Custom, Excise & Service Tax Tribunal
Oracle India Pvt Ltd vs Bangalore-Iv on 29 October, 2024
Service Tax Appeal No. 20343 of 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
BANGALORE
Regional Bench COURT-2.
Service Tax Appeal No. 20343 of 2017
[Arising out of the Order-in-Original No. BLR-EXCUS-004-COM-025-2016-17
dated 08.12.2016 passed by the Commissioner of Central excise & Service
Tax, Bangalore]
Oracle India Pvt Ltd.
Oracle Technology Park
Bannerghatta Road
Dharmaram College,
Bengaluru,
Karnataka - 560029 .......Appellant
VERSUS
Commissioner of Central Excise &
Service Tax, Bangalore -IV
HMT Bhawan, Bellary Road
Bengaluru Urban,
Karnataka - 560032 ..... Respondent
Appearance:
Shri. Bharat Raichandani, Advocate for Appellant
Shri Rajiv Kumar Agarwal, Authorized Representative for Respondent
Coram:
Hon'ble P.A. Augustian, Member (Judicial)
Hon'ble Pullela Nageswara Rao, Member (Technical)
FINAL ORDER No. 21154 of 2024
Date of Hearing: 03.05.2024
Date of Decision: 29.10.2024
Per: P.A. Augustian
The issues involved in present appeal are whether the
reimbursement of Rs. 2,79,58,760/- received by the appellant is a
consideration towards provision of taxable service, whether the CENVAT
credit of Rs. 63,71,672/-, availed by the Appellant on the basis of the
debit notes is admissible, whether CENVAT credit of Rs. 74,160/-
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Service Tax Appeal No. 20343 of 2017
availed on the invoices issued for out of pocket expenses is admissible,
whether interest is payable on CENVAT credit availed but not utilized.
2. The brief facts of the case are appellant is registered with
Respondent under various service categories and was paying service tax
as per the declarations made by the Appellant. During the course of
Audit for the period from October 2009 to March 2011, it is observed
that the Appellant; received an amount of Rs. 27,14,44,272/- as
reimbursement expenses from other companies, which are leviable to
service tax under the category of BAS/BSS and the service tax liability
was Rs. 2,79,58,760/-; availed service tax credit on the basis of debit
notes issued by various service providers amounting to Rs. 63,71,692/;
availed input service tax credit on various input services alleged to have
no direct nexus with their output services to the extent of
Rs. 4,17,47,810/-; availed service tax credit of Rs. 74,160/- on invoice
issued by M/s. Deloitte for Rs. 6,74,160/- for out of pocket expenses;
availed input service tax credit of Rs. 1,24,65,080/- under the category
of 'Management and Repair' service, however, the description of the
service as per input invoices was showing as housekeeping, pest
control, outdoor catering service, etc., which do not have any nexus
with their output services; availed Cenvat credit of Rs. 3,38,19,233/- on
maintenance charges, car parking charges, fit out charges of immovable
property, which do not have any nexus with their output services;
appellant paid goodwill amounts to certain parties on which on amount
of Rs. 2,69,66,352/- is leviable as service tax under 'Business Auxiliary
Service'; availed irregular input service credit of Rs. 8,94,148/-
plus cess on banquet charges, hotel bills, concierge services etc.,
paid an amount of Rs. 47,77,09,539/- in foreign currency for the
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Service Tax Appeal No. 20343 of 2017
services received from outside India, hence, the service tax of Rs.
4,92,04,083/- under Reverse Charge Mechanism (RCM) under the
provisions of Section 66A of Finance Act, 1994 is payable; Based on the
above and other observations of the Audit a Show Cause Notice was
issued to the appellant.
3. After considering the issues in detail, the Adjudicating authority as
per the impugned order; confirmed the demand on reimbursement
expenses of Rs. 2,79,58,760/- from other companies, under the
category of Business Auxiliary Services/Business Support Services along
with interest and imposed penalty under section 78 of the Finance Act,
1994; confirmed the service tax liability on the Cenvat credit availed of
Rs.63,71,672/- based on debit notes along with interest, confirmed the
demand of ineligible CENVAT credit Rs. 74,160/- along with interest
and imposed penalties under Rule 15A and 15(3) of CCR, 2004 r/w
section 77 & 78(1) of the Finance Act, 1994; the demand of interest on
wrongly availed credit of Rs. 9,04,222/- and reversed was confirmed;
the demand of service tax of Rs. 4,92,04,083/- and Rs. 2,69,66,352/-
were dropped; the demand of Rs. 4,17,47,810/- alleged to be the
ineligible credit was dropped as the same was held to be eligible to the
appellant; the demand on irregular Cenvat credit of Rs. 1,24,65,080/-
and Rs. 3,38,19,233/- was held regular and dropped the demands.
Aggrieved by the said order, present appeal is filed by the appellant
before this Tribunal.
4. The Learned Counsel during the hearing drew our attention to the
Show cause notice issued by Respondent and submitted that the
findings of the Adjudication Authority in the impugned order are beyond
the allegations in the Show Cause Notice.
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Service Tax Appeal No. 20343 of 2017
5. The learned counsel submitted that; the Appellant has carried out
business through two divisions i.e. Sales and Distribution Division (IN
Division) and Development Division (IDC Division); they are two limbs
of Appellant's company i.e. IN and IDC Divisions and they do not
represent two different entities. However, the Adjudication Authority
has presumed that the two Divisions of the Appellant are two different
companies, and such finding is factually incorrect; the amount alleged
as reimbursement of expenses is in fact the closing balance of an
expense ledger; the impugned order confirmed a demand of service tax
amounting to Rs 27,958,760 /-based on the incorrect assumption that
the said amount of Rs 271,444,272/- pertains to reimbursement of
expenses from other companies; this amount represents the office
space that was reallocated from one division of the Appellant (the IN
division) to another (the IDC division); the disputed amount of
Rs. 271,444,272/- is not attributable to any value of reimbursement of
expenses or a consideration received from other companies as assumed
in the impugned Order; the amount alleged as reimbursement of
expense is the closing (debit) balance of one expense ledger account for
office rent; there could be instances where a benefit arising out of a
business expenditure incurred by the Appellant (either by IN or IDC) is
jointly enjoyed by both divisions; the cost gets allocated between the
two divisions; however, in case due to some internal reallocation of
resources from IN to IDC division, the proportionate cost incurred by
the IN division is reclassified to IDC division by passing a Credit entry of
the proportionate cost in the relevant ledger of IN division and by
making a corresponding debit entry to this effect in the relevant ledger
for IDC division; the Debit entries in the General Ledger pertain to the
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Service Tax Appeal No. 20343 of 2017
expenses booked in it and the Credit entries pertain to a reduction in
the expenses on account of reversal or transfer/re-classification of
expenses. The closing balance of the ledger account is arrived by
deducting the value of credit entries from the total value of the Debit
entries; that is to say that the closing balance of Rs 271,444,272/-
equal to Debit Balance - Credit Balance is a result to reclassification of
entries from IN to IDC division and not on account any provision of
service; the underlying accounting transactions are cost allocations
between two divisions of same entity (i.e. Appellant) and do not
constitute a service; in the absence of provision of a taxable service,
there are no service tax implications on such transactions; this can be
further substantiated on the basis of the Balance sheet of the Appellant
for FY11; the amount of Rs 271,444,272/- forms part of the operating
expenses in the Profit and Loss account of the Appellant.
6. The Learned Counsel furnished details of the transaction and
accounting procedure carried out by the Appellant and submitted that
the transactions of the Appellant are classified and accounted either
under IN Division or under IDC division depending on the nature of the
transaction. The accounting is carried out in this manner for internal
control purpose, only. Thus, it cannot be considered as reimbursable
expenses. These two divisions are created to facilitate operational
efficiency and for the purpose of internal control of the business of the
Oracle India. Since these two are the two limbs of the Appellant, the
finding given by the Adjudication authority is factually incorrect and
unsustainable. The Learned Counsel further submitted that the books of
accounts are maintained by the Appellant on accrual basis of accounting
by following the accounting standards. The Learned Counsel also relied
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Service Tax Appeal No. 20343 of 2017
on the decision of the Hon'ble High Court in the matter of M/s Firm
Foundation Vs. Principal Commissioner (MANU/TN/
1734/2018), wherein the Hon'ble High Court held that service tax
liability cannot be determined based on the profit and loss accounts.
7. The Learned Counsel further submitted that Service Tax is to be
levied on the value of services provided by the service provider. The
term "charged" under Section 67 coupled with "such service" has to be
read in context and in tandem with each other. In this case there is no
sum charged by the appellant to the service recipient for provision of
any service. In the absence of any service recipient in the present case,
there is no consideration received by the Appellant for providing
services and the transaction is in the nature of reallocation/
reclassification or cost allocation between two divisions of same entity
and there is no consideration for providing the services between these
two entities. Thus, considering these two divisions of the Appellant
separately and to consider it as reimbursement and to deny the CENVAT
credit is unsustainable.
8. The learned Counsel further submitted that as per the impugned
order it was held that debit notes do not contain all the particulars
mentioned under Rule 4A of Service Tax Rules, 1994 read with Rule 9 of
CENVAT Credit Rules, 2004 and the debit notes have not been
accounted in the books of account of the Appellant. The learned Counsel
submitted that this was never the case of the Department in the SCN.
The Learned Counsel drew our attention to the finding of the judgment
of Hon'ble Supreme Court in the matter of M/s Prince Khadi Woollen
Handloom Prod Coop Indl Society Vs. CCE - 1996 (88) E.L.T 637
(SC), wherein it is held that Tribunal's decision denying relief to the
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Appellant on a ground never taken by Revenue is impermissible. The
Learned Counsel also relied on catena of decisions including in the
matter of M/s Reckitt & Colman of India Pvt Ltd. Vs. Collector of
Central Excise - 1996 (88) ELT 641 (SC); CCE Vs. Ballarpur
Industries Limited - 2007 (215) ELT 489 (SC); Caprihans India
Ltd Vs. CCE - 2015 (325) ELT 632 (SC); CC Vs. Toyo Engineering
India Ltd - 2006 (201) ELT 513 (SC); CCE & C, Surat Vs. Sun
Pharmaceuticals Industries Ltd. 2015 (326) ELT 3(SC).
9. The Learned Counsel drew our attention to large number of debit
notes issued by them as part of the appeal memorandum and submitted
that the entire facts regarding the details of service provider, service
tax registration number, PAN card etc., of the service provider with
amount and other details are available on record and facts being so
doubting the credibility of debit notes without ascertaining the above
facts is factually incorrect.
10. As regards, the demand of Rs. 63,71,672/- on the ground that the
Appellant had wrongly availed CENVAT credit on the basis of debit
notes. The Learned Counsel submitted that as per the SCN, it is alleged
that debit notes are not valid documents to avail credit in terms of
Cenvat Credit Rules, 2004 and when the appellant challenged the same,
the Adjudication authority admitted that debit note can be an eligible
document to avail the CENVAT credit. However, without making any
objection regarding the details furnished in the debit notes, it was held
that the assessee has not argued that the debit note contains all the
prescribed details as per the provision of Act and Rules. The
Adjudication authority denied the admissibility of the debit note on the
ground that vital information with regard to value, nature of service,
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Service Tax Appeal No. 20343 of 2017
payment of service tax are not made available in the debit notes and
due to these reasons, same cannot be treated as eligible documents
under Rule 9 of Cenvat Credit Rules, 2004. However, on bare perusal of
the documents, it is evident that the entire details are available in the
debit notes and facts being so, denial of the same is unsustainable.
11. The Learned Counsel further submitted that once the Appellant
have produced receipts for the service and payment is made to the
service provider, Appellant has complied with substantial condition for
availing credit and cannot be disputed. The Learned Counsel in this
regard relied on the decision of M/s Pharma Lab Process Equipment
Vs. CCE -2009 (242) E.L.T 467 and CCE Vs. M/s Gwalior
Chemicals Industries, Ltd -2011-TIOL-1635-(CESTAT Del) and
CCE Vs. M/s Grasim Industries Ltd - 2011 TIOL-1660 CESTAT
Del. In this regard, the Learned Counsel also submitted that the finding
of the Adjudication authority that the debit notes have not been
accounted in the books of accounts is factually incorrect. There is no
evidence adduced either in the SCN or in the impugned order to reach
such a conclusion. The debit notes are properly accounted in the books
of account.
12. As regards denial of credit of Rs. 74,160/- availed on the invoice
of M/s Deloitte Touche Consultant India Pvt., Ltd, the learned counsel
submitted that the findings of the Adjudication authority that these
expenses are out of pocket expenses are also unsustainable. The
Appellant had paid the said amount to the consultant M/s Deloitte &
Touche Consultant India, for submission of future process documents,
completion of CRPs and submission of Technical Design Documents for
interface. Facts being so, it cannot be considered as the invoice raised
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Service Tax Appeal No. 20343 of 2017
was for out of pocket expenses. The Learned Counsel for the Appellant
to support the same drew our attention to the invoice and from the
invoice it is evident that the Appellant had been charged separately in
relation to the above service and paid the consideration along with the
service tax amounting to Rs. 74,160/-. Further Appellant had produced
certificate from the service provider to this effect. Thus, once original
invoices are issued, Appellant is eligible to claim CENVAT credit against
the same.
13. As regards the interest on the wrongly availed CENVAT credit, the
Appellant submitted that amendment to Rule 14 of the CENVAT Credit
Rules vide Notification No. 18/2012-CE (N.T) dated 17.03.2012
clearly establish the intent of legislation to levy interest only in cases
where wrongfully availed credit is used. It is a well-established legal
principle that curative amendments shall have retrospective effect.
Since Appellant has not utilized the CENVAT credit, no interest is
payable.
14. The learned counsel submitted that in order to give effect to the
manifest intent of the legislature and to cure the apparent defect in
Rule 14 of the Cenvat Credit Rules, an amendment was made to the
Rule vide Notification 18/2012-CE (N.T) dated 17.03.2012,
wherein the phrase 'taken and utilized wrongly' was substituted for
'taken or utilized wrongly'. The Hon'ble Supreme Court in ITW Signode
India Ltd v CCE 2003 (158) E.L.T 403 (S.C), explaining the effect of
a curative legislation held that; "statute, it is trite, must be read as a
whole. The plenary power of legislation of the Parliament or the State
Legislature in relation to the legislative fields specified under Seventh
Schedule of the Constitution of India is not disputed. A statutory act
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Service Tax Appeal No. 20343 of 2017
may be enacted prospectively or retrospectively. A retrospective effect
indisputably can be given in case of curative and validating statute. In
fact, curative statutes by their very nature are intended to operate upon
and affect past transaction having regard to the fact that they operate
on conditions already existing. However, the scope of the Validating Act
may vary from case to case." The learned counsel submitted that the
period involved in this case is October 2009 to March 2011, therefore in
the light of the above, no interest is payable on the amount of Cenvat
credit reversed prior to utilization.
15. The Learned Counsel also challenged the impugned order on the
grounds of limitation. There is no reason or justification to invoke the
extended period of limitation and due to that reason, penalty and
interest cannot be demanded from the Appellant.
16. The Authorised Representative (AR) for the Revenue reiterated
the finding in the impugned order and submitted that the CENVAT credit
is denied on the debit notes since the debit notes are not issued in
compliance with Rule 9(2) of the Cenvat Credit Rules, 2004. As regards
the service tax availed on invoices of the consultant, it is disallowed
since the invoice does not show the actual service provider, who has
raised the bill. As regarding the interest on CENVAT credit, since they
have 'taken or utilized' the credit wrongly, they are liable to pay
interest.
17. The Learned AR also drew our attention to the judgment of
Hon'ble High Court of Madras in the matter of CCE, Mysore Vs.
M/s Sree Kumaran Alloys Pvt Ltd - 2019 (365) ELT (305),
wherein it is held that;
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"8. This Civil Miscellaneous Appeal has been filed by the Revenue
raising the following substantial questions of law.
(i) Whether the Hon'ble Tribunal has committed substantial
error in law by waivering the demand of interest under Rule 14 of
the Cenvat Credit Rules, 2004 read with Section 11 AB of the
Central Excise Act when the legal position is settled by the Hon'ble
Supreme Court in the case of Union of India Vs. Ind-Swift
Laboratories Ltd. in Civil Appeal NO. 1976 of 2011 [2011 (265)
ELT 3 (SC), dated 21-02-2011, the word 'OR' in between the
expression 'taken or utilized wrongly' or has been erroneously
refunded as the word "AND" on the happening of any of the three
circumstances such credit became recoverable along with interest?
..
..
..
18. For all the above reasons, the first substantial question of law, as framed above, is answered in favour of the Revenue and against the assessee. However, for the reasons assigned by us in the preceding paragraphs and the discussions contained therein, we dismiss the appeal of the Revenue and confirm the order of the Tribunal for the reasons stated therein and decide the question of law in favour of the Revenue."
18. Learned AR also relied on the judgment of the Apex Court in the matter of M/s Bombay Dying - 2007 (215) E.L.T 3 (SC). and also relied on the decision of the Tribunal in the matter of CCE, Surat Vs. M/s Atul Ltd. - 2017 (358) E.L.T 825, wherein the Hon'ble Tribunal held that; in these circumstances, I do not find merit in the contentions raised in the respective appeals that mere availment of CENVAT credit without its utilization of the same will not attract interest at appropriate rate under Rule 14 of Cenvat Credit Rules, 2004 as was in force during the relevant time.
19. As regards invoking the extended period of limitation, Ld. AR submitted that the Appellant had availed ineligible credit and also failed Page 11 of 14 Service Tax Appeal No. 20343 of 2017 to reflect proper credit details in the ST-3 returns. Following the judgment of the Hon'ble Supreme Court in the matter of M/s Rajasthan Spinning & Weaving Mills-2008 (238) ELT 3 (SC), the Adjudication authority rightly invoked the extended period of limitation.
20. As a rejoinder the learned counsel, as regards the interest on the Cenvat credit, which was availed but duly reversed before utilization submitted that the demand is made mechanically without considering Rule 14 of Cenvat Credit Rules, 2004. Moreover, the issue is settled by the judgment of Hon'ble Supreme Court in the matter of CC Vs. Bombay Dyeing and Manufacturing Co. Ltd. - 2007 (215) ELT 3, wherein it is held that Cenvat credit reversed before utilization thereof would be tantamount to credit not having been availed. The said principle has also been accepted by CBEC as per Circular no. 858/16/2007-CX dated 08.11.2007.
21. Heard both sides and perused the records.
22. As regards, the demand of service tax alleging transaction as reimbursement of expenses from other companies, we find that there is no service provided and it is shown only for the accounting purpose between two Divisions of the Appellant. Therefore, service tax cannot be demanded on the ground that they are expenses reimbursed by the other companies.
23. As regards, availing CENVAT credit based on the debit notes issued by the service providers, we find that the services were received by the appellant and the payment for the services are also made to the service providers. We find that the debit notes contain the essential particulars as required under Rule 9(2) of the Cenvat Credit Rules, 2004. Further, these debit notes are accounted in the books of accounts Page 12 of 14 Service Tax Appeal No. 20343 of 2017 of the appellant. Therefore, we find that the appellant has fulfilled the requirements under Rule 4A of Service Tax Rules, 1994 and Rule 4(7) and 9(2) of CCR, 2004. Therefore, the denial of Cenvat credit on the debit notes is unsustainable.
24. As regards the denial of CENVAT credit alleging out of pocket expenses, we have gone through the invoice produced by the Appellant and also the certificate issued by the consultant specifying the details of the services provided. The invoice produced by the Appellant also clearly shows that it is for the purpose of completion of various activities. Facts being so, there is no justification in denying the CENVAT credit against the above invoices once it is paid with applicable service tax.
25. As regards invoking the extended period of limitation, the issue involved in the present appeal is in the nature of interpretation and considering the fact that Appellant has been paying service tax and filing ST-3 returns in time and there is no allegation that the Appellant had made a deliberate attempt to evade payment of tax, following the decisions in M/s Reckitt & Colman of India Pvt Ltd. Vs. Collector of Central Excise (Supra) Ballarpur Industries Limited - (Supra) Caprihans India Ltd Vs. CCE - (Supra), CC Vs. Toyo Engineering India Ltd - (Supra), CCE & C, Surat Vs. Sun Pharmaceuticals Industries Ltd. (Supra), we find that the extended period for demand of service tax is not sustainable.
26. As regards the interest on CENVAT credit availed but duly reversed before utilization, the demand is made without considering the extant Rule 14 of the Cenvat Credit Rules, 2004. Moreover, the issue is settled by the judgment of the Hon'ble Supreme Court in the matter of Page 13 of 14 Service Tax Appeal No. 20343 of 2017 CCE Vs. Bombay Dyeing and Manufacturing Company Ltd - 2007 (251) E.L.T 3, wherein it is held that where CENVAT credit is reversed before utilization thereof, it would be tantamount to credit not having been availed. The said decision has also been accepted by CBEC as per Circular No. 858/16/2007-CX dated 08.11.2007. However, in the facts and circumstances of the case, since we find that the appellants are eligible to avail Cenvat credit on the debit notes and the service received from M/s Deloitte, the demand of interest on the CENVAT credit availed but not utilized by the Appellant does not arise.
27. In view of the above discussion, and the decisions of the Hon'ble Apex Court and the Tribunal on the issues involved, the appeal filed is sustainable and needs to be allowed.
28. Accordingly, the appeal is allowed with consequential relief, if any, in accordance with law.
(Order pronounced in open court on 29.10.2024) (P.A.Augustian) Member (Judicial) (Pullela Nageswara Rao) Member (Technical) Sasidhar Page 14 of 14