ST - Notfn 1/2006 - Scheme of abatement is valuation problem that has hitched a ride on vehicle which was intended to provide for a reduction in rate of tax - Erasure of credit is substantial compliance: CESTAT
By TIOL News Service
MUMBAI, JULY 07, 2017: THE assessee is a provider of 'Commercial and industrial construction service' and 'Erection, commissioning or installation service'.
They availed the benefit of notification no. 1/2006-ST which permits abatement of 67% of the gross value of consideration subject to the condition that CENVAT credit of duty/tax paid on inputs/input services /capital goods have not been availed.
The benefit of the abatement was sought to be denied in the two notices issued to the assessee. The first, for the period from April 2006 to March 2008, demanding service tax of Rs.12,72,73,571 on availed abatement of Rs.98,99,76,457 was dropped by Commissioner of Service Tax, Mumbai-II as the assessee had reversed the CENVAT credit of Rs.30,21,703 which, the adjudicating authority, relying upon the decision of the Supreme Court in Chadrapur Magnet Wires (P) Ltd - 2002-TIOL-41-SC-CX, reiterated in Bombay Dyeing &Mfg Co Ltd - 2007-TIOL-115-SC-CX, felt was sufficient compliance of the condition for eligibility for abatement in the notification supra.
Aggrieved by this, Revenue seeks quashing of the impugned order.
The second demand notice covering the period April to September 2008, was adjudicated by Commissioner of Central Excise, Thane-I with a contrarian outcome to confirm demand of Rs.88,66,820 on improperly claimed abatement of Rs.4,39,08,295.
Assessee is in appeal against this order.
Both the appeals were taken up together by the CESTAT.
The AR submitted that the reliance placed by the adjudicating authority on the decision in Chandrapur Magnet Wires is misplaced as the facts therein are different; that all exemption notifications have to be construed strictly and any deviation from condition therefrom should be visited with the withdrawal of the privilege of the exemption. [M/s Hari Chand Shri Gopal - 2010-TIOL-95-SC-CX-CB, M/s Honda SIEL Power Products Ltd - 2015-TIOL-247-SC-CX, Meridian Industries Ltd - 2015-TIOL-262-SC-CX, Dilip Chhabria Designs Pvt Ltd. - 2015-TIOL-851-HC-MUM-CX relied upon]
The assessee supported the decision of the AA dropping the demand and as regards confirmation of the demand in the other order they rely on the decision in Hello Minerals Water Private Ltd - 2004-TIOL-57-HC-ALL-CX in support.
After considering the submissions and the genesis of the CENVAT scheme coupled with the framing of the impugned notification, the CESTAT observed -
++ The abatement notification does not exempt, wholly or partially, the rate of tax and is, therefore, not subject to that rigour with which conditions in other exemption notifications must be construed. The abatement notification merely sanctifies the deduction in the assessable value of taxable services and should be so construed.
++ Considering the scheme of credit and nature of abatement, it merely remains to determine if the reversal meets the test of substantial compliance. Obviously, it would not pass muster as strict compliance. Strict compliance is inescapable if the statute prescribes conditions that are pre-requisites . We have held that the scheme of abatement is a valuation problem that has hitched a ride on a vehicle which was intended to provide for a reduction in the rate of tax. Ergo, the case for substantial compliance rather than strict compliance. The condition incorporated therein is intended to ensure that there is no unjust enrichment and that end is achieved by erasure of the credit.
++ There is no prejudice to Revenue by such erasure as it has not deprived the State of any tax that was due. On the contrary, denial of abatement would be an act of encroachment by taxing sale of goods which is beyond the scope of legislative authority. To avoid such encroachment, erasure of credit is the only option. There is no allegation that such erasure has lead to deficiency of available credit at any time. Erasure would thus be substantial compliance and hence denial of abatement in the impugned order is not tenable.
The appeal by the assessee was allowed and that of Revenue was dismissed.
(See 2017-TIOL-2326-CESTAT-MUM)
