2017 (9) TMI 87 - AT - Service Tax

CENVAT credit - royalty - Revenue entertained a view that in terms of the High Court order the two entities become one and as such there is no warrant for payment of royalty by the appellant to the brand owner and the invoice for such payment become infractuous for the purose of availing that credit - Held that - The financial transaction between two legal entities as existing during the relevant time were valid and legal and the same does not become infractuous simply because these legal entities were amalgamated later, though effective date for record has been mentioned as 01.04.2006 - credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Dispute over admissibility of credit on service tax paid for royalty charges post amalgamation of two entities.

Analysis:
The appellant, engaged in manufacturing detergent products, paid royalty charges with service tax for using a brand name before merging with the brand owner pursuant to an amalgamation order by the High Court. The Revenue contended that post-amalgamation, the payment of royalty became unnecessary, rendering the credit availed on service tax inadmissible. The appellant argued that the High Court order approving the amalgamation retrospectively did not affect their eligibility for credit during the material time when two separate legal entities existed. The appellant also highlighted duplicate demands on the same credit issued to their Kanpur Head Office.

The Appellate Tribunal observed that the dispute arose due to the retrospective approval of amalgamation by the High Court. However, during the material time, the appellant had legally paid service tax on taxable services and availed credit in accordance with the Cenvat Credit Rules, 2004. The Tribunal noted that the eligibility of credit on merit was not in dispute and questioned how a later High Court order could invalidate the tax paid invoice. The Tribunal deemed the reasoning of the lower authorities as legally and factually unsustainable, emphasizing that the payment of service tax and availing credit during the material time were valid, regardless of the subsequent amalgamation. The Tribunal rejected the argument that there were no two legal entities during the relevant time, stating that the financial transactions between the entities were legal and valid, even if amalgamated later.

In conclusion, the Tribunal found no merit in the Revenue's contentions and set aside the impugned order, allowing the appeal in favor of the appellant.