Himadri Speciality Chemicals and Industries Limited Vs. Principal Commissioner of Service Tax-I, Kolkata - (Customs, Excise and Service Tax Appellate Tribunal) (02 Jan 2020)

Duty demand consequent to denial of credit cannot be raised from an Input Service Distributor

MANU/CK/0002/2020

Service Tax

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. 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.

In the instant case, the issue that is to be decided is 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.

The learned Commissioner in para 4.2.1 of impugned order, while referring to letter dated 19th August, 2010 issued by Axis Bank, has observed that no amount of service tax has been paid by Appellant for which credit has been availed. 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, 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, the Tribunal in case of Mahindra and Mahindra v. Commissioner of Service Tax has duly noted the contents of letter dated 10th March, 2014 issued by the CBEC wherein it has been accepted by the Board that there is no legal provision in Rule 14 of the Cenvat Credit Rules, 2004 to recover credit from an ISD as the said provisions stipulate recovery only from the manufacturer and the service provider. Therefore, the issue is no longer res Integra 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. In view of 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 of Finance Act, 1994 is however set aside by extending the benefit of Section 80 of the Act. The appeal is partly allowed.

Tags : DEMAND PENALTY LEGALITY