2025 (1) TMI 222 - AT - Service Tax

Levy of service tax - reimbursement received by the appellant is a consideration towards provision of taxable service - Admissibility of CENVAT credit availed by the Appellant on the basis of the debit notes - admissibility of CENVAT Credit on the invoices issued for out of pocket expenses - Extended period of limitation - interest on CENVAT credit availed but not utilized. Whether the reimbursement of Rs. 2,79,58,760/- received by the appellant is a consideration towards provision of taxable service? - HELD THAT - There is no service provided and it is shown only for the accounting purpose between two Divisions of the Appellant. Therefore, service tax cannot be demanded on the ground that they are expenses reimbursed by the other companies. Whether the CENVAT credit of Rs. 63,71,672/-, availed by the Appellant on the basis of the debit notes is admissible? - HELD THAT - The services were received by the appellant and the payment for the services are also made to the service providers. We find that the debit notes contain the essential particulars as required under Rule 9 (2) of the Cenvat Credit Rules, 2004. Further, these debit notes are accounted in the books of accounts of the appellant. Therefore, the appellant has fulfilled the requirements under Rule 4A of Service Tax Rules, 1994 and Rule 4 (7) and 9 (2) of CCR, 2004. Therefore, the denial of Cenvat credit on the debit notes is unsustainable. Whether CENVAT credit of Rs. 74,160/- availed on the invoices issued for out of pocket expenses is admissible? - HELD THAT - The invoice produced by the Appellant clearly shows that it is for the purpose of completion of various activities. Facts being so, there is no justification in denying the CENVAT credit against the above invoices once it is paid with applicable service tax. Extended period of Limitation - HELD THAT - The issue involved in the present appeal is in the nature of interpretation and considering the fact that Appellant has been paying service tax and filing ST-3 returns in time and there is no allegation that the Appellant had made a deliberate attempt to evade payment of tax, following the decisions in RECKITT COLMAN OF INDIA LTD. VERSUS COLLECTOR OF CENTRAL EXCISE 1996 (10) TMI 100 - SUPREME COURT , the extended period for demand of service tax is not sustainable. Whether interest is payable on CENVAT credit availed but not utilized? - HELD THAT - The demand is made without considering the extant Rule 14 of the Cenvat Credit Rules, 2004. Moreover, the issue is settled by the judgment of the Hon ble Supreme Court in the matter of CCE Vs. Bombay Dyeing and Manufacturing Company Ltd 2007 (8) TMI 2 - SUPREME COURT wherein it is held that where CENVAT credit is reversed before utilization thereof, it would be tantamount to credit not having been availed. The said decision has also been accepted by CBEC as per Circular No. 858/16/2007-CX dated 08.11.2007. However, in the facts and circumstances of the case, since it is found that the appellants are eligible to avail Cenvat credit on the debit notes and the service received from M/s Deloitte, the demand of interest on the CENVAT credit availed but not utilized by the Appellant does not arise. Conclusion - Service tax cannot be demanded on the reimbursement received by the appellant. Denial of Cenvat credit on the debit notes is unsustainable. There is no justification in denying the CENVAT credit against the above invoices once it is paid with applicable service tax. Extended period for demand of service tax is not sustainable. In the facts and circumstances of the case, since it is found that the appellants are eligible to avail Cenvat credit on the debit notes and the service received from M/s Deloitte, the demand of interest on the CENVAT credit availed but not utilized by the Appellant does not arise. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in this judgment are:

• Whether the reimbursement of Rs. 2,79,58,760/- received by the appellant constitutes a consideration towards the provision of taxable service.
• Whether the CENVAT credit of Rs. 63,71,672/- availed by the appellant based on debit notes is admissible.
• Whether the CENVAT credit of Rs. 74,160/- availed on invoices for out-of-pocket expenses is admissible.
• Whether interest is payable on CENVAT credit that was availed but not utilized.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Reimbursement as Consideration for Taxable Service

• Relevant Legal Framework and Precedents: The determination of whether a transaction constitutes a taxable service is guided by the Finance Act, 1994, and relevant judicial precedents.
• Court's Interpretation and Reasoning: The court found that the amount in question was an internal reallocation of expenses between two divisions of the appellant and not a service provided to another entity. Therefore, it did not constitute a taxable service.
• Key Evidence and Findings: The appellant provided evidence that the amount was a ledger reclassification rather than a reimbursement from other companies.
• Application of Law to Facts: The court applied the definition of taxable service and found no service was provided to an external party.
• Treatment of Competing Arguments: The court dismissed the adjudicating authority's assumption that the divisions were separate entities, thus negating the basis for considering the transaction as taxable.
• Conclusions: The demand for service tax on the alleged reimbursement was unsustainable.

Issue 2: Admissibility of CENVAT Credit Based on Debit Notes

• Relevant Legal Framework and Precedents: Rule 9 of the CENVAT Credit Rules, 2004, governs the admissibility of documents for credit.
• Court's Interpretation and Reasoning: The court found that the debit notes contained all necessary particulars as required by the rules.
• Key Evidence and Findings: The appellant demonstrated that the debit notes included all essential information and were properly accounted for.
• Application of Law to Facts: The court determined that the appellant met the requirements under the relevant rules.
• Treatment of Competing Arguments: The court rejected the argument that debit notes were insufficient, emphasizing the completeness of the provided documentation.
• Conclusions: The denial of CENVAT credit on debit notes was unjustified.

Issue 3: Admissibility of CENVAT Credit on Out-of-Pocket Expenses

• Relevant Legal Framework and Precedents: The CENVAT Credit Rules, 2004, and related case law guide the eligibility of such expenses.
• Court's Interpretation and Reasoning: The court found that the expenses were legitimate business expenses and not merely out-of-pocket costs.
• Key Evidence and Findings: The appellant provided invoices and certificates substantiating the nature of the services.
• Application of Law to Facts: The court applied the rules to determine that the expenses were eligible for credit.
• Treatment of Competing Arguments: The court dismissed the adjudicating authority's classification of the expenses as out-of-pocket.
• Conclusions: The CENVAT credit on these expenses was admissible.

Issue 4: Interest on CENVAT Credit Not Utilized

• Relevant Legal Framework and Precedents: Rule 14 of the CENVAT Credit Rules, 2004, and relevant Supreme Court judgments.
• Court's Interpretation and Reasoning: The court ruled that interest is not payable on credit reversed before utilization.
• Key Evidence and Findings: The appellant had reversed the credit before utilizing it, aligning with the Supreme Court's interpretation.
• Application of Law to Facts: The court applied the principle that reversal before utilization negates the credit's effect.
• Treatment of Competing Arguments: The court rejected the revenue's argument for interest based on mere availment.
• Conclusions: No interest was payable on the unutilized credit.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The underlying accounting transactions are cost allocations between two divisions of the same entity (i.e. Appellant) and do not constitute a service; in the absence of provision of a taxable service, there are no service tax implications on such transactions."
• Core principles established: Internal reclassifications within a single entity do not constitute taxable services; debit notes with complete information are valid for CENVAT credit; interest is not payable on credit reversed before utilization.
• Final determinations on each issue: The appeal was allowed, negating the service tax demand on reimbursements, validating the CENVAT credit claims, and confirming no interest liability on unutilized credit.

The tribunal's decision underscores the importance of correctly interpreting transactions within a single entity and adhering to procedural requirements for CENVAT credit claims. The judgment provides clarity on the treatment of internal cost allocations and the conditions under which interest on CENVAT credit may be levied.