2025 (1) TMI 630 - AT - Service Tax

Liability of service tax - CENVAT Credit of service tax paid by ART on the services which it had rendered to PJL - time limitation. Whether PJL had rendered taxable services to Shrawan and hence was liable to pay service tax as required? - HELD THAT - PJL was registered as a cement manufacturer and had been filing excise returns but it had not disclosed to the Department the fact that it was providing mining services nor did it obtain the service tax registration. Scrutiny of returns by the excise officers or by the excise audit teams naturally will be confined the excise part of its work. When PJL had not even intimated the department about the services which it was rendering nor had it taken any registration nor paid service tax nor filed the service tax returns, PJL had clearly suppressed all facts related to rendering of mining services to Shrawan and not paying service tax on them. The services were rendered by PJL to Shrawan whose final product was limestone which was an exempted good. Shrawan was not rendering any service. Thus, the service tax which PJL had to pay would have had to be borne by PJL or Shrawan. Shrawan could not have availed credit of the service tax, if it was paid, because its final product- limestone- is an exempted good - the demand of service tax from PJL along with interest and penalties need to be sustained. Whether CENVAT credit is available of service tax paid by ART on the services which it had rendered to PJL, treating them as input services for manufacture of cement? - input services - HELD THAT - While dealing with the service tax issues in this order, nobody can quarry or mine except under a licence given under the MMD Act. In case of minor minerals, including limestone, the licence can be granted by the State Government. Government of Madhya Pradesh granted the mining lease to Shrawan stipulating that it cannot be transferred without consent of the Government. We have already found that it was not transferred and the lease continued to be with Shrawan. Therefore, Shrawan alone was authorized to mine limestone, which he could do by himself or using contractor - The cement manufactured by PJL is an excisable product and PJL is entitled to take CENVAT credit of inputs and input services used in or in relation to manufacture of cement. The services rendered by ART to PJL were in relation to the services which PJL had rendered to Shrawan and the exempted goods limestone produced by Shrawan. The services rendered by ART clearly had no correlation to the manufacture of cement. Therefore, the finding in the impugned order that CENVAT credit was wrongly availed by PJL on the services rendered by ART treating it as input service for manufacture of cement is correct and needs to be sustained. Time limitation - HELD THAT - CENVAT credit irregularly taken can be recovered under Rule 14 of CCR and the provisions of section 11Aof the Excise Act apply mutatis mutandis to such recovery. Therefore, the time limits prescribed under section 11A of Excise Act also apply to recovery of irregularly availed CENVAT credit under Rule 14 of CCR. It provides for invoking extended period of limitation of five years if duty was not levied or not paid or short levied or short paid or erroneously recovered by reason of fraud or collusion or wilful misstatement or suppression of facts or violation of the provisions of the Act or Rules with an intent to evade payment of duty. To recover irregularly availed CENVAT credit by invoking extended period of limitation under Rule 14 of CCR, one of these aggravating factors must be established. There is also no obligation to disclose to the department the details of the invoices or services on which credit was taken. It was open to the officer who is mandated to receive the ER1 return to call for further information and details and if he had sought and PJL had concealed the details, it would have been a different case. Nothing in the records suggests that the officer scrutinizing the Returns had sought any information which was not given. Therefore, PJL had no obligation to disclose the details which it is said to have not disclosed. This cannot be termed suppression of facts to invoke extended period of limitation. Penalty under Section 11AC read with Rule 15 of CCR - HELD THAT - The legal requirement to impose penalty under section 11ACof Excise Act is the same as the requirement to invoke extended period of limitation, i.e., the wrong availment of CENVAT credit is because of fraud or collusion or willful mis-statement or suppression of facts or violation of Act or Rules with intent to evade payment of duty. Since it is found that extended period of limitation was wrongly invoked, we also set aside the penalty imposed under Section 11AC of the Excise Act read with Rule 15 of CCR. There is no dispute that ART had provided services to PJL, issued tax invoices and paid service tax on such services. Therefore, there was nothing improper, let alone illegal or irregular in ART issuing such invoices to PJL. In fact, it was required to pay service tax and issue invoices. The fact that PJL used such invoices to take CENVAT credit wrongly treating it as an input service for manufacture of cement is an altogether different matter. Neither the issue of invoices by ART was incorrect nor can Pradeep, Manish and Ashish be accused of abetting issue of such an invoice. Clearly, the penalties imposed on them under Rule 26(2)(ii) of Excise Rules cannot be sustained and need to be set aside. Conclusion - i) Shrawan was and continued to be the lease holder of Ramasthan mines and this lease was neither consented to be transferred by the Government of MP, nor was it actually transferred to PJL. ii) The sale of the limestone for each consignment took place when PJL issued purchase orders and Shrawan supplied the limestone at the crushing site of the PJL. iii) PJL neither paid service tax on the services which it had rendered to Shrawan nor filed any return nor had it taken registration under service tax. It thus, suppressed these facts with an intent to evade paying service tax. iii) The demand of service tax , interest and penalties on PJL must be sustained. Considering the role played by Pradeep, Manish, Ashish and Shrawan, the penalties imposed on them under sections 77 and 78Aof the Finance Act must be upheld. iv) The services rendered by ART to PJL were not in or in relation to the manufacture of cement by PJL. Therefore, no CENVAT credit of the service tax paid by ART is admissible as 'input service' to manufacture of cement by PJL. v) The irregularly availed CENVAT credit must be recovered but only within the normal period of limitation as the ingredients to invoke extended period of limitation are not present. vi) Penalties imposed on Pradeep, Ashish and Manish under Rule 26(2)(ii) of the Excise Rules, 2002 cannot be sustained and need to be set aside. Appeal disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment addresses several core issues:

(a) Whether PJL rendered taxable services to Shrawan and was liable to pay service tax.

(b) Whether PJL could claim CENVAT credit on the service tax paid by ART, considering it as an 'input service' for the manufacture of cement.

(c) The applicability of penalties on various individuals associated with PJL under different sections of the Finance Act and Excise Rules.

2. ISSUE-WISE DETAILED ANALYSIS

Service Tax Liability

Relevant Legal Framework and Precedents: The Finance Act governs the service tax obligations, requiring entities to register and pay service tax on taxable services rendered. The Mines and Minerals (Development and Regulation) Act, 1957 (MMD Act) regulates mining operations, requiring a valid license for mining activities.

Court's Interpretation and Reasoning: The court found that PJL had rendered mining services to Shrawan without obtaining a service tax registration or paying the requisite tax. The agreements between PJL and Shrawan did not transfer the mining lease to PJL, and PJL acted as a contractor providing services to Shrawan.

Key Evidence and Findings: The agreements (Operator, Commercial, and Agency) indicated PJL's role in mining operations for Shrawan. The price difference in limestone sales to PJL and independent buyers was deemed the consideration for PJL's services.

Application of Law to Facts: The court applied the Finance Act provisions, concluding that PJL's activities constituted taxable services, and the price difference was the consideration received.

Treatment of Competing Arguments: PJL argued that the mine was a captive mine and no services were rendered to Shrawan. The court rejected this, emphasizing the lack of lease transfer and the nature of agreements.

Conclusions: The court upheld the service tax demand, interest, and penalties on PJL for evading service tax.

CENVAT Credit Eligibility

Relevant Legal Framework and Precedents: CENVAT Credit Rules, 2004, allow credit on input services used in manufacturing. The definition of 'input services' under Rule 2(l) is crucial for determining eligibility.

Court's Interpretation and Reasoning: The court determined that the services rendered by ART to PJL were not 'input services' for cement manufacturing, as they related to mining services provided to Shrawan.

Key Evidence and Findings: ART's services were linked to mining operations, not directly related to cement manufacturing.

Application of Law to Facts: The court applied Rule 2(l) of CCR, finding that the services did not qualify as input services for manufacturing cement.

Treatment of Competing Arguments: PJL's claim that the services were input services was rejected, as the services were related to mining operations for Shrawan.

Conclusions: The court upheld the denial of CENVAT credit for the services rendered by ART.

Penalties on Individuals

Relevant Legal Framework and Precedents: Sections 77 and 78A of the Finance Act and Rule 26(2)(ii) of Excise Rules govern penalties for non-compliance and fraudulent activities.

Court's Interpretation and Reasoning: The court found that individuals in key positions at PJL were aware of the agreements and non-compliance, justifying penalties under the relevant sections.

Key Evidence and Findings: The roles and responsibilities of Pradeep, Ashish, and Manish in PJL's operations were examined to establish their involvement.

Application of Law to Facts: The court applied the relevant sections, affirming penalties on individuals for their roles in the non-compliance.

Treatment of Competing Arguments: The individuals' defenses were considered, but the court upheld the penalties based on their responsibilities and awareness.

Conclusions: The penalties on individuals were upheld under Sections 77 and 78A of the Finance Act.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "PJL had rendered mining services to Shrawan, but it failed to take registration under service tax or pay service tax. The service tax so payable is recoverable under section 73 of the Finance Act."

Core Principles Established: Entities must comply with service tax obligations for services rendered, and CENVAT credit eligibility requires a direct relation to manufacturing activities. Penalties are justified for non-compliance and fraudulent activities.

Final Determinations on Each Issue:

(a) The court sustained the service tax demand, interest, and penalties on PJL.

(b) The denial of CENVAT credit for services rendered by ART was upheld.

(c) Penalties on individuals under Sections 77 and 78A of the Finance Act were upheld, while penalties under Rule 26(2)(ii) of Excise Rules were set aside.