Whether full credit available to service receiver if payment to service provider made at discounted value?

PJ/Case Law/2014-15/2183

Case:- M /s PATEL AIR FREIGHT Vs COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, VADODARA

Citation:- 2014-TIOL-739-CESTAT-AHM

Brief facts:-This stay application and appeal are directed against the OIA No. VAD-EXCUS-001-APP 494-13-14 dated 15.11.2013 passed by Commissioner (Appeals), Vadodara. The issue involved in these proceedings is that appellant has taken cenvat credit on the Service Tax paid by the service provider but Revenue has taken the objection that payment of such bills was made at discounted value.

Appellant’s contentions:-Shri S.R. Dixit (Advocate) appearing on behalf of the appellant relied upon the CBEC Circular No.877/15/2008-CX dated 17.11.2008 and Circular No. 122/3/2010-ST dated 30.4.2010 andargued that Service Tax has not been paid to the service provider proportionate to the reducedamount. It was his case that the entire service tax paid on the invoices is admissible as Cenvatcredit.

Respondent’s contentions:- Shri Alok Srivastava, (AR) appearing on behalf of the Revenue defended the orders passed by the lower authorities.

Reasoning of judgment:- Heard both sides and perused the case records. Learned Advocate appearing on behalf of the appellant relied upon two Circulars issued by CBEC in support of his case that entire credit has been correctly availed by the appellant. Para 2 and 3 of the CBEC Circular dated 17.11.2008 are as follows:-

The issue has been examined. Since, the discount in such cases are given in respect of the value of inputs and not in respect of the duty paid by the supplier, the effect of reduction of value of inputs may be that the duty required to be paid on the inputs was less than what has been actually paid by the inputs manufacturer. However, the fact remains that the inputs manufacturer had paid the higher duty. Rule 3 of Cenvat Credit Rules, 2004 allows credit of duty paid by the inputs manufacturer and not duty payable by the said manufacturer. There are many judgments of Hon’ble Tribunal in this regard which have confirmed this view.

In view of above, it is clarified that in such cases, the entire amount of duty paid by the manufacturer, as shown in the invoice would be available as credit irrespective of the fact that subsequent to clearance of the goods, the price is reduced by way of discount or otherwise. However, if the duty paid is also reduced, along with the reduction in price, the reduced excise duty would only be available as credit. It may however be confirmed that the supplier, who has paid duty, has not filed/claimed the refund on account of reduction in price.

Further, Para 3 to 5 of the CBEC Circular dated 30.04.2010 is reproduced below:-

As per sub-rule (7) of Rule 4 of the Cenvat Credit Rules, 2004, Credit in respect of input service shall be allowed, on or after the day on which payment is made of the value of input service and the service tax paid or payable as is indicated in invoice, bill or as the case may be, challan referred to in Rule 9. A doubt raised is as to whether the receiver of input service can take credit only after the full value that is indicated in the invoice, bill or challan raised by the service provider, and also the service tax payable thereon, has been paid. It has been represented that in many cases, after the invoice is issued by the service provider, the service receiver does not make the full payment of the invoiced amount on account of discount agreed upon after issuance of invoice; or deducts certain amount due to unsatisfactory service; or withholds some amount as security to be held during contract period. Due to these reasons the value paid may not tally with the amount indicated in the invoice, bill or challan. In such cases the department has raised objections to the taking of credit as it does not meet the requirement of the said sub-rule (7).

Thus the following issues relating to availment of Cenvat credit need clarification,-

Whether Cenvat credit can be claimed -

(a) when payments are made through debit/credit notes and debit/credit entries in books of account or by any other mode as mentioned in Section 67 Explanation (c) for transactions between associate enterprises; or

(b) where a service receiver does not pay the full invoice value and the service tax indicated thereon due to some reasons.

Matter has been examined and clarification in respect of each of the above mentioned issues is as under, -

(a) When the substantive law i.e. Section 67 of the Finance Act, 1994 treats such book adjustments etc., as deemed payment, there is no reason for denying such extended meaning to the word payment for availment of credit. As far as the provisions of Rule 4(7) are concerned, it only provides that the Cenvat credit shall be allowed, on or after the date on which payment is made of the value of the input service and of service tax. The form of payment is not indicated in the same and the rule does not place restriction on payment through debit in the books of accounts. Therefore, if the service charges as well as the service tax have been paid in any prescribed manner which is entitled to be called gross amount charged then credit should be allowed under said Rule 4(7). Thus, in the case of Associate Enterprises, credit of service tax can be availed of when the payment has been made to the service provider in terms of Section 67(4)(c) of Finance Act, 1994 and the service tax has been paid to the Government Account.

(b) In the cases where the receiver of service reduces the amount mentioned in the invoice/bill/challan and makes discounted payment, then it should be taken as final payment towards the provision of service. The mere fact that finally settled amount is less than the amount shown in the invoice does not alter the fact that service charges have been paid and thus the service receiver is entitled to take credit provided he has also paid the amount of service tax, (whether proportionately reduced or the original amount) to the service provider. The invoice would in fact stand amended to that extent. The credit taken would be equivalent to the amount that is paid as service tax. However, in case of subsequent refund or extra payment of service tax, the credit would also be altered accordingly.

As the issue involved in these proceedings lies in a narrow compass, therefore, after allowing the stay application, appeal itself is taken up for disposal. No evidence has been brought on record that reduced service tax has been paid by the appellant to the service provider. On the basis of facts available on records, credit of full service tax shown to have been paid on the duty paying document will be admissible to the appellant in view of the CBEC Circulars relied upon by the appellant.

Decision:- The appeal is allowed.

Comment:- The analogy of the case is that service receiver can take CENVAT credit on the service tax paid by service provider even if payment on such bills is made on discounted value as far as entire duty stands paid to the government account. Credit of full service tax shown to have been paid on the duty paying document will be admissible to the assessee.

Prepared by: Monika Tak

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PJ/Case Law/2014-15/2183

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