2025 (6) TMI 1849 - AT - Service Tax

CENVAT Credit - input services or not - construction services - services used for construction of new factory shed - rent a cab services - gardening services - services used for canteen golf club membership services catering and caretaking services for guest house - services use for collection of payments from customers - failure of documents to prove that the Cenvat Credit taken was licit - HELD THAT - In as much as the Counsel for the appellant has requested the matter may be remanded to which the Ld. AR has no objection it is evident that both sides are ad idem that the issue need examination afresh by the Adjudicating Authority. The interests of justice will be served if the appellant is accorded an opportunity to produce all the relevant documents to substantiate its contentions as to its entitlement to avail Cenvat Credit of input services. Accordingly without disturbing the finding regarding the service tax credit to the extent it has been allowed we modify the impugned Order--in--Original and set aside the demand to the extent the cenvat credit has been disallowed to the appellant - the demand of interest and penalty imposed on the appellant also set aside. Inasmuch the demand is set aside the appropriation made towards the demand also set aside - the extent of appropriation if at all to be made is to be re-determined during the denovo proceedings - the matter is remanded back to the Jurisdictional Adjudicating Authority for denovo adjudication to that extent. Appeal allowed by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the appellant was entitled to avail and utilize Cenvat Credit on various services including construction services, rent-a-cab services, gardening services, canteen services, golf club membership services, catering and caretaking services for guest house, and services used for collection of payments from customers, during the period 2010-2011 to 2012-2013.

- Whether the services in question satisfy the definition of "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004, as applicable during the relevant period.

- Whether the appellant's failure to produce relevant documents/invoices to substantiate the credit availed justified the denial of the Cenvat Credit and consequent demand of service tax credit, interest, and imposition of penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Sections 73, 75, and 78 of the Finance Act, 1994.

- Whether the penalty imposed on the appellant was justified in view of the facts and evidence.

- Whether the matter requires remand to the Adjudicating Authority for fresh adjudication upon production of relevant documents by the appellant.

2. ISSUE-WISE DETAILED ANALYSIS

Entitlement to Cenvat Credit on Various Services:

The relevant legal framework includes Rule 2(l) of the Cenvat Credit Rules, 2004, which defines "input service" eligible for credit, and the Finance Act, 1994, particularly Sections 73, 75, and 78 dealing with recovery of credit wrongly availed, interest, and penalties.

The appellant availed Cenvat Credit on services such as construction, rent-a-cab, gardening, canteen, golf club membership, catering and caretaking services, and collection of payments from customers during 2010-2013. The department contended these services did not qualify as input services under Rule 2(l), and the appellant failed to produce documents to prove the credit was legitimately availed.

The appellant's counsel relied on precedent from the Madras High Court, which held that credit on outdoor catering and rent-a-cab services prior to 1 April 2011 was eligible as input service credit. This precedent supports the appellant's contention that at least part of the disputed credit relating to the period before April 2011 should be allowed.

The Adjudicating Authority had disallowed a substantial portion of the credit due to the appellant's failure to furnish invoices/documentary evidence. The appellant conceded this but submitted that the requisite documents have since been collected and requested remand for fresh examination.

The Court noted the appellant's willingness to produce documents and the respondent's lack of objection to remand. The Court emphasized the importance of affording the appellant an opportunity to substantiate its claim with evidence, observing that denial solely on the basis of non-production of documents at the initial stage may not be just.

Application of Law to Facts and Treatment of Competing Arguments:

The Court observed that the Adjudicating Authority's demand for service tax credit, interest, and penalty was premised on the disallowance of credit due to lack of documentary proof and the department's view that the services did not qualify as input services.

The appellant's argument, supported by judicial precedent, highlighted that certain services were eligible for credit, especially those availed prior to 1 April 2011. The appellant's concession regarding documentary deficiency was counterbalanced by the subsequent production of documents and request for remand.

The respondent did not oppose remand, indicating a shared view that a fresh adjudication with full evidence would serve justice.

The Court thus balanced the competing contentions by deciding that the interests of justice require setting aside the portion of the demand related to disallowed credit and remanding the matter for de novo adjudication.

Penalty and Interest Imposition:

The penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 78 of the Finance Act, 1994, and interest under Section 75 were imposed based on the confirmed demand of wrongly availed credit.

Since the Court set aside the demand to the extent credit was disallowed and remanded the matter, it also set aside the penalty and interest imposed on that portion, reasoning that these consequences flow from the demand itself.

Remand for De Novo Adjudication:

The Court directed the Adjudicating Authority to conduct fresh proceedings, allowing the appellant to produce all relevant documents and evidence to substantiate its entitlement to Cenvat Credit.

The Adjudicating Authority was instructed to follow principles of natural justice, including informing the appellant of any deficiencies and granting opportunities to respond before passing a fresh order.

The Court mandated completion of the adjudication within ninety days from receipt of the order and emphasized cooperation from the appellant.

3. SIGNIFICANT HOLDINGS

"We are therefore of the considered view that the interests of justice will be served if the appellant is accorded an opportunity to produce all the relevant documents to substantiate its contentions as to its entitlement to avail Cenvat Credit of input services."

"Accordingly, without disturbing the finding regarding the service tax credit to the extent it has been allowed, we modify the impugned Order--in--Original and set aside the demand to the extent the cenvat credit has been disallowed to the appellant. We also set aside the demand of interest and penalty imposed on the appellant."

"The appellant is at liberty to adduce all documents/evidence to substantiate its contentions. In case of any discrepancy/deficiency noticed in the documents/evidence adduced, the Adjudicating Authority shall intimate the same to the appellant and follow the principles of natural justice duly granting an opportunity to the appellant to present its case before passing the denovo adjudication order."

Core principles established include:

• The entitlement to Cenvat Credit must be adjudicated on the basis of evidence and documents produced by the appellant, and denial solely on initial non-production is not conclusive.
• Judicial precedents recognizing eligibility of certain services as input services prior to specified dates are relevant and must be considered.
• Penalties and interest imposed consequent to a demand must be reconsidered if the demand itself is set aside or remanded.
• Natural justice requires that the appellant be given a fair opportunity to present evidence and respond to any deficiencies before final adjudication.
• Remand for de novo adjudication is appropriate where fresh evidence is produced after the original order.

Final determinations:

• The appeal was allowed by way of remand without expressing any opinion on the substantive merits.
• The demand for service tax credit, interest, and penalty was set aside to the extent credit was disallowed.
• The matter was remitted to the Adjudicating Authority for fresh adjudication within a stipulated time frame.
• The appellant was granted liberty to produce all relevant documents and evidence to substantiate its claim.