P.V. Subba Rao ORDER
P.K. Choudhary, Member (J)
1. The instant appeal has been filed by the appellant assessee, M/s. Himadri Specialty Chemical Ltd., against demand of service tax confirmed by the learned Commissioner, Service Tax, Kolkata vide Order-in-Original dated 13.06.2016.
2. The facts of the case in brief are that the appellant is engaged in the business of manufacture of coal tar products at various manufacturing units for which they have obtained registration with jurisdictional Central Excise department for payment of central excise duty. The Registered Office of appellant is registered with Service Tax department for payment of service tax under Reverse Charge Mechanism on various input services and also as an Input Service Distributor ('ISD') for distribution of input service credit to its various manufacturing units. The appellant has not rendered any output service and therefore not liable to pay output service tax. The appellant is only liable to pay service tax under Reverse Charge Mechanism (RCM) of which credit is availed for payment of output central excise duty on final products. The present proceeding has been initiated for demand of service tax pertaining to their Registered Office in Kolkata.
Proceedings were initiated by DGCEI, Kolkata, for enquiry of foreign remittance made by appellant for availing External Commercial Borrowings and on the basis of said enquiry, Show Cause Notice dated 29.11.2013 was issued proposing demand of service tax of Rs. 53,40,800/- under RCM in respect of foreign remittance made for the period April 2009 to August 2011. The SCN also proposed disallowance of Cenvat credit of Rs. 42,87,401/- for the period March 2010 to October 2012. The learned Commissioner after following due process of law adjudicated the said SCN vide which he:
(i) dropped demand for service tax of Rs. 45,95,105/- (out of total service tax demand of Rs. 53,40,800/- pertaining to foreign remittances) along with penalty and interest;
(ii) confirmed and appropriated demand of service tax of Rs. 6,84,265/- already paid by the appellant under VCES 2013. He however set aside interest and penalty on the said amount proposed in the Corrigendum to SCN issued after hearing the assessee since not proposed in the SCN issued initially.
(iii) confirmed demand of service tax of Rs. 63,207/- in respect of foreign remittances made to International Finance Corporation (IFC) towards Out of Pocket travel expenses. Interest and penalty dropped on the said amount.
(iv) dropped proposal for recovery of Cenvat credit on input service of Rs. 2,70,401/-.
(v) confirmed demand for recovery of Cenvat credit on input service of Rs. 40,17,000/- under Rule 14 of CCR 2004 along with interest thereon in respect of services provided by Axis Bank. He however set aside penalty in respect of said amount.
(vi) imposed penalty of Rs. 10,000/- each under Section 77(1)(a) and Section 77(1)(d) of the Finance Act 1994.
3. Shri Rajeev Agarwal, Chartered Accountant appeared for the appellant and Shri S.S. Chattopadhyay, Authorized Representative, appeared for the Revenue.
4. The learned Chartered Accountant appearing for the appellant, at the outset, submitted that there are only two issues in respect of which instant appeal has been filed. Firstly, the denial of credit of Rs. 40,17,000/- on services received from Axis Bank and secondly, demand of service tax of Rs. 63,207/- on foreign remittances made to IFC for Out of Pocket Expenses. He submitted that penalty on both the above demand has been set aside by the learned Commissioner and hence not in dispute, except that general penalty of Rs. 10,000/- has been imposed each under Section 77(1)(a) and 77(1)(d) of the Finance Act, 1994.
Regarding the denial of Cenvat Credit, he submitted that in the facts of the case, the foreign loan arranged by Axis Bank for the appellant was subsequently cancelled on request of the appellant and the Bank proposed to adjust the payment made by assessee against future facility to be provided by Bank, if any. The learned Commissioner wrongly assumed that service tax has not been paid by the appellant and accordingly held that credit is not available. He submitted the denial of credit is wholly based on assumptions and presumptions that service tax has not been paid by appellant which is without any evidence adduced by the Department. He further submitted that the Bank has rendered the services of finance/credit facility for which it has charged arrangement fee on which applicable service tax has been duly paid and it is immaterial whether or not the credit/loan amount got disbursed to the appellant. He submitted that the fact that the services have been rendered by Bank for processing the loan/credit facility is not in dispute. He made an alternate submission that since the appellant is an ISD, no demand can be made upon them under Rule 14 of the Credit Rules. As per the above provision, recovery for wrongful utilisation of credit can be made from a manufacturer or provider of output service only and not an ISD. He relied on the following decisions in support of his contentions:
• Indian Oil Corporation Ltd. v. CCE., Delhi-II MANU/CE/0057/2014 : 2014 (35) STR 411 (Tri-Del.)
• Mahindra and Mahindra v. Commissioner of Service Tax, Mumbai-II (Final Order No. A/85817/2018 dated 21.03.2018)
• Kansai Nerolac Paints Ltd. v. Commissioner of GST, Mumbai Central in Final Order No. 86095-86096/2018 dated 20.04.2018
• Godrej & Boyce Mfg. Co. Ltd. [2014 TIOL-1188-CESTAT-MUM]
On the second issue pertaining to demand of service tax of Rs. 63,207/- on RCM for foreign remittances, the learned Chartered Accountant did not press on the ground taken in appeal memo in this regard considering the amount involved. He however contested the imposition of general penalty under Section 77 as legally not sustainable in view of the provisions of Section 80 of the Act.
5. On the other hand, the learned Authorized Representative while reiterating the findings made by the learned Commissioner supported the impugned order. He submitted that since credit has been availed by Registered Office of appellant which has been distributed to manufacturing locations, the credit is rightly recoverable from said office which is registered ISD. He also submitted that since loan amount has not been availed by appellant, there cannot be said to be receipt of service. He accordingly prayed that the demand be confirmed and the appeal be rejected.
6. Heard both sides and perused the appeal records.
7. In the instant case, the issue that remains to be decided by us with regard to eligibility to avail Cenvat Credit in hands of appellant on services rendered by Axis Bank and whether recovery can be made of the alleged wrong credit.
We find that the learned Commissioner in para 4.2.1 page 41 of impugned order, while referring to letter dated 19.08.2010 issued by Axis Bank, has observed that no amount of service tax has been paid by appellant for which credit has been availed. We have perused the said letter issued by the Bank which is appearing as Page No. 152 of the appeal book. We find that vide said letter, the Bank has accepted the request of assessee for cancellation of loan facility. However, there is no mention that service tax amount has been refunded back to appellant. In fact, it is specifically stated that the arrangement fee collected by the Bank would not be refunded but may be adjusted when other loan facility is made available to appellant in future. Therefore, we are of the view that the observation made by the learned Commissioner for denial of credit that service tax amount has not been paid by appellant is purely on assumption basis. Moreover, the fact that processing for loan financing has been done by the Bank is not in dispute. Therefore, the Bank has rendered the service of loan processing which has been duly received by the appellant. Had there been no rendition of service, the question of service tax levy would not have arisen.
Further, we also find that the Tribunal in case of Mahindra and Mahindra in Final Oder dated 21.03.2018 (Supra) has duly noted the contents of letter dated 10.03.2014 issued by the CBEC wherein it has been accepted by the Board that there is no legal provision in Rule 14 of the Credit Rules to recover credit from an ISD inasmuch as the said provisions stipulate recovery only from the manufacturer and the service provider. Therefore, the issue is no longer res Integra inasmuch as the various co-ordinate Bench of the Tribunal as relied by the appellant has duly held that duty demand consequent to denial of credit cannot be raised from an ISD. Respectfully following the ratio of the decisions settling the issue, the impugned demand of Rs. 40,17,000/- on the appellant which is an ISD cannot be legally sustained and hence the same is set aside.
On the other issue with regard to demand of service tax on RCM, since the appellant has chosen not to contest the issue, the demand of Rs. 63,207/- is upheld. Penalty imposed under Section 77 is however set aside by extending the benefit of Section 80 of the Act.
In view of the above discussions, the appeal is partly allowed to the extent as stated above, with consequential benefits.
(Order pronounced in the open court on 02 January 2020.)
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