2019 (10) TMI 27 - HC - Service Tax

Imposition of tax and penalty - irregular availment of CENVAT Credit - inputs/input services used for provision of output services which are chargeable to duty or tax as well as exempted services - non-maintenance of separate records - Rule 6 of CCR - Maintainability of petition - HELD THAT - he second respondent has brazenly exercised power under a provision which was not even available to him, as it was an enabling provision put in place for the benefit of the assessee, and arrived at a wholly unreasonable, if not absurd, result. That apart, the second respondent did not even choose to deal with the binding case law cited before him while dealing with the issues arising for consideration. This arrogant and arbitrary approach adopted by the second respondent cannot be countenanced - It would therefore not be necessary for the petitioner to go through the motions of a statutory appeal to challenge the same. CENVAT credit - HELD THAT - Rule 6(3) of the CENVAT Credit Rules, 2004, merely offers options to an output service provider who does not maintain separate accounts in relation to receipt, consumption and inventory of inputs/input services used for provision of output services which are chargeable to duty/tax as well as exempted services. If such options are not exercised by the service provider, the provision does not contemplate that the Service Tax authorities can choose one of the options on behalf of the service provider - As rightly pointed out by Sri S.Ravi, learned senior counsel, if the petitioner did not abide by the provisions of Rule 6(3) of the CENVAT Credit Rules, 2004, it was open to the authorities to reject its claim as regards the disputed CENVAT Credit of ₹ 17,15,489/-. The statutory scheme did not vest the second respondent with the power of making such a choice on behalf of the petitioner. The Order-in-Original, to the extent that it proceeded on these lines, therefore cannot be countenanced. Issuance of Debit notes - HELD THAT - The disallowance of CENVAT Credit on the ground that the petitioner had availed the same by producing debit notes instead of invoices cannot be accepted. Petition allowed.

Summary

Issues:
Challenge to Order-in-Original imposing tax and penalty for irregular availment of CENVAT Credit. Maintainability of writ petition bypassing statutory appeal. Dispute over availed CENVAT Credit amount. Validity of debit notes for availing CENVAT Credit.

Analysis:
The writ petition challenged the Order-in-Original passed by the Commissioner of Service Tax, imposing tax and penalty on the petitioner for irregularly availing CENVAT Credit. The petitioner, an advertisement booking agency, was alleged to have availed CENVAT Credit on ineligible services. The petitioner approached the High Court directly, bypassing the statutory appeal under Section 86 of the Finance Act, claiming non-application of mind in the impugned order. The CENVAT Credit availed by the petitioner included input tax credit on both taxable and exempted services, with a disputed amount of ?17,15,489 out of a total of ?1,41,51,903. The petitioner did not maintain separate accounts as required by Rule 6(2) of the CENVAT Credit Rules, 2004, and did not opt for the procedures under Rule 6(3).

The impugned Order-in-Original demanded an exorbitant amount of ?3,52,65,241 from the petitioner for irregularly availed CENVAT Credit, along with penalties. The second respondent did not consider the case law cited by the petitioner, leading to a flawed decision. Another issue arose regarding the validity of debit notes for availing CENVAT Credit, which the second respondent failed to address adequately. The High Court found that the second respondent's approach lacked proper application of mind and disregarded binding precedents, resulting in unjust demands on the petitioner.

The Assistant Commissioner justified the action under Rule 6(3) based on the petitioner's failure to provide information, but the High Court ruled that the petitioner's writ petition was maintainable despite the availability of a statutory appeal. The Court highlighted that the second respondent's actions were arbitrary and unreasonable, justifying the direct challenge through the writ petition. The Court emphasized that the second respondent exceeded his authority by choosing an option under Rule 6(3) on behalf of the petitioner. Additionally, the Court held that disallowing CENVAT Credit based on the use of debit notes instead of invoices was unjustified, as supported by relevant case law.

In conclusion, the High Court set aside the Order-in-Original, ruling in favor of the petitioner and closing the pending petitions. The Court found the impugned order unsustainable on both issues of CENVAT Credit availed and the validity of debit notes, emphasizing the lack of proper consideration of legal precedents and the arbitrary exercise of power by the second respondent.