was unjustified, citing settled legal principles. It highlighted the lack of evidence indicating misuse of 'input services' for 'output services,' rendering the denial of credit legally unsustainable. Consequently, the impugned order disallowing the credit was set aside, and the appeal was allowed, emphasizing the irrelevance of registration for Cenvat credit eligibility.

This detailed analysis of the judgment underscores the significance of compliance with Cenvat Credit Rules, 2004 over registration for availing Cenvat credit, as established by legal precedents and the Tribunal's interpretation of the law.