2015 (11) TMI 351 - AT - Service Tax

Fraudulent availment of CENVAT Credit - Inference of fraudulent transactions in the matter of payment of commissions to sub-brokers - Held that - In the instance case as there is no nexus between the input service received by the appellant with the output service provided, therefore , the service received by the appellant from sub-broker cannot be treated as input service and hence service tax credit taken on such input service is also not admissible. Further, appellant suppressed the fact of paying more commission to their sub-broker than the commission earned and the fact that the services rendered by the sub-broker is not an input service for providing output service by them. The facts remained unnoticed if the same would have not been detected by the department. Therefore, the appellant suppressed the vital facts and contravened the provision of Rule 2(l) and 2(p) of the Cenvat Credit Rules, 2004 with intent to evade payment of duty and hence they are also liable for penal action for their such act. In view of above, I agree with the order impugned of the adjudicating authority disallowing the cenvat credit amounting to ₹ 15,75,754/- taken during 2007-08 and ₹ 65,694/- during 2008-09 (upto 8/2010) invoking extended period under Section 73(1) of the Finance Act, 1994 and imposing penalty of ₹ 16,41,448/- upon the appellant under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 78 of the Finance Act, 1994. - no perverseity in the process of reasoning or in the conclusion recorded, warranting appellate interference with the impugned order. - Decided against Assessee.

Summary

Issues:
Appeal against rejection of appeal by Commissioner (Appeals) - Admissibility of service tax credit on input services - Legitimacy of commission paid to sub-brokers - Nexus between input services and output services - Suppression of facts by the appellant.

Analysis:
The appellant filed an appeal against the rejection of their appeal by the Commissioner (Appeals). The dispute arose from the admissibility of service tax credit on input services received from sub-brokers and the legitimacy of the commission paid to them. The Revenue initiated proceedings based on an audit revealing discrepancies in commission amounts earned and paid, suspecting fraudulent transactions. The authorities found that the service tax credit on input services from sub-brokers was inadmissible due to the lack of nexus between these services and the output services provided by the appellant. The commission rates paid to sub-brokers were deemed excessive, indicating potential fraudulent transactions.

The primary and lower Appellate authorities concluded that the appellant failed to establish a connection between the input services received and the output services provided, leading to the inadmissibility of service tax credit. The analyses of agreements and invoices revealed discrepancies in commission rates and lack of clarity on the purpose of payments to sub-brokers. The authorities highlighted that the services received from sub-brokers did not qualify as input services under the Cenvat Credit Rules. The appellant's inability to provide satisfactory explanations for the discrepancies further weakened their case.

The judgment emphasized the importance of establishing a clear nexus between input services and output services to claim service tax credit. The authorities found that the appellant suppressed vital facts regarding commission payments to sub-brokers, leading to the evasion of duty payment. The appellant's actions were deemed to contravene the provisions of the Cenvat Credit Rules, resulting in the disallowance of service tax credit and imposition of penalties. The judgment upheld the decisions of the lower authorities, dismissing the appeal due to the lack of merit and denying any cost to the appellant.

In conclusion, the judgment reaffirmed the significance of transparency in financial transactions and the necessity of establishing a legitimate connection between input and output services to claim service tax credit. The case serves as a reminder of the consequences of suppressing vital information and engaging in potentially fraudulent practices within the purview of tax regulations.