2025 (4) TMI 886 - AT - Service Tax

CENVAT Credit on Service Tax paid on cargo handling services provided by a third party (DPCL) in respect of imported coal sold on a high sea sales basis - extended period of limitation - HELD THAT - The appellant is engaged in trading of coal. In case of imported coal sometimes the appellant sells whole or part of the consignment on high sea sales basis. Even for the coal sold on High Sea sales basis the appellant has undertaken the responsibility of clearance of the imported cargo on behalf of the high sea sales purchasers. Wen the appellant sold the imported goods on high sea sales basis the required cargo handling services were provided by DPCL on their behalf. It is observed that against such services pertaining to high sea sales also DPCL used to raise service bills upon the appellant which they paid and subsequently the appellant availed CENVAT Credit of the Service Tax paid on the said amount. The Cargo Handling charges were paid by the appellant to DPCL on the basis of the cargo handling services rendered by them to SUPL / appellant in the port area. Thus we find that DPCL has rendered cargo handling services to the appellant and the appellant has availed the Cevat credit of service tax paid on the cargo handling services received by them. The high sea sales purchasers have no agreement with DPCL for clearance of the cargo in the port area - there are no merit in the observations of the ld. adjudicating authority in the impugned order that in respect of high sea sales purchasers the cargo handling services have been provided by DPCL to the high sea sales purchasers since the purchasers have no agreement with DPCL for rendering of cargo handling service in the port area. The appellant has paid the said bills along with Service Tax to DPCL for the cargo handling services rendered and have availed CENVAT Credit on the basis of the bills so raised by DPCL to the appellant. Therefore the appellant is eligible to avail CENVAT Credit and utilize the same for the purpose of payment of their output services. Thus the impugned order disallowing the credit availed and utilized by the appellant is legally not sustainable. Extended period of limitation - HELD THAT - The demands have been raised on the basis of scrutiny of their records viz. CENVAT Credit documents and S.T.-3 Returns filed. Since the appellant have not suppressed any information from the Department the demand raised in this case by invoking extended period of limitation is not sustainable. Conclusion - i) The demand of Rs.5, 10, 82, 374/- confirmed in the impugned order under Rule 14 of the CENVAT Credit Rules 2004 read with Section 73(2) of the Finance Act 1994 is set aside. ii) Since the availment of the above credit is found to be legal and proper the demand of interest and imposition of penalty are set aside. iii) The demand of Service Tax of Rs.71, 337/- along with interest of Rs.10, 921/- confirmed in the impugned order is upheld. Appeal disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the appellant is entitled to avail CENVAT Credit on Service Tax paid on cargo handling services provided by a third party (DPCL) in respect of imported coal sold on a 'high sea sales' basis;

(b) Whether the cargo handling services provided by DPCL pertain to the appellant or to the high sea sales purchasers, and accordingly, who is the rightful recipient of such services for the purpose of availing CENVAT Credit;

(c) Whether the demand for disallowance of CENVAT Credit, interest, and penalty raised by the Revenue is sustainable in light of the appellant's contention that there was no suppression of facts and the relevant returns were filed regularly;

(d) Whether the Show Cause Notice issued for the period 2011-12 to 2013-14 is barred by limitation;

(e) The correctness of the confirmed demand of Service Tax and interest amounting to Rs.71,337/- and Rs.10,921/- respectively, which the appellant has admitted and not contested.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Entitlement to CENVAT Credit on cargo handling services in high sea sales context

Relevant legal framework and precedents: The entitlement to CENVAT Credit is governed by Rule 14 of the CENVAT Credit Rules, 2004 read with Section 73(2) of the Finance Act, 1994. The principle is that the recipient of taxable input services is entitled to avail credit of Service Tax paid on such services. The appellant cited the Tribunal's decision in M/s. Vodafone Mobile Services Limited v. Commissioner of Service Tax, New Delhi, which supports the proposition that the recipient of the service is entitled to credit even if the service is rendered through an intermediary.

Court's interpretation and reasoning: The Tribunal examined the contractual arrangement between the appellant and DPCL, specifically the 'Cargo Handling Agreement'. The agreement clearly establishes that DPCL provides cargo handling services to the appellant, including for consignments sold on a high sea sales basis. The contract defines 'Cargo Handling Charges' as charges payable by the appellant (SUPL) to DPCL for services and facilities at the terminal.

The Tribunal noted that the high sea sales purchasers have no direct agreement with DPCL and that the appellant undertakes the responsibility of clearance of the imported cargo on behalf of the purchasers. The cargo handling services are thus rendered to the appellant, not directly to the purchasers.

Key evidence and findings: The agreement clauses reproduced in the order demonstrate DPCL's obligations to provide services to the appellant, including custody, stacking, and loading of cargo. DPCL raises bills to the appellant for these services, which the appellant pays and on which it avails CENVAT Credit.

Application of law to facts: Since the appellant is the recipient of the cargo handling services and has paid for them, it is entitled to avail CENVAT Credit under the relevant provisions. The Revenue's contention that the services were provided to the high sea sales purchasers and not to the appellant was found to be incorrect because the purchasers lack any contractual relationship with DPCL.

Treatment of competing arguments: The Revenue argued that the credit was irregular as the services were for the purchasers, not the appellant. The Tribunal rejected this, emphasizing the contractual terms and the absence of any agreement between DPCL and the purchasers. The appellant's reliance on the Vodafone case was accepted as supportive precedent.

Conclusions: The Tribunal held that the appellant rightly availed the CENVAT Credit on the cargo handling services and that the disallowance of credit by the adjudicating authority was legally unsustainable.

Issue (c) & (d): Validity of demand, interest, penalty, and limitation

Relevant legal framework: Section 75 of the Finance Act, 1994 provides for interest on delayed payment of Service Tax, and Section 78 prescribes penalty provisions. Limitation provisions for issuance of Show Cause Notices and demands are also relevant.

Court's interpretation and reasoning: The Tribunal observed that the appellant had regularly filed S.T.-3 Returns disclosing the CENVAT Credit availed. There was no suppression of facts or misinformation. The demand was raised based on scrutiny of records and returns.

Key evidence and findings: The appellant's submission that the Show Cause Notice dated 24.09.2015 covered the entire period from 2011-12 to 2013-14 and that no concealment was involved was accepted. The Tribunal found that invoking the extended period of limitation was not justified.

Application of law to facts: Since the appellant had disclosed the credit in returns and did not conceal information, the extended period for raising demand under Section 73(2) could not be invoked. Consequently, the demand of interest and penalty was not sustainable.

Treatment of competing arguments: The Revenue maintained the demand and penalty on the ground of irregular credit availment. The Tribunal rejected this due to the absence of suppression or fraud.

Conclusions: The Tribunal set aside the demand of interest and penalty imposed on the appellant.

Issue (e): Demand of Service Tax and interest admitted by appellant

The appellant did not contest the confirmed demand of Service Tax of Rs.71,337/- and interest of Rs.10,921/-. The Tribunal accordingly upheld this demand.

3. SIGNIFICANT HOLDINGS

"We find that DPCL has rendered cargo handling services to the appellant and the appellant has availed the CENVAT credit of service tax paid on the cargo handling services received by them. The high sea sales purchasers have no agreement with DPCL for clearance of the cargo in the port area. The clearance of the coal sold by the appellant at the port on behalf of the purchasers is a condition of sale and the appellant executed the agreement as per the contract entered by them with DPCL."

"Therefore, we are of the opinion that the appellant is eligible to avail CENVAT Credit and utilize the same for the purpose of payment of their output services. Thus, we hold that the impugned order disallowing the credit availed and utilized by the appellant is legally not sustainable."

"Since the appellant have not suppressed any information from the Department, we hold that the demand raised in this case by invoking extended period of limitation is not sustainable."

"Since the credit availed by the appellant is not found to be irregular, the demand of interest and imposition of penalty are not sustainable and accordingly, we set aside the same."

Core principles established include:

- The recipient of taxable input services under a valid contract is entitled to avail CENVAT Credit, even when the goods are sold on a high sea sales basis and services are rendered by a third party on the recipient's behalf.

- The absence of a direct agreement between the service provider and the high sea sales purchaser negates the Revenue's claim that the purchaser is the recipient of the service.

- Regular filing of returns and absence of suppression preclude invocation of extended limitation period for demand.

- Interest and penalty demands cannot be sustained where credit availment is found to be legitimate and no malafide or concealment is established.

Final determinations:

(i) The disallowance of CENVAT Credit of Rs.5,10,82,374/- was set aside;

(ii) The demand of interest and penalty was set aside;

(iii) The confirmed demand of Service Tax of Rs.71,337/- along with interest of Rs.10,921/- was upheld as not contested by the appellant.