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2020 (2) TMI 1579 - AT - Service TaxCenvat Credit - demand of service tax - demand beyond the scope of show cause notice (SCN) - the show-cause notice is issued for disallowance of credit for contravening of the provisions of Rule 9 of CENVAT Credit Rules 2004 the learned commissioner proceeds to deny the credit on co-relation between input service and output service. - HELD THAT - the input services claimed by the appellants are admissible for credit for rendering output services - Decision in the case of Millipore India Pvt. Ltd. 2011 (4) TMI 1122 - KARNATAKA HIGH COURT and Toyota Kirloskar Motor Pvt. Ltd. 2011 (3) TMI 1373 - KARNATAKA HIGH COURT followed. The services which are utilized by the appellants have nexus with the output services provided by them. Therefore credit is also admissible. Regarding the other issues such as inclusion of the value of the services rendered by the branches situated in Jammu Kashmir in the total taxable value of the appellants; demand of service tax on the commission received in advance we find that the submissions of the appellants are acceptable in view of the case laws cited by the learned counsel. Decided in favor of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal include:
2. ISSUE-WISE DETAILED ANALYSIS a) Wrongful Utilization of CENVAT Credit and Nexus Between Input and Output Services Legal Framework and Precedents: The CENVAT Credit Rules, 2004, particularly Rules 6(3), 9(1), and 9(6), govern the admissibility and utilization of input service credit. The definition of "input service" requires a nexus or integral connection with the output service provided by the service provider. The Tribunal relied on the authoritative judgments in Millipore India Pvt. Ltd., 2011 16 Taxmann.com 363 (KAR) and Toyota Kirloskar Motor Pvt. Ltd., 2011-TIOL-941-HC-KAR-ST, which elucidate the scope of "input service" and the requisite nexus. Court's Interpretation and Reasoning: The Tribunal observed that the adjudicating authority erred in denying credit on a ground (lack of nexus between input and output services) that was not raised in the show-cause notice, which originally alleged procedural lapses under Rule 9. The Tribunal emphasized that the adjudicating authority cannot travel beyond the allegations in the SCN to deny credit. Further, relying on the cited High Court judgments, the Tribunal held that the definition of input service is exhaustive and includes services that have an integral connection with the business activity. The Tribunal quoted:
Key Evidence and Findings: The appellants submitted detailed records, including circulars issued for accounting procedures, statutory auditor certificates, and region-wise details of CENVAT credit availed on various input services such as telephone, courier, AMC, rent, advertisement, IT services, audit expenses, and others. The Tribunal found that these documents substantiated the claim of credit and negated allegations of improper record-keeping. Application of Law to Facts: The Tribunal applied the principle that the nexus test for input services is broad and inclusive. Given the nature of banking and financial services, the various input services availed were held to be integrally connected with the output services. The Tribunal also noted that the procedural allegations were not substantiated and that the appellant had complied with Rule 9 requirements. Treatment of Competing Arguments: The Department argued based on earlier orders and procedural lapses. However, the Tribunal found that the Department's approach was inconsistent and that the adjudicating authority exceeded the scope of the SCN. The Tribunal also noted that the Department did not specifically identify any documents missing or procedural violations warranting denial of credit. Conclusion: The Tribunal concluded that the input services availed by the appellants are admissible for CENVAT credit as they have nexus with the output services, and the denial of credit on unrelated grounds is unsustainable. b) Inclusion of Value of Services Rendered by Branches in Jammu & Kashmir and Commission Received in Advance Legal Framework and Precedents: Service tax liability arises on the provision of taxable services. The valuation rules exclude amounts not liable to service tax. The Tribunal relied on case law including Schott Glass India Pvt. Ltd., Association of Leasing & Financial Service Company, Sudhesh Sharma, Ashok Singh Academy, and Consulting Engineering Service (I) Pvt. Ltd., which held that commission received in advance is not taxable until the service is rendered. Court's Interpretation and Reasoning: The Tribunal accepted the appellants' contention that inclusion of amounts relating to branches in Jammu & Kashmir and commission received in advance was incorrect. The Tribunal held that liability to pay service tax arises only upon provision of service, and advance commission does not constitute taxable value at the time of receipt. Key Evidence and Findings: The appellants demonstrated that tax had already been paid by their credit card division on certain amounts, and that commission received in advance was not yet earned. The Tribunal found these submissions consistent with established legal principles. Application of Law to Facts: The Tribunal applied the principle that taxable value must relate to services actually provided during the relevant period. Inclusion of advance commission or services rendered by out-of-territory branches without proper basis was held to be erroneous. Treatment of Competing Arguments: The Department relied on the original order-in-original (OIO) findings. The Tribunal, however, gave precedence to judicial precedent and the factual matrix presented by the appellants. Conclusion: The Tribunal held that the impugned inclusion of value was not justified and accepted the appellants' submissions on these valuation issues. c) Maintenance of Proper Records and Compliance with Rule 9 of CENVAT Credit Rules Legal Framework and Precedents: Rule 9 of the CENVAT Credit Rules, 2004 mandates maintenance of proper records and documents to substantiate credit claims. The Tribunal considered Circular No. 132/2006-BCACC and Circular No. 7/08 Customs dated 28/05/2008, which clarify procedural compliance and acceptance of statutory auditor certificates as evidence. Court's Interpretation and Reasoning: The Tribunal found that the appellants had followed a detailed accounting procedure, including maintenance of registers at branch level and consolidation at higher levels. The Tribunal accepted that due to the large number of duty paying documents spread across branches, it was practically impossible to produce all documents at a single place, but the system in place was adequate for compliance. Key Evidence and Findings: The appellants submitted circulars, statutory auditor certificates, and detailed replies to the show-cause notice explaining their record-keeping system. The Tribunal noted that the statutory auditor's certificate was considered sufficient evidence in earlier proceedings and by the Board's circular. Application of Law to Facts: The Tribunal applied the principle that procedural compliance must be judged on the basis of the system and evidence presented, not merely on the absence of physical documents at one place. The Tribunal found no contravention of Rule 9. Treatment of Competing Arguments: The Department alleged absence of proper documents. The Tribunal rejected this allegation, noting the detailed procedural compliance and evidence submitted. Conclusion: The Tribunal held that the appellants maintained proper records and complied with Rule 9 of the CENVAT Credit Rules, 2004. d) Imposition of Penalty and Interest Legal Framework and Precedents: Penalties under Section 76 of the Finance Act, 1994 and Rule 15(3) of the CENVAT Credit Rules are imposed for wrongful availment or utilization of credit. Court's Interpretation and Reasoning: Since the Tribunal found no wrongful utilization of credit or procedural lapses, the basis for imposing penalty and interest was negated. Application of Law to Facts: The Tribunal applied the principle that penalty and interest cannot be sustained where the primary demand is not justified. Conclusion: The Tribunal implicitly set aside the penalty and interest imposed. 3. SIGNIFICANT HOLDINGS "Whereas the show-cause notice is issued for disallowance of credit for contravening of the provisions of Rule 9 of CENVAT Credit Rules, 2004, the learned commissioner proceeds to deny the credit on co-relation between input service and output service. Therefore, the impugned order is not legally sustainable." "The real test is, whether there is a nexus or integral connection with the manufacture of final products as well as the business of manufacture of final product... incurring of such expenses has unfortunately become a part of running the establishment." "In view of the above we have no hesitation in holding that the services which are utilized by the appellants have nexus with the output services provided by them. Therefore, credit is also admissible." "The submissions of the appellants are acceptable in view of the case laws cited by the learned counsel" regarding inclusion of value of services rendered by branches in Jammu & Kashmir and commission received in advance. The Tribunal conclusively held that the appellants were entitled to CENVAT credit on the disputed input services, that the denial of credit on grounds beyond the SCN was impermissible, and that valuation issues raised by the appellants were correctly decided in their favor. Consequently, the appeal was allowed with consequential relief.
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