2019 (11) TMI 828 - AT - Service Tax

Availing CENVAT credit of service tax under VCES Scheme - Import of services - Reverse Charge - Management Consultancy Services - appellant received various services from foreign associated company - foreign based company was not having any office in India - penalty - HELD THAT - The fact is that the said payment was made in terms of VCES Scheme which is special piece of legislation allowing assessee s to pay tax or duty, which has not been paid by them at the requisite point of time. The fact that the duty was not paid at the time of import of service is indicative of a situation that the short levy or non levy has occurred on account of suppression of facts. Had the scheme not been floated by the Government of India, proceedings would have been initiated against the assessee by way of issuance of a show cause notice raising the demand in question and confirming the same alongwith interest and penalty. It is beyond doubt that the payment of duty on the invoices raised under VCES Scheme has to be held as payment by way of raising supplementary invoices, which was on account of misstatement or suppression with intent to evade payment of duty. In such a scenario, the Cenvat credit of service tax paid by the appellant would not be available to the appellant in terms of provisions of Rule 9(1)(b). The further fact of the service having no nexus with the manufacturing activity is not required to be adverted to, when the appellant is not entitled to credit in principle - demand upheld. Penalty - HELD THAT - The entire credit was availed by the appellant by reflecting the same in their Cenvat credit account which were intimated to the Revenue and otherwise also it is noted that the issue is a bona fide issue of interpretation of the provisions of law - there is no justifiable reasons to impose penalty upon the appellant. Appeal disposed off.

Summary

Issues:
- Applicability of Cenvat credit on tax liability paid under VCES Scheme
- Denial of credit for services received from foreign associates

Analysis:

Issue 1: Applicability of Cenvat credit on tax liability paid under VCES Scheme
The appellant, engaged in manufacturing excisable goods, received various services from a foreign associated company, taxable under Management Consultancy Services. Despite the tax liability falling on the appellant due to the absence of the foreign company's office in India, the appellant did not discharge the tax liability during the relevant period. Subsequently, under the VCES Scheme, the appellant filed a declaration for the tax liability, which was accepted, and discharge certificates were issued. The appellant then claimed credit for the duty paid under the VCES Scheme. However, a show cause notice was issued denying the credit, leading to the Commissioner of Central Excise denying the credit, confirming the denial under Rule 14 of Cenvat Credit Rule, 2004, demanding interest, and imposing a penalty of ?10 lakhs under Rule 50(1) of the Cenvat Credit Rules, 2004.

Analysis of Issue 1:
The appellant argued that all services received from foreign associates were utilized in their factory for manufacturing final products, making them eligible for Cenvat credit as input services. The Revenue contended that since the payment was made under the VCES Scheme, the appellant was not entitled to credit. The Circular No.170/5/2013-ST clarified that tax amounts deposited under the VCES Scheme are available as Cenvat credit to the assessee. However, the Circular also specified conditions under which Cenvat credit cannot be utilized for payment of tax dues under the scheme. The Tribunal analyzed Rule 9(1)(a) and 9(1)(b) of the Cenvat Credit Rules, emphasizing that the duty was not paid at the time of importing services, indicating suppression of facts. The payment under the VCES Scheme was considered as payment through supplementary invoices due to misstatement or suppression with intent to evade duty payment. Consequently, the Cenvat credit of service tax paid was deemed unavailable to the appellant under Rule 9(1)(b).

Issue 2: Denial of credit for services received from foreign associates
The appellant's claim for credit on services received from foreign associates was denied by the Commissioner of Central Excise, citing lack of nexus with manufacturing activity. The Commissioner confirmed the denial and imposed interest and penalty.

Analysis of Issue 2:
The Tribunal upheld the denial of credit based on the conclusion that the appellant was not entitled to credit in principle due to the payment under the VCES Scheme being considered as payment through supplementary invoices, indicating suppression of facts. The lack of nexus with manufacturing activity was deemed irrelevant when the appellant was not entitled to credit. The Tribunal confirmed the demand against the appellant along with interest.

In conclusion, the Tribunal confirmed the denial of Cenvat credit for the tax liability paid under the VCES Scheme and for services received from foreign associates, emphasizing the suppression of facts and the ineligibility of the appellant for credit. The penalty imposed was set aside due to the issue being a bona fide interpretation of the law.