Assessee not liable to reverse CENVAT credit on amount written off as bad debts

The CESTAT Chandigarh has ruled that companies are not required to reverse CENVAT credit on amounts written off as bad debts. The tribunal found no provision in the CENVAT Credit Rules or Finance Act that mandates such reversal when consideration for services is not received. Consequently, the order demanding reversal of CENVAT credit for bad debts and denying credit on certain IRCTC services was set aside.

The Hon'ble CESTAT Chandigarh in SBI Cards and Payments Services Pvt. Ltd. v. Commissioner of Service Tax, Delhi [Service Tax Appeal No. 55319 of 2013 with 50192 of 2015 dated January 4, 2022] set aside the order confirming the demand for reversal of CENVAT credit on the amount written off as bad debts. Further, held that there is no such provision in the CENVAT Credit Rules, 2004 ("the CENVAT Credit Rules") or in the Finance Act, 1994 ("the Finance Act") for reversal of CENVAT credit for the services provided for which no consideration for service provided is received by an assessee.

Facts

SBI Cards and Payments Services Pvt. Ltd. ("the Appellant") is engaged in providing banking and other financial services, credit card, debit card etc., and business support services. The Appellant received various input services for providing their output services and availed CENVAT credit thereon. In some cases, the Appellant could not recover certain payments from their customers and wrote them off as bad debts in their financial records. The Appellant also entered into a co-brand credit card agreement with Indian Railway Catering and Tourism Corporation Limited ("IRCTC") to launch co-brand credit card. The Appellant paid fixed charges to IRCTC for every subscriber of credit card and in turn the IRCTC agreed to promote the credit card by modifying its website, through press advertisements and related collaterals. IRCTC raised invoices on the Appellant for the said purpose and the Appellant availed the CENVAT credit of service tax paid thereon.

This appeal has been filed against the Order-in-Original dated March 31, 2017 ("the impugned order") confirming the demand for reversal of CENVAT credit for the period April 2009 to March 2012, on the amount written off as bad debts and on advertisement & sales promotion services and denying CENVAT credit on input services received from IRCTC by classifying them as catering services.

Issue

Whether the Appellant is liable to reverse the CENVAT credit on the amount written off as bad debts and on advertisement & sales promotion services?

Held

The Hon'ble CESTAT Chandigarh in Service Tax Appeal No. 55319 of 2013 with 50192 of 2015 dated January 4, 2022 held as under:

• Observed that, the services on which the Appellant has taken CENVAT credit are 'input services' in terms of Rule 2(l) of the CENVAT Credit Rules and is a provider of output service. Therefore, in terms of Rule 3 of the CENVAT Credit Rules, the Appellant is entitled to avail such credit on input services.
• Noted that, there is no such provision in the CENVAT Credit Rules, or in the Finance Act for reversal of CENVAT credit for the services provided for which no consideration for service provided is received by the Appellant.
• Set aside the impugned order.
• Held that, the Appellant has correctly availed the CENVAT credit on input services although the amount of non-recoverable taxable service has been written off by the Appellant for the period prior to April 01, 2011 and the Appellant cannot be liable for reversal of CENVAT credit for the services provided after April 01, 2011 on which the Appellant has paid the service tax.
• Further held that, w.r.t. denial of the CENVAT credit on the invoices issued by IRCTC, it does not prescribe that IRCTC has provided any 'catering service' to the Appellant. In fact, the lower authority has fell in error holding that IRCTC is providing only 'catering service' and the denial of CENVAT credit is only on the basis of assumption and presumption. Thus, the Appellant is entitled for CENVAT credit on the services provided by IRCTC as advertisement services.