Whether credit could be availed on input services received prior to registration?

PJ/Case Law/2014-15/2401

Case:- SPANDANA SPOORTHY FINANCIAL LTD Vs COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX, HYDERABAD

Citation:- 2014-TIOL-558-CESTAT-BANG

Brief facts:-The petitioner/appellant was admittedly providing the taxable Business Auxiliary Service (BAS) being a registered company providing non banking service as a micro finance operator. However, by accident or design, the petitioner neither obtained registration as a Service Tax provider of BAS nor filed returns, nor even remitted tax for a considerable period. It obtained registration as a BAS provider in June 2009. Thereafter, Revenue verified the petitioner's records in August 2009 and discovered receipt of income for rendering different components of taxable service, generically comprehended within BAS. Even while Revenue was gearing up to initiate proceedings for recovery of service tax and prior to issuance of the Show Cause Notice in this behalf, (issued on 24.4.2010), the petitioner in September 2009 discharged a self-assessed liability to service tax to the extent of Rs. 2,21,20,238/- by availing Cenvat credit in respect of tax remitted on input services received prior to its registration as a service provider; and discharged the balance self-assessed liability of Rs. 1,56,17,727/- in cash on 17.09.2009, apart from remittance of interest of Rs.27,09,219/- also in September,2009.

Appellant’s contentions:-The petitioner discharged a self-assessed liability to service tax by availing Cenvat credit in respect of tax remitted on input services received anterior to its registration as a service provider; and discharged the balance self-assessed liability in cash. Therefore, they pleaded for benefit of section 73(3) of the Finance Act, 1994.

Respondent’s contentions:-The authority rejected the claim of the petitioner to immunity to proceedings, predicated on provisions of Section 73 (3) of the Finance Act, 1994, on the ground that there was a contravention of the provisions of the Act with intent to evade tax liability and therefore the provisions of Section 73 (3) would not apply. The adjudicating authority also disallowed Cenvat credit availed by the petitioner on the ground that since it obtained registration on 08.06.2009, no Cenvat credit could be availed in respect of inputs received prior to its registration as a service provider. The adjudication order consequently disallowed availment of Cenvat credit; confirmed recovery of Rs. 3,89,86,389/-; ordered appropriation of the amounts of tax and interest, remitted in September, 2009; ordered recovery of the balance assessed liability and also levied interest under Section 75 of the Finance Act, 1994 apart from penalties under Section 76, 77 and 78 of the Act.

Reasoning of judgment:-The Tribunal stated that the issue whether the Cenvat credit could be availed in respect of inputs received prior to registration, is an issue which has to be appropriately considered at the final hearing of the appeal. We are prima facie not persuaded with the petitioner's claim for immunity under Section 73 (3) of the Act. Accordingly, The petitioner was directed to remit Rs. Two crores and twenty lakhs (comprising appropriately 50% of the penalty under Section 78 and the discrepancy of Rs. 12 lakhs between the petitioner's own assessment of tax liability and the adjudicating authority's determination thereof), within eight weeks from today as a condition for grant of waiver of pre-deposit and stay of recovery proceedings pursuant to the impugned order in appeal. In default of deposit or in reporting compliance by 30.09.2013, the stay granted hereby shall stand dissolved forthwith on occurrence of the default, without further reference to the Tribunal. Consequently the appeal shall stand rejected for failure of pre-deposit. The learned counsel for the petitioner/appellant is present in the Court, has noted the order and this constitutes sufficient intimation to the petitioner of its obligations under this order.

Decision:- Part pre-deposit ordered.

Comment:- The analogy of the case is that the issue whether the cenvat credit could be availed in respect of inputs received prior to registration as a service provider is a matter of interpretation that requires detailed analysis of the provisions. Accordingly, part pre-deposit was ordered. However, recently, it has been decided by the Ahmedabad Tribunal in the case of C. Metric Solution Pvt. Ltd. [2012(28) S.T.R. 460 (Tri.-Ahd)] , Steel Strips 2012(26) S.T.R. 270-LB that credit of input services is admissible even if availed prior to registration.

Prepared by:- Monika Tak

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PJ/Case Law/2014-15/2401

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