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TMI Blog2024 (6) TMI 1423X X X X Extracts X X X X X X X X Extracts X X X X ..... uctions as penalty on the service providers as per the agreement entered between them and the service provider. The value of the service received as rightly observed in the impugned order is relatable to the amount paid as consideration by the service recipient to the service provider. With effect from 2011, the scheme of taxation of services was altered and the service tax became payable on the accrual basis rather than the receipt basis. However the scheme of CENVAT credit has not undergone any change. Rule 4 (7) of the CENVAT Credit Rules, 2004 provides that Credit shall be allowed on or after the day on which payment is made of the value of invoice - The fact that invoices were issued indicated particular taxable value and service tax payable, needs to be verified from the end of service provider as to whether he has in actual paid the service tax on invoice value or on the reduced value after taking into account the deductions made by the appellant towards penalty. Impugned order do not refers to any verification that was essentially required to be made at the end of service provider - matter needs to go back to the original authority for causing a verification from the end of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CENVAT Credit Rules, 2004 read with Section 75 of the Finance Act, 1994. (iii) I impose a penalty of Rs. 44,94,672/- (Rupees Forty Four Lakh Ninety Four Thousand Six Hundred Seventy Two only) on M's Bharat Sanchar Nigam Limited 0/o G.M. (Cellular Mobile Telecom Services), U.P. (West) Telecom Circle, 3rd Floor, Brahampuri Telephone Exchange, Meerut-250002 under Rule 15(1) of CENVAT Credit Rules, 2004 read with Section 76(1) of the Finance Act, 1994 2.1 Appellant is registered for providing Telecommunication Services . They are availing the CENVAT credit of Central Excise duties and Service tax under the provisions of CENVAT Credit Rules, 2004 2.2 Based on Internal Audit (IAR No. 36/ST/2011-12 dated 22.03.2012) a Show Cause Notice dated 17.10.2013 for the period Oct.'2009 to March'2011 was issued to them for demand and recovery of CENVAT credit of Rs.3,96,27,422/- on following grounds: (i) they wrongly availed full CENVAT credit of Service Tax on the invoices of service providers pertaining to AMC to whom payments were made after deducting certain amount as `penalty', and (ii) they wrongly availed CENVAT Credit of Central Excise duty/ Service Tax on the strength o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ELT 372 (Raj)] Sterlite Industries Ltd. [2004 (173) ELT 28] Eveready Industries [2000 (120) ELT 379] CENVAT and Penalties charges are two different things. 3.3 Authorized representative reiterates the findings recorded in the impugned order 4.1 We have considered the impugned order along with the submissions made in appeal and during the course of arguments 4.2 Impugned order records the findings as follws: 6. .. In the present case the following issues are required to be decided by me:- (i) Whether the Noticee (M/s BSNL) had wrongly and irregularly availed and utilized Cenvat Credit of Service tax amounting to Rs. 2,08,47,037/- on account of Liquidation Damages: LD penalty on the basis of the invoices of service providers pertaining to AMC to whom payments were made after deducting certain amount as 'penalty' and if so, whether the above said amount of Cenvat credit is required to be recovered from the Noticee under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 73 of the Finance Act, 1994? (ii) Whether the Noticee (M/s BSNL) had wrongly and irregularly availed and utilized Cenvat Credit of Service tax amounting to Rs. 2,40,99,686/- on fuel expenditure i.e. di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of invoice, bill or challan, the Cenvat credit already taken should be reversed by paying 'amount equal to Cenvat Credit availed on such input service. If at a later date, payment is made to the service provider by the manufacturer or output service provider who had reversed the Cenvat credit, he can take credit of the amount equal to Cenvat credit reversed earlier. I further find that if service is not provided fully or partly or if the amount of invoice is renegotiated due to deficiency in service or in terms of contract, the service provider may refund the amount fully or partly, to the service provider or issue a credit note as per rule 6(3) of the Service Tax Rules, 1994 and the third proviso to Rule 4(7) of the Cenvat Credit Rules, 2004 states that if such amount is refunded or Credit Note is issued by the service provider, the service receiver (manufacturer or service provider who had taken the Cenvat Credit on such input service on receipt of Invoice, Bill or Chailan) shall reverse the Cenvat credit by paying 'amount' equal te Cenvat credit availed in respect of the amount SO refunded or credited. find that the harmonious construction of the above referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and consequently, I hold that M/s BSNL had wrongly and irregularly availed and utilized Cenvat credit of Service Tax amounting to Rs. 2,08,47,037/- on account of Liquidation Damages: LD penalty on the basis of the invoices of service providers pertaining to AMC to whom payments were made after deducting certain amount as penalty‟ and the above said amount of Cenvat credit is required to be recovered from Ms BSNL under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 73(1) of the Finance Act, 1994. 10. So far as the issue No. (ii) above i.e. , is concerned, I find that it is an admitted fact on record that the Noticee while receiving the infrastructure support services from their AMC service providers, had reimbursed the cost of diesel and electricity to the said service providers. I find that AMC service providers had issued invoices for seeking reimbursement of cost of diesel and electricity from the Noticee and in the said invoices, they had charged service tax on the cost of diesel and electricity and the Noticee, in turn, had availed the Cenvat credit of service tax paid on the cost of diesel and electricity. I find that the AMC service providers had used di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d fuel expenditure, is not admissible to them in terms of Rule 2(k) and Rule 3 of the Cenvat Credit Rules, 2004. 11. The Noticee has contended that as per the agreement, they had not per-se procured the diesel or electricity as such from the Tower companies but the payment made in this connection was in the form of reimbursement of cost incurred by the Tower Companies for providing the infrastructure support services. So far as this contention of the Noticee is concerned, I find that it is an undisputed fact on record that the Noticee had availed the Cenvat credit of service tax paid on the diesel charges and electricity-charges for which the AMC service providers had issued invoices to the Noticee and in terms of Rule 2(k) of the Cenvat Credit Rules, 2004, diesel was not an eligible input for availing Cenvat credit during the relevant period of demand and similarly, electricity was not an excisable commodity for the purpose of availment of Cenvat credit thereon. 12. The Noticee has further contended that as per Rule 5 of the Service Tax (Determination of Value) Rules, 2006, the value of consumables recovered by the provider of services, should form part of the value of the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit of service tax is admissible to the Noticee on the diesel and electricity in terms of Rule 2(k) and Rule 3 of the Cenvat Credit Rules, 2004. So far as the contention of the party that without use of diesel and electricity it was not possible for the service providers to provide the uninterrupted infrastructure support services and that the diesel and electricity were the integral parts of the said infrastructure support services, is concerned, I find that the same formula applies to a manufacturer also whose machineries installed in his factory cannot function/work without DG sets and electricity connections but it does not mean that the said manufacturer is eligible to avail Cenvat credit of duty/tax paid on diesel and electricity when the said diesel is not an eligible input under the Cenvat Credit Rules, 2004 and the electricity is not an excisable commodity for the purpose of availing the Cenvat credit. Therefore, the Noticee had wrongly and illegally availed the Cenvat credit of service tax paid on the diesel and electricity during the material period of demand and hence the same is required to be recovered from them. 14. I find that the Central Board of Excise and Cust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... astructure by way of Telecom towers, has held that the cenvat credit on inputs or capital goods was admissible to the appellants except for oil and petrol in Rule 2(k)(ii) of the Cenvat Credit Rules, 2004 The relevant portion of the above judgement is reproduced below :- Cenvat credit- Inputs - Assessee providing passive telecom infrastructure by way of Telecom towers, to various cellular telecom operators - Discharge of Service Tax liability under Business Support Service category - Utilization of Cenvat credit on steel structural s viz. Bracket, Mounting Pole, Mount Clamps, Cable, Pre-fabricated Buildings/Shelter/Panel used in erection/fabrication of Telecom Towers - Revenue alleging goods not covered in ambit of Capital Goods definition provided under Rule 2(a)(A)(i) of Cenvat Credit Rules, 2004 therefore, assessee ineligible to Cenvat credit of Excise duty paid on such goods Cenvat credit whether admissible on inputs such as steel, structural, racks, etc., which become basis, i.e., input goods for providing Business Support Service under Rule 2(k)(i) of Cenvat Credit Rules, 2004; Existence of direct nexus of output services and credit taken on excisable goods procured and clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt wrongfully retained by them with interest at the rate of 24% p.a. In our opinion, such a course, adopted by the Revenue for recovery of the amount which was legitimately claimed by the Revenue, cannot be said to be bad-in-law. 15. I find that as per the provisions of Rule 9(5) and Rule 9(6) of the Cenvat Credit Rules 2004, the burden of proof regarding the admissibility of the Cenvat credit lies upon the manufacturer or provider of output service taking such credit and in the instant case, Cenvat credit availed by the Noticee on the amount of penalty (Liquidation damages), which was retained by them and was never paid to the AMC service providers as well as on account of reimbursement cost of diesel/ power and fuel expenditure, was not admissible to them in view of Rule 2 and Rule 9 of Cenvat Credit Rules, 2004. Thus, the Noticee had contravened the provisions of Rule 2, Rule 3 and Rule 9 of the Cenvat Credit Rules, 2004 and the inadmissible Cenvat credit of Service Tax is required to be recovered from the Noticee under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 73(1) of the Finance Act, 1994 alongwith interest as due thereon in terms of Section 75 of the Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, the Noticee is liable to penal action, as rightly charged in the impugned show cause notice. 4.3 Impugned order has framed the issues for decision in para-6. 4.4 In respect of issue at Sl No 1, admittedly the appellant ahs not paid the amount indicated in the invoices of the service provider. The invoice value has been reduced by the amounts which appellant has claimed to be deductions as penalty on the service providers as per the agreement entered between them and the service provider. The value of the service received as rightly observed in the impugned order is relatable to the amount paid as consideration by the service recipient to the service provider. With effect from 2011, the scheme of taxation of services was altered and the service tax became payable on the accrual basis rather than the receipt basis. However the scheme of CENVAT credit has not undergone any change. Rule 4 (7) of the CENVAT Credit Rules, 2004 provides that Credit shall be allowed on or after the day on which payment is made of the value of invoice. The said provision has been further clarified by the circular No 122/3/2010-ST dated 30-4-2010. Relevant extract is reproduced below: 3. As per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um of credit availed has to be limited to actual amount of service tax paid in respect of such invoices evidencing the payment of service tax. The fact that invoices were issued indicated particular taxable value and service tax payable, needs to be verified from the end of service provider as to whether he has in actual paid the service tax on invoice value or on the reduced value after taking into account the deductions made by the appellant towards penalty. Impugned order do not refers to any verification that was essentially required to be made at the end of service provider. 4.5 Explaining the above rule and the board circular, Delhi bench has in the case of Hindustan Zinc Ltd [2014 (33) STR 440 (T-Del)] observed as follows: 7. The rationale behind Rule 4(7) of the Cenvat Credit Rules is that during the period prior to 1-3-2011, which is the period of dispute in this case, by virtue of Rule 6(1) of the Service Tax Rules, 1994, service tax in respect of the service provided or to be provided was payable by 6th day of the month immediately following the month in which the payment for the service provided or to be provided was received by the service provider. This rule had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provider of services before that date. This obligation has clearly been stipulated under sub-rule (6) of Rule 9. Accordingly, we find that it is necessary to establish the payment of value as well as tax before availing the credit by supporting documentary evidence, as we have seen at least a few instances of availing credit before actual payment. The case has to go back to the original authority for verification of all entries to arrive at a proper decision about the eligibility of respondent for this credit. If the credits are availed prior to payment then necessarily the question of interest liability is to be examined, if otherwise, the credit become eligible on a later date (after payment of tax). 4.6 In the case of Mackintosh Burn Ltd. [2020 (35) G.S.T.L. 409 (Tri. - Kolkata)], Kolkata bench held as follows: 7. We find that by applying the ratio of the above judgments, the Ld. Counsel submits that the Commissioner has gone beyond the scope of the show cause notice while passing the impugned order whereas the Ld. AR vehemently opposes the contentions and says that only when the appellants have submitted that a part of the demand has been paid through Cenvat credit, Ld. Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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