1. Brief facts are that the appellants who are engaged in providing telephone services to subscribers are registered with the Service Tax Department. The officers attached to the internal audit of the Service Tax Commissionerate conducted audit of accounts for the month of April 2007 and noticed certain irregular availment of credit and other irregularities for which show cause notice was issued to the appellant. After due process of law, the adjudicating authority confirmed the demand, interest and also imposed penalties, against which the appellant have filed the present appeal.
2.1 On behalf of the appellant, Ld. counsel Sh. S. Janakiraman submitted that there are five issues in the present appeal. The first issue is that the appellant had paid an excess amount of Rs. 47,62,715/- as service tax in March 2007 and hence they adjusted the said amount towards service tax liability payable for April 2007. The department was of the view that no such adjustment is provided as per law. Therefore the demand has been raised alleging short-payment of service tax to the tune of Rs. 47,62,715/-. He submitted that the issue whether appellants are eligible to adjust the excess payment of service tax towards the liability of the subsequent month was considered by the Tribunal in various decisions which are as under:-
(a) General Manager (CMTS) Vs. Commissioner of Central Excise, Chandigarh : 2014 (36) STR 1084 (Tri. Del.)
(b) Plantech Consultants Pvt. Ltd. Vs. Commissioner of Central Excise, Pu
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ne : 2016 (41) STR 850 (Tri. Mumbai) That according to sub-rule (4B) of Rule 6 of Service Tax Rules, the assessee having centralized registration can adjust excess amount paid during the month towards the service tax liability of the succeeding month without any monetary limit. In the case of an assessee who do not have centralized registration, the monetary limit for such adjustment of service tax is Rs. 50,000/-. The Tribunal in the above cases has observed that refusing adjustment against tax liability during other months amount to collection of tax without authority of law which is contrary to Article 256 of Constitution of India. That there is no condition in Rule 6(4A) r/w Rule 6(4B) requiring the assessee to opt for centralized registration to avail the adjustment facility.
2.2 The second issue is with regard to the non-payment of service tax under the category of sponsorship service. He submitted that the appellants have donated some amount as charity but the same was shown in the books as sponsorship services. He submitted that the appellant is not contesting the demand on this issue.
2.3 The third issue is on irregular availment of CENVAT credit of input services. The appellant had taken CENVAT credit on service tax paid by Metropolitan Transport Corporation (MTC), Chennai on advertisement display on busses. The advertisement was made on the buses on an agreement entered into with them by MTC and they availed CENVAT credit on the basis of the rate quoted in the agreement. The demand has been raised for the reason that the invoice did not show the element of tax paid. That the appellants have actually back worked quantum of service tax basing upon rate quoted in the agreement. That therefore credit has to be allowed.
2.4 The fourth issue is with regard to the disallowance of CENVAT credit of service tax availed on rent-a-cab service for the period October 2007 to December 2007. During the relevant period, the said services were eligible input services and therefore disallowance of credit is unjustified.
2.5 The fifth issue is with regard to wrong availment of CENVAT credit on capital goods. It was noticed that appellant had imported certain capital goods during the period January 2007 and availed credit on the entire credit amount of CVD in the same financial year instead of availing 50% of the credit in the first financial year and the balance credit in the subsequent years. The Ld. counsel submitted that this issue is also not contested by the appellant.
2.6 The Ld. counsel has contested the penalties imposed. He submitted that being a public sector undertaking, the credit was availed on the bona fide belief that the same is eligible. That in the cases of credit availed on capital goods, the same was only procedural infraction and the appellant would be eligible for credit in the subsequent year. He requested that the penalties may be set aside.
3. The Ld. AR Shri S. Govindarajan reiterated the findings in the impugned order.
4. Heard both sides.
5. The appellant is not contesting the demand of service tax under the category of sponsorship services and also the disallowance of credit availed on capital goods. The demand on said issues are upheld.
5.1 The first issue for consideration is whether the appellant can be allowed to adjust the excess paid service tax to the liability payable for the subsequent months. The issue stands covered by the decision relied by the counsel for the appellant. The Tribunal in the case of General Manager (CMTS) Vs. Commissioner of Central Excise, Chandigarh (supra) has discussed the issue in detail and observed as under:-
7.1 Sub-rule (2) of Rule 6 prescribes the manner of payment of service tax, which according to this sub-rule is to be paid with the banks notified by the C.B.E. & C. for this purpose in TR-6 form or, in any other manner as prescribed by the C.B.E. & C. Sub-rule (3) of Rule 6 covers a situation where an assessee had received payment for certain services to be provided and had paid the service tax on it, but for some reasons, he could not provide the services wholly or partly and according to this rule, the assessee can adjust the excess payment of service tax calculated on pro rata basis against his service tax liability for subsequent period if he has refunded the value of taxable service along with service tax to the person from whom it was received. Thus, the sub-rule (3) provides for limited facility of adjustment in the cases where the amount has already been received by an assessee for the service to be provided and tax leviable thereon had been paid, but subsequently, due to some reasons, the service was not provided either in full or in part. Sub-rule (4) of the Rule 6 provides for provisional assessment, in the case where the assessee for any reason is unable to correctly estimate on the date of deposit, the actual amount payable for a particular month or a quarter, as the case may be, and according to this rule, he may request the jurisdictional Asstt./Dy. Commissioner for payment of service tax on provisional basis. Sub-rule (4A) provides that notwithstanding anything contained in sub-rule (4), where the assessee has paid to the credit of Central Government any amount in excess of the amount liable to be paid towards the service tax liability in the month/quarter, as the case may be, the assessee may adjust such excess amount paid by him against his service tax liability in subsequent month/quarter and sub-rule (4B) lays down the conditions for such adjustment. The main condition is that the excess payment is not on account of any reasons involving interpretation of law, taxability, classification, valuation or applicability of any exemption notification. The other conditions are that an assessee with centralized registration under Rule 4(2) can adjust excess payment in one month against this tax liability in other months without any limit, for other assessee, there is a monetary limit of Rs. one lakh for such adjustment. In our view harmonious construction of Rules 6(4), 6(4A) and 6(4B) would be that Rule 6(4) applies to a case where due to reasons involving interpretation of law, taxability, classification, valuation or applicability of exemption notification, the assessee is unable to correctly determine his service tax liability for a particular month/period and Rule 6(4A) read with Rule 6(4B) would apply when tax liability cannot be determined for a particular month due to other reasons. Thus sub-rule (4A) read with Rule (4B) would apply to a situation where an assessee on account of his inability to correctly determine the amount received during a particular month for the service provided, has paid service tax on the basis of his estimation and subsequently, when the exact amount received during the month, has been determined, the amount of service tax paid on the estimation basis is found to be in excess of his actual tax liability. In fact, in such a situation the excess amount paid by him is like advance payment of service tax during the month in excess of the actual service tax liability and which can always be adjusted against his service tax liability for other months as there is no unjust enrichment angle involved. For example, if against actual payments of Rs. 4 crore received by an assessee in a particular month against services provided, on which his service liability @ 10% adv. is Rs. 40 lakhs, he has paid tax of Rs. 50 lakhs on the basis of his estimated receipt of rupees five crores during the month, the excess tax payment of Rs. 10 lakh paid is like an advance payment of tax whose incidence has not been passed on to his customers. In fact, w.e.f. 1-3-2008, sub-rule (1A) of Rule 6 has been introduced by Notification No. 4/2008-S.T. , dated 1-3-2008 which also provides that without prejudice to the provisions of sub-rule (1) of Rule 6, every person liable to pay service tax may, on his own, pay an amount as service tax in advance to the credit of Central Government and adjust the amount so paid against service tax liability, which he is liable to pay in subsequent period, subject to the condition that he intimates the details of the amount paid in advance to the Jurisdictional Superintendent of Central Excise. The excess payment referred to in sub-rule (4A), read with sub-rule (4B), is like advance payment under sub-rule (1A) of Rule 6. There is no condition in Rule 6(4A) read with Rule 6(4B) providing that for availing of the adjustment facility, the assessee must have opted for centralized registration under Rule 4(2). Moreover, when an assessee during certain months, for reasons other than interpretation of law, taxability, classification, valuation or applicability of exemption, has paid service tax in excess of his actual tax liability, the Government cannot retain the excess tax paid by the assessee by refusing its adjustment against his tax liability during other months and refusing adjustment of such excess tax payment during a month against tax liability during other months and appropriation and retention of the same would amount to collection of tax without the authority of law which is contrary for the provisions of Art. 265 of the Constitution of India. As held by the Apex Court in case of Ispat Industries Ltd. v. CC, Mumbai reported in : 2006 (202) E.L.T. 561 (S.C.) (paras 26 to 29) whenever there is conflict between a norm in a higher layer in the hierarchy of the laws in the legal system of the country and a norm in a lower layer in the hierarchy, the norm in the higher layer in the hierarchy will prevail. Therefore, if excess payment of tax in a month is not on account of reasons involving interpretation of law, taxability, classification, valuation or applicability of exemption notification and is purely on account of inability of the assessee to exactly determine the total amount collected during the month against the bills raised as a result of which he had determined his tax liability on estimation basis, the excess amount of tax paid during the month can be adjusted against his tax liability during other months and in this regard, there cannot be any monetary limit.
Following the same, we are of the view that the demand raised on this ground is unsustainable and requires to be set aside, which we hereby do.
5.2 The next issue for consideration is the credit availed on the service tax paid on advertisement on MTC buses. The case of the appellant is that though the invoices did not indicate the amount of service tax paid, they have availed credit on the basis of the rate quoted in the agreement. This argument does not find favour with us. As per Rule 3 of CENVAT Credit Rules, credit can be availed on service tax/duty when the documents evidence the payment of the same. Since the documents on which credit has been availed does not evidence the payment of service tax, we are of the view that the credit availed is incorrect. The demand raised on this issue is sustained.
5.3 An amount of Rs. 84,740/- has been disallowed being the credit taken on service tax paid on rent-a-cab service. The credit has been disallowed stating that rent-a-cab service is not used for providing output service. The appellant has explained that they are providers of telephone services and rent-a-cab service was used for transportation of employees and executives. During the relevant period, prior to 1.4.2011, the definition of input services included the words activity relating to business. Therefore, the definition had wide ambit and had included the services namely rent-a-cab service. In Commissioner of Central Excise, Raipur Vs. Beekay Engg. & Castings Ltd. 2009 (16) STR 70 (Tri. Del.), the said services have been held to be eligible for credit. From the above discussions and following the decision, we are of the view that the disallowance of credit is unjustified and requires to be set aside, which we hereby do.
5.4 The appellant has availed credit on capital goods imported during the period January 2007. The entire credit was availed by the appellant in the same financial year. According to Rule 4(2) of CENVAT Credit Rules, 2004, credit can be availed not exceeding 50% of duty paid on capital goods in the same financial year and the balance amount of CENVAT credit has to be availed in the subsequent year. Therefore, availment of entire credit in the same financial year is irregular. The appellant has not contested the same and therefore the demand of service tax under this category is sustained.
5.5 The Ld. counsel for appellant has strongly argued to set aside the penalties imposed. The appellant is a public sector undertaking. The issue with regard to availment of credit on capital goods as well as credit availed on invoices in which the service tax was not mentioned, can only be considered as procedural infractions. The other is with regard to non-payment of service on sponsorship services. The Ld. counsel has explained that the appellant had not rendered any sponsorship service and they had only extended donations to orphanage and charity purpose and it was wrongly accounted in their books of accounts as sponsorship service. Taking into consideration these aspects, we are of the view that the penalties in regard to these issues are unwarranted and requires to be set aside which we hereby do.
6. In the result, the impugned order is modified to the extent of allowing credit in respect of rent-a-cab service and also setting the demand alleging irregular adjustment of excess payment. The other demands are upheld and the penalties on these issues are set aside. The appeal is disposed of in the above terms.
(Operative portion of the order was pronounced in open court.