By TIOL News Service

MUMBAI, FEB 17, 2015: THE appellant collected sponsorship charges from M/s United Breweries Ltd. and M/s. Sporting Excellence towards sponsorship of their team Rajasthan Royals for the Indian Premier League (IPL) Series during April, 2008, to the extent of Rs.8 crore. They also collected service tax of Rs.62,17,080/- from their sponsors. The amount so collected was remitted to the exchequer by way of debit in their CENVAT Credit account.

The department was of the view that the said activity was not a taxable service and remitting of the amount by way of debit in the Cenvat Credit account was not permissible and the amount collected should have been remitted in cash to the exchequer. The appellant once again remitted in cash the amount collected by way of service tax under protest on 24.02.2009.

A show cause notice dated 10.06.2009 was issued to the appellant for vacation of protest and appropriation of the amount paid in cash and for imposition of penalty u/s 77 of the FA, 1994.

The CST, Mumbai adjudicated the SCN by appropriating the amount paid in cash &by invoking the provisions of section 73A(2) & (3) and the appellant was directed to pay interest on the delayed payment as per section 73B. A penalty of Rs.5000/- was also imposed u/s 77.

The appellant is before the CESTAT.

It is submitted-

++ During the material period, the person liable to pay service tax was the sponsor who is the recipient of the sponsorship. Further, sponsorship of sporting events were excluded from the levy of service tax. Therefore, there was no liability to pay service tax on the said activity. However, inasmuch as the appellant had wrongly collected the service tax from the sponsors, they remitted the tax so collected to the exchequer in terms of section 73A(2) of the FA, 1994.

++ The discharge of tax liability through cenvat credit account is permissible in law and therefore, the demand of service tax in cash by the department is clearly unsustainable law. Reliance is placed on the decisions of the Tribunal in the case of Sangam India Ltd. 2011-TIOL-778-CESTAT-DEL & Unison Metals Ltd. 2006-TIOL-1337-CESTAT-DEL-LB in support of the above contention.

++ Since the appellant had discharged the liability, they are not liable to pay an interest and no penalty is imposable in view of the bonafide conduct of the appellant.

++ The appellant also seeks refund of the amount paid and also submits that the adjudicating authority should have restored the cenvat credit debited towards discharge of liability.

The AR while justifying the order of the CST submitted that the appellant is not a service provider of any output service and, therefore, they could not have availed any cenvat credit at all for discharge of liability. Moreover, Section 73A(2) speaks of payment of the “amount” and not any tax and hence utilisation of cenvat credit is contrary to the provisions of CCR, 2004.

The Bench adverted to the definition of ‘sponsorship service' [s.65(105)(zzzn)], rule 2(1)(d)(vii) of STR, 1994, the definitions of ‘output service', ‘person liable for paying service tax' and ‘provider of taxable service' given in Rules 2 (p), (q) and (r) of the CCR, 2004 & provisions of Section 73A (2) of FA, 1994 and inter alia observed-

Taxability-

(a) Sponsorship of sporting events was not a ‘taxable service' and, therefore, it was not an ‘output service' as defined in law;

(b) Since ‘provider of taxable service' also included a person liable for paying service tax, in respect of sponsorship services, the provider of output service was the recipient of sponsorship service, that is, the sponsor.

The appellant was, therefore, not involved in rendering any ‘output service' nor was he a ‘provider of output service'.

Whether CENVAT utilisation permissible-

++ Rule 3(1) of the CCR, 2004, envisaged that “a manufacturer or producer of final products or a provider of output service shall be allowed to take credit of the duties specified therein”. Also Rule 3(4) of the said Rules provided for utilisation of cenvat credit for the purposes of-1) payment of excise duty on any final product; 2) payment of an amount equal to the cenvat credit taken on inputs if such inputs are removed as such or after partially processed; 3) payment of an amount equal to the cenvat credit on capital goods if such capital goods are removed as such; 4) payment of an amount under sub-rule (2) of rule 16 of the Central Excise Rules, 2002; or 5) payment of service tax on any output service. The said rule did not provide for utilisation of cenvat credit for payment of the amount specified in section 73A (2) of the Finance Act, 1994 or section 11D of the Central Excise Act, 1944.

++ Since the appellant was not a provider of any output service, he could not have taken any cenvat credit on the input or input services. Further he could not have utilised the credit for payment of the amount envisaged under section 73A(2). Thus, the discharge of the liability under section 73A(2) utilising cenvat credit was improper and illegal. Consequently, the demand of the department for payment of the liability under section 73A(2) of the Finance Act, 1994, in cash, is correct in law and cannot be faulted. As a consequence, the appellant is also liable to pay interest for the default period during which the amount was not made good in cash.

++ CCR, 2004 have been framed under the Rule making powers delegated to the Central Government under section 37 of the CEA, 1944 and section 94 of the Finance Act, 1994. While Section 37(2) (xviaa) provides for credit of service tax leviable under Chapter V of the Finance Act, 1994 paid or payable on taxable services used in or in relation to the manufacture of excisable goods, Section 94(2)(eee) of the Finance Act, 1994, provides for credit of service tax paid on the services consumed or duties paid or deemed to have been paid on goods used for providing a taxable service. In other words, provision of Cenvat credit is available only of the duties/taxes paid on taxable services used in or in relation to the manufacture of excisable goods or consumed for providing a taxable service. In the present case, it is an admitted position that the appellant has not rendered any taxable service. If that is so, the Cenvat Credit Rules cannot be interpreted in such a way as to go beyond or contrary to the Rule making powers conferred on the Central Government.

The case laws cited by the appelant were distinguished by referring to the Supreme Court decision in CCE Vs. Alnoori Tobacco Products 2004-TIOL-85-SC-CX.

Penalty: -

On the subject of imposition of penalty the CESTAT noted that the issue related to interpretation of law and there was no intention to evade or avoid payment of taxand hence there is no warrant to impose any penalty. In the matter of re-credit of the amount paid by debit in CENVAT, the Bench allowed the same subject to the condition that the appellant does not claim any refund of the amount paid in cash.

Conclusion: -

(1) the appellant is not entitled to utilise Cenvat credit for discharge of the liability under section 73A(2) of the Finance Act, 1994, and the said liability has to be discharged in cash. For the delayed discharge, the appellant is liable to pay interest thereon under section 73B ibid.

(2) there is no warrant to impose any penalty and the penalty imposed under section 77 ibid is set aside.

(3) the appellant shall be entitled for restoration of the Cenvat credit utilised inasmuch as the liability under section 73A(2) has been subsequently discharged in cash. This is subject to the condition that the appellant does not claim any refund of the amount paid in cash.

The appeal was disposed of in above terms.

(See 2015-TIOL-348-CESTAT-MUM)