Whether credit to be allowed to the manufacturer for the service tax paid by the job worker on the basis of the supplementary invoices issued?

PJ/CASE LAW/2016-17/3219

Case- AUTO WINDOW Versus COMMISSIONER OF CENTRAL EXCISE, MUMBAI-II

Citation- 2016 (41) S.T.R. 518 (Tri. - Mumbai)

Brief Facts-This appeal is directed against Order-in-Original No. 21/RN/COMMR/M-II/2013-14, dated 22-11-2013 passed by the Commissioner of Central Excise (Appeals), Mumbai-II, wherein ld. Commissioner confirmed demand of Cenvat credit of Rs. 46,36,461/- in terms of Rule 14 of Cenvat Credit Rules, 2004 read with Section 11A(1) of Central Excise Act, 1944, in addition interest under Section 11AA was demanded, penalty of Rs. 25,000/- was imposed under Rule 15(1) of Cenvat Credit Rules, 2004.
The fact of the case is that the appellant is engaged in manufacture of Central Excisable goods ‘Automatic Window & Accessories’ falling under Tariff Item No. 8708 29 00 of the First Schedule of the Central Excise Tariff Act, 1985 and availing Cenvat credit on input and input services under Cenvat Credit Rules, 2004. The appellant supplied inputs to their group company, i.e., M/s. Auto Window India Pvt. Ltd. (M/s. AWIPL) for manufacture of intermediate goods on job work basis. The job work goods subsequently used in the manufacture of appellant’s final product which is cleared on payment of duty. During the scrutiny of the ER-1 department found that the appellant has taken Cenvat credit on input services amounting to Rs. 52,40,658/- on the service tax and which was paid by their job worker M/s. AWIPL of the exempted service by raising supply bill since 2007 onward. It was observed that the service tax paid under supplementary invoices related to the service tax liability for the period 1-4-2007 to 31-3-2013 and the same amount was paid on being detected by the department hence these documents were not valid documents under Rule 9(1)(bb) of Cenvat Credit Rules, 2004. On this allegation, show cause notice was issued which culminated into order-in-original wherein out of total demand of Rs. 52,40,658/-, demand of Rs. 46,36,461/- was confirmed therefore, appellant is before me.

Appelants Contention-Shri Prashant Paranjape, ld. Counsel for the appellant submits that only ground for denial of Cenvat credit is that service provider who paid the service tax discharged the service tax liability only on detection by the department during the audit and therefore, adjudicating authority has contended that credit is not admissible in terms of [Rule] 9(1)(bb). It is his submission that first of all service tax was not payable on the service of job work on the ground that activity of job work was amount to manufacture in terms of Section 2(f) of the Central Excise Act, 1944 therefore, the same is out of purview of Finance Act, 1994. Secondly, if at all presumed that service is taxable then also activity is exempted in terms of Notification No. 8/2005-S.T., dated 1-3-2005 on the ground that job work is carried out on the material supplied by the appellant and job work goods used in the manufacture of final product, i.e., dutiable goods by the appellant and therefore, service was exempted under the said notification. When this position is not under dispute there is no question of allegation of suppression of facts on the part of service provider. He further submit that service provider has paid service tax admittedly on insistence of audit officer as the same is admitted in the show cause notice also. After payment of service tax along with interest service provider made intimation to the department vide letter dated 29-4-2013 wherein service provider categorically stated that since they have paid service tax along with interest on the job work charges to close the matter in terms of Section 73(3) of Finance Act, 1994. Thereafter jurisdictional officer of the service provider has not issued any show cause notice to the service provider for recovery of the said service tax. It is his submission that once the show cause notice was not issued the same has been waived by the Jurisdictional officer of the service provider. Department has accepted the proposal of the service provider for waiver of show cause notice in terms of Section 73(3) of Finance Act, 1994. He submits that in this undisputed position there is no question of alleging any suppression for recovery of said service tax at the end of service provider because Section 73(3) is applicable only in the case where there is no suppression, misdeclaration, fraud, etc., is involved. He further submits that since no show cause notice was issued to the service provider for recovery of the service tax consequently there exists no suppression, misdeclaration, etc. In absence of issuance of any show cause notice for recovery to the service provider, it cannot be said recovery of service tax from service provider is due to suppression, misdeclaration, etc. With this undisputed facts it is his submission that there is absolutely no suppression or misdeclaration involved in the payment of service tax by the service provider therefore, their case is not covered under the Explanation clause provided under Rule 9(1)(bb) of Cenvat Credit Rules, 2004.

Respondents Contention- On the other hand, Shri H.M. Dixit, ld. Asstt. Commissioner (AR) appearing on behalf of the Revenue reiterates the findings of the impugned order. He further submits that it is admitted fact that service tax for which appellant has taken the credit was paid by the service provider only after detection by the department and not on their own in regular course. Therefore, this itself shows that there is suppression of fact on the part of the service provider and consequently appellant is not entitled for the Cenvat credit, Cenvat credit can be availed on supplementary invoices only in the cases where non-payment of service tax by service provider suppressed fact therefore, since in the present case there is clear suppression of fact on the part of the appellant. Ld. Commissioner rightly denied the Cenvat credit.

Reasoning Of Judgement-Service, i.e., job work on which service tax was paid, in tribunal’s considered view such service was not taxable service under Finance Act, 1994 for the reason the activity is undisputedly amounting to manufacture in terms of Section 2(f) of the Central Excise Act, 1944, therefore, as per Section 65(19) in ‘Business Auxiliary Services’ under sub-heading ‘Production’ or processing on behalf of the client, there is exclusion “but does not include any activity which amounts to manufacture of excisable goods”. In view of this position service of job work is not within the purview of taxable service. Moreover by any stretch of imagination, even if it is presumed activity of job worker is taxable even then it is exempted under Notification No. 8/2005-S.T., dated 1-3-2005 as the condition of notification that such job work goods are produced using raw material supplied by the client and goods produced are returned for use in or in relation of manufacture of any other goods falling under First Schedule of Central Excise Tariff Act, 1985 on which appropriate duty of excise is payable. In the present case, service provider has carried out the job on the material supplied by the appellant and the said job work goods returned to the appellant. Appellant has used the said goods in the manufacture of other final product which has been cleared on payment of duty. Thus job work activity was exempted from payment of service tax. In view of this position when activity itself was not taxable and the appellant has discharged the service tax admittedly due to pointing out by the audit officers no suppression can be alleged. It was also observed that Jurisdictional officer of service provider has not issued any show cause notice to the service provider for recovery of the service tax. Service provider made categorical request for waiver of show cause notice under Section 73(3) of Finance Act, 1994 on the ground that they have paid service tax along with interest. Tribunal agree with the ld. Counsel that Section 73(3) is applicable only in case where suppression of facts, misdeclaration is not involved. When the department on representation of the service provider by their letter dated 29-4-2013 refrained from issuance any show cause notice, that itself shows that department is fully convinced that the case is squarely covered by Section 73(3) which gets reinforced that no show cause notice was issued. In view of the above undisputed facts, it is very clear that for payment of service tax by the service provider and issuance of supplementary invoices there against there is no suppression of facts on the part of the service provider. It is also observed that in the entire proceedings in the present case, only ground for denial of Cenvat credit is that service provider has paid service tax on detection by the department. Merely because department has detected and service provider has paid Service Tax, that alone is not sufficient to make allegation that there is suppression of fact on the part of the appellant. In view of tribunal’s above discussion, it is of the considered view that since there is no suppression of facts, misdeclaration, fraud, etc., on the part of the service provider in making payment of service tax and issuance of supplementary invoices, the appellant has correctly availed the Cenvat credit, therefore, impugned order is modified and the appeal is allowed with consequential relief, if any, in accordance with law.

Decision- Appeal allowed

Comment-:Job work undertaken does not fall under purview of taxable service as per Section 65(19) of Finance Act, 1994 for reason that said activity amounts to ‘manufacture’ in terms of Section 2(f) of Central Excise Act, 1944 - Otherwise also said activity exempt under Notification No. 8/2005-S.T. - As non-payable Service Tax paid on direction of Department, no suppression or misdeclaration can be alleged - Cenvat credit correctly availed against Service Tax paid on basis of supplementary invoices - Impugned order set aside - Rule 14 of Cenvat Credit Rules, 2004. [para 6]

Prepared By- Praniti Lalwani

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PJ/CASE LAW/2016-17/3219

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