2023 (8) TMI 471 - AT - Service Tax

CENVAT Credit - Whether the appellant is eligible to avail credit of the service tax paid by them on the invoices issued by automobile dealers? - Difference of opinion between Judicial member and Technical member. As PER MS. SULEKHA BEEVI, C.S. (Judicial Member) CENVAT Credit - invoices on which credit is taken do not reflect the true description of the services provided by the dealers to the appellant - credit availed based on unsigned invoices issued (in respect of M/s. Honda Motors India Ltd.) - credit availed on two sets of invoice documents (for M/s. TVS Sundaram Motors). The first ground of rejection is invoices on which credit is taken do not reflect the true description of the services provided by the dealers to the appellant. The very same issue came up for consideration before the Tribunal in the case of M/S. CHOLAMANDALAM MS GENERAL INSURANCE CO. LTD. VERSUS THE COMMISSIONER OF G.S.T. CENTRAL EXCISE, CHENNAI 2021 (3) TMI 24 - CESTAT CHENNAI . The facts and allegations are identical. The Tribunal followed the decision of the Jurisdictional High court in the case of Modular Auto Ltd. 2018 (8) TMI 1691 - MADRAS HIGH COURT holding that i t can be seen that the case of the Department is that the payout paid by the appellant to the dealers on the OD premium collected by the dealers from the customers is camouflaged as service provided by the dealers to the appellant; that therefore, the services contained in the invoices have actually not been provided by the dealers to the appellant and thus, Cenvat credit is not eligible. The second ground for rejecting the credit is credit availed based on unsigned invoices issued (in respect of M/s. Honda Motors India Ltd. In para 40 of the impugned OIO dt. 23.12.2016, the adjudicating authority has noted that in regard to the invoices raised by M/s. Honda Cars India Ltd., the credit to the tune of Rs. 6,93,203/- is ineligible for the reason that the invoices do not bear signature. It is further stated that the Board has issued instructions only w.e.f 06.07.2015 that invoices in electronic forms and authentication with digital signature is permissible - In the present case, it is not disputed that the tax has been paid by the appellant. Merely because the computer generated invoice does not contain the signature, it cannot be said that the credit is ineligible. The third issue is rejection of credit on the ground that the invoices issued by M/s. TVS Sundaram Motors (service provider) contains a different description of the service. It is alleged in the SCN that invoice maintained by dealer mentions the description of service tax as additional incentives whereas the invoice with the same serial number maintained by the assessee has the description as data processing and policy related services . Again, it is not disputed that the tax has been paid as per the invoices. Appellant who is the service recipient cannot be found fault for the description mentioned in the invoice maintained by the service provider. Appellant has no control over the accounts maintained by the service provider (dealer). The credit at the recipient s end cannot be denied for this reason. Thus, the denial of credit is not justified. The impugned orders are set aside. The appeals are allowed with consequential relief, if any. As PER M. AJIT KUMAR (Technical Member) CENVAT Credit - case of fake invoicing with its attendant evils - defrauding the ultimate taxpayer on whom the incidence of tax rests - ingenious and creative method of using tax laws for unjustly enriching participants to the specially devised scheme, at the cost of the ingenuous and hapless taxpayer - violation of IRDA circular. HELD THAT - The findings given by technical members are as follows - A) Tax liability does not arise due to consent of parties. There has to be a legally valid levy. B) As per proviso to Rule 9(2) of CCR 2004 the appellant being the provider of output service, is required to satisfy the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, that the input services on which CENVAT credit is sought to be taken has been received and is covered by the description given in the invoice and accounted for in the books of the appellant. C) Rule 9(5) of CCR, 2004 makes the principle clear that the burden of proof regarding the admissibility of CENVAT, while taking input credit, falls on the recipient of service i.e. the appellant. D) As per the general rule in legal proceedings also, he who asserts must prove. The appellant who is asserting the taxability of the activity received by him, if any, should have shown that the activity described in the invoice was indeed received and secondly that it was a taxable service eligible for being claimed as CENVAT credit. E) For the reasons cited at (A), (B) and (C) above the SCN had rightly required the appellant to show cause as to why the credit availed should not be denied and on failure to do so the impugned has confirmed the demand. F) As per section 67 of the FA 1994 service tax is collected with reference to the value of service. As a necessary corollary, it is the value of the service which is actually rendered which is to be ascertained for the purpose of calculating the service tax payable thereupon. Any other amount which is calculated not for providing such taxable service, in this case the service as declared in the invoice, cannot be a part of that valuation as that amount is not calculated for providing such taxable service . G) As per Section 73A(2) of the FA, 1994, even if the tax is not liable to be collected from a person, if collected, the collected amount has to be paid to the credit of government. This does not mean that department has accepted the taxpayer s assessment and that the actions of the taxpayer have been ratified. H) Any tax collected, retained or not refunded by the department in accordance with the provisions of a statute must be held to be collected, retained or not refunded, as the case may be, under the authority of law. Hence any excess money collected as tax and paid to government is seen to have been retained under the authority of law. I) The Finance Act, 1994, is a self-contained enactment. It contains provisions for collecting the taxes which are due according to law but have not been collected and also for refunding the taxes which have been collected contrary to law. It, therefore, follows that any and every claim for a refund of service tax can be made only under and in accordance with the provisions of the Act and in the forums provided by the Act. Hence in this case it is for the person who remitted tax to government to claim any eligible refund, if he feels so, only in terms of Section 11B of the Central Excise Act, 1944 (CEA 1944) as made applicable to FA,1994 by virtue of Section 83 of the said Act. J) A fact asserted by a person which is within his knowledge must be proved by him, as the burden of proof is cast upon him. Moreso, when he is confronted with documents and manner of working which are within his special knowledge. Section 106 of the Indian Evidence Act., 1872 gives statutory recognition to this universally accepted rule of evidence. The appellant in the present case has shown remarkable shyness in showing physical / documentary proof which would establish that the activities mentioned in the agreements with dealers were being actually performed. K) The belief, knowledge and intention of the parties are a part of evidence. Documents do not always speak in a language understood by the layman. These are effectively brought to life through the statements of officials who are in the know of things. Based on this evidence the learned AA has to form his own conclusion. L) Persons claiming that statements were obtained under threat / duress must, for that ground to operate, establish that the threat is such that the person in making the statement believed or supposed that by making it he would pin any advantage or avoid any evil of temporal nature in reference to the proceedings against him. This has not been done by the officials concerned. M) In spite of a large list of 25 activities that were to be performed by the automobile dealers as per the Service Provider Agreement listed at para 33 above, the officials of both the appellant and the dealers company, when questioned were unable to list out the activities that were actually performed. In fact, they admitted that no service at all was performed. N) Appellants company officials have stated in legally admissible statements that they have no option but to pay the payouts to the car dealers due to their agreement with the car manufacturers and that there is no separate sale of insurance policies because it is automatically sold with the sale of the new car as the price of the insurance is in-built in the On Road Price of the car. O) It is relevant to note that the Service Charge paid to infra companies for their service is in the range of 1.75 to 4% of OD premium and the dealer, who cannot recall having provided any service activity as per the agreement, to the Insurance Company gets paid a percentage between 10 to 55 % on the OD premium amount for the insurance policies booked, allegedly for providing services . These cannot be held to be genuine consideration towards transactions for data processing and policy servicing . When examined in totality the payments do not satisfy the test of what a reasonable person of ordinary prudence would do while hiring services. They signify something more. P) What monies were received by the car dealers based on invoice prepared and sent to them by the appellant was not the fruit of a taxable activity as declared in the invoice. In such a situation the service tax shown to be paid on the invoices was not a tax. Q) The SCN does not disclose that no action has been taken against the car dealers. The appellant s claim is hence not substantiated and is not a part of the dispute. Further if an illegality or irregularity has been committed in favour of an individual or a group of individuals and even if there has been no action on the said individual or group of individuals, that benefit cannot be relied upon as a principle of parity or equality by the appellant. R) System generated invoices created without legal safeguards are easy to manipulate, much more easily than manual document. In daily life no person, including the appellant, would be prepared to freely allow the bank to encash a cheque even for a paltry amount, bearing the company s name if it is not signed by an authorized representative. There is no reason why government finances and tax payment should be handled differently and in a cavalier manner. Even otherwise if this pernicious practice is accepted it will allow all assesses to take credit on incomplete documents and when found out seek the benefit of proviso to Rule 9(2) of CCR 1994. A situation not envisaged by the Rules. Proviso to a Rule cannot become the Rule. It has to be applied to the facts of each case as per the satisfaction of the proper officer, when approached by assessee s with clean hands. Secondly proviso to Rule 9(2) ibid clearly mandates that the document should contain the details of the correct description of the goods or taxable service, among other things. The proper officer does not have the discretion to overlook this important fact. S) Allegations made by Revenue regarding non-compliance with IRDAI guidelines, were only meant to show that the huge payouts by the appellant to the car dealers were not on account of Data Processing and Policy Servicing and related activities . Revenue has succeeded in this limited objective. To find whether the amounts paid by the appellant to car dealers were within or in violation of IRDAI guidelines is not the remit of this Authority. T) The appellant has made a submission to the effect that, without prejudice, the illegality of a transaction does not determine or alter its tax implications. The concept has met with legal traction in matters relating to Income Tax laws, where the illegal gains are to be taxed at the hands of those who financially gained from these actions. However, in the case of Indirect Taxes where the burden of tax rests on the final consumer, while those who perpetuate the illegality are beneficiaries of the illegal monies collected as tax - due to input credit schemes meant to neutralize the cascading effect of tax - needs to be tested against the legal principle that a person ought not to be able to profit from his or her own wrong. U) The entire scheme as unraveled by Revenue points to fraud, collusion, willful misstatement in the invoices at the behest of the appellant and suppression of facts by contravention of the Act and the Rules made thereunder with intention to evade payment of duty, using ineligible credit. The blame worthy act by the appellant is deliberate and with the intent to enrich themselves unjustly at the cost of the car customer who bears the ultimate incidence of the non-tax . The matter could not have been unraveled by supervisory checks of the jurisdictional Division / Range staff and without an in-depth investigation by departmental officers based on documents, agreements and statements from officials concerned explaining the whole matter, as was done by DGCEI. Hence the extended period of time under proviso to section 73 of the Finance Act, 1994, for issue of SCN has been correctly invoked. V) This is a case where tax laws have been subverted by using colourable legal devices like agreements tailor made to serve as a legal cover for blame worthy conduct. Hence penalty has been correctly imposed for a deliberate act of fraud by the appellant. In this situation it scarcely lies in the mouth of the appellant, who played with fire, to complain of burnt fingers. W) Under the scheme of the Finance Act 1994, interest liability arises automatically by operation of law and has to be paid on delayed or deferred payment of duty for whatever reasons. DIFFERENCE OF OPINION In view of the difference of opinion between the Members, the following questions are framed for resolving the difference - Whether the appeals is to be allowed by setting aside the impugned orders as held by Member (Judicial)? (OR) Whether the appeals is to be dismissed by upholding the impugned orders as held by Member (Technical)?

Summary

Issues Involved:
1. Eligibility of CENVAT credit on invoices issued by automobile dealers.
2. Validity of unsigned computer-generated invoices for CENVAT credit.
3. Impact of discrepancies in invoices issued by M/s. TVS Sundaram Motors.
4. Invocation of the extended period of limitation.
5. Imposition of penalties and interest.

Summary:

1. Eligibility of CENVAT credit on invoices issued by automobile dealers:
The department contended that the appellant, an insurance company, availed CENVAT credit on invoices issued by automobile dealers for services that were not actually provided. The investigation revealed that the dealers were not authorized to provide insurance services and the invoices described services such as 'Data processing and Policy servicing related activities' to mask payments made for soliciting insurance business. The adjudicating authority disallowed the credit on the grounds that no actual services were provided as described in the invoices. The appellant argued that the dealers paid service tax on these invoices, and the nature of services was not disputed by the department at the dealers' end. The Tribunal held that the appellant failed to prove the actual receipt of services as per the description in the invoices, and thus the credit was rightly disallowed.

2. Validity of unsigned computer-generated invoices for CENVAT credit:
The appellant availed credit on unsigned computer-generated invoices issued by M/s. Honda Cars India Ltd. The adjudicating authority disallowed the credit, stating that the invoices did not meet the requirements under Rule 4A of the Service Tax Rules, 1994. The appellant argued that the credit should not be denied on technical grounds as the tax was paid. The Tribunal held that the requirement of a signature on invoices is mandatory and not a mere procedural formality. The invoices without signatures did not comply with the statutory requirements, and therefore, the credit was rightly disallowed.

3. Impact of discrepancies in invoices issued by M/s. TVS Sundaram Motors:
The appellant availed credit on invoices from M/s. TVS Sundaram Motors, which had discrepancies in the description of services. One set of invoices described the services as 'Data processing and Policy servicing,' while another set maintained by the dealer described them as 'additional incentive.' The appellant claimed to be unaware of the second set of invoices. The Tribunal held that the discrepancies indicated that the transactions were not genuine, and the credit was rightly disallowed.

4. Invocation of the extended period of limitation:
The extended period of limitation was invoked on the grounds of fraud, collusion, and suppression of facts by the appellant. The appellant argued that there was no willful suppression and that they were under a bona fide belief regarding the eligibility of credit. The Tribunal found that the appellant's actions were deliberate and intended to evade payment of duty. The extended period of limitation was rightly invoked.

5. Imposition of penalties and interest:
The appellant argued that penalties should not be imposed as the issue was technical in nature. The Tribunal held that the appellant's actions involved fraud and willful misstatement, justifying the imposition of penalties. Interest on the delayed payment of duty was also upheld as it arises automatically by operation of law.

Conclusion:
The appeals were dismissed, and the impugned orders were upheld, disallowing the CENVAT credit, imposing penalties, and demanding interest.