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2016 (6) TMI 622 - AT - Service TaxBanking and Financial Service - eligibility of cenvat credit before seeking registgration - bonafide belief that the activities were not subject to service tax - Extended period of limitation - Held that - adjudicating authority himself has accepted that the appellants were advised by their statutory auditors that services rendered by them attract service tax and that they thereon obtained service tax registration on 08-06-2009. It is also not in dispute that the appellant, pursuant to scrutiny of records by department in August 2009, but well before the issue of the show cause notice on 24-04-2010, had worked out their service tax liability for the period December, 2004 to August, 2009 as being ₹ 3,77,37,965/-, and had partly discharged the said liability by adjustment of ₹ 2,21,20,238/- from Cenvat credit and balance of ₹ 1,56,17,727 along with interest liability thereof ₹ 27,09,290/- total ₹ 1,83,27,017/- was paid by them by GAR-7 Challan dated 17-09-2009. The department has demanded a slightly higher tax liability, for the same period, of ₹ 3,89,86,389/- along with interest thereon. Cenvat Credit - appellant was entitled to avail Cenvat credit on documents evidencing receipt of eligible inputs, capital goods or input services , even before the date they obtained service tax registration. They can very well adjust part or whole of their service tax liability by utilization of such credit availed, subject to the relied upon invoices/ documents evidencing sufferance of tax/duty found to be otherwise eligible for such availment pe se for the purposes of Cenvat Credit Rules, 2004. There is no justification for equal penalty under section 78 of the Finance Act, 1994; the same requires to be set aside, which we hereby do. We however do not interfere with the penalties imposed under Sections 76 and 77(1) (a) ibid. - Decided partly in favor of assessee.
Issues Involved:
1. Applicability of Service Tax on Micro Finance Services. 2. Availment of Cenvat Credit prior to Service Tax Registration. 3. Issuance of Show Cause Notice under Section 73(3) of the Finance Act, 1994. 4. Limitation Period for Demand of Service Tax. 5. Treatment of Gross Amount as Inclusive of Service Tax. 6. Imposition of Penalties under Sections 76, 77, and 78 of the Finance Act, 1994. Issue-wise Detailed Analysis: 1. Applicability of Service Tax on Micro Finance Services: The appellants were engaged in Micro Finance Business, extending loans to people below the poverty line and facilitating insurance and money remittance services. They initially believed that Micro Financing did not fall under "Banking and Financial Service" and thus did not attract service tax. However, after consulting with statutory auditors and KPMG, they learned that income from Group Registration Fees, Insurance Facilitation Charges, and Commission on Money Remittances was subject to service tax. Consequently, they made provisions for service tax liabilities for the period 2004-2009 and obtained service tax registration on June 8, 2009. 2. Availment of Cenvat Credit prior to Service Tax Registration: The adjudicating authority held that the appellant could not avail of Cenvat credit based on documents prior to obtaining service tax registration. This decision was contested, and the tribunal found it flawed. The Cenvat Credit Rules, 2004, do not prohibit the availment of credit for inputs, capital goods, or input services received before registration. The tribunal cited several cases (e.g., Commissioner of ST, Chennai Vs Verizon Data Services India Ltd, Nitesh Residency Hotels Pvt. Ltd. Vs CST, Bangalore) supporting the view that credit can be availed even before registration, provided the documents are genuine and the tax/duty is evidenced. 3. Issuance of Show Cause Notice under Section 73(3) of the Finance Act, 1994: The appellant argued that since they discharged the entire service tax liability with interest before the issuance of the show cause notice, the notice was invalid under Section 73(3). However, the tribunal held that the show cause notice was not ultra vires because the availment of Cenvat credit was in dispute, invoking the proviso to Section 73(3). 4. Limitation Period for Demand of Service Tax: The appellant contended that the demand was barred by limitation as there was no suppression or malafide intention. The tribunal found that the appellant had not filed returns or sought clarification from the department regarding the taxability of their services. The department only became aware of the taxable services after the appellant's registration and subsequent audit. Thus, the extended period of limitation under Section 73 was applicable due to suppression of facts. 5. Treatment of Gross Amount as Inclusive of Service Tax: The appellant argued that since they did not separately collect service tax from their members, the gross amount should be treated as inclusive of service tax. The tribunal agreed, citing case laws like CCE & Cu. Patna Vs Advantage Media Consultant and Robot Detective & Security Agency vs CCE, Chennai, which established that the gross amount should be treated as inclusive of service tax when it is not collected separately. 6. Imposition of Penalties under Sections 76, 77, and 78 of the Finance Act, 1994: The tribunal found no justification for the equal penalty under Section 78, as the appellants were not aware of their tax liability from the beginning and took steps to comply after being advised by their auditors. The penalties under Sections 76 and 77(1)(a) were upheld, but the penalty under Section 78 was set aside. Conclusion: The tribunal allowed the appeal in part, permitting the availment of Cenvat credit for the period before registration and treating the gross amount as inclusive of service tax. The issuance of the show cause notice was deemed valid, and the extended period of limitation was applicable. The penalty under Section 78 was set aside, while penalties under Sections 76 and 77 were upheld.
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