Admissibility of CEnvat credit without registration

[CA Akash Phophalia]

When there is lack of clarity in any subject matter, there is bound to be confusion. This statement is more so applicable when one is dealing with a Tax Statute. Across the time each law matures and litigation reduces. However, the litigation regardig availment of Cenvat credit of tax paid before registration is still finding its place in the Courts even after almost 12 years of the birth of law.

Cenvat credit admissibility is guided by the provisions framed in this regard in the Cenvat Credit Rules, 2004. The said rules carve out the conditions for availment of Cenvat credit and also specifies the meanings of the technical terms in relation to Cenvat credit. Thus admissibility of Cenvat crdit needs to be identified strictly in terms of the said rules and in reference to the meanings as mentioned in the said rules.

Before proceeding for discussion of the issued proposed under this article lets first have a look at the bare provision on input service as defined in rule 2(l) of Cenvat Credit Rules 2004 as under :-

2 (l)					"input service" means any service,-
(i)				used by a provider of [output service] for providing an output service; or
(ii)				used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,
					and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal;
					but excludes [***]-
[(A)						service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for-
(a)					construction or execution of works contract of a building or a civil structure or a part thereof; or
(b)					laying of foundation or making of structures for support of capital goods,
			except for the provision of one or more of the specified services; or]
[(B)			[services provided by way of renting of a motor vehicle], in so far as they relate to a motor vehicle  which is not a capital goods; or
[(BA)			service of general insurance business, servicing, repair and maintenance , in so far as they relate to a motor vehicle which is not a capital goods, except when used by-
(a)					a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person; or
(b)					an insurance company in respect of a motor vehicle insured or reinsured by such person; or]]
(C)				such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee.]
				[Explanation.-For the purpose of this clause, sales promotion includes services by way of sale of dutiable goods on commission basis.]

If an assessee wants to avail of credit of Service tax paid, first the service has to be ‘Input service’ as defined in the Cenvat Credit Rules, 2004. The said rule as stated above indicate that input services are services which are used by the service provider to provide output services. On simple reading of definition it can be said that there is no precondition that once registration is taken only then credit can be availed of. Further when we refer the other rules of related to Cenvat credit it can be identified that none of the rule is contrued in any manner to disallow credit on the basis of non-registration. Hence, the Cenvat credit prior to registration can also be availed provided it is an input service. However, the department is known to take prorevenue view and the officers reject any credit if availed prior to registration.

Recently in the case of Commissioner of Service Tax Chennai Vs Verizon Data Services India P.Ltd. 2013 (12) TMI 741 - CESTAT CHENNAI  the Honorable Tribunal at Chennai held that by not getting registered a person does not cease to become a provider of taxable service if he is actually providing such service. Even if a service provider is not registered there will be tax liability on him if he is providing taxable service. The benefit of Cenvat credit also has to be seen accordingly. The Tribunal also noted that Rule 4 of Service Tax Rules is applicable to a person who is liable to pay service tax. If there is an offence of not complying with Rule 4 of Service Tax Rules, that matter has to be adjudicated as per the provisions of the Act and the Rules. Denial of Cenvat credit may not be the proper course in such situation.

In the case of mPortal India Wireless Solutions (P) Ltd. Vs CST – 2011 (9) TMI 450 - KARNATAKA HIGH COURT it was held that there is nothing in CCR, 2004 to restrict taking of credit only for services received after the date of registration.

In another case of C.Metric Solution Pvt Ltd V CCE, Ahemdabad [ 2012 (7) TMI 379 - CESTAT, AHMEDABAD ] it was held that when there was dispute about receipt of input services in respect of which Cenvat credit has been taken, then Cenvat credit cannot be denied merely on the ground that the assessee had not taken registration for the period when the service were received.

In another case of Viswanathan Constructions (P) Ltd. v. CCE  [2016 (9) TMI 236 - CESTAT CHENNAI] dated 27^th July 2016 revenue contended that the parties were not registered during the material period. But it was held by the Chennai Bench that revenue's contention that the parties were not registered at the material period is not the valid reason. And where the input services have been utilized by the appellant in providing output service and in absence of any contrary finding, there cannot be denial of CENVAT credit of the service tax paid on input service. Registration is mere technical formality to bring the taxpayer to the fold of law without curtailment of the right of the taxpayer to be subject to other provisions of law which grants benefit.

Thus, it has been made very clear by the honorable courts  at different point of times and in different cases that registration and eligibility of Cenvat credit are independent issues and therefore Cenvat credit of service tax paid on input services prior to registration can be availed of. Further, if all the conditions of admissibility of cenvat credit is satisfied in accordance with the related laws then mere non-registration could not in any way can come in between the valid availment of Cenvat credit by the assessee. It is also recommended to the board of excise and customs to clarify this stand in such matters so the officers of audit team and preventive wing do not pressurize the assessee to reverse the Cenvat credit availed of prior to registration. Although we are now heading towards the GST but such clarification would help in several pending cases, audits and investigations and litigation in queue. Further, the position of such situation in post GST regime is also expected to be clarified well in advance for avoidance of confusions and repetitive litigations.

CA Akash Phophalia

9799569294

[email protected]

Discussions to this article

[Ganeshan Kalyani]

Sir, nice article. I understand from the article that taking registration is not a criteria to avail cenvat credit. However, my concern is that the liability becomes payable only after the turnover exceeds exemption limit. So if after the registration is taken the set off that an assessee need to do have to consider the criteria -"in or in relation to " for taking credit. I mean to say the dealer only for the reason that Cenvat credit eligibility is not depending upon registration can apply for refund of the taxes that he has paid during the period within which he was covered under exemption benefit.

Your view is requested sir.

[CA Akash Phophalia]

Thanks for the words of encouragement!!!

(1) The main focus of this article is to enlighten readers that "registration is mere procedural formality" and absence of registration cannot bar eligible Cenvat credit. it should not be understood that registration is not at all required.

(2) As far as refund is concerned, one needs to check the relvant refund conditions and in some cases, one can apply for refund even without registration.

Regards

[Himansu Sha]

Sir,

Board has issued the clarification about the availability of credit about the receipt of the capital goods before registration. At that time the concept of Service tax credit was not available. Moreover Rule 9(2) of CCR04 prescribes certain conditions for allowing/disallowing the credit. It does not contain the criterion of the registration of the person paying the service tax. What propels the Department officers about denying the credit , I think is about the status of the service provider as he does not become an assessee without registration. If we read the Circular No. 88/88/94-CX dated 26/12/94 , it can be well understood the intention of the law makers that the credit availability depends of the receipt and use of the services. Rule nowhere prescribes the pre condition of registration for taking the credit. Even if inputs are received before registration, if such inputs lie inside the factory after registration, credit is available.

The views are purely personal

With regrads

Himansu Sekhar Sha

 

[CA Akash Phophalia]

Thanks for sharing the valuable information. Also, I agree with u !!!!