2017 (2) TMI 778 - AT - Service Tax

CENVAT credit - duty paying document - endorsed bill of entry - import of goods by the customers for use in rendering of technical testing and analysis service - Held that - Taxability under the charging section was predicated upon three essential factors an activity, a provider and a recipient - without all three ingredients, the intangible service is not amenable to isolation as taxable and, unless taxable, provider of a service could not claim coverage under CENVAT Credit Rules, 2004. The situation has not altered in the negative list regime either. The proposition is, indeed, dangerous; an importer may use or keep imported goods and, not having taken credit, may endorse the bill of entry to another person for availment of credit. We would thereby be legalising trafficking in CENVAT credit if the contention of appellant is accepted because of the accounting perfection that it portrays. That there is no loss to public exchequer as credit is an entitlement. Credit is an entitlement only to the extent the output is transacted in a normal commercial engagement. The specific reference to lease, hire-purchase or loan of capital goods appear to be intended to delink the goods from ownership without detracting from the documentary pre-requisites. That, in view of the primary condition of eligibility for CENVAT credit, is the scope of the reference to such acquisition. It was only in December 2013 by notification no. 18/2013-CE (NT) that rule 2 (ij) incorporated importer issuing an invoice among the first stage dealer with appropriate safeguards. Till such amendment, CENVAT Credit Rules, 2004 did not facilitate the transfer of credit concomitant with transfer of imported goods. Credit denied - appeal dismissed - decided against appellant.

Summary

Issues:
Eligibility of appellant to avail credit under CENVAT Credit Rules, 2004 for duty paid on imported goods.

Analysis:
The appellant, a provider of technical testing and analysis services, sought credit for duty paid on the import of 'spectrophotometer system 3000 API.' The original authority disallowed the credit, leading to recovery orders and penalties. The Commissioner of Service Tax - II (Appeals) upheld most of the original order, prompting the appellant's appeal.

The core argument of the appeal was that CENVAT credit aims to eliminate tax cascading, and credit should be allowed based on discharging duty liability on goods used for services. The appellant referenced public notices and circulars to support their claim, but the tribunal found these references outdated due to the comprehensive CENVAT Credit Rules, 2004.

The judgment highlighted the distinction between taxes on manufacturing and services, emphasizing that the identity of the taxpayer is crucial for goods but not for services. It explained that service tax liability depends on the activity, provider, and recipient, making the applicability of public notices and circulars irrelevant for service providers.

Regarding the validity of credit availment, the tribunal emphasized that a bill of entry is not a document of title but only for assessment purposes. It clarified that once goods are cleared, subsequent transactions cannot claim imported goods status for credit. Allowing otherwise could lead to misuse and trafficking of CENVAT credit.

The judgment also addressed the appellant's argument about the transfer of credit with imported goods, noting that specific provisions for such transfers were only introduced in 2013. Previous case references provided by the appellant were deemed inapplicable to service providers, further strengthening the decision to dismiss the appeal.

Ultimately, the tribunal found the appeal lacking merit and dismissed it, emphasizing the importance of adhering to the specific provisions and conditions outlined in the CENVAT Credit Rules, 2004.

(Pronounced in Court on 16/01/2017)