By TIOL News Service

MUMBAI, JULY 28, 2015: THE appellant is engaged in manufacture of 'Automobile Window & Accessories' [TI 8708] and availing Cenvat credit on input and input services under CCR, 2004. They supplied inputs to their group company for manufacture of intermediate goods on job work basis. The job worked goods were subsequently used in the manufacture of appellant's final product which was cleared on payment of duty.

During the scrutiny of the ER-1, department found that the appellant had taken Cenvat Credit on input services amounting to Rs.52,40,658/- being the service tax that was paid by the job worker on the exempted service. It was observed that the service tax paid under supplementary invoices related to the service tax liability for the period 1/4/2007 to 31/3/2013 and the said amount was paid on being detected by the department, hence these documents were not valid documents under Rule 9(1)(bb) of CCR, 2004.

SCN culminated into an o-in-o wherein out of total demand of Rs.52,40,658/-, a demand of Rs.46,36,461/- was confirmed.

The appellant is before the CESTAT.

It is submitted that ST under FA, 1994 was not payable in the first place as the job work activity amounted to manufacture u/s 2(f) of CEA, 1944; and even if same is presumed to be taxable it was exempted vide notification 8/2005-ST. Moreover, the service provider had paid tax admittedly on insistence of the Audit officer and after paying the same they (job worker) had vide letter dated 29/4/2013 categorically stated that since they have paid service tax alongwith interest on the job work charges the matter may be closed in terms of 73(3) of Finance Act, 1994 and consequently no SCN was issued; that once the issuance of SCN was waived by the proper officer there is no question of alleging any suppression for recovery of said service tax at the end of service provider because Section 73(3) is applicable only in the case where there is no suppression, mis-declaration fraud etc is involved. Inasmuch as their case is not covered under the Explanation clause provided under Rule 9(1)(bb) of CCR, 2004 and the credit cannot be denied.

The AR reiterated the findings of the lower authority.

The Bench while agreeing with the submissions made by the appellant inter alia observed -

+ Service i.e. job work on which service tax was paid, in my considered view such service was not taxable service under Finance Act, 1994 for the reason, the activity is undisputedly amounting to manufacture in terms of Section 2(f) of the Central Excise Act, 1944, therefore as per Section 65(19) in 'Business Auxiliary Services' under subheading 'Production' or on processing behalf of the client", there is exclusion "but does not include any activity which amounts to manufacture of excisable goods". In view of this position service of job work is not within the purview of taxable service.

+ Moreover, by any stretch of imagination, even if it is presumed activity of job worker is taxable even then it is exempted under Notification No. 8/2005-ST dated 1/3/2005 as the condition of notification that such job work goods are produced using raw material supplied by the client and goods produced are returned for use in or in relation of manufacture of any other goods falling under first schedule of Central Excise Tariff Act, 1985 on which appropriate duty of excise is payable.

+ In the present case, service provider has carried out the job on the material supplied by the appellant and the said job work goods returned to the appellant. Appellant has used the said goods in the manufacture of other final product which has been cleared on payment of duty.

+ Thus job work activity was exempted from payment of service tax. In view of this position when activity itself was not taxable and the appellant has discharged the service tax admittedly due to pointing out by the audit officers no suppression can be alleged.

+ It was also observed that Jurisdictional officer of service provider has not issued any show cause notice to the service provider for recovery of the service tax. Service provider made categorical request for waiver of show cause notice under Section 73(3) of Finance Act, 1994 on the ground that they have paid service tax alongwith interest. I agree with the Ld. Counsel that Section 73(3) is applicable only in case where suppression of facts, mis-declaration is not involved.

+ When the department on representation of the service provider by their letter dated 29/4/2013 refrained from issuance any show cause notice, that itself shows that department is fully convinced that the case is squarely covered by Section 73(3) which gets reinforced that no show cause notice was issued.

+ In view of the above undisputed facts, it is very clear that for payment of service tax by the service provider and issuance of supplementary invoices there against there is no suppression of facts on the part of the service provider.

+ It is also observed that in the entire proceedings, in the present case, only ground for denial of Cenvat Credit is that service provider has paid service tax on detection by the department.

+ Merely because department has detected and service provider has paid service tax, that alone is not sufficient to make allegation that there is suppression of fact.

Holding that the appellant had correctly availed CENVAT credit, the appeal was allowed with consequential relief.

(See 2015-TIOL-1545-CESTAT-MUM)