2019 (12) TMI 557 - AT - Service Tax

CENVAT Credit - input services - pure agent services - it was alleged that the appellants have availed ineligible cenvat credit in as much as the appellants have not paid service tax on the entire amount of incidental expenses recovered from VML - Board s Circular F. No. 137/85/2007- CX.4 and No.97/8/2007 dated 23.08.2007 - penalty - HELD THAT - It is an admitted fact that on certain services procured by the appellant for M/s. VML, where also the invoices were in the appellant s name, but they have claimed full reimbursement from M/s.VML by further adding their service charges. Admittedly, the appellants have paid service tax (output tax) only on the service charges/mark-up made by them or levied by them. Thus, it is held that such services will not form part of input services under Rule 2 (l) of Cenvat Credit Rules for the appellant. However, on other input services, where the appellant have not recovered the amount of service charges plus service tax by way of reimbursement, they shall be entitled to cenvat credit. Penalty - HELD THAT - The issue is wholly interpretational in nature and there is no element of contumacious conduct or suppression of facts. Admittedly, all the transactions are duly recorded in the books of accounts ordinarily maintained. Further, the appellants were registered with the Department and have been regularly complying including filing periodical returns - Accordingly, the penalty imposed under Rule 15 of Cenvat Credit Rules read with Section 78 of the Finance Act is set aside. Appeal allowed in part.

Issues Involved:
1. Eligibility of Cenvat credit on input services procured by the appellant.
2. Applicability of the "Pure Agent" concept under Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006.
3. Imposition of penalty under Rule 15(3) of the Cenvat Credit Rules read with Section 78 of the Finance Act, 1994.
4. Invocation of the extended period of limitation.

Detailed Analysis:

1. Eligibility of Cenvat Credit on Input Services:
The appellants, M/s. Arcadia Shipping Ltd., provided various services to M/s. Valentine Maritime Ltd. (VML) and claimed Cenvat credit on input services used for providing these output services. The agreement between the parties included services such as meeting assistance, customs and immigration assistance, and procurement of air tickets. The appellant argued that these services qualify as "input services" under Rule 2(l) of the Cenvat Credit Rules, 2004. The show cause notice and subsequent orders acknowledged that the services received by the appellants qualify as "input services." However, the dispute arose over whether the appellant could claim Cenvat credit on the entire amount, including incidental expenses recovered from VML.

2. Applicability of "Pure Agent" Concept:
The audit conducted by the Service Tax Department alleged that the appellants acted as a "Pure Agent" for VML and did not pay service tax on the entire amount of incidental expenses. The appellant claimed the benefit of being a "Pure Agent" under Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006, and paid service tax only on the service charges. The Adjudicating Authority and Commissioner (Appeals) held that the appellant was not a "Pure Agent" simpliciter but provided both output services and procured services for VML as a Pure Agent. Consequently, the appellant was not entitled to take credit of services procured as a Pure Agent for VML, for which they received full reimbursement including the amount of tax.

3. Imposition of Penalty:
The Adjudicating Authority imposed a penalty equal to the amount of irregular Cenvat credit taken under Rule 15(3) read with Section 78 of the Finance Act, 1994. The appellant argued that there was no element of fraud or suppression of facts, as all transactions were duly recorded in the books of accounts and they were regularly complying with filing periodical returns. The Tribunal found that the issue was interpretational in nature and there was no contumacious conduct or suppression of facts. Therefore, the penalty imposed under Rule 15 of the Cenvat Credit Rules read with Section 78 of the Finance Act was set aside.

4. Invocation of Extended Period of Limitation:
The show cause notice invoked the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994, alleging that the irregular credit was discovered only during the audit. The appellant contested this, arguing that they had not violated any provisions of the Cenvat Credit Rules, 2004, and that the recovery of service tax by way of reimbursement from VML had no bearing on the credit admissibility. The Tribunal found that the transactions were duly recorded and there was no suppression of facts, thus setting aside the penalty but upholding the demand for the period within the limitation.

Conclusion:
The Tribunal allowed the appeal in part, holding that the appellant is entitled to Cenvat credit on input services where they have not recovered the amount of service charges plus service tax by way of reimbursement. The penalty imposed was set aside due to the interpretational nature of the issue and the absence of contumacious conduct or suppression of facts. The appellant is entitled to consequential benefits in accordance with the law.

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