Custom, Excise & Service Tax Tribunal
Cce, Jaipur Ii vs M/S Hindustan Zinc Limited on 15 May, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. Principal Bench, New Delhi COURT NO. IV Excise Appeal No. 992 of 2011 (SM) [Arising out of the Order-in-Appeal No. 450(CB) CE/JPR-II/2010 dated 19/01/2011 passed by The Commissioner (Appeals), Central Excise, Jaipur II.] For Approval and signature : Honble Shri Rakesh Kumar, 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 would be released under Rule 27 of : the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair : copy of the order? 4. Whether order is to be circulated to the : Department Authorities? CCE, Jaipur II Appellant Versus M/s Hindustan Zinc Limited Respondent
Appearance Shri B.B. Sharma, Authorized Representative (DR) for the appellant.
S/Shri B.L. Narasimhan and Hemant Bajaj, Advocates - for the Respondent.
CORAM : Honble Shri Rakesh Kumar, Member (Technical) DATE OF HEARING : 15/05/2013.
Final Order No. 56583/2013 Dated : 15/05/2013 Per. Rakesh Kumar :-
The facts leading to filing of this appeal by the Revenue are, in brief, as under.
1.1 The respondent are manufacturers of zinc. They availed Cenvat credit of Central Excise duty paid on inputs and capital goods and of service tax paid on input services in accordance with the provisions of Cenvat Credit Rules, 2004. The dispute in this case is about the Cenvat credit of service tax in respect of certain input services received by them during the period from April 2009 to December 2009. The respondent in terms of their contract with the service providers, while making payment to the service providers against the invoices raised by them, retained a percentage of the billed amount towards performance guarantee which was being paid subsequently after certain period. The invoices raised by the service providers show payment of service tax on full invoice value and this is not disputed. The respondent in this case, while not making full payment of the billed amount and retaining with them a part of the amount billed by the service providers as performance guarantee, took Cenvat credit of full amount of service tax shown on the invoices, while the balance amount was paid much later. Rule 4 (7) of the Cenvat Credit Rules, 2004 states that the Cenvat credit in respect of input services shall be allowed on or after the day on which payment is made of the value of input service and the service tax paid or payable, as is indicated in the invoice, bill or as the case may be, challan referred to in Rule 9. The department invoking Rule 4 (7) sought to disallow the proportionate amount of Cenvat credit to the extent the billed amount had been retained by the respondent as performance guarantee. On this basis, a show cause notice dated 5/4/10 was issued to the respondent for recovery of allegedly wrongly availed service tax Cenvat credit amounting to Rs. 3,67,695/- alongwith interest and also for imposition of penalty. The show cause notice was adjudicated by the jurisdictional Assistant Commissioner vide order-in-original dated 27/8/10 by which the Assistant Commissioner confirmed the above-mentioned Cenvat credit demand alongwith interest and imposed penalty of Rs. 2,000/- on the respondent. In course of proceedings before the Assistant Commissioner, the respondent pleaded that the service providers have paid service tax to the Government on the total billed amount receivable by them as mentioned in the invoices, notwithstanding the fact that they were not entitled to receive the said amount hundred percent and the retained amount was to be received later on, and on this basis they had pleaded that since the service tax has been paid by the service providers on the full invoice value including the amount not received by them, they (respondent) may be allowed its Cenvat credit. However, this plea was not accepted by the Assistant Commissioner observing that even if the entire input service is received and the service tax on the entire value of service is paid by the service provider, the service tax credit to the extent which is proportionate to the value of the service not paid by the assessee is clearly not admissible in terms of Rule 4 (7) of the Cenvat Credit Rules.
1.2 The respondent filed an appeal to the Commissioner (Appeals) against this order of the Assistant Commissioner. The Commissioner (Appeals) vide impugned order-in-appeal dated 19/01/11 set aside the Assistant Commissioners order relying upon the Boards Circular No. 122/3/2010-ST dated 30th April 2010 and keeping in view the fact that though respondents service providers had not received the full billed amount, they had paid service tax on the full amount. The Commissioner (Appeals) also relied upon the judgment of the Apex Court in the case of CCE, Bolpur vs. Ratan Melting & Wire Industries reported in 2008 (231) E.L.T. 22 (S.C.), wherein it was held that Boards Circulars are binding on the departmental authorities unless the same are contrary to the provisions of law. Against this order of the Commissioner (Appeals), the Revenue is in appeal.
2. Heard both the sides.
3. Shri B.B. Sharma, the learned Departmental Representative, assailed the impugned order by reiterating the grounds of appeal in the Revenues appeal and pleaded that the availability of Cenvat credit would be governed by the plain wordings of the Rule 4 (7) of the Cenvat Credit Rules according to which the Cenvat credit in respect of input services would be allowed only on or after the date on which the payment is made of the value of input service, that the Boards Circular dated 30th April 2010 which is of a date subsequent to the period of dispute, is also contrary to the express provisions of Rule 4 (7) of the Cenvat Credit Rules, that since at the time of availing the Cenvat credit, part of the value of the service received by the respondent had not been paid by them, Cenvat credit in respect of that part of the value of service would not be admissible and that the Boards Circular cannot be beyond the provisions of the rule. He, therefore, pleaded that the impugned order is incorrect.
4. Shri B.L. Narasimhan, Advocate, the learned Counsel for the respondent, pleaded that from the very beginning, the respondents stand has been that the service providers had paid full amount of service tax on the amount billed by them, that is, on the invoice value, even though they were not entitled to receive the said amount hundred percent immediately on presenting the bills and certain amount was to be retained by the respondent as performance guarantee, which was to be paid subsequently, that this fact has not been denied by the department, that the departments stand is that even if the entire input service has been received and the service tax on the entire value of the service has been paid by the service provider, service tax credit would be available only to the extent which is proportionate to the value of the service, paid by the assessee and the Cenvat credit would not be admissible to the extent the amount representing the value of the service was not paid to the service providers, that this stand of the department is contrary to the Boards Circular No. 122/3/2010-ST dated 30/4/10, wherein the Board, in respect of such cases, where a part of the amount is withheld as security or performance guarantee, has clarified that the Cenvat credit is to be allowed if the service provider had paid service tax on the full amount receivable, that there is nothing in the Circular which is contrary to the provisions of the law, that in any case, the balance amount was subsequently paid by the respondent to the service providers and at that stage, the full amount of credit would become available, and that in view of this, there is no merit in the Revenues appeal.
5. I have considered the submissions from both the sides and perused the records.
6. The stand of the respondent is that the service providers had paid service tax on the entire invoice value, even though full payment had not been made by the respondent to the service providers and a part of the invoice value had been retained as performance guarantee. This position is not disputed by the department. The point of dispute is as to whether in such a situation, in view of the provisions of Rule 4 (7) of the Cenvat Credit Rules, full amount of Cenvat credit would be available to the respondent or they would be eligible only for the proportionate amount of Cenvat credit to the extent the payment against the invoices presented by the service providers had been made. On this point, the Board in its Circular dated 30th April 2010 has clarified as under:-
3. As per sub-rule (7) of Rule 4 of the Cenvat Credit Rules, 2004 , Credit in respect of input service shall be allowed, on or after the day on which payment is made of the value of input service and the service tax paid or payable as is indicated in invoice, bill or as the case may be, challan referred to in Rule 9.
A doubt raised is as to whether the receiver of input service can take credit only after the full value that is indicated in the invoice, bill or challan raised by the service provider, and also the service tax payable thereon, has been paid. It has been represented that in many cases, after the invoice is issued by the service provider, the service receiver does not make the full payment of the invoiced amount on account of discount agreed upon after issuance of invoice; or deducts certain amount due to unsatisfactory service; or withholds some amount as security to be held during contract period. Due to these reasons the value paid may not tally with the amount indicated in the invoice, bill or challan. In such cases the department has raised objections to the taking of credit as it does not meet the requirement of the said sub-rule (7).
4. Thus the following issues relating to availment of Cenvat credit need clarification, - whether Cenvat credit can be claimed
(a) when payments are made through debit/credit and debit/credit entries in books of account or by any other mode as mentioned in Section 67 Explanation (c) for transactions between associate enterprises ; or
(b) where a service receiver does not pay the full invoice value and the service tax indicated thereon due to some reasons.
5. Matter has been examined and clarification in respect of each of the above mentioned issues is as under , -
(a) When the substantive law i.e. Section 67 of the Finance Act, 1994 treats such book adjustments etc., as deemed payment, there is no reason for denying such extended meaning to the word payment for availment of credit. As far as the provisions of Rule 4 (7) are concerned, it only provides that the Cenvat credit shall be allowed, on or after the date on which payment is made of the value of the input service and of service tax. The form of payment is not indicated in the same and the rule does not place restriction on payment through debit in the books of accounts. Therefore, if the service charges as well as the service tax have been paid in any prescribed manner which is entitled to be called gross amount charged then credit should be allowed under said Rule 4 (7). Thus, in the case of Associate Enterprises, credit of service tax can be availed of when the payment has been made to the service provider in terms of Section 67 (4) (c) of Finance Act, 1994 and the service tax has been paid to the Government Account.
(b) In the cases where the receiver of service reduces the amount mentioned in the invoice/bill/challan and makes discounted payment, then it should be taken as final payment towards the provision of service. The mere fact that finally settled amount is less than the amount shown in the invoice does not alter the fact that service charges have been paid and thus the service receiver is entitled to take credit provided he has also paid the amount of service tax, (whether proportionately reduced or the original amount) to the service provider. The invoice would in fact stand amended to that extent. The credit taken would be equivalent to the amount that is paid as service tax. However, in case of subsequent refund or extra payment of service tax, the credit would also be altered accordingly. Thus, according to the Boards Circular, credit of full service tax paid by a service provider in respect of service provided to a manufacturer would be available to the manufacturer even if the amount payable to the service provider has been reduced, so long as the service tax paid by the service provider has not changed.
7. The rationale behind Rule 4 (7) of the Cenvat Credit Rules is that during the period prior to 1/3/11, which is the period of dispute in this case, by virtue of Rule 6 (1) of the Service Tax Rules, 1994, service tax in respect of the service provided or to be provided was payable by 6th day of the month immediately following the month in which the payment for the service provided or to be provided was received by the service provider. This rule had been framed to prevent a situation where while on the basis of the invoice issued by a service provider in respect of some service provided or to be provided, the service recipient takes the Cenvat credit, even though the service provider has not paid the service tax for the reason that for some reasons, there is delay in receipt of payment by him from the service recipient. Thus Rule 4 (7) would be applicable only in a situation where though the service provider has issued the invoice, but he has not paid the service tax. But where there is no dispute that service tax has been paid by the service provider on the full invoice value, even though he has not received full payment from the service recipient and part of the payment due to him has been withheld by the service recipient due to some reason, this rule would not be applicable. There is, therefore, nothing in the Boards circular dated 30/4/2010 which is contrary to the provisions of the Finance Act, 1994 or of the rules made thereunder. In terms of the Apex Court judgment in the case of CCE, Bolpur vs. Ratan Melting & Wire Industries (supra), the Boards Circulars are binding on the Departmental authorities unless the same are contrary to the law.
7.1 Moreover in this case, it is also not the departments case that the amount withheld was never paid or that the service providers subsequently sought and obtained refund of the service tax amount not reimbursed to them by the respondent. When the service tax paid by the service provider has not varied, the Cenvat credit also cannot be reduced.
8. In view of the above discussion, I do not find any merit in the Revenues appeal. The same is dismissed.
(Pronounced in the open court.) (Rakesh Kumar) Member (Technical) PK ??
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