2025 (1) TMI 1211 - AT - Service Tax

CENVAT Credit - input services used for providing assistance in trading of the goods - applicability of provisions of sub-rule (7) of Rule 4 of Cenvat Credit Rules 2004 - SCN issued without allocation of mind - extended period of limitation - penalties. Extended period of limitation - HELD THAT - The original authority nor the show cause notice indicates as to which information was required by Revenue in accordance with which provision of law that was not filed or submitted by the appellant and how there was wilful misstatement or suppression of fact to invoke extended period of limitation. In the absence of any such finding by the original authority the present proceedings are hit by limitation and that ground alone is enough for setting aside the impugned order. Disallowance of CENVAT Credit on the ground that cenvat credit was not admissible since the appellant was engaged in trading of the goods - HELD THAT - There is no finding that the appellant has not received the input services on the basis of which the appellant has taken the cenvat credit nor there is any finding that the said input services did not suffer service tax. Therefore the appellant had received input services from various input service providers. The provisions of Cenvat Credit Rules do not have any provision wherein the cenvat credit availed lapses. There is no examination as to how the said input services were not eligible for providing output services such as colocation services hosting services etc. Therefore the finding of the original authority that cenvat credit of Rs.634.05 crores were not admissible to the appellant has no basis and therefore the said finding is set aside. The appellant had received input services from various input service providers. The provisions of Cenvat Credit Rules do not have any provision wherein the cenvat credit availed lapses. There is no examination as to how the said input services were not eligible for providing output services such as colocation services hosting services etc. Therefore the finding of the original authority that cenvat credit of Rs.634.05 crores were not admissible to the appellant has no basis and therefore the said finding is set aside. Demand on the advances received from customers - HELD THAT - It is noted that by the time the show cause notice was issued on 04.04.2017 the said amount was paid back. Therefore it was not available with the appellant as advances from customers as on the date of issue of show cause notice. Therefore the demand on account of the same amounting to Rs.78.08 crores confirmed by the original authority does not sustain. Demand of service tax of Rs.583.26 crores under proviso to sub-section (1) of Section 73 of Finance Act 1994 - HELD THAT - The issue of valuation and taxability both are involved in the present issue. As can be seen from the record the current liability which stood as on 31.03.2018 was Rs.3888.40 crores. The operation of Chapter V of Finance Act 1994 which included charging section for charging of service tax and Section 67 for determination of value for assessment of service tax ceased to exist prospectively with effect from 01.07.2017. Therefore both the provisions viz. charging section i.e. Section 66B and Section 67 on valuation of taxable services for charging service tax were not operational for levy and collection of service tax as on 31.03.2018 and therefore confirmation of demand of Rs.583.26 is not sustainable. Recovery of interest on payment of service tax - HELD THAT - On the basis of Rule 3 of Point of Taxation Rules which provides that point of taxation shall be the date of invoice or the date of payment whichever is earlier the original authority has ordered for recovery of interest on payment of service tax of Rs.52.45 crores which was paid during the year 2016-17. An adjustment was made in balance of unsecured loans amount availed from M/s. Reliance Infocom Engineering Pvt. Ltd. for receipt of payment in respect of the invoices raised for provision of servie and the said loan was received by the appellant in 2014 and therefore learned original authority ordered for recovery of interest from the earlier period - the provisions of Rule 3 of Point of Taxation Rules are not applicable in the present case. Therefore the order by the original authority for recovery of interest on payment of service tax of Rs.52.45 crores does not sustain. Interest and penalties - HELD THAT - Since no part of the order-in-original either disallowing cenvat credit or confirming the demand of service tax sustains the order for recovery of interest on the same and imposition of penalties does not sustain. Conclusion - CENVAT credit cannot be denied without substantial evidence of misuse or non-compliance with the Cenvat Credit Rules. The advances incorrectly classified due to accounting errors and subsequently rectified do not attract service tax Demand of interest and penalties do not sustain. The present proceedings are hit by limitation and that ground alone is enough for setting aside the impugned order. Appeal allowed.

Summary

The judgment from the Appellate Tribunal, CESTAT Mumbai, addresses multiple issues concerning the eligibility of cenvat credit claimed by the appellant, the applicability of service tax on certain advances, and the imposition of penalties and interest. The core issues considered in the judgment are as follows:

1. **Issues Presented and Considered**

The Tribunal considered several key issues: the eligibility of cenvat credit claimed by the appellant, the applicability of service tax on advances received from customers, the interpretation of current liabilities as assessable value, the invocation of the extended period of limitation, and the imposition of penalties and interest.

2. **Issue-wise Detailed Analysis**

**Eligibility of Cenvat Credit**

- The relevant legal framework includes the Cenvat Credit Rules, 2004, specifically Rule 14, and Section 73 of the Finance Act, 1994. The Tribunal examined whether the cenvat credit availed by the appellant was admissible, considering the appellant's alleged involvement in trading activities.

- The Court found no evidence of trading activities by the appellant during the relevant period, apart from the sale of scrap. The appellant's services were primarily related to colocation, hosting, marketing, and consulting, for which input services were legitimately received.

- The Tribunal concluded that the appellant was entitled to the cenvat credit claimed, as there was no provision in the Cenvat Credit Rules that would cause the credit to lapse, and there was no evidence that the input services were not used for providing output services.

**Service Tax on Advances**

- The Tribunal considered whether advances received by the appellant should be treated as assessable value for service tax purposes under Section 67 of the Finance Act, 1994.

- The appellant argued that the advances were actually unsecured loans, not related to any service provision. The Tribunal accepted the appellant's explanation, supported by a Chartered Accountant's certificate, that the advances were incorrectly classified and subsequently repaid.

- The Tribunal found that the advances were not subject to service tax, as they were not connected to any service provision.

**Extended Period of Limitation**

- The Tribunal examined whether the extended period of limitation under Section 73 of the Finance Act, 1994, was applicable, considering allegations of suppression of facts by the appellant.

- The Court noted that all relevant ST-3 returns were filed by the appellant, and there was no evidence of willful misstatement or suppression of facts. The Tribunal held that the extended period of limitation was not applicable, rendering the proceedings time-barred.

**Penalties and Interest**

- The Tribunal reviewed the imposition of penalties under Sections 77 and 78 of the Finance Act, 1994, and interest under Section 75.

- Given the findings on the inapplicability of service tax on advances and the admissibility of cenvat credit, the Tribunal held that penalties and interest were not sustainable.

3. **Significant Holdings**

- The Tribunal emphasized that cenvat credit cannot be denied without substantial evidence of misuse or non-compliance with the Cenvat Credit Rules.

- It was held that advances incorrectly classified due to accounting errors, and subsequently rectified, do not attract service tax liability.

- The Tribunal underscored the importance of adhering to statutory timelines and the conditions required to invoke the extended period of limitation.

- The final determination was that the entire order-in-original was unsustainable, and the appeal was allowed with consequential relief to the appellant.

The Tribunal's decision highlights the necessity for clear evidence when disputing cenvat credit claims and underscores the procedural safeguards against unwarranted tax demands and penalties.