AVAILMENT OF CENVAT CREDIT PRIOR TO SERVICE TAX REGISTRATION

[Mr. M. GOVINDARAJAN]

Rule 4 of Service Tax Rules requires a provider of output service is to register with the CENVAT excise department within a period of 30 days from the date on which the service tax is levied. Rule 3 of CENVAT credit Rules, 2004 allows a service provider to avail CENVAT credit of service tax paid on input services against the payment of service tax with the Central Government as prescribed in the rules.

The issue to be discussed in this article is whether the service tax paid on input service prior to service tax registration is eligible for an assessee with reference to decided case law.

In ‘C.Metric Solution Private Limited V. Commissioner of Central Excise, Ahamedabad’ 2012 (7) TMI 379 - CESTAT, AHMEDABAD the appellant had availed CENVAT credit of the service tax paid on input services during the period April 2008 to March 2009, after getting the service tax registration on 23.03.2009. The Department was of the view that the appellant is not eligible for CENVAT credit on the input services for the period prior to the registration granted to the appellant. The Department confirmed the demand which was also upheld by the first Appellate Authority. Before the Tribunal the appellant contended that the appellant is a Software Technology Park Unit (STP) which is not disputed by the Department. The appellant is exporting software manufactured by them. After getting the registration they have availed the CENVAT credit. The CENVAT credit was denied to them only on technical ground. The appellant relied on two judgments which are given below:

In ‘J.R. Herbal Care India Limited V. Commissioner of Central Excise, Noida’ – 2010 (3) TMI 391 - CESTAT, NEW DELHI the appellant had received the capital goods while availing SSI exemption without taking registration. CENVAT credit was taken on the capital goods for the years 2003 – 04 and 2004 – 05 but taken in the year 2005-06. This was allowed by the Tribunal. The Tribunal took a view that there is no provision in the rules that credit was not available to unregistered manufacturers. Manufacturers exempted from the registration do not cease to be a manufacturer of excisable goods. This case squarely covers the issue in this case also. Therefore, in respect of the goods manufactured during the period when the appellant was not registered, credit can be taken subsequently also. This view is further supported by the consistent stand taken by various judicial forums in the case of clandestine removals, even if the duty is paid subsequently, CENVAT credit on inputs used will be available to the assessee/manufacturer subject to the conditions that proper documents showing the payment of duty are available. In the case of SSI Units also, wherever SSI benefits have been denied, CENVAT credit has been allowed. Therefore, in this case also the action of the appellants in taking credit on 09.10.2009 has to be upheld.

In ‘Well known polyesters Limited V. Commissioner of Central Excise, Vapi’ – 2011 (1) TMI 664 - CESTAT, AHMEDABAD the appellant commenced production of Texturised Polyester Filament Yarn from July 2008. They did not take Central Excise registration and filed a declaration dated 02.6.2008 under Rule 9 of Central Excise (No.2) Rules, 2001 intimating the Deputy Commissioner that they are availing full exemption from payment of whole of Central Excise duty under Notification No.30/04-CE dated 09.7.2004. They cleared the goods for home consumption as well as exports without payment of duty of excise by availing exemption under Notification No.30/04, The rate of drawback on Texturised Polyester Filament yarn up to 31.08.2008 was 16%, therefore, the exports were made under drawback scheme up to 31.08.2008. However, with effect from 01.9.2008, the drawback rate on Texturised Polyester Filament Yarn was reduced to 2% of FOB value and hence with effect from 01.9.2008, the exports were made under DEPB scheme. The appellant obtained Central Excise Registration on 09.10.2009. They on 26.10.2009, filed a refund claim of Rs.96,34,487/- in respect of CENVAT Credit of inputs viz. POY, Antistatic Oil & Packing materials used in the manufacture of Texturised Polyester Filament Yarn exported during the period 01.11.2008 to 07.10.2009. The refund claim of CENVAT Credit on the inputs used in the manufacture of export goods was filed as per provisions of Notification No. 5/2.006 Central Excise (NT) dated 14.3.2006 and rule 5 of CENVAT Credit Rules, 2004 read with Section 11B of Central Excise Act, 1944.The refund claim was rejected by the Department mainly on the ground that refund under Rule 6 of CENVAT Credit Rules, 2004 is permissible only if the dutiable goods are exported under bond or LUT and since the appellant was availing full exemption and was not even registered with Central Excise, fully exempted goods were not exported under bond or LUT, the refund is not permissible. The other ground for rejection of the refund claim is that the appellant was not registered with Central Excise, therefore, they were not eligible for taking the CENVAT Credit and hence question of refund does not arise. It has also been held that the appellant obtained Registration only on 09.10.2009 and opted for payment of duty under Notification No.30/2004-CE dated 09.7.2004. Therefore, as per provision of Rule 3(2) of CENVAT Credit Rules, 2004, they are eligible for only transitional CENVAT credit from 09.10.2010 on the inputs and inputs contained in final products in stock as on 09.10.2010. Therefore, there is no question of allowing refund of CENVAT credit on the inputs used in the manufacture of the goods exported prior to 09.10.2010. The appeal filed by the appellants was also rejected. The appellant, therefore, filed the present appeal before the Tribunal. The appellants submitted the following before the Tribunal:

•             Central Excise registration is not necessary for availing CENVAT credit since it is the manufacturer who is eligible for CENVAT credit as per Rule 3 of CENVAT Credit Rules, 2004.

•             there is no time limit for taking CENVAT credit and therefore action of taking credit on 09.10.2009 on the inputs used in the manufacture of exported Texturised Polyester Filament Yarn during the period from 01.11.2008 to 07.10.2009 is perfectly in order;

•             The provisions of Rule 6 of CENVAT Credit Rules, 2004 are not attracted in respect of the exported goods;

•             There is no dispute about the fact that Texturised Polyester Filament Yarn has been exported and duty has been paid on the inputs used in the manufacture.

•             The decision of the adjudicating authority that appellant was eligible only for transitional CENVAT credit on the inputs in stock as on 09.10.2009 i.e. the date of issue of registration certificate, is also not correct.

The Tribunal held that verification of the records would also show that appellant had cleared the

goods under Central Excise seal for export. In the examination report in respect of two sample consignments, it has been certified by the Central Excise Officers -"further verified that benefit of CENVAT credit under CENVAT Credit Rules, 2002 has been availed". This shows that appellants did have an intention to avail CENVAT credit and it was only a clerical lapse due to which failure to obtain registration and make proper claims has arisen. Further, it is also to be noted that refund were made only after obtaining registration. In fact, it is the appellants who have suffered the loss because of the delay in obtaining registration and not exporting the goods under bond, even though appellant had taken a decision to avail CENVAT credit and indicated the same at the time of removal. It is strange to note that Central Excise Officers have certified the availment of CENVAT credit even though the appellant was not registered and they had not made any verification whatsoever with regard to availment of CENVAT credit. Purpose of this note in the examination report is to ensure that the Central Excise officers verify the input/output ratio, ensure that inputs have been received under proper documents and utilization records have been maintained properly. Therefore, we can definitely say that there is contributory mistake on the part of Central Excise officers which has led to this situation.

The Department contended that the appellants could not have availed CENVAT credit before the registration as provided in Rule 3 of CENVAT Credit Rules, 2004. During the disputed period the appellants has not provided or received taxable service as they were not registered with the Department.

The Tribunal analyzed the decisions of the judgments discussed in the above paras. The Tribunal held that as per the decisions the appellant is eligible to avail CENVAT credit of the service tax paid on input services after getting registration. In this case it is recorded that the appellant has shown or recorded the service tax paid on input services in a register which is considered as CENVAT account. If the appellant is eligible for CENVAT credit, post registration, this availment or showing account being credited by the service tax paid on input services, but not availing the same for the purpose of discharge of duty, would be more or less the same or an identical situation to indicate that as STP appellant is eligible for refund of unutilized credit.