Custom, Excise & Service Tax Tribunal
Hindustan Petoleum Corporation ... vs Visakhapatnam - G S T on 15 May, 2019
(1) Appeal No. E/31242/2018
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Single Member Bench - Court - I
Excise Appeal No. 31242 of 2018
(Arising out of Order-in-Appeal No. VIZ-EXCUS-001-APP-107-18-19, dated 26.07.2018
passed by Commissioner(Appeals), Customs & Central Tax, Guntur)
Hindustan Petroleum Corpn. Limited .. APPELLANT
Visakh Refinery,
Finance Department, Malkapuram,
VISAKHAPATNAM 530 011.
Andhra Pradesh
VERSUS
Commissioner of Central Tax .. RESPONDENT
VISAKHAPATNAM GST GST Commissionerate, Port Area, VISAKHAPATNAM - 530 035.
Andhra Pradesh APPEARANCE:
Shri G. Prahlad, Advocate for the Appellant.
Shri A.V.L.N. Chary, Superintendent/Authorised Representative for the Respondent.
Coram:
Hon'ble SHRI P. VENKATA SUBBA RAO,MEMBER (TECHNICAL) FINAL ORDER No. A/30513/2019 Date of Hearing: 06.05.2019 Date of Decision: 15.05.2019 [ORDER PER: Mr. P.Venkata Subba Rao)
1. This appeal is filed against Order-in-Appeal No. VIZ-EXCUS-001-APP-
107-18-19, dated 26.07.2018.
2. Heard both sides and perused the records.
(2) Appeal No. E/31242/2018
3. The facts of the case in brief are that the appellant is a manufacturer of petroleum products falling under chapter 27 and avails the benefit of CENVAT Credit on the inputs and input services. During audit of their records, it was found that they had indicated some amounts as miscellaneous income received by them. Further enquiries by Officers revealed that with respect to the input services availed by them, they had not paid to the service providers the full value declared in the invoices but had reduced the amounts for various reasons. This reduced amount was recorded in their books of accounts as income received.
4. A show cause notice dated 22.01.2016 was issued to the appellant demanding an amount of Rs.37,93,918/- as ineligible CENVAT Credit in respect of the input services alleging contravention of Rule 4(7) of CCR 2004. Ld. Counsel for the appellant submits as an illustration if the value of the service is Rs. 100/- and service tax had to be paid @ 15%, the total invoice value is Rs.115/-, but they credited to the service provider an amount after deducting Rs. 10/- as price reduction charges. Therefore, the service tax which was paid on the entire amount of Rs. 100/- was in excess of the amount of service tax actually required to be paid. He would submit that there is no dispute that the actual amount of service tax indicated in the invoice was paid by the service provider to the government account and by the appellant to the Service provider notwithstanding the fact that some amount has been deducted as price reduction charges. Rule 4(7) of CCR 2004 reads as follows:
"(7) The CENVAT credit in respect of input service shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan referred to in rule 9 is received:
Provided that in case of an input service where the service tax is paid on reverse charge by the recipient of the service, the CENVAT credit in respect of such 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 indicated in invoice, bill or, as the case may be, challan referred to in rule 9:
(3) Appeal No. E/31242/2018 Provided further that in case the payment of the value of input service and the service tax paid or payable as indicated in the invoice, bill or, as the case may be, challan referred to in rule 9, is not made within three months of the date of the invoice, bill or, as the case may be, challan, the manufacturer or the service provider who has taken credit on such input service, shall pay an amount equal to the CENVAT credit availed on such input service and in case the said payment is made, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these rules:"
Provided also that if any payment or part thereof, made towards an input service is refunded or a credit note is received by the manufacturer or the service provider who has taken credit on such input service, he shall pay an amount equal to the CENVAT Credit availed in respect of the amount so refunded or credited.
Provided also that CENVAT Credit in respect of an invoice, bill or, as the case may be, challan referred to in Rule 9, issued before the Ist day of April, 2011 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 indicated in invoice, bill or, as the case may be, challan referred to in rule 9.
Explanation I. - The amount mentioned in this sub-rule, unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5thday of the following month except for the month of March, when such payment shall be made on or before the 31st day of the month of March.
Explanation II. - If the manufacturer of goods or the provider of output service fails to pay the amount payable under this sub-rule, it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken.
Explanation III - In case of a manufacturer who avails the exemption under a notification based on the value of clearances in a financial year and a service provider who is an individual or proprietary firm or partnership firm, the expressions, "following month" and "month of March" occurring in sub-rule (7) shall be read respectively as "following quarter" and "quarter ending with the month of March.
(4) Appeal No. E/31242/2018
5. This sub rule was substituted with effect from 01.04.2011 by notification No. 13/2011-CE(NT), dated 31.03.2011. The second proviso to this sub rule as above makes it mandatory for the service recipient to pay for the services as indicated in the invoice or bill within three months of the date of invoice, otherwise they have to reverse the CENVAT credit so taken. The next proviso also provides that if subsequently they pay their service provider, they will be entitled to take CENVAT credit of the amount so refunded or credited. It is the case of the Revenue in the show cause notice, the Order-in-Original and the impugned order that the appellant has not paid the value of input services and the service tax paid as indicated in the invoice/bills has paid a reduced amount as was evident from the records. It is not in dispute that they paid the full amount of service tax as indicated in the invoice but they have not paid the full value of the input services as indicated in the invoice but deducted some amount. Therefore, they are covered by the proviso to Rule 4(7) of CCR 2004 and to that extent they are not entitled to CENVAT Credit.
6. It is the case of the appellant that they have only reduced the amount of service charges paid but they have discharged the onus to pay full amount of service tax although what is paid will be in excess of what is due as per the invoice amount actually paid. Therefore, they are entitled to the CENVAT Credit even as per Rule 4(7) of CCR 2004 as it stood post 01.04.2011. Ld. Counsel would argue that Rule 4(7) applies only in cases where any payment towards input services is refunded by the service provider or a credit note is received by the manufacturer. He would argue that a harmonious reading of Rule 4(7) and Rule 6(3) shows that Rule 4(7) is made applicable for reversal of CENVAT Credit at receiver's end so that there is no loss of revenue to the Government. In the present case, the service providers have not raised any credit note nor have they refunded the amount nor have they filed any refund claim on account of reduced consideration from the service provider and hence there is no loss of revenue to the Government. He would rely on the Board Circular No. 122/3/2010-ST, dt. 30.04.2010 in which in para 5(b) it was clarified that "in the cases where the receiver of service reduces the amount mentioned in (5) Appeal No. E/31242/2018 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." He also relies on the following case laws:
(a) CCE Udaipur vs. Hindustan Zinc Ltd. [2019(4)TMI 480-CESTAT-DELHI]
(b) Hindustan Zinc Ltd.vs. CCE Udaipur [2018(3)TMI1187-CESTAT-DELHI]
(c) Ananthnath Developers vs. CCE Raigad [2018(6)TMI 1082 (CESTAT-
MUMBAI]
(d) CCE Jaipur vs. Hindustan Zinc Ltd. [2014(34) STR 440 (Tri.-Del.)]
(e) Patel Air Freight vs. CCE Vadodara [2014(35)STR 529 (Tri.-Ahmd.]
(f) CCE vs. MDS Switchgear Limited [2008(229)ELT 485 (SC)]
7. He would, therefore, urge that the impugned order is not correct and may be set aside and their appeal may be allowed.
8. Countering the arguments of Ld. Counsel, Ld. DR would submit that the Board circular dt. 30.04.2010 relied upon by Ld. Counsel should not apply to this case because it pertains to the legal situation prior to 01.04.2011 when Rule 4(7) of CCR 2004 has been amended. He would also argue that even if a circular has been issued by the Board, that should not bind this Tribunal. He would further submit that assuming for argument's sake that the circular also applies to post 2011 situation where there is a conflict between the circular and statutory provision of the law, the latter prevails. He relies on the case law of Ratan Melting & Wire Industries [2008(12)S.T.R. 416 (S.C)] in which the Constitutional Bench of Hon'ble Supreme Court held that any circular which is issued contrary to the (6) Appeal No. E/31242/2018 statutory provisions has merely no existence in law. He also relied on the order of this Bench in the case of Astra Microwave Products Limited [2016(342)ELT 300 (Tri.-Hyd.)] in which it was held that any erroneous clarification issued by the departmental officers will not entitle to the assessee to any benefit of exemption notification. He would, therefore, urge the Bench to strictly read Rule 4(7) as it stood during the relevant period along with paras therein and hold that since the appellant has not paid the amount as indicated in the invoices but has paid the reduced amount, they are not entitled to CENVAT Credit to that extent. He would urge that the assessee's appeal may therefore be rejected.
9. I have considered the arguments on both sides and perused the records. It is not in dispute that the appellant has paid less amount towards the services availed by them by reducing the consideration of the services. They did not pay the tax on full invoice value. However, service provider paid service tax on the full invoice value and the appellant has taken credit of the entire amount of service tax paid. It is the case of the Revenue that as per second proviso to Rule 4(7) of CCR 2004 where appellant assessee does not pay the value of input service and the service tax paid or payable as indicated in the invoice or bill within three months from the date of the invoice, they have to reverse the CENVAT Credit so taken. The third proviso further indicates that if any part payment is made towards an input service, the assessee will be entitled to take CENVAT Credit to that extent. In this case the assessee has settled the invoices and paid less than what is indicated in the invoice as service charges. However, they paid the full amount of service tax indicated in the invoice. Therefore, there is an excess payment of service tax by the service provider considering the reduced payment made for the services. This excess payment could have been claimed as refund by the service provider but they have already passed on this burden to the appellants herein. The appellants herein have borne the full burden of the excess service tax paid by them. They have also taken credit of the excess service tax. An alternative could have been for the appellant to seek refund of the excess amount of service tax paid as the persons who bore the burden of excess service tax.
(7) Appeal No. E/31242/2018
10. What the department proposes is a proportionate reduction in CENVAT Credit availed by the appellant in view of the reduced payment of the value of services rendered. A plain reading to proviso to Rule 4(7) shows that if a payment for the invoice is not made within three months, the assessee has to refund the CENVAT amount thereof and if a part payment is made, to that extent they can take credit. It is not the case here that the appellant has not paid the amount, they have paid the amount for the services rendered at a reduced rate and have paid the full amount of service tax which was paid by the service provider (which is not excess considering the reduced value of the services), the question is whether a proportionate amount of CENVAT credit can be reduced under such circumstances. From a plain reading of Rule 4(7), it does not appear that Rule 4(7) provides for a proportionate reduction of CENVAT Credit where the value of services rendered is reduced subsequently but service tax was discharged on the original amount and borne by the service recipient. This is consistent with the circular of the Board No. 877/15/2008-CX, dated 17.11.2008 in which the Board has clarified that where higher duty than the due is paid due to subsequent reduction in prices, credit as per invoice is available to the assessee. This is also consisted with similar circular regarding credit of service tax in Board's Circular No. 122/3/2010-ST, dt.30.04.2010. Both these circulars were, of course, issued prior to Rule 4(7) was amended w.e.f. 01.04.2011. However, this amended rule also does not provide for a proportionate reduction in CENVAT Credit where the invoice value is subsequently reduced when it is not in doubt that the service tax as per invoice has been paid by the service provider and has been borne by the service recipient. At any rate, there is no loss to the revenue and if the appellant had taken less amount as credit of service tax paid, they could have claimed refund of the remaining amount as excess service tax paid. Similar decisions were taken by the Coordinate Benches in the case of Hindustan Zinc Limited [2019(4)TMI 480-CESTAT- New Delhi)], Hindustan Zinc Limited [2018(3)TMI 1187-CESTAT-New Delhi)], Anantnath Developers [2018(6)TMI 1082-CESTAT-Mumbai)].
(8) Appeal No. E/31242/2018
11. Respectfully following the ratios of the Coordinate Benches, I hold that the appellant is entitled to CENVAT Credit of the service tax paid by them as indicated in the invoices.
12. In view of the above, the appeal is allowed and the impugned order is set aside, with consequential relief.
(Order pronounced in open court on 15.05.2019) (P. VENKATA SUBBA RAO) MEMBER (TECHNICAL) Vrg