2025 (6) TMI 1589 - AT - Service Tax

Rate of service tax - advances received during the disputed period from April 2006 to September 2006 - taxable at the rate of 10.2% or 12.24%? - Denial of cenvat credit on various input services utilized by the appellant. Rate of service tax - advances received during the disputed period from April 2006 to September 2006 - taxable at the rate of 10.2% or 12.24%? - HELD THAT - As per Rule 4A of the Service Tax Rules 1994 the liability arises on the date of invoice or date of payments whichever is earlier and in the instance case the rate of tax on the date of receipt of advances prior to 18.04.2006 was @10.2% and the appellant had rightly discharged his liability and therefore the impugned order to this extent needs to be set aside. Denial of cenvat credit on various input services utilized by the appellant - HELD THAT - With regard to eligibility of utilisation of cenvat credit as rightly pointed out by the appellant the denial of cenvat credit utilisation cannot be sustained inasmuch as the eligibility has not been questioned hence the order confirming the same is devoid of merit. Conclusion - The appellant had correctly paid service tax at 10.2% on advances received prior to 18.04.2006 and at 12.24% thereafter and is entitled to cenvat credit on eligible input services. The impugned order is set aside and the appeal is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the appellant was liable to pay service tax at the rate of 10.2% or 12.24% on the advances received during the disputed period from April 2006 to September 2006;

(b) Whether the appellant was entitled to avail and utilize cenvat credit on input services such as film processing charges, sound engineering services, costume designer services, etc., used for rendering output services;

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Rate of Service Tax Applicable on Advances Received

Relevant Legal Framework and Precedents: The applicable provisions were Section 65(78), 65(79), and 65(105)(zb) of the Finance Act, 1994, and Rule 4A of the Service Tax Rules, 1994. Rule 4A(1) stipulates that service tax liability arises on the date of invoice or date of payment, whichever is earlier. Prior to 18.04.2006, service tax was levied at 10.2%, and from 18.04.2006 onwards, the rate was increased to 12.24%. The Point of Taxation Rules, introduced in 2011, clarify the manner of payment of service tax but were not applicable during the disputed period.

Court's Interpretation and Reasoning: The Commissioner (Appeals) held that service tax at 12.24% was applicable on payments received after 18.04.2006, even if the billing was done prior to that date. However, the Tribunal noted that this finding was made without evidence proving that payments were received after 18.04.2006. The appellant submitted detailed statements showing that service tax at 10.2% was discharged on advances received before 18.04.2006, and service tax at 12.24% was paid on payments received on or after 18.04.2006. The appellant also communicated this position to the Revenue by letter dated 10.11.2007.

Key Evidence and Findings: The appellant produced detailed tabulated data of invoices, advance amounts, dates of receipt of payments, and corresponding service tax amounts paid. This data demonstrated compliance with the applicable tax rates based on the date of receipt of advances.

Application of Law to Facts: Applying Rule 4A(1), which mandates that service tax liability arises on the date of invoice or payment, whichever is earlier, the Tribunal concluded that the appellant correctly discharged service tax at 10.2% for advances received prior to 18.04.2006 and at 12.24% for payments received thereafter.

Treatment of Competing Arguments: The Revenue's argument that tax at 12.24% was payable on payments received after 18.04.2006, regardless of invoice date, was rejected due to lack of evidence. The appellant's detailed records and prior disclosures were accepted as proof of correct tax payment.

Conclusion: The Tribunal set aside the impugned order to the extent of demand relating to service tax on advances, holding that the appellant was not liable to pay service tax at 12.24% on advances received prior to 18.04.2006 but had correctly paid at 10.2%.

Issue 2: Denial of Cenvat Credit on Input Services

Relevant Legal Framework and Precedents: The eligibility to avail cenvat credit is governed by the Cenvat Credit Rules, 2004. Input services such as film processing charges, sound engineering services, and costume designer services qualify as input services for the appellant's output service of providing photography services for T.V. commercials.

Court's Interpretation and Reasoning: The Commissioner (Appeals) denied cenvat credit on the ground that the appellant had not furnished a list of input services. However, the Tribunal observed that the Revenue had not questioned the appellant's eligibility or entitlement to cenvat credit under the Rules. The denial based solely on procedural non-compliance was found unsustainable.

Key Evidence and Findings: The appellant asserted that the input services were legitimately used for rendering taxable output services and thus qualified for cenvat credit. No substantive challenge was raised by the Revenue on the nature or use of these input services.

Application of Law to Facts: Since eligibility was not disputed and input services were clearly connected to the output service, the Tribunal held that denial of cenvat credit was not justified.

Treatment of Competing Arguments: The Revenue's argument rested on procedural grounds rather than substantive eligibility, which the Tribunal did not uphold.

Conclusion: The Tribunal set aside the denial of cenvat credit and held that the appellant was entitled to utilize cenvat credit on the input services in question.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"As per the above Rules, the liability arises on the date of invoice or date of payments whichever is earlier and in the instance case, the rate of tax on the date of receipt of advances prior to 18.04.2006 was @10.2% and the appellant had rightly discharged his liability and therefore, the impugned order to this extent needs to be set aside."

"With regard to eligibility of utilisation of cenvat credit as rightly pointed out by the appellant, the denial of cenvat credit utilisation cannot be sustained inasmuch as the eligibility has not been questioned, hence, the order confirming the same is devoid of merit."

Core principles established include:

(a) Service tax liability on advances is governed by Rule 4A of the Service Tax Rules, 1994, and the applicable rate is the rate prevailing on the date of receipt of payment or invoice, whichever is earlier;

(b) Mere procedural lapses such as non-furnishing of a list of input services do not justify denial of cenvat credit if eligibility under the Cenvat Credit Rules, 2004, is not disputed;

(c) The burden lies on the Revenue to produce evidence to support claims of incorrect payment or non-payment of service tax at the correct rate.

Final determinations were that the appellant had correctly paid service tax at 10.2% on advances received prior to 18.04.2006 and at 12.24% thereafter, and was entitled to cenvat credit on eligible input services; consequently, the impugned order confirming demand and denying credit was set aside and the appeal allowed with consequential relief.