ST - Amalgamation proceedings cannot make credit availed of ST paid on royalty charges as improper: CESTAT
By TIOL News Service
NEW DELHI, MAY 26, 2017: THE appellants are engaged in the manufacture of detergent cake and powder. As the goods were manufactured with the brand name of M/s Ghari Industries Pvt. Limited, the appellant paid royalty charges alongwith service tax for use of the brand name.
The service tax amount paid of Rs.29,27,822/- was availed as CENVATcredit on 28.07.2007.
Later, the appellant and M/s Ghari Industries Pvt. Limited (brand name owner) were merged pursuant to an amalgamation order dated 01.02.2008 passed by the High Court of Allahabad. The amalgamation was ordered w.e.f the appointed date of 01.04.2006.
Revenue entertained a view that in terms of the High Court order the two entities become one and as such there was no warrant for payment of royalty by the appellant and the invoice for such payment becomes “infractuous” [highlighted by the Bench, apparently on account of incorrect spelling] for the purpose of availing that credit.
Inasmuch as the credit availed was held to be inadmissible.
Before the CESTAT, the appellant inter alia submitted that the Allahabad High Court order was delivered much later, though giving effect to the amalgamation from the appointed date of 01.04.2006;that at the time of availing credit the appellant were rightly entitled to credit and in fact they have discharged service tax on taxable services and their eligibility to credit is not disputed on any other ground.
Furthermore, the amalgamation approved by the High Court with retrospective date is not relevant to decide the credit eligibility of the appellant during the material time when effectively there were two legal entities.
The AR reiterated the stand taken by the department.
The Single Member Bench observed thus -
++ Admittedly, the dispute arose mainly because of the order of Allahabad High Court giving approval of amalgamation of two units from the retrospective date of 01.04.2006. However, during the material time when ST was discharged by the appellant, the same was legally paid and credited to the Government. As such, tax paid on input service has been correctly utilised by the appellant in terms of Cenvat Credit Rules, 2004.
++ I note that the eligibility of credit on merit has not been disputed by the lower authorities. It is not clear as to how a later order passed by the Hon'ble High Court will make the tax paid invoice as “infractuous”. The said observation and reasoning adopted by the impugned order is legally as well as factually unsustainable.
++ When the service tax was paid duly on the taxable service availed by the appellant and the credit was also duly availed within the scope of Cenvat Credit Rules, 2004, later development that too on a different proceedings under the provisions of company law cannot make duly paid service tax availed credit during the material time as improper.
++ It may also be noted that if there were no two legal entities during the material time, as observed by the lower authorities relying on the High Court order, the question of rendering service, paying service tax does not arise. In other words there will be only self-service or no taxable service at all.
++ The financial transaction between two legal entities as existing during the relevant time were valid and legal and the same does not become “infractuous” simply because these legal entities were amalgamated later, though effective date for record has been mentioned as 01.04.2006.
(See 2017-TIOL-1752-CESTAT-DEL)
