2021 (9) TMI 688 - AT - Service Tax

CENVAT Credit - duty paying documents - debit notes raised for cost sharing - appellant also reimburses the charges incurred in terms of the agreement - case of Revenue is that no service is provided and here appellant is only claiming reimbursement of actual expenses incurred towards administrative and other cost - also, denial of credit on such debit notes on the ground that these are reimbursement of expenses and not consideration paid for taxable service - eligible documents as per Rule 9 of the CENVAT Credit Rules, 2004 or not - HELD THAT - The issue as to whether credit availed on the service tax paid is eligible to the appellant or is merely a reimbursement so as to pass on the cost incurred has been analyzed in the similar set of facts by the Hon'ble jurisdictional High Court in the case of M/S. MODULAR AUTO LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, CHENNAI 2018 (8) TMI 1691 - MADRAS HIGH COURT where it was held that the credit cannot be denied on such ground. Payment of service tax on the amounts raised in the debit notes - HELD THAT - The Show Cause Notice is issued only to the service recipient (appellant herein) who has availed the credit of service tax collected via the debit notes. If the department holds that the payment of service tax is legal and proper, then the credit availed on the tax cannot be denied alleging that no service is provided. Further on the issue whether debit notes are valid documents to avail credit, it has to be stated that though Rule 9(1) of CENVAT Credit Rules, 2004 does not mention debit note as a document on which credit can be availed, when all necessary particulars are mentioned the credit cannot be denied for the only that it is a debit note - In COMMISSIONER OF CENTRAL EXCISE JAIPUR-1, JAIPUR VERSUS BHARTI HEXACOM LTD. 2018 (6) TMI 435 - RAJASTHAN HIGH COURT the credit availed on debit notes was held to be eligible - In the case of M/S GABRIEL INDIA LIMITED VERSUS CCE ST, INDORE 2016 (12) TMI 155 - CESTAT NEW DELHI it was held that credit availed on debit notes cannot be denied when the eligibility of credit is not disputed - the denial of credit on the ground that the document on which credit is availed is a debit note is not legal or proper. Credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Eligibility of CENVAT credit on input service credit availed on debit notes for cost sharing.
2. Dispute regarding whether the debit notes can be considered as valid documents for availing credit.

Issue 1: Eligibility of CENVAT credit on input service credit:
The appellant, engaged in manufacturing goods falling under specific chapters of CETA, 1985, availed CENVAT credit on input services through debit notes raised by a subsidiary company for cost sharing. The department alleged that the credit on such debit notes was ineligible as they were reimbursement of expenses, not consideration for taxable services. The original authority confirmed the demand, leading to the appeal. The appellant argued that the cost-sharing agreement aimed at operational efficiencies, common in the industry, and the service tax paid by the subsidiary was not in dispute. Citing a High Court judgment, it was emphasized that if the service tax paid by the provider is undisputed, the recipient's assessment cannot be challenged.

Issue 2: Validity of debit notes for availing credit:
The department contended that the debit notes did not represent taxable services provided by the subsidiary and hence, the credit was ineligible. The appellant argued that denial of credit based on debit notes was unjustified. Referring to legal precedents, it was highlighted that when all necessary particulars are mentioned, credit cannot be denied solely because it is a debit note. Previous cases demonstrated that credit availed on debit notes should not be denied when the eligibility of credit is not disputed. Following the High Court's decision on similar facts, the Tribunal held that the denial of credit based on the nature of the document (debit note) was not legally justified.

In conclusion, the Tribunal, considering the facts and the High Court's decision on identical circumstances, ruled in favor of the appellant. It was held that the demand for ineligible credit could not be sustained, and the impugned order was set aside, allowing the appeal with any consequential reliefs. The judgment emphasized that if the service tax payment was legal and proper, the credit availed on the tax could not be denied, and the denial of credit based on the document being a debit note was deemed improper and not legally valid.