2016 (5) TMI 376 - AT - Service Tax

Waiver of pre-deposit - Transfer of Cenvat Credit under Rule 10 in case of provider of output services - transfer of all assets on demerger - Cellular telecommunication services - Cenvat Credit availed on various inputs and capital goods used for setting up of towers and prefabricated buildings - Imposition of penalty - Held that - The question as to when the transferor does not seek the transfer of the accumulated credit, whether the same would lie in the account books of transferor or in that case, the credit is required to be disallowed. The plain reading of the said Rule nowhere suggest that owner or the transferor of the business is legally bound to transfer the credit which cannot remain in existence. Appellant continues to provide output service on which they were paying service tax and towers and other infrastructure having remained where the same were located earlier and continue to be used by the appellant. In such a scenario, we prima facie agree with the learned advocate that the denial of credit to the appellant is not in accordance with the provisions of Rule 10. As such, on the point of time bar also, the appellant has good prima facie case. Therefore the condition of pre-deposit is dispensed with and all. - Stay petition allowed

Summary

Issues:
Demand of Service Tax denial based on Cenvat Credit availed on inputs and capital goods for setting up towers and buildings. Interpretation of Rule 3(5) and Rule 10 of Cenvat Credit Rules. Applicability of Rule 10 in the case of transfer of infrastructure. Imposition of penalty and limitation period for the demand.

Analysis:
The appellant, engaged in telecommunication services, faced a demand of around ?87.40 crores for Service Tax due to denial of Cenvat Credit on inputs and capital goods used for towers and buildings. The dispute arose after a demerger where assets were transferred to another entity but continued to be used by the appellant. The Commissioner rejected Rule 3(5) application but invoked Rule 10, stating unutilized credit lapsed due to non-transfer. However, no penalty was imposed due to departmental confusion.

The Tribunal noted that Rule 10 allows transfer of unutilized Cenvat credit in cases of business transfer, which applied to the appellant's situation. The rule does not mandate transfer if the credit remains with the original owner. Referring to a previous case, the Tribunal agreed that denial of credit was unjustified as the appellant retained control and used the infrastructure. The Tribunal clarified that the dispute concerned Rule 10's application to existing credit, separate from initial credit availing proceedings.

Regarding penalty and limitation, the Tribunal found no malafide intent to evade tax, supporting the appellant's argument against penalty and time-bar. The Tribunal viewed the circumstances for penalty and extended limitation period as similar, ruling in favor of the appellant's prima facie case. Consequently, the Tribunal waived the pre-deposit condition and granted an unconditional stay, allowing both parties to seek an early hearing due to the significant revenue involved.