2015 (9) TMI 367 - AT - Service Tax

Denial of CENVAT Credit - supplementary invoice - service provider had paid the service tax after detecting by the department - Interest u/s 11AA - Business Auxiliary Services - Job works - Suppression of facts - Held that - Service provider has carried out the job on the material supplied by the appellant and the said job work goods returned to the appellant. Appellant has used the said goods in the manufacture of other final product which has been cleared on payment of duty. Thus job work activity was exempted from payment of service tax. In view of this position when activity itself was not taxable and the appellant has discharged the service tax admittedly due to pointing out by the audit officers no suppression can be alleged. It was also observed that Jurisdictional officer of service provider has not issued any show cause notice to the service provider for recovery of the service tax. Service provider made categorical request for waiver of show cause notice under Section 73(3) of Finance Act, 1994 on the ground that they have paid service tax alongwith interest. Payment of service tax by the service provider and issuance of supplementary invoices there against there is no suppression of facts on the part of the service provider. It is also observed that in the entire proceedings, in the present case, only ground for denial of Cenvat Credit is that service provider has paid service tax on detection by the department. Merely because department has detected and service provider has paid service tax, that alone is not sufficient to make allegation that there is suppression of fact on the part of the appellant. - since there is no suppression of facts, misdeclaration, fraud etc. on the part of the service provider in making payment of service tax and issuance of supplementary invoices, the appellant has correctly availed the Cenvat Credit, therefore impugned order is modified - Decided in favour of assessee.

Issues:
1. Denial of Cenvat credit under Rule 14 of Cenvat Credit Rules, 2004.
2. Allegation of suppression of facts regarding payment of service tax by the service provider.
3. Interpretation of taxable service in relation to job work activities.
4. Applicability of Notification No. 8/2005-ST dated 1/3/2005 on job work goods.
5. Consideration of Section 73(3) of the Finance Act, 1994 in the case.

Issue 1: Denial of Cenvat credit under Rule 14 of Cenvat Credit Rules, 2004:
The appeal challenged an order confirming a demand of Cenvat credit and imposing penalties under Rule 14 of Cenvat Credit Rules, 2004. The appellant, engaged in manufacturing excisable goods, availed Cenvat credit on input services supplied to a group company for job work. The department alleged that the appellant took credit on service tax paid by the job worker only upon detection by the department, rendering the documents invalid under Rule 9(1)(bb) of the rules. The appellant contended that the job work activity was not a taxable service under the Finance Act, 1994, and even if taxable, it was exempted under Notification No. 8/2005-ST. The Tribunal agreed that the job work service was not taxable, and even if presumed taxable, it fell under the exemption criteria of the notification, thus allowing the Cenvat credit.

Issue 2: Allegation of suppression of facts regarding payment of service tax by the service provider:
The Revenue argued that since the service tax was paid by the provider only after detection by the department, there was a suppression of fact, justifying the denial of Cenvat credit. However, the Tribunal found that the service provider's payment of tax was not due to suppression but rather upon insistence by audit officers. The service provider had requested a waiver of show cause notice under Section 73(3) of the Finance Act, 1994, which was accepted by the department, indicating no suppression, misdeclaration, or fraud. As no show cause notice was issued to the service provider for recovery, the Tribunal concluded that there was no suppression of facts justifying the denial of Cenvat credit.

Issue 3: Interpretation of taxable service in relation to job work activities:
The Tribunal analyzed that the job work service, involving the manufacture of goods, did not fall under taxable services as per the Finance Act, 1994. The activity was deemed manufacturing under the Central Excise Act, 1944, and thus exempt from service tax. The service provider's payment of tax upon audit detection did not indicate suppression, as the department refrained from issuing a show cause notice post-payment, accepting the situation under Section 73(3) of the Finance Act, 1994.

Issue 4: Applicability of Notification No. 8/2005-ST dated 1/3/2005 on job work goods:
The Tribunal noted that the job work goods were produced using materials supplied by the appellant and used in the manufacture of dutiable goods, meeting the conditions of Notification No. 8/2005-ST. This exemption further supported the conclusion that the service was not taxable, and the payment of service tax post-audit did not imply suppression or misdeclaration.

Issue 5: Consideration of Section 73(3) of the Finance Act, 1994 in the case:
The Tribunal emphasized that the service provider's payment of service tax, followed by a waiver of show cause notice by the department, indicated a lack of suppression or fraud. Since the payment was made in compliance with audit findings and no recovery action was taken, the denial of Cenvat credit based on alleged suppression was unfounded. The Tribunal allowed the appeal and granted relief to the appellant in accordance with the law.

This detailed analysis of the judgment highlights the key legal issues addressed by the Tribunal, including the interpretation of relevant rules and notifications, the absence of suppression of facts, and the correct application of the law in determining the eligibility for Cenvat credit.

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