2023 (1) TMI 937 - AT - Service Tax

Non-payment of service tax - advances received from clients in relation to the services to be provided - irregular availment of CENVAT credit of in respect of capital goods and utilization thereof - extended period of limitation. Whether the amount of Rs. 6,72,23,160/- received by the appellant from M/s. Indus Towers Ltd. should be treated as an advance, on which service tax is to be levied as contented by the department, or it should be treated as a security deposit which is not susceptible to levy of service tax, as contented by the appellant? - HELD THAT - Paragraph 6.7 of the Agreement provides that the appellant shall, at its own cost, install, operate and maintain the Hybrid Solar Solution for a period of 10 years for which M/s Indus Tower Ltd. shall 5. Service Tax Appeal No. 52426 of 2019 decided on 22.10.2021 pay an advance in respect of each of the sites which amount shall be calculated as equivalent of two months estimated fee and such advance shall be liable for adjustment with the fees payable for the last two months of the term. The Agreement, therefore, specifically refers to the amount as an advance which would be adjusted with the fees payable for the last two months. There is nothing in the Agreement which may even remotely suggest that the said amount can be treated as a security deposit. This is what has also been held by the Commissioner. Whether the appellant had correctly availed the CENVAT credit on goods which according to the appellant are capital goods? - HELD THAT - This issue has been decided in favour of the appellant by the Tribunal in PRINCIPAL COMMISSIONER, CGST DELHI SOUTH COMMISSIONERATE VERSUS M/S. AST TELECOM SOLAR (P) LTD. 2021 (11) TMI 244 - CESTAT NEW DELHI where it was held that an output service provider under Rule 3 of CCR is entitled to take cenvat credit on all such goods without any distinction as to inputs or capital goods for rendering taxable output service. In the present case, items like MS angles, GI sheets, Bolts, Shelter Cabins, Structures of iron steel, MS nuts, fabricated and galvanized structures, have gone into the making of solar system, through which the appellant rendered taxable output service. The appellant, therefore, has rightly availed CENVAT credit on MS angles, GI sheets, Bolts, Shelter Cabins, Structures of iron steel, MS nuts, fabricated and galvanized structures - the Tribunal in AST Telecom Solar entitled to avail CENVAT credit and the Commissioner was not justified in disallowing the credit. Invocation of the extended period of limitation in the show cause notice - HELD THAT - The Commissioner has recorded a finding that though the Agreement referred to the amount as advance but still the appellant made an attempt to treat it as a security deposit, which clearly shows that there was suppression of facts with an intent to evade payment of tax - there is no error in the finding recorded by the Commissioner in this regard, as indeed the appellant did try to evade payment of service tax by treating the amount as a security deposit when in fact it was clearly an advance, which fact was very specifically mentioned in the Agreement. The intention to evade payment of service tax by suppression of material facts is writ large. The denial of CENVAT credit by the impugned order is set aside but the rest of the order of the Commissioner is maintained - Appeal allowed in part.

Summary

Issues Involved:
1. Non-payment of service tax on advances received from clients.
2. Irregular availment of CENVAT credit on goods not defined as capital goods.
3. Invocation of the extended period of limitation.

Issue-wise Detailed Analysis:

1. Non-payment of Service Tax on Advances Received from Clients:
The appellant received an advance of Rs. 6,72,23,160/- from M/s Indus Tower Ltd., which the department contended was a consideration towards services to be provided and not a security deposit. The Commissioner confirmed the demand for service tax amounting to Rs. 69,23,985/- on this advance. The Commissioner observed that the agreement explicitly mentioned the amount as an advance to be adjusted against the last two months' fees, and there was no indication that it was a security deposit. The Tribunal upheld this view, citing the decision in Central Power Research Institute, which stated that any amount received towards taxable service, irrespective of its name, is liable to service tax under Section 67(3) of the Finance Act, 1994. Thus, the appellant was liable to pay service tax on the advance received.

2. Irregular Availment of CENVAT Credit on Goods Not Defined as Capital Goods:
The appellant availed CENVAT credit on goods such as MS angles, GI sheets, Bolts, Shelter Cabins, and Structures of iron & steel, which the department argued were not covered under the definition of 'capital goods' as per rule 2(a) of the CENVAT Credit Rules, 2004. The Commissioner disallowed the credit amounting to Rs. 2,28,64,576/-. However, the Tribunal referred to its own decision in AST Telecom Solar, which allowed CENVAT credit on similar items used in providing taxable output services. The Tribunal found that these items were utilized in the making of the solar system, which was essential for the appellant's services. Therefore, the appellant was entitled to avail the CENVAT credit, and the Commissioner's disallowance was unjustified.

3. Invocation of the Extended Period of Limitation:
The department invoked the extended period of limitation under the proviso to section 73(1) of the Finance Act, 1994, alleging suppression of facts by the appellant. The Commissioner recorded that the appellant's attempt to treat the advance as a security deposit indicated an intention to evade tax. The Tribunal upheld this finding, noting that the agreement clearly mentioned the amount as an advance, and the appellant's actions demonstrated an intent to evade payment of service tax. Consequently, the invocation of the extended period of limitation was deemed appropriate.

Conclusion:
The Tribunal allowed the appeal in part, setting aside the denial of CENVAT credit but maintaining the rest of the Commissioner's order. The appellant was held liable for the service tax on the advances received, and the extended period of limitation was validly invoked due to suppression of facts.