ST - Denial of CENVAT credit on ground of failure to deposit tax by service provider is not correct in equity : CESTAT
By TIOL News Service
MUMBAI, DEC 12, 2017: THE appellant, who are providers of various services, had taken credit of service tax included in invoices issued by M/s BVIHR Practice Pvt Ltd , from whom manpower recruitment and supply agency service had been procured and who, upon investigation, were found to have failed to discharge their obligation to deposit the service tax dues charged from their customers.
The original authority held that the appellant-assessee had received the services and having discharged with contractual obligations to make payment, no specific provisions of law prevented the appellant-assessee, as recipient of service, from availing CENVAT credit of tax included in the invoice. Placing further reliance on CBEC Circular no. 766/82/2003-CX dated 15th December 2003 and the decision of the Supreme Court in Commissioner of Central Excise, Jalandhar v. Kay Kay Industries - 2013-TIOL-41-SC-CX, the adjudicating authority dropped the proceedings.
However, the Commissioner(A) reversed this order and, therefore, the appellant is before the CESTAT. The Commissioner (A) also observed that sample of invoice copies did not bear the name and address of the provider of service as detailed in the registration certificate and relying upon rule 9(2) of the CCR, 2004 confirmed the demand.
Revenue is also in appeal against non-imposition of penalty u/r 15(3) of the CCR, 2004.
The appellant assessee inter alia submitted that it is the responsibility of the service provider to discharge its tax obligation; that the State is in possession of sufficient wherewithal to enforce tax obligations and that denial of the CENVAT credit on the ground of non-depositing of tax by the provider of the service is neither equitable nor necessary under law.
Adverting to the Allahabad High Court decision in Juhi Alloys Ltd - 2014-TIOL-2693-HC-ALL-CX and the Karnataka High Court decision in Bhuwalka Steel Industries [CEA no. 15 & 16 of 2010 dated 12.04.2011] relied upon by the appellant assessee and after extracting paragraphs from the same, the Bench observed –
"6. It is seen from the records that no justification has been cited to suspect the complicity of the assessee in the alleged evasion of tax indulged in by the supplier of service. There is no dispute or any allegation that the assessee had not received services claimed to have been obtained or that payment inclusive of the service tax component had not been made in full. That the provider of the service failed to meet its statutory tax liabilities should not in any way impinge upon the entitlement of the assesse for CENVAT credit as has been clearly laid down in the decision of the Hon'ble High Court of Allahabad supra.
7. It is, however, seen from the records that the order of the first appellate authority, disallowing of CENVAT credit is based on some discrepancy in the documents against which the CENVAT credit was availed and that the presumption that had the documents be subject to thorough scrutiny, evasion of tax by the supplier would have come to light. The judicial decisions cited by the assessee make it abundantly clear that it is not the responsibility of the recipient of service to ensure that the service provider does not deviate from its obligation to discharge tax liability. All that is expected by the recipient of the service is to ensure that the documentation against which CENVAT credit is availed does contain relevant details. Undoubtedly, in the present instance there is a mismatch of the address of the supplier vis-à-vis registration certificate. The validity of that ground to allege complicity especially in the context of the tax evasion by the service provider to deny CENVAT credit is sustainable only with reasonable evidence. However, denial of CENVAT credit on the ground of failure to deposit tax by the service provider is not correct in equity when there is no any express condition to that effect of CENVAT Credit Rules, 2004. Consequently, denial of credit on this ground is not tenable. The imposition of penalty thereon is also not proper."
Consequently, the appeal of Revenue was dismissed and the appeals by the assessee were allowed.
(See 2017-TIOL-4371-CESTAT-MUM)
