SERVICE TAX
RECENT CASE LAWS
Cenvat credit on inputs/ input services received by an output service provider prior to obtaining Service tax registration is admissible
Actis Advisers Pvt. Ltd. Vs. CST. -Delhi-IV [(2014) 9 TMI 182 - CESTAT New Delhi]
Actis Advisers Pvt. Ltd. (“the Appellant”) is engaged in providing ‘Management Consultancy Services’ (“output service”) mainly to their overseas clients. Earlier, the Appellant’s Bombay branch had Service tax registration and subsequently when the Delhi branch started operating, they obtained Centralised registration. For some period, there was no separate registration till the Centralized registration was obtained in respect of Delhi branch.
The Appellant availed Cenvat credit in respect of various input services used for providing their output service. Since they could not utilize the accumulated Cenvat Credit in respect of input services for payment of Service tax on their domestic transactions, in accordance with the Provisions of Rule 5 of the Cenvat Credit Rules, 2004 read with Notification No. 5/2006-CE (NT) dated March 14, 2006, they filed claims for cash refund of Rs. 32,54,141/- of the accumulated Cenvat Credit for October, 2009 to December, 2009 quarter and another refund claim for an amount of Rs. 12,20,506/- for January, 2010 to March, 2010 quarter.
The Jurisdictional Assistant Commissioner by two separate orders sanctioned refund of Rs. 11,89,402/- out of claimed amount of Rs. 12,20,506/- and sanctioned refund of Rs. 32,54,077/- out of the claimed amount of Rs. 32,54,141/-. However, in both the cases the Assistant Commissioner ordered adjustment of interest on wrongly availed Cenvat credit which was to be adjusted against the refund claims. The interest was charged on the ground that certain amount of Cenvat credit has been taken on the basis of the service provider’s invoices, while during that period the Appellant did not have Service tax registration and that they became eligible for Cenvat credit on the basis of those invoice only on the date the Delhi office of the Appellant obtained Centralized registration. The Department alleged that unless an assessee has Service tax or Central Excise registration, he would not be eligible for Cenvat credit in respect of input services or inputs received during the relevant period.
On appeals being filed to Commissioner (Appeals), the same were dismissed. Against the orders of Commissioner (Appeals), the Appellant preferred an appeal to the Hon’ble CESTAT, Delhi. The Appellant relied upon the decision in the case of C. Metric Solution Pvt. Ltd. Vs. CCE,Ahmadabad [2012(28) STR-460 (Tri.Ahmd.)](“The Metric Solution case”) and Well Known Polyesters Ltd. Vs. CCE [2012(25) STR-411 (Tri. Ahmd.)] and pleaded that when there is no dispute about receipt of the input services in respect of which Cenvat credit has been taken, then Cenvat Credit cannot be denied merely because the Appellant had not taken Centralized Registration at Delhi for the period when the service were received.
The Hon’ble CESTAT, Delhi also relied upon the decision in the Metric Solution case and held that Cenvat credit in respect of inputs/ input services received by an output service provider during the period prior to his obtaining Service tax registration is admissible and denial of Cenvat Credit on this ground is not correct.
Reimbursement expenses aren’t includible in assessable value of services when bills are in the name of service recipient
Venkatesh Merchantiles (P.) Ltd. Vs. Commissioner of Central Excise & Service Tax, Bhopal [(2014) 47 taxmann.com 129 (New Delhi – CESTAT)]
Venkatesh Merchantiles (P.) Ltd (“the Appellant”) are engaged in providing taxable services of Clearing and Forwarding Agent (“C&F Agent services”) taxable under Section 65(105)(j) of the Finance Act, 1994 (“the Finance Act”)read with Section 65(25) thereof. For providing C&F Agent services, the Appellant have entered into an agreement with various cement Companies (“the clients”). In terms of the agreement, the Appellant was responsible for maintaining godowns at the cost of the clients for the storage of the goods and unloading the cements at railway station/godown and its transportation to various dealers, stockiest as per the directions of the clients. The Appellant was receiving per metric ton amount for these services along with reimbursement of expenses for arrangement of transport, loading and unloading of cement at rack point (railway station) and at godown and payment of godown rent.
The Department alleged for inclusion of amounts being reimbursed in the assessable value and adjudicated that the activity of arranging loading and unloading of goods at the Rake point as well as at the godown, arranging transportation of goods to dealer/stockiest, and paying godown rent is an integral part of the service provided by the Appellant to their customers and hence, the expenses incurred on these activities reimbursed to the Appellant by their clients would be includible in the assessable value in terms of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 (“the Valuation Rules”). The Department relied on the decision in the case of Sri Bhagavathy Traders Vs. CCE [(2011) 33 STT 1] wherein it was held that expenses incurred by the C&F Agent which were reimbursed to them by their principals would be includible in the assessable value unless their clients were under legal obligation to reimburse those expenses in terms of agreement.
The Appellant pleaded that the godown rent, charges for arranging loading and unloading of the goods, etc., were being reimbursed by their principals on actual basis and the Appellant acted only as pure agent. Further, bills were also in name of principal or not in name of the Appellant. Hence, these charges cannot be treated as the amount received for the services provided and were excludible from value under Rule 5(2) of the Valuation Rules. Even otherwise, Rule 5(1) of the Valuation Rules cannot be relied upon to tax reimbursements in view of judgment in the case of Intercontinental Consultants & Technocrats (P.) Ltd. Vs. Union of India [(2012) 38 STT 75] (“the Intercontinental case”) holding said Rule 5(1) as ultra vires.
The jurisdictional Addl. Commissioner rejected the contentions of the Appellant and confirmed Service tax demand of Rs. 9,67,244 /- against the Appellant along with interest and penalty. On appeal being filed to the Commissioner (Appeals), the same was dismissed. Being aggrieved, the Appellant preferred an appeal before the Hon’ble CESTAT, Delhi.
The Hon’ble CESTAT, Delhi held that in terms of agreement, principals were required to maintain godown and hence, principals were liable to pay godown rent and the Appellant acted only as their agent. Similarly, bills of labour contractors for arranging loading and unloading and bills of transporters were in name of principals and not in name of assessee. Hence, payment against these bills was made by the Appellant acting as pure agent on behalf of principal. Therefore, these expenses would not be includible in assessable value.
It was further held by the Hon’ble Tribunal that Rule 5 of the Valuation Rules on the basis of which the Department sought to tax reimbursements has been struck down by Delhi High Court as ultra vires to provisions of Section 67 of the Finance Act in its judgment in the Intercontinental case. Hence, reimbursement expenses cannot be includible in assessable value of taxable services provided by the Appellant.
Input service credit is available to service receiver even when service provider had deposited the Service tax belatedly
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