Availability of Cenvat Credit

PJ/Case Laws/2012-13/1040

Case: VODAFONE ESSAR DIGILINK LTD. Versus COMMR. OF C. EX., JAIPUR-I

Citation: 2011 (24) S.T.R. 562 (Tri. - Del.)

Issue:- Cenvat credit of higher amount taken - Returns filed by assessee not disclosing that service provided by them was exempt/not taxable – whether admissible?

Brief Facts:- Asseessee are service provider and filled return without disclosing that service provided by them was exempt/not taxable under Service Tax. Revenue proceeded against the appellant that service tax credit of only 35% was available to the Appellant. Demand was confirmed and penalty was imposed under Section 76 and Section 78of the Finance Act, 1994.

Matter is before the Tribunal.

Appellant Contention:- Appellant fairly submitted that the issue of taxability in the case of visiting network service provider has been settled by the Tribunal in the case of Idea Cellular Ltd. v. C.C.E., Rohtak - 2009 (16) S.T.R. 712 (Dl. - Del.). But it was further submitted that Cenvat credit admissible whether shall be worked out in respect of each return period or shall be worked out for whole year tax liability is to be decided. They also submit that period under taxation was May, 2003 to August, 2004 and show cause notice was issued on 21-8-2006. When the appellant filed respective returns disclosing about the method of working of the appellant to the department the proceeding was time barred. The Appellant also argued that since there is no liability no penalty can be imposed. The Appellant relied on Circular No. 22/2/97, dated 3-9-1997, Trade Notice No. 2/99-S.T., dated 21-6-1990, and Service Tax Circular No. 90/1/2007-S.T., dated 3-1-2007 to submit that the department's clarification is that roaming telecom service is not liable to be taxed in the hand of visiting network service provider for the reason that home network provider is liable to pay service tax in respect of that service.

Respondent Contention:- Revenue submitted that when consideration is received for the service provided by the appellant as visiting network service provider that was in relation to taxable service and was telecom service. Once the service provided is telecom service and taxable service but that has not suffered service tax in the hand of the appellant by virtue of service tax exemption granted that becomes exempted service for which Tribunal has already decided the controversy in question in favour of the Revenue. The appellant, no doubt, had filed returns for the respective periods. When the appellant had claimed set off of input credit against each return filed and that is verifiable from page 23 onward of appeal paper book that clearly shows that while credit was enjoyed by the appellant in respect of each return period they had deprived Revenue to collect its legitimate dues for the relevant period. Return nowhere disclosed that the service provided was exempted service. But it had claimed entire service credit for set off. Had entire fact been disclosed, bona fide would have come up for consideration. Section 73(1) specifically covers the circumstances which states that when contravention of law was made by contravener for unjust enrichment, such act amounts to suppression. Therefore, while granting Cenvat credit to the extent permissible in respect of each return period, Revenue is entitled to levy penalty for the loss it has suffered.

Reasoning of Judgment:- With regard to restriction of Cenvat credit to the extent of 35% is concerned, it was held that there is no more dispute by virtue of decision of the Tribunal in Idea Cellular Ltd. case 2009 (16) S.T.R. 712 (Tri. - Del.). Visiting network service is exempted service for which admissibility of Cenvat credit shall be limited to 35% in respect of each return period when Cenvat credit is claimed for set off. Accordingly, liability of the appellant is to be recalculated giving set off on Cenvat credit limiting to 35% in respect of each return period. The Adjudication Authority directed to re-comput service tax demand.

So far as levy of penalty is concerned, the Tribunal noted that appellant’s case was that Cenvat credit of a higher amount was unduly claimed. Sample copy of the return is available in appeal folder. That nowhere discloses bona fide of the appellant. Had the appellant disclosed that it was under bona fide belief that service provided by the appellants as visiting network service provider was exempt and not taxable, the appellant would have clearly guided the department to understand its claim on set off Cenvat credit. Failure to make such disclosure in return or submitting entire fact by any letter accompanying its return appears to be a case of willful suppression. It was held that suppression does not vanish by mere passage of time to issue of show cause notice and contravention of law gets no immunity from penal consequences. Suppression corroborated by an untrue declaration in the return filed calls for levy of penalty. When the return contains a declaration as to the self assessment particulars stating that the assessee had paid service tax correctly in terms of provisions of the Act and Rules made thereunder such declaration becomes faulty in absence of bona fide statement either on the return or made through a letter accompanying the return. Once the appellant has claimed that service tax has been paid in accordance with the law and that is not paid, that imputes the appellant to the charge. Such view brings harmony in construction of law for effective implementation thereof in respect of self assessment procedure. The act of false declaration can be remedied by levy of penalty. Thus penalty levied under Section 76 is confirmed and so far as penalty under Section 78 is concerned that shall be limited to the quantum of tax payable upon re-computation as directed aforesaid. However, it was directed that the Adjudicating Authority is to examine whether concession in penalty is permissible under second proviso to Section 78 of the Act. Interest as required under Section 75 shall be payable on the tax due.

Decision:- Appeals partly allowed.

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PJ/Case Laws/2012-13/1040

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