2024 (6) TMI 1423 - AT - Service Tax

Disallowance of CENVAT Credit - wrongful availment of CENVAT Credit on the invoices of service providers pertaining to AMC to whom payments were made after deducting certain amount as penalty' - wrongful availment of CENVAT Credit of Central Excise duty/ Service Tax on the strength of documents like Cover Notes of Consolidated invoices, Advice of Transfer, Invoices issued by their AMC Service providers on account of reimbursement towards fuel expenditure and invoices issued by M/S C-Dot Clearing House, Delhi for the service, namely Domestic Roaming' in contravention of Rule 2, 3, 9 of CENVAT Credit Rules, 2004. Wrongful availing and utilization of CENVAT Credit on penalty deductions from AMC invoices - HELD THAT - Admittedly the appellant has not paid the amount indicated in the invoices of the service provider. The invoice value has been reduced by the amounts which appellant has claimed to be deductions as penalty on the service providers as per the agreement entered between them and the service provider. The value of the service received as rightly observed in the impugned order is relatable to the amount paid as consideration by the service recipient to the service provider. With effect from 2011, the scheme of taxation of services was altered and the service tax became payable on the accrual basis rather than the receipt basis. However the scheme of CENVAT credit has not undergone any change. Rule 4 (7) of the CENVAT Credit Rules, 2004 provides that Credit shall be allowed on or after the day on which payment is made of the value of invoice - The fact that invoices were issued indicated particular taxable value and service tax payable, needs to be verified from the end of service provider as to whether he has in actual paid the service tax on invoice value or on the reduced value after taking into account the deductions made by the appellant towards penalty. Impugned order do not refers to any verification that was essentially required to be made at the end of service provider - matter needs to go back to the original authority for causing a verification from the end of service provider as to on what value of taxable service the service tax was actually discharged by the him. Wrongful availing and utilization of CENVAT Credit on diesel and electricity charges - HELD THAT - The appellant has taken credit on the invoices of the service provider providing AMC services. For providing such services he has used diesel/ electricity as input. The output service provided by the service provider admittedly is AMC service - It is not even the claim of the appellant that the CENVAT Credit should be allowed to them on the diesel/ electricity by treating them as input under Rule 2 (k) of the CENVAT Credit Rules, 2004. The fact that service provider has paid service tax on the service provided by him consuming these inputs is not in dispute. There are no merits in the findings recorded by the adjudicating authority in respect of this demand and set aside the same. As this demand is set aside the interest and penalty imposed in respect of this demand is also set aside. Liability to penal action for contravention of CENVAT Credit Rules - HELD THAT - The issue of penalty kept open and to be determined by the adjudicating authority after determining the issue that is remanded back to him. Appeal allowed in part by way of remand.

Summary

Issues Involved:
1. Wrongful availing and utilization of CENVAT Credit on penalty deductions from AMC invoices.
2. Wrongful availing and utilization of CENVAT Credit on diesel and electricity charges.
3. Liability to penal action for contravention of CENVAT Credit Rules.

Issue-wise Detailed Analysis:

1. Wrongful Availing and Utilization of CENVAT Credit on Penalty Deductions:

The key issue was whether the appellant wrongly availed CENVAT Credit of Service Tax amounting to Rs. 2,08,47,037/- on account of penalty deductions from invoices of AMC service providers. The adjudicating authority found that the appellant, while making payments for services, deducted amounts as penalties but availed full CENVAT Credit on the total invoice amount, including the service tax on the deducted penalty amounts. Rule 4(7) of the CENVAT Credit Rules, 2004, stipulates that credit is allowed only after payment of the invoice value. The Board's clarification and judicial precedents indicate that credit should be proportionate to the actual payment made. The adjudicating authority held that since the appellant did not pay the penalty amount to service providers, they were not entitled to the full CENVAT Credit. The Tribunal remanded this issue back to the original authority for verification from the service provider's end regarding the actual service tax paid.

2. Wrongful Availing and Utilization of CENVAT Credit on Diesel and Electricity Charges:

The adjudicating authority denied CENVAT Credit on diesel and electricity charges reimbursed to AMC service providers, amounting to Rs. 2,40,99,686/-. The authority treated diesel and electricity as ineligible inputs under Rule 2(k) of the CENVAT Credit Rules, 2004. However, the Tribunal found that the appellant claimed credit on input services provided by AMC service providers, who used diesel and electricity as inputs for providing services. The Tribunal noted that the adjudicating authority misdirected itself by focusing on the eligibility of diesel and electricity as inputs, rather than the service tax paid on the AMC services. The Tribunal set aside the demand and penalty related to this issue, as the service provider paid service tax on the services provided.

3. Liability to Penal Action:

The issue of penalties was linked to the wrongful availing of CENVAT Credit. The adjudicating authority imposed penalties under Rule 15(1) of the CENVAT Credit Rules, 2004, read with Section 76(1) of the Finance Act, 1994, due to the appellant's contravention of the CENVAT Credit Rules. The appellant argued that being a government undertaking, there was no intent to evade taxes. The Tribunal kept the penalty issue open, remanding it back to the adjudicating authority for reconsideration after determining the remanded issues.

Conclusion:

The Tribunal partially allowed the appeal, remanding the issue of CENVAT Credit on penalty deductions for verification and setting aside the demand and penalty related to diesel and electricity charges. The adjudicating authority was directed to conduct de novo proceedings within three months, addressing the remanded issues and reconsidering penalties accordingly.