Allowability of input cenvat on service tax
This query is : Resolved
Guest
Guest
(Querist)
02 October 2012
Client Providing Commission Agent Service (BAS) with HO at Kolkata and 6 Branch Offices. He is paying Service Tax since the date of Applicability on all the amount received against Bills raised (Including Service Provided from Branch). He is following Centralised accounting systems (But Registration taken for HO only). In the last months Audit Party of Service Tax Audited his account for 2007-08 to 2010-11, Since client having branches at different places and availed Input Cenvat Credit on Telephone / Mobile Bills at that Branches which was not registered nor client having the centralised registration, so all the Cenvat Input of Service Tax will be Disallowed. even we had paid on the Output Service Tax on the Services provided from that Branches. Need Case law and Opinion to defend the case. Thanks in Advance.
02 October 2012
Have you informed in any manner about the branches to the department ?
14 July 2024
In your client's case, the issue revolves around the availment of Cenvat credit on input services at branches that were not separately registered under Service Tax rules, despite the services being provided and taxed accordingly at those branches. Here’s how you can approach defending this case:
### Understanding the Issue:
1. **Centralized Registration and Input Tax Credit (Cenvat Credit)**:
- Your client has a Head Office (HO) registered for Service Tax purposes, but not the branch offices.
- Input services like telephone/mobile bills were utilized at the branches where services were provided, and Service Tax was paid on the output services at these branches.
2. **Audit Findings**:
- During the Service Tax audit, it was noted that Cenvat credit was availed at branches without registration, leading to a potential disallowance of these credits.
### Legal Position and Defense Strategy:
1. **Cenvat Credit Rules**:
- As per the Cenvat Credit Rules, 2004, credit can generally be availed by a registered person on input services used in the course of providing output services. The rules require that inputs or input services should be used in or in relation to the manufacture of final products or for providing output services.
2. **Case Law and Precedents**:
- **Landmark Case**: The case of **Larsen & Toubro Ltd. vs. CCE** (2015) is often cited in similar disputes. In this case, the principle of commercial and economic reality was emphasized, where Cenvat credit was allowed on services used for providing output services, even if the premises weren’t registered under Service Tax, as long as services were actually provided.
3. **Centralized Accounting System**:
- Your client follows a centralized accounting system where all revenues and expenses, including input services, are accounted for at the HO level. This indicates that the credit was utilized for the business activities of providing taxable services.
4. **Submission of Evidence**:
- Prepare documentation showing the linkage between the input services (telephone/mobile bills) availed at the branches and the output services provided.
- Highlight that despite the lack of branch registrations, the services were correctly taxed and accounted for under the centralized system.
5. **Taxable Event and Economic Reality**:
- Emphasize that the taxable event under Service Tax is the provision of taxable services, and your client has correctly discharged the Service Tax liability on services provided from all branches.
### Conclusion:
Given the circumstances, your defense should focus on demonstrating that the Cenvat credit availed was for input services directly related to the provision of taxable services, irrespective of the registration status of the branch offices. Use the principles laid down in relevant case laws, especially emphasizing commercial and economic reality in service delivery.
It’s advisable to consult with a tax lawyer or a chartered accountant experienced in Service Tax matters to craft a robust defense strategy based on the specific facts and documentation available in your client's case. They can provide further insights and tailor the defense to maximize the chances of a favorable outcome in the audit proceedings.
### Understanding the Issue:
1. **Centralized Registration and Input Tax Credit (Cenvat Credit)**:
- Your client has a Head Office (HO) registered for Service Tax purposes, but not the branch offices.
- Input services like telephone/mobile bills were utilized at the branches where services were provided, and Service Tax was paid on the output services at these branches.
2. **Audit Findings**:
- During the Service Tax audit, it was noted that Cenvat credit was availed at branches without registration, leading to a potential disallowance of these credits.
### Legal Position and Defense Strategy:
1. **Cenvat Credit Rules**:
- As per the Cenvat Credit Rules, 2004, credit can generally be availed by a registered person on input services used in the course of providing output services. The rules require that inputs or input services should be used in or in relation to the manufacture of final products or for providing output services.
2. **Case Law and Precedents**:
- **Landmark Case**: The case of **Larsen & Toubro Ltd. vs. CCE** (2015) is often cited in similar disputes. In this case, the principle of commercial and economic reality was emphasized, where Cenvat credit was allowed on services used for providing output services, even if the premises weren’t registered under Service Tax, as long as services were actually provided.
3. **Centralized Accounting System**:
- Your client follows a centralized accounting system where all revenues and expenses, including input services, are accounted for at the HO level. This indicates that the credit was utilized for the business activities of providing taxable services.
4. **Submission of Evidence**:
- Prepare documentation showing the linkage between the input services (telephone/mobile bills) availed at the branches and the output services provided.
- Highlight that despite the lack of branch registrations, the services were correctly taxed and accounted for under the centralized system.
5. **Taxable Event and Economic Reality**:
- Emphasize that the taxable event under Service Tax is the provision of taxable services, and your client has correctly discharged the Service Tax liability on services provided from all branches.
### Conclusion:
Given the circumstances, your defense should focus on demonstrating that the Cenvat credit availed was for input services directly related to the provision of taxable services, irrespective of the registration status of the branch offices. Use the principles laid down in relevant case laws, especially emphasizing commercial and economic reality in service delivery.
It’s advisable to consult with a tax lawyer or a chartered accountant experienced in Service Tax matters to craft a robust defense strategy based on the specific facts and documentation available in your client's case. They can provide further insights and tailor the defense to maximize the chances of a favorable outcome in the audit proceedings.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Required to submit form 10IEA_fy 24-25
- Error whilst validation
- ERRROR IN ITR2 FILING
- Rebate u/sec. 87A manually
- ITR2 Not Validating Short Term Capital Loss as value less than zero
- GSTR ITC relationship
- Ewaybill Material value reg
- Which ITR application
- SFT Mismatch
- SALES MADE THROUGH E COMMERCE OPERATOR 9(5)
- Money lost in stock market related scam
- Allowability of itc on building materials etc for resorts
- HSN details in Table 12 for gstr1
- Profit transfer entry from one branch to head office branch
- RCM on affiliation fees paid to foreign educational institution
- E proceeding query u/s 143(2) for a.y. 24.25
- REQUEST FOR HELP IN TALLY THE BALANCE SHEET
- Non- payment of GST on supply of services- reg
- Accumulated surplus exceeding 15%
- Different GST Number MEESHO
Trending Online Classes
CAclubindia
