Custom, Excise & Service Tax Tribunal
M/S Spandana Spoorthy Financial Ltd vs The Commissioner on 3 June, 2016
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL REGIONAL BENCH AT HYDERABAD Bench Division Bench Court I Appeal No.ST/118/2012 (Arising out of Order-in-Original No.31/2011-Adjn.(Commr)ST, dated 30-09-2011 passed by Commissioner of C.CE&ST, Hyderabad) For approval and signature: Honble Ms. Sulekha Beevi, C.S. Member(Judicial) Honble Mr. Madhu Mohan Damodhar, Member(Technical) 1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordship wish to see the fair copy of the Order? 4. Whether Order is to be circulated to the Departmental authorities? M/s Spandana Spoorthy Financial Ltd, ..Appellant(s) Vs. The Commissioner. C.C.E&ST, Hyderabad-IV ..Respondent(s)
Appearance Shri B.Venugopal, Advocate for the Appellant Shri Prabhu Dass Puli, AR for the Respondent Coram:
Honble Ms. Sulekha Beevi, Member(Judicial) Honble Mr.Madhu Mohan Damodhar, Member(Technical) Date of Hearing : 24/05/2016 Date of decision: 03/06/2016 FINAL ORDER No._______________________ [Order per: Madhu Mohan Damodhar]
1. The facts of the case are that the appellants are engaged in the Micro Finance Business, they extend loans to people below poverty line and also facilitate insurance to their members who borrow money from them. They also acted as Money Remittance Sub-Agent with M/s Weizmann Forex Ltd till June, 2009.
2. On scrutiny of the appellants records by the department in August, 2009, it emerged that they had received income for rendering different financial services, however, were not paying service tax thereon from the beginning. The appellants were issued notice proposing demand of service tax of Rs 3,89,86,389/-along with interest for the period December, 2004 to September, 2009, and imposition of penalties under various provisions. In the adjudication proceedings that followed, the proposals in the notice were confirmed, equal penalty under Section 76 of the Finance Act, 1994 as also penalties under Sections 77and 78 ibid imposed. An amount of Rs 1,56,17,727/- deposited by the appellants before issue of the notice, was appropriated towards the service tax and interest demands. The adjudicating authority also held that the Cenvat credit cannot be availed by the appellant based on documents prior to the date of obtaining service tax registration, therefore the amount of Rs 2,33,68,662 debited from such wrongly availed Cenvat credit will have to be paid in cash by them.
3. Aggrieved, the appellants have preferred this appeal.
4. Shri B Venugopal, the learned Advocate for the appellants, submitted that at the material time the micro finance industry was a new and emerging industry and there was ambiguity in terms of service tax applicability. They were under bonafide belief that Micro Financing does not come under Banking and Financial Service. However after being advised by their statutory auditors, they obtained opinion from KPMG when only they learnt that income earned on Group Registration Fees, Insurance Facilitation Charges, Commission on Money remittances will attract service tax. Consequently, they made provision towards the said service tax liability for the period 2004-05 till 2008-09 in their books of accounts for the year 2008-09. They also obtained service tax registration on 8th June, 2009. All this was done by them before the department scrutiny of records in August, 2009. It was also submitted that at the time of registration, the appellant had informed the Service Tax authorities that they are in the process of finalizing the tax liability to be paid and would be discharging the same. They had discharged entire service tax liability with interest prior to issue of show cause notice and in terms of Section 73(3), the show cause notice itself has been issued sans locus. The demand is also barred by limitation since there never was any suppression, mens rea or malafide intention on their part. There is no legal bar for availing the Cenvat credit based on credit documents prior to the date of obtaining service tax registration and the contrary decision of the adjudicating authority in this regard is misconceived and without legal basis. He finally submits that since the appellant has not separately collected service tax from their members, the gross amount indicated in the invoice should be treated as inclusive of service tax. The learned advocate submitted copies of case laws in support of their contentions.
5. The learned AR, Shri G Natarajan, submitted that the adjudicating authority had analysed all aspects of the case and had issued a well-reasoned order, which does not call for interference. On the appellants contention that there was no bar to availing Cenvat credit from credit documents which were prior to date of registration, the learned AR submitted that such availment of Cenvat credit is barred by the provisions of Rule 3(4) of the Cenvat Credit Rules, 2004, which permits utilization of credit only to the extent such credit is available on the last day of the month or quarter for which tax liability is being discharged. He also pointed out that if the appellants were unsure of their tax liability, nothing precluded them from approaching the department for clarification, which was not done by them.
6. Heard both sides and have gone through the records of the case. We find that the adjudicating authority himself has accepted that the appellants were advised by their statutory auditors that services rendered by them attract service tax and that they thereon obtained service tax registration on 08-06-2009. It is also not in dispute that the appellant, pursuant to scrutiny of records by department in August 2009, but well before the issue of the show cause notice on 24-04-2010, had worked out their service tax liability for the period December, 2004 to August, 2009 as being Rs.3,77,37,965/-, and had partly discharged the said liability by adjustment of Rs 2,21,20,238/- from Cenvat credit and balance of Rs 1,56,17,727 along with interest liability thereof Rs 27,09,290/- total Rs 1,83,27,017/- was paid by them by GAR-7 Challan dated 17-09-2009. The department has demanded a slightly higher tax liability, for the same period, of Rs 3,89,86,389/- along with interest thereon. The adjudicating authority has however found that the aforesaid adjustment of liability by the appellant by utilization of Cenvat credit availed is improper since according to him, till such time he is not registered with the department, provisions of Cenvat Credit Rules, 2004 cannot be made applicable and thus the appellant can start availing credit only from 08-06-2009, the date they obtained registration. We find this conclusion of the adjudicating authority to be flawed and bereft of legal support. The Cenvat Credit Rules do not injunct thus. We are of the considered opinion that if and when the department demands service tax liability for taxable services rendered during a particular period, a corresponding right shall accrue to the assessee in question entitling him to avail of Cenvat credit on cenvatable documents evidencing inputs or capital goods or input services received by such assessee during the same period, of course subject to the conditionalities envisaged in the Cenvat Credit Rules, 2004. The maxim Ubi Jus Ibi Remedium-There is no wrong without a remedy, will find application for this interpretation. We find that Rule 3(4) of the said Rules relied upon by the adjudicating authority merely puts a cap on the credit that be utilized for payment of duty or tax, not on the quantum that be availed.
7. We find that this view finds sustenance in the case of Commissioner of ST, Chennai Vs Verizon Data Services India Ltd -2015(39)STR 522(Tri-Chennai), the Honble Tribunal observed that I have considered submissions on both sides. I find force in the argument of respondent that as pointed out by Hon. Karnataka High Court there is nothing in CCR, 2004 to restrict taking of credit only for services received after the date of registration especially in a situation where provider of service is exporting the services and is not required to pay service tax. I note that Rule 4 of Service Tax Rules is applicable to a person who is liable to pay service tax. If there is an offence of not complying with Rule 4 of Service Tax Rules, that matter has to be adjudicated as per the provisions of the Act and the Rules. Denial of Cenvat credit may not be the proper course in such situation. The delay in taking registration is only of 11 days. The claim for refund has been submitted after registration. Further the provision of CCR, 2004 which is not complied with is not precisely pointed out. The requirement of registration prior to having eligibility for credit is sought to be achieved by a laborious interpretation of Service Tax Rules, 1994 and Cenvat Credit Rules, 2004 by interpreting that a service provider has to get registered (as per Service Tax Rules, 1994) and only a service provider can take credit (as per Cenvat Credit Rules, 2004) and deducing that an unregistered service provider does not get eligibility for credit. This is not a very sound argument. By not getting registered a person does not cease to become a provider of taxable service if he is actually providing such service. Even if a service provider is not registered there will be tax liability on him if he is providing taxable service. The concomitant benefit of Cenvat credit also has to be seen accordingly, of course subject to provisions in Cenvat Credit Rules 2004, in the absence of clear provisions to the contrary .The same view has been echoed in the following cases also.
i) In the case of Nitesh residency Hotels Pvt.Ltd. Vs CST, Bangalore 2016(41)STR 498(Ttri-Bang).
ii) In the case of Amar Remedies Vs CCE, Surat, 2010(257) EALT 552(Tri-Ahmd) the Honble Tribunal observed that The appellants claim is that the inputs are duty paid and the inputs have been received in the factory. However, this aspect has not been examined in this case since the Cenvat Credit has been disallowed on the threshold that the registration was obtained after they have taken the Cenvat Credit. Therefore, they cannot be denied the benefit without verifying the genuineness or correctness of their claim and the Cenvat Credit cannot be denied only on this ground that they have availed credit prior to obtaining registration. Now, the appellants have produced the documents which can be verified. Lower authorities did not get the opportunity to verify the veracity and genuineness of the documents produced by the lower authorities. Therefore, the case is remanded to lower adjudicating authority only for the limited purpose of verification of veracity and genuineness of the duty paid nature and receipt of the goods in factory. The penalty and various other ancillary matters are linked with the above aspect. If it is found that the duty paid character and receipt of the goods in doubt, the lower adjudicating authority may decide the penalty aspect. The appellants are directed to produce relevant documents before lower adjudicating authority. Needless to say that the appellant should be granted reasonable opportunity of hearing.
The assessees appeal is allowed by way of remand. Revenues appeal is accordingly disposed off. Cross Objection is also disposed off for purpose of record .
iii) In the case of C.Metric Solution(P)Ltd. Vs CCE, Ahmedabad the Honble Tribunal has observed that The first issue is whether the appellant was eligible for the Cenvat credit when they have not taken registration and the Cenvat credit taken by them for the period 1-11-2008 to October 2009 can be allowed. For this purpose, the appellant had relied upon the decision of the Tribunal in the case of J.R. Herbal Care India Limited v. CCE, Noida - 2010 (253) E.L.T. 321 (Tri.- Del.). In this case the appellant had received the capital goods while availing SSI exemption without taking registration. Cenvat credit was taken on the capital goods for the years 2003-04 and 2004-05 but taken in the year 2005-06. This was allowed by the Tribunal. The Tribunal took a view that there is no provision in the rules that credit was not available to unregistered manufacturers. Manufacturers exempted from the registration do not cease to be a manufacturer of excisable goods. This case squarely covers the issue in this case also. Therefore, in respect of the goods manufactured during the period when the appellant was not registered, credit can be taken subsequently also. This view is further supported by the consistent stand taken by various judicial forums in the case of clandestine removals, even if the duty is paid subsequently, Cenvat credit on inputs used will be available to the assessee /manufacturer subject to the conditions that proper documents showing the payment of duty are available. In the case of SSI Units also, wherever SSI benefits have been denied, Cenvat credit has been allowed. Therefore, in this case also the action of the appellants in taking credit on 09-10-2009 has to be upheld.
It can be seen from the above reproduced ratio of the Division Bench decision that the appellant is eligible to avail Cenvat credit of the service tax paid on input services after getting registration. In this case, it is recorded that the appellant has shown or recorded the service tax paid on input services in a register which is considered as a Cenvat account. If the appellant is eligible for Cenvat credit, post registration, this availment or showing the account being credited by the service tax paid on input services, but not availing the same for the purpose of discharge of duty, would be more or less the same or an identical situation to indicate that as STP appellant is eligible for refund of unutilised credit.
iv) In the case of mPortal India Wireless Solutions P.Ltd Vs CST, Bangalore, -2012(27)STR.134(Kar), the Honble High Court Karnataka observed that the assessee is a 100% export oriented unit. The export of software at the relevant point of time was not a taxable service. However, the assessee had paid input tax on various services. According to the assessee a sum of Rs.4,36,985/- is accumulated Cenvat credit. The Tribunal has categorically held that even though the export of software is not a taxable service, but still the assessee cannot be denied the Cenvat credit. The assessee is entitled to the refund of Cenvat credit. Similarly, in so far as refund of Cenvat credit is concerned, the limitation under Section 11B does not apply for refund an accumulated Cenvat credit. Therefore, bar of limitation cannot be ground to refund Cenvat credit to the assessee.
In so far as requirement of registration with the department as a condition precedent for claiming Cenvat credit is concerned, learned counsel appearing for both the parties were unable to point out any provision in the Cenvat Credit Rules which impose such restriction. In the absence of a statutory provision which prescribes that registration is mandatory and that if such a registration is not made the assessee is not entitled to the benefit of refund, the three authorities committed a serious error in rejecting the claim for refund on the ground which is not existence in law. Therefore, said finding recorded by the tribunal as well as by the lower authorities cannot be sustained. Accordingly, it is set aside .
8. In the event, we hold that the appellant was entitled to avail Cenvat credit on documents evidencing receipt of eligible inputs, capital goods or input services , even before the date they obtained service tax registration. They can very well adjust part or whole of their service tax liability by utilization of such credit availed, subject to the relied upon invoices/ documents evidencing sufferance of tax/duty found to be otherwise eligible for such availment pe se for the purposes of Cenvat Credit Rules, 2004.
9. The appellant has contended that since they had discharged the entire service tax liability with interest on 17-08-2009, issue of a show cause notice is precluded in view of Section 73(3) of the Finance Act, 1994. In this regard we find that the very availment of Cenvat credit, out of which the major part of the duty liability had been adjusted by the appellant, was in dispute and in view of the proviso to the said Section 73(3) ibid, we hold that the issue of the show cause notice in this case was not ultra vires.
10. With regard to the appellants alternative plea on limitation, it is not the case that the appellant had filed returns or had otherwise approached the department for clarity on the taxability of their activities. In fact we find that only after the appellant obtained service tax registration and were subsequently audited by the department , did the latter come in the know of the nature and scale of the taxable services provided by the former. There thus emerges a case of suppressio veri, of suppression of facts, and the department was well within the ambit of law to issue demand for the extended period of limitation provided in Section 73 ibid. We also note that the appellant had no objection or protest to pay up their entire tax liability for the period December, 2004 to September, 2009, which is the very period for which the show cause notice has been issued.
11. The appellant also argues that since they have not separately collected service tax from their members, the gross amount indicated in the invoice should be treated as inclusive of service tax. We find that this is settled law. The following case laws relied upon by the appellant fully support their contention:
- In the case of CCE & Cu. Patna Vs Advantage Media Consultant[2008(10)STR 449(Tri-Kol)]., the Tribunal observed that, when the amount is collected for the provision of services, the total compensation received should be treated as inclusive of service tax due to be paid by the ultimate customer of the services unless service tax is also paid by the customer separately. So considered, when no tax is collected separately, the gross amount has to be adopted to quantify the tax liability treating it as value of taxable service plus service tax payable.
- This finding of the tribunal was upheld by the Supreme Court in the case of Commissioner Vs Advantage Media Consultant [2009(14)STR J49(SC)].
- Further, in the case of Robot Detective & Security Agency vs CCE, Chennai [2009(14)STR 689(Tri-Che), the tribunal held that in case where an assessee providing taxable service charged the gross value without indicating the service tax element separately, the taxable value realized has to be treated as inclusive of service tax due. This principle applied to cases even before an explanation to Section 67 was introduced to remove the doubts in this regard.
- In P.Jani &Co Vs CST, Ahmedabad[2010(20)STR 701(Tri-Ahm), it was held that cum tax value has to be adopted when tax is not collected separately in view of the provisions of Section 67 of Finance Act, 1994 .
12. On the question of maintainability of the penalties imposed in the impugned order, it is not the case that they were aware of their tax liability ab initio but knowingly did not discharge it. On the other hand, even the adjudicating authority has taken note of the fact that the appellants that they became aware of their liability only after their internal statutory audit and opinion obtained from their consultants. They have taken service tax registration soon thereafter, and in any case before the scrutiny conducted by the department in August, 2009. They have also sought to pay up their tax liability for the entire period from December, 2004 onwards, partly by adjustment from Cenvat credit and partly by cash payment. All these factors considered we hold that there is no justification for equal penalty under section 78 of the Finance Act, 1994; the same requires to be set aside, which we hereby do. We however do not interfere with the penalties imposed under Sections 76 and 77(1) (a) ibid.
(Pronounced on 03-06-2016 in open court)
(MADHU MOHAN DAMODHAR) (SULEKHA BEEVI C.S.)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
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