Monday, 28 January 2013

Cenvat Credit cannot be denied for procedural defects of minor nature

We have considered arguments on both sides. Firstly, we notice that if the DGM (Projects), Salem followed the procedure of getting registered as “input service distributor” and then distributed the credit to SSA Salem there was nothing wrong in the credit availed by the appellant. Basically the issue involved is one of procedures and not a case of mis-utilisation of any ineligible credit. Further, we note that there has not been any distribution of credit involved because of the entire credit taken at one location was taken in one office making it easy for Revenue to conduct verification as may be necessary. The argument of the appellants that the premises where the equipments are used belong to BSNL and not to any other party and it is also used for completion of services originating from Salem also are strong arguments in favour of the appellants. Since MODVAT credit is a substantial benefit, we are of the view that the impugned credit should not be denied on account of procedural defects of minor nature as pointed out by the Revenue. Therefore, we hold that the impugned order is not maintainable. So we set aside the order and allow the appeal.
CESTAT, CHENNAI BENCH
BSNL v. Commissioner of Central Excise
ASHOK JINDAL, JUDICIAL MEMBER
AND MATHEW JOHN, TECHNICAL MEMBER
FINAL ORDER NO. 868 of 2012
APPEAL NO. ST/503 OF 2009
JULY 27, 2012
ORDER
Mathew John, Technical Member – The appellants are engaged in the business of providing telephone services throughout India. However, the discharge service tax liability separately on services rendered by different Secondary Switching Areas (SSAs) of the appellant and each SSA is registered under Service Tax Laws. The issue involved in this appeal is that the appellants namely BSNL, Salem had taken CENVAT credit on certain equipments installed at other SSAs and such credit cannot be allowed because the equipments were not used in the premises of the entity paying service tax namely BSNL Salem. Revenue proposed to deny CENVAT credit on such equipment installed in other SSAs. After due proceedings, a service tax demand of Rs. 1,15,86,320/- is confirmed for the period 2005 – 06 and for the period 2006 – 07 along with interest. Further, a penalty of Rs. 10,000/- is imposed under Rule 15 of the CENVAT Credit Rules, 2004.
2. This is a second round of litigation. In the first round of litigation when the appellants came up in appeal before the Tribunal in S/134/2007, the Tribunal directed as under:-
“4. After considering the submissions, we find that the capital goods were purchased on behalf of M/s. BSNL (appellants) by their DGM (Projects) at Salem, from manufacturers. These capital goods were installed in some of the SSAs within his jurisdiction and another SSA (Salem) within his jurisdiction took CENVAT credit thereon. The question arises as to whether the Salem SSA could take the credit on capital goods installed elsewhere within the jurisdiction of the DGM (Projects), Salem. It has been pointed out by the learned counsel that, in respect of capital goods procured by the DGM (Projects), Salem, CENVAT credit has been taken only by the Salem SSA and that the chances of other SSAs under the DGM (Projects), Salem taking credit on the same goods were ruled out by ensuring that the duty-paying documents were supplied by the DGM only to the Salem SSA. The SDR fears that the benefit of CENVAT credit on the same goods could also be taken by other SSAs where the capital goods were installed. It is pointed out that, in the event of the capital goods being removed as such out of the other SSAs (where they were installed) the question will arise as to who will pay duty thereon. The learned counsel has endeavoured to allay these fears. We are of the view that, though this aspect is seen untouched in the show-cause notice and the impugned order, it needs to be addressed in the interest of the Revenue. More importantly, the plea made by the learned counsel from the technological point of view has to be examined. He has contended that M/s. BSNL renders telephone service to their subscribers all over the country from any SSA by making use of capital goods installed anywhere in the country, This argument is technology-based and the same has to be examined .”
2.1 Based on this remand order, the adjudicating authority has passed the present impugned order. On the issues raised by the Tribunal, the adjudicating authority gave finding as under:-
“9.11 The Hon’ble CESTAT have also directed to address the aspects whether CENVAT credit on the same goods could be taken by other SSAs where these goods were installed and in the event of the capital goods being removed as such, who will pay the duty thereon. On the former question, it is to be observed that if the scheme proposed by the assessee is accepted that every SSA which uses the equipment installed in any other SSA for transmitting their calls (as opposed to originating) would be entitled to take credit of duty paid on that equipment. As far as the impugned equipment is concerned, the noticees’ Coimbatore and Trichy offices have issued certificates of non-availment of credit of duty paid on these capital goods. Therefore, it appears that other SSAs have not taken credit on these goods. As regards the latter question, since the goods are installed in the other SSAs and cenvatted at SSA Salem, the point of duty liability would arise only if credit is taken where it is installed in that SSA and if it is removed as such from there. At the moment such a possibility is not in existence. “
3. Thus it is established that credit has been taken only once against the equipments installed. The issue is that DGM (Projects) situated at Salem has placed orders for making these equipments for different SSAs within his jurisdiction because he was overseeing implementation of all such projects and he handed over the duty paying documents in relation to such capital goods procured by them to one of the SSAs in his jurisdiction namely BSNL, Salem and they have taken credit on the basis of such documents and used it for discharging their service tax liability. There is no dispute that credit has been taken only once on the same equipment and that these goods have been used in the premises of BSNL and not moved out of such premises.
4. The counsel for the appellant submits that all the SSAs belong to the same legal entity namely BSNL. He points out that as per Rule 2(a)(A) of CENVAT Credit Rules, 2004, there is no condition that the equipment used for providing output service should be installed in the premises of the assessee unlike in the case of capital goods used in the manufacture of excisable products. Further, it is his argument that the premises where the equipment belong to BSNL and from such premises also taxable service is provided. It is his contention that so long as the equipment is used by the output service provider for providing taxable service, CENVAT credit cannot be denied. It is also his contention that the SSA at Salem is integrally connected to the other concerned SSAs and call emanating from Salem many times terminate in other concerned SSAs and the calls emanating from other SSAs terminate in Salem and therefore it cannot be said that these equipments are installed in places which have no nexus with the taxable service provided by SSA Salem.
5. Opposing the prayer of the appellant, the learned AR for Revenue submits that the equipments have to be used by the registered entity which is paying service tax and when it is used elsewhere it is not possible to conduct any verification about use of equipment and the correctness of the credit taken. It is his argument that if they wanted to avail CENVAT credit at one place only the CENVAT Credit Rules provided for registration as “input service distributor” as defined under Rule 2(m) of the CENVAT Credit Rules,2004. This procedure has not been followed. It is his argument that statutory formalities cannot be treated as empty formalities and they have to be complied strictly for availing CENVAT credit. It is also his argument that if the argument that equipment used by other registered assessees are necessary for completion of calls the argument would apply even for service provided between one telegraph operator to another telegraph operator and one telegraph operator may become eligible for CENVAT credit on capital goods installed in the premises of another telegraph operator and this will lead to ridiculous results.
6. We have considered arguments on both sides. Firstly, we notice that if the DGM (Projects), Salem followed the procedure of getting registered as “input service distributor” and then distributed the credit to SSA Salem there was nothing wrong in the credit availed by the appellant. Basically the issue involved is one of procedures and not a case of mis-utilisation of any ineligible credit. Further, we note that there has not been any distribution of credit involved because of the entire credit taken at one location was taken in one office making it easy for Revenue to conduct verification as may be necessary. The argument of the appellants that the premises where the equipments are used belong to BSNL and not to any other party and it is also used for completion of services originating from Salem also are strong arguments in favour of the appellants. Since MODVAT credit is a substantial benefit, we are of the view that the impugned credit should not be denied on account of procedural defects of minor nature as pointed out by the Revenue. Therefore, we hold that the impugned order is not maintainable. So we set aside the order and allow the appeal.
7. Before finally concluding the order, we would like to make an observation that M/s. BSNL comes up before this Tribunal on various issues of procedural infractions on a regular basis and have a tendency to evolve new procedures constructed from various decisions of the Tribunal which are given basically as a matter of leniency and not intended for setting up new procedures. BSNL may please note that the procedure laid down under the Rules are intended to be followed and cannot be circumvented by quoting different decisions of the Tribunal. There should

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