Custom, Excise & Service Tax Tribunal
Ghcl Ltd vs Ce & Cgst Noida on 22 May, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Service Tax Appeal No.50606 of 2015
(Arising out of Order-in-Original No.07/ST/Commissioner/Noida/2014-15
dated 22/08/2014 passed by Commissioner of Customs, Central Excise &
Service Tax, Noida)
M/s GHCL Ltd., .....Appellant
(B-36, Institutional Area, Sector-1, Noida-201301)
VERSUS
Commissioner of Central Excise &
Service Tax, Noida ....Respondent
(C-56/42, Sector-62, Noida)
APPEARANCE:
Shri Amresh Swarnkar, Proxy Counsel for the Appellant
Shri Santosh Kumar, Authorised Representative for the Respondent
CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL)
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
FINAL ORDER NO.70268/2024
DATE OF HEARING : 15 February, 2024
DATE OF PRONOUNCEMENT : 22 May, 2024
SANJIV SRIVASTAVA:
This appeal is directed against order in original No
07/ST/Commissioner/Noida/ 2014-15 dated 22.08.2014 of
Commissioner (Appeal) Customs, Central Excise & Service Tax
Noida. Impugned Order holds as follows:
"ORDER
1. I hereby drop the demand of Service Tax amounting to Rs.
1,29,31,229/- (Rupees One crore twenty nine lakhs thirty
one thousand two hundred twenty nine only) in terms of
provisions of Section 73 (2) of the Finance Act, 1994
2 Service Tax Appeal No.50606 of 2015
2. I drop the proceedings with regard to recovery of interest
and imposition of penalty, as proposed in SCN
3. I disallow, M/s GHCL, to pass on the Service tax paid by
them to any other manufacturer or service providers in
India for availing as CENVAT credit or otherwise and if
already passed on, order the recovery of the same."
2.1 Appellant is registered as "Input Service Distributor" with
the department. A intelligence was gathered by Directorate
General of Central Excise Intelligence (DGCEI, in short)
Ahmedabad that appellant have not paid appropriate service tax
on the "banking and financial services" received by them from
M/s Jefferies International Ltd., London (JIL, in short), as the
service provider were not having any office in India. On inquiry,
vide letter dated 23.07.2007 of DGCEI, appellant informed that
8050 bonds for USD 80.50 Million were issued by them and the
amount was received by them between 21st September, 2005
and 4th October, 2005 and they had paid underwriting fee/
placement fee, overheads, legal fees and other charges to M/s
JIL.
2.2 Appellant vide their letter dated 30th November, 2007
informed that they were engaged in the manufacture of Soda
Ash which is an excisable product falling under Chapter heading
2836 of Central Excise Tariff Act 1985. They had issued Foreign
Currency Convertible Bonds (FCCB) in overseas markets during
the period 29.09.2005 to 4.10.2005 for raising a loan amount of
approximately US$ 80.50 million. Foreign Currency Convertible
Bonds, so issued might be converted into equity shares at the
option of bond holders after 5 years.
2.3 Appellant had received the services of M/s JIL to undertake
all the activities which were necessarily required for issue of
FCCB. They submitted that for providing the services, M/s JIL
was paid fee equal to 3% of the gross receipt by GHCL from the
sale of bonds, and in addition to the fees, M/s JIL was also
reimbursed certain expenditure incurred by M/s JIL. It was
further stated that service tax was not applicable on above
3 Service Tax Appeal No.50606 of 2015
mentioned charges as such transactions were not falling under
the purview of Rule 2(1)(d)(iv) of the Service Tax Rules 1994.
2.4 Appellant submitted during investigations that these
services were not liable to service tax since the same has been
undertaken outside India and contended that as per the
explanation to Section 65(105) of the Act, any service received
in India by a person resident in India would only be taxable
service, even if the service was rendered by a non-resident from
a country outside India. Explanation to Section 65 (105) could
not go beyond the scope of Section 64 of the Act.
2.5 During investigation appellant submitted that though they
were not liable to service tax, they however had paid service tax
under protest on the consideration paid to and enclosed a copy
of the TR.6 challan for Rs.1,29,31,229/-.
2.6 Appellant contended that the service tax so paid "under
protest" was entitled for the Cenvat credit, as they were
manufacturing the dutiable products and these services as "input
service". This service would qualify as "banking and Financial
Services" and as per Rule 6 (5) of the CENVAT Credit Rules.
2004, the CENVAT Credit could be availed and utilized in respect
of specified input services used commonly for manufacturing
dutiable and exempted products.
2.7 Appellant have by not paying the service tax as due in
respect of these services received from overseas, contravened
the provisions of
Section 68 of the Finance Act, 1994, read with Rule 6 of
the Service Tax Rules, 1994, in- as-much as they have
failed to make the payment of service tax to the credit of
the Government account;
Section 70 of the Finance Act, 1994 read with rule 7 of the
Service Tax Rules, 1994 in as much as they had not
declared the correct amount of charges paid by them in
lieu of taxable services, received by them in the ST- 3
returns filed by them
4 Service Tax Appeal No.50606 of 2015
2.8 A show cause notice dated 01.10.2007 was issued to the
appellant asking him to show cause as to why:
(i) Service Tax amounting to Rs. 1,29,31,229/- (Rupees
One crore twenty nine lacs, thirty one thousand two
hundred twenty nine only ( Service Tax of Rs.
1,26,77,675/- and Education Cess of Rs 2,53,554/-)
short paid by them, should not be demanded and
recovered from them under section 73 of the Finance
Act, 1994 by invoking the extended period of five
years as per proviso to sub section (1) of said
section 73;
(ii) The amount of Service Tax of Rs. 1,29,31,2291-(
Service Tax of Rs.1,26,77,675/- and Education Cess
of Rs. 2,53,554/-) already paid by them, under
protest should not be appropriated towards their
aforesaid liability;
(iii) Interest at the appropriate rate under section 75 of
the Finance Act 1994 should not be recovered from
them from the due date on which the Service Tax
and Education Cess was liable to be paid to till date;
(iv) Penalty under Sections 76 and 78 of the Finance Act,
1994 should not be imposed upon them.
(v) They should not be allowed to pass on the service
tax paid by them to other manufacturers or service
providers in India.
2.9 This show cause notice has been adjudicated as per the
impugned order.
2.10 Aggrieved by the order appellants have filed this appeal.
3.1 We have heard Shri Atul Gupta and Shri Amresh Swarnkar
Advocate for the appellant and Shri Santosh Kumar Authorized
Representative for the revenue.
3.2 Arguing for the appellant learned counsel submits:
Impugned order has travelled beyond the show cause
notice. The show cause notice only proposed to confirm
the service tax paid under protest and no provision is
5 Service Tax Appeal No.50606 of 2015
invoked to disallow/ recover the cenvat credit availed and
distributed by the appellants. Reliance is placed on the
decisions in the following cases,-
o Ballarpur Industries Ltd. [2007 (215) ELT 489 (SC)];
o SACI Allied Products Limited [2005 (183) ELT 225
(SC)];
o HCL Comnet System & Service Ltd [2017 (12) TMI
1661 Allahabad High Court];
o Allied Chemicals & Pharmaceuticals Pvt Ltd. [2019
(2) TMI 849 CESTAT New Delhi];
o Computer Science Corporation India Pvt Ltd. [2017
(7) TMI 760 -CESTAT Allahabad];
o Toyo Engineering India Ltd. [2006 (201) ELT 513
(SC)];
o Brindavan Beverages (P) Ltd [2007 (213) ELT 487
(SC)];
Once the service tax is paid even if the same was not
payable, cenvat credit cannot be denied as it is in relation
to manufacture of goods as held in the case of Sundaram
Clayton Ltd. [2014 (33) STR 414 (T)]
There would be no revenue implication as the amount of
credit taken and distributed is same as amount which
accrues as refund on dropping of the demand. Reliance
placed on the decision in case of Rajratan Global Wires Ltd
[2011 (21) STR 38 (T-Del)]
The appellant's have correctly availed Cenvat Credit as the
aforesaid service is an "activity relating to business" which
was covered by includes clause of definition of input
service prior to 01.04.2008 .
Even otherwise, as per board circular No 137/68/2013-ST
dated 10.03.2014, recovery of credit can be made from
the manufacturer or output service provider and not from
the ISD, hence this recovery cannot be made from them
as they are input service distributor.
3.3 Arguing for the revenue learned authorized representative
reiterates the findings recorded in the impugned order.
6 Service Tax Appeal No.50606 of 2015
4.1 We have considered the impugned order along with the
submissions made in appeal during the course of arguments.
4.2 Impugned order records the following findings:
"5.15 Subsequently, CBEC vide its Circular No.
276/8/2009-CX. 8A dated 26.09.2011 clarified as under:-
"F. No. 276/8/2009-CX8A
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise & Customs)
****
New Delhi, dated the 26th September, 2011 TO,
1. All the Chief Commissioner of Central Excise/LTU
2. All Commissioner of Central Excise/Service Tax Sir/Madam, Sub: Applicability of service tax on taxable services provided by a non- resident or a person located outside India to a recipient in India-reg Kind attention is invited to instruction F No, 275/7/2010- CX8A, dated 30.6.2010, wherein the Board had communicated its view that services tax on a taxable service received in India, when provided by a non- resident/ person located outside India, would be applicable on reverse charge basis with effect from 1.1.2005, and that the ratio of judgement in M/s Indian National Shipowners Association (INSA) case [2009 (13) STR 235 (Bom)] would not apply to such cases. Further, direction was issued to field formations to defend the levy of service tax on such services for the period on or after 1.1.2005, as post INSA judgment, it has been held by the High Courts/ Tribunal in a large number of cases, applying ratio thereof, that service tax on such services is leviable only w.e.f. 18.4.2006. However, the appeals filed by the department before the Hon‟ble Supreme Court, for defending the levy of service tax on such services w.e.f. 1.1.2005, have been dismissed recently (subsequent to the issuance of said instruction dated 30.6.2010) in the following cases 7 Service Tax Appeal No.50606 of 2015
(i) SLP (C) No. 29539 of 2010 in CCE Vs Bhandari Hosiery Exports Ltd
(ii) SLP (C)No. 18160 of 2010 in CST Vs Unitech Ltd
(iii) SLP (C) No. 34208/09 of 2010 in UOI Vs S R Batliboi & Co
(iv) SLP (C)No. 328/332 of 2011 in UOI Vs Ernst & Young
(v) SLP (C) No. 25687-25688/2011 in CCE Vs Needle Industries
(vi) SLP (C) No. 25689-25690/2011 in UOI Vs SKM Engg Products.
Further, Review Petition No. 1686 of 2011 filed in the case of Bhandari Hosiery has also been dismissed by the Hon‟ble Supreme Court vide order dated 18/8/2011
2. In view of the aforementioned judgments of the Hon‟ble Supreme Court, the service tax liability on any taxable service provided by a non resident or a person located outside India, to a recipient in India, would arise w.e.f. 18.4.2006, i.e., the date of enactment of section 66A of the Finance Act, 1994. The Board has accepted this position. Accordingly, the instruction F No. 275/7/2010- CX8A, dated 30.6.2010 stands rescinded
3. Appropriate action may please be taken accordingly in the pending disputes Yours faithfully (G. D.Lohani) Director (Legal).
5.16 Therefore, it is now held by the courts and accepted by CBEC that service tax is not leviable on the services provided by a person located outside India to a recipient in India before 18.04.2006 and such leviability would arise only after enactment of Section 66-A w.e.f. 18.04.2006 5.17 In the instant case, it is undisputed that M/s JIL, London who did not have any office in India had provided "Banking & Financial Services" to M/s GHCL (Indian Company) during the period 21st September‟2005 to 4th 8 Service Tax Appeal No.50606 of 2015 October‟ 2005. Therefore, the circumstances mentioned in the Board‟s F.No. 276/8/2009-CX. 8A, dated 26-9-2011 are squarely applicable to this case. In the said circular it has been referred that „the appeals filed by the department before the Hon‟ble Supreme Court, for defending the levy of service tax on such services w.e.f. 1-1-2005, have been dismissed recently (subsequent to the issuance of said instruction dated 30-6-2010 in the following cases
(i) SLP (C) No. 29539 of 2010 in CCE v. Bhandari Hosiery Exports Ltd, [2010 (20) S.T.R. (J99) (S.C.)]
(ii) SLP (C) No, 18160 of 2010 in CST v. Unitech Ltd
(iii) SLP (C) No, 34208/09 of 2010 in UOI v. S.R. Badiboi & Co
(iv) SLP (C) No, 328/332 of 2011 in U01 v. Ernst & Young
(v) SLP (C) No. 25687-25688/2011 in CE v.
Needie Industries
(vi) SLP (C) No. 25689-25690/2011 in U01 v. SKM Engg Products Further, Review Petition No. 1686 of 2011 filed in the case of Bhandari Hosiery has also been dismissed by the Hon‟ble Supreme Court vide order dated 18-8-2011 5.18 Therefore, the service tax would not be leviable on the services provided by M/s JIL to M/s GHCL before 18.04.2006 5.19 It has also been alleged in SCN that the CENVAT Credit for the amount of service tax paid under protest would not be admissible to M/s GHCL. It was alleged that services provided by M/s JlL in respect of collection of funds through FCCB, were to be utilized by M/s GHCL for acquisition of soda ash plant at Romania & overseas Textile Companies. Therefore such services cannot be input service for their Indian Company under the provisions of CENVAT Credit Rules, 2004. M/s GFCL in their reply dated 9th January 2009 stated that the aforesaid services were used in relation to their business and hence 9 Service Tax Appeal No.50606 of 2015 covered under the definition of Rule 2 (l) of CENVAT Credit Rules, 2004. In para F.3 of the aforesaid letter it was stated that they had availed the CENVAT credit of the aforesaid service tax amount in their head office and distributed the same to its plant located in Gujarat for utilization of CENVAT credit for payment of excise duty.
5.20 It has been observed that as the funds raised through FCCB by utilizing the services of M/s JIL were used tor acquisition of overseas soda ash and textile units, the same cannot be treated as input service Rule 3 of the CENVAT Credit Rules, 2004 provides that the CENVAT credit of central excise duty or service tax would be available to the manufacturer or service provider who uses such goods or services for manufacture of excisable goods or for providing taxable services. Further, Rule 7 (c) of CENVAT credit Rules, 2004 provides that the service tax attributable to service used wholly in a unit shall be distributed only to that unit. Therefore, the services provided by M/s JIL in respect of the collection of funds used for acquisition of overseas units would not be input service for M/s GHCL, in India. Therefore, CENVAT Credit of Service tax paid by them was not admissible to them for distribution to their other units in India 5.21 However, as discussed, the service tax on the services provided by M/s JIL to M/s GHCL before 18.04.2006 was not payable. Therefore, M/s GHCL, in any case are not allowed to pass on the service tax so paid or distribute the said amount of service tax to their any of the unit for utlization as CENVAT credit and any such credit if already distributed is recoverable from them in view of this order."
4.3 From the impugned order it is evident that the demand of service tax made against the appellant by the show cause notice dated 01.10.2007 has been dropped by the adjudicating authority. Revenue has not filed any appeal nor any cross 10 Service Tax Appeal No.50606 of 2015 objections in the matter challenging that part of the order. During the course of investigation appellant had deposited the entire amount of service tax demanded, under protest. They had taken the credit of the same and distributed the same to their manufacturing units as input service distributor for utilizing the same for payment of central excise duty on the clearance of excisable good manufactured and cleared from their manufacturing units. Appellant have filed this appeal only against that part of the order by which Commissioner has disallowed such distribution of cenvat credit taken by them of the said amount paid under protest and ordered for its recovery.
4.4 As per the impugned order the demand of service tax made against the appellant has been dropped. They had deposited the amount demanded in show cause notice during the course of investigation under protest and are entitled to refund of the same along with the interest as prescribed in law. However while depositing the said amount appellant had taken the cenvat credit of the same and as they are registered as input service distributor distributed the same to their manufacturing units.
4.5 Undisputedly during the course of investigation appellant had paid the amount as service tax, which was subsequently held to be not payable by them. However they took the credit of the same and distributed it in the manner as prescribed. Appellant has as per undertaking above undertaken not to claim the refund of this amount the credit of which has been taken by them and distributed to their manufacturing unit. We in view of above undertaking do not find any reason to disallow the distribution of the said amount taken as credit by the appellant. Impugned order does not record any reason for disallowing the credit and its distribution, except that the service tax has been held to be not payable by the impugned order. In any case the entire exercise of recovering the said credit from the appellant is nullity as the appellant is entitled to refund of the same/ similar amount along with interest as per the impugned order.
11 Service Tax Appeal No.50606 of 2015 4.6 During the course of hearing appellant has filed an undertaking before us which is reproduced below:
4.7 Hon'ble Bombay High Court has in case of Ajinkya Eneterprises [2013 (294) E.L.T. 203 (Bom.)] have held as follows:
12 Service Tax Appeal No.50606 of 2015 "10. Apart from the above, in the present case, the assessment on decoiled HR/CR coils cleared from the factory of the assessee on payment of duty has neither been reversed nor it is held that the assessee is entitled to refund of duty paid at the time of clearing the decoiled HR/CR coils. In these circumstances, the CESTAT following its decision in the case of Ashok Enterprises - 2008 (221) E.L.T. 586 (T), Super Forgings - 2007 (217) E.L.T. 559 (T), S.A.I.L. - 2007 (220) E.L.T. 520 (T) = 2009 (15) S.T.R. 640 (Tribunal), M.P. Telelinks Limited - 2004 (178) E.L.T. 167 (T) and a decision of the Gujarat High Court in the case of CCE v. Creative Enterprises reported in 2009 (235) E.L.T. 785 (Guj.) has held that once the duty on final products has been accepted by the department, CENVAT credit availed need not be reversed even if the activity docs not amount to manufacture. Admittedly, similar view taken by the Gujarat High Court in the case of Creative Enterprises has been upheld by the Apex Court [see 2009 (243) E.L.T. A121] by dismissing the SLP filed by the Revenue."
4.8 We are in agreement with the submission made by the appellant that show cause notice issued to them do not record any reason or the provisions in law as per which this recovery of CENVAT Credit is to be made. Even the impugned order does not record any provisions under which this recovery has been ordered. In absence of statement of any such provision in the show cause notice or the impugned order, the impugned order to this extent cannot be upheld. We would rely upon the decision of the Hon'ble Allahabad High Court in the case of HCL Comnet System & Services Ltd. [2017 (12) TMI 1661 Allahabad High Court] observing as follows:
"There is no dispute on facts inasmuch as that it is a matter of record that the application of the appellant for refund was rejected by the authority by way of an order dated 23.01.2014. Against the order rejecting the refund, the 13 Service Tax Appeal No.50606 of 2015 assessee had filed an appeal, which was allowed in part. Thereafter the assessee filed an appeal before the Tribunal. The Tribunal vide its impugned order has come to the conclusion that no valid show cause notice was issued to the appellant to recover the CENVAT credit before disallowing the refund claimed by the assessee. The Tribunal has placed reliance on Rule 14 of the CENVAT Credit Rules, 2004, which reads as under:
"RULE 14. Recovery of CENVAT credit wrongly taken or erroneously refunded.-
Where the CENVAT credit has been taken and utilised wrongly or has been erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of the output service and the provisions of Section 11A and 11AA of the Excise Act or sections 73 and 75 of the Finance Act, shall apply mutatis mutandis for effecting such recoveries."
One of the stipulations in the said Rules is that a recovery of CENVAT credit may be made from the manufacturer if it had wrongly been taken and utilized or had been erroneously refunded to him. The Rules, therefore, contemplate that if such a situation arises, a notice to that effect must be given to the assessee for recovery. In the absence of such a notice for recovery, as is contemplated under Rules 14 of the Rules, any action taken or order passed to reject refund claimed would become bad. The Tribunal has come to the conclusion that in the present case compliance of the Rule 14 had not been made."
4.8 In case of Rajratan Global Wires Ltd [2011 (21) STR 383 (T-Del)] in similar situation following has been held:
"6. In this case it is admitted fact that during the impugned period, the appellant is not liable to pay service tax at all as held by the Hon‟ble Bombay High Court in the case of Indian National Shipowners Association v. Union of 14 Service Tax Appeal No.50606 of 2015 India reported in 2009 (13) S.T.R. 235 (Bom.) wherein it was held that prior to 18-4-2006, the demand of service tax from the service recipient is not sustainable. The same view has been confirmed by the Apex Court. In this case, the service tax has been paid for the earlier period prior to 1-1-2005, the amount paid by the appellant was not payable at all. It is also contended by the appellant that they have deposited the amount during the course of excise audit on the persuasion of the departmental officers that this amount shall be available to the appellant in their Cenvat Credit account. Accordingly, the appellant paid service tax and took cenvat credit immediately. In the case of Aditya Cement (supra), this Tribunal has held that prior to 1-1-2005 the service receiver was not liable to pay service tax for the service received from a non-resident service provider and the government cannot keep with its amount that is not due to it. In this case also the appellant is not liable to service tax on the service availed prior to 1- 1-2005. Hence, the amount deposited by the appellant is entitled to take cenvat credit of the said amount. As the appellant paid this amount during the course of audit conducted by the departmental officers and took the same. Accordingly it is situation revenue neutral. Hence, the appellant is not liable to reverse the cenvat credit availed of service tax which was not liable to pay service tax. Accordingly, the impugned order is not sustainable."
4.9 In case of Sundaram Clayton Ltd [2014 (33) STR 414 (T)] following has been held:
"2. I find, in the first place, that since the warehouses were hired in the USA beyond the jurisdiction of the Indian authorities, no Service Tax can be levied and collected on such services rendered and received abroad. Since tax was not, in the first instance, payable and the appellants merely have taken credit of what was not payable by them, the impugned demand cannot be justified. For the 15 Service Tax Appeal No.50606 of 2015 same reason, there is no justification for imposition of penalty and recovery of the interest amount. As such, the impugned order is set aside and the appeal is allowed. It is noted in passing the order that the appellants are not paying Service Tax on such services availed for the subsequent period and the learned consultant states that the impugned amount in this case was paid out of confusion at the initial stage itself."
4.10 In view of the discussions as above, we do not find any justification in implementation of the impugned order to extent it orders for recovery of CENVAT Credit, in view of the undertaking given by the appellant during the course of argument on appeal.
5.1 Appeal is disposed of.
(Pronounced in open court on- 22 May, 2024) Sd/-
(P.K. CHOUDHARY) MEMBER (JUDICIAL) Sd/-
(SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp