Whether the appellant is responsible to check whether the service provider has deposited the service tax collected from them to the government?

PJ/ Case Laws/2012-13/1275

Case:- M/s LACTO COSMETICS (VAPI) PVT LTD; SHRI JAVED SHAIKH v/s COMMISSIONER OF CENTRAL EXCISE, DAMAN

Citation:- 2012-TIOL-1281-CESTAT-AHM

Brief Facts:- The first Appellant, M/s Lacto Cosmetics (Vapi) is engaged in the business of manufacture of cosmetics and also animal feed and doing repacking and sale of various items falling under chapter 23 of the schedule to the Central Excise Tariff Act, 1985.The second appellant, Shri Javed Shaikh is a production officer with the first appellant.

During the course of the audit of the records, it was found that the first appellant had availed credit of service tax paid on manpower supply service and security service during the period 2005-06 and 2006-07 up to January 2007 amounting to Rs.2,28,476/-. The audit officers found that even though the invoices issued by the service providers charged service tax but no service tax was paid to the government. Subsequent investigations revealed that the premises given in the invoice and the registration number were found to be wrong and no service tax had been paid by the service providers. Shri Madan Singh Rathod was the owner of both the firms. During investigation a statement was recorded from Shri Javed Shaikh, production officer who has stated that they had taken the services of these two agencies and the first appellant were not aware that the firms were non existent and they were not paying the service tax. He also stated that the service providers disappeared in the month of January 2007. It was also found during the scrutiny of the records, appellant had availed the benefit of cenvat credit of service tax paid on telephone services and other services but did not maintain separate records since they were engaged in the manufacture of excisable and exempted goods and also in trading activity. The first appellant paid the entire amount demanded with interest and also 25% towards penalty.

Appellant Contention: - The appellants submitted that they were also victims of the fraud committed by the service providers. There is no dispute that they had received the service during the relevant period. Since the registration number and the address were available and service was being received, they had a bonafide belief that service tax paid by them to the service providers was in turn paid to the Government of India. He further submitted that they had taken all reasonable steps that an ordinary person could have taken. Therefore the extended period could not have been invoked for demanding the credit taken since the show cause notice was issued in March 2009 and therefore was time barred. He also submitted that there is no evidence to show that they were aware that the security firms of Service provider was actually not paying the amount collected as service tax by them to the government. Just because the service provider did not deposit the amount of service tax to the credit of Central Government though it was recovered from them, Revenue cannot invoke extended period and recover the amount. He also submitted that for the same reason penalty cannot be imposed. The Appellant submits that availment and utilisation of the credit was a bonafide action on the part of the first appellant. The cenvat credit was shown in the cenvat register, utilisation was disclosed to the range and divisional officers while filing returns with the extracts of cenvat registers and therefore suppression could not have been invoked. He also submits that there is no separate column in the return for showing details of each of the services for which cenvat credit was availed by an assessee and therefore suppression cannot be invoked and also no objection by the Revenue at any time. They also relied upon several decisions to support the submission that in this case extended period could not have been invoked.

As regards the payment of penalty on Shri Javed Shaikh, they submits that he was only an employee and was simply following the directions of the first appellant and an employee of a manufacturer cannot be personally penalised unless the employee had deliberately acted in contravention of the provisions of the act or the rules with ulterior motive. In this case no such allegation has been made. The second appellant also contested penalty under Section 77 and interest under Section 75 on the first appellant.

Respondent Contention: - The Respondent submit that Shri Javed Shaikh, the production officer in his statement had clearly stated that they were receiving the services from the two service providers and the service provider suddenly disappeared in the month of January, 07. They also admitted that the company had not verified the existence of the service providers and service providers had come to the factory and collected the cheques. In such circumstances, it cannot be said that the appellants were not aware of the fraud played by the two service providers. They also submits that if the appellants did not have any intention to suppress the facts, they would have intimated the department about the disappearance of the service providers in February 07 and made efforts to find out whether the premises which was indicated as the office of the service providers was in existence or not and whether they had paid the service tax to the department or not. In the absence of any verification at the time of availing the service, the least that was expected from the appellant was verification when they suddenly disappeared from the scene. This shows that appellants did not take reasonable steps and further whether they were a party to the non payment of service tax or not cannot be determined in the absence of availability of the service provider who has disappeared from the scene. Under these circumstances, he submits that invocation of extended period and imposition of penalty was warranted in this case and the stand taken by the department is correct.

As regards the demand for the period from April 07 to October 07 they submitted that the scheme of payment of excise duty is on the basis of self assessment and assessment involves classification of goods, availment of cenvat credit, and valuation of goods and payment of duty. It is the responsibility of the assessee to do these things correctly and this is the reason why there is no requirement of details to be furnished in the return. Under these circumstances, assessee cannot escape the responsibility of ensuring that records are maintained in accordance with law and credits are availed and utilised properly.

Reasoning of Judgement:- The Hon’ble CESTAT held that as regards the credit availed in respect of security service and manpower service, as admitted by Shri Javed Shaikh , the production officer, the appellants were aware of the disappearance of the service provider after January 07. They did not effort to find out even at that stage as to whether the service providers were in existence and whether they had paid service tax collected from them to the government. It is strange that appellants received services from a service provider whose existence they knew only because he used to come to collect the cheque and they did not even bother to verify whether the office premises in the invoice was in existence or not. As observed by the Commissioner (Appeals), the fact that the service provider was located in Vapi itself would also go against the appellants since it cannot even be their case that ascertaining the existence or otherwise of the service provider was a difficult task. After the service providers disappeared from the scene, one would have expected the appellant to verify the whereabouts of service provider and if it was found that they had not paid the tax, appellant would have reversed the credit in which case they would not be liable to penal action at all. The fact that appellant did not make any efforts to locate the service provider nor did they make any effort to intimate the department nor did they debit the amount of credit taken goes against the appellants and therefore it has to be held that the invocation of extended time limit for demand in this case is sustainable. Further, for the same reasons, the first appellant is liable to penalty also.

The cenvat credit proposed to be denied on the ground that services were used for both exempted and non exempted goods as per the denial of proportionate credit as per the OIA, it has to be noted that admittedly the first appellant was engaged in the manufacture of animal feed which is exempted and was also engaged in trading activity. That being the position, the first appellant was obliged by law to maintain separate records failing which reverse the credit relatable to the trading activity. In fact there is no proposal for demanding 8%/ 10% on the exempted goods and therefore one has to take it that it is their case that the demand is on the ground that appellant was engaged in the manufacture of excisable goods and trading of other goods. If that is the case in respect of trading activity, the credit attributable to trading activity, is not admissible and is required to be reversed. The principle of self assessment and submission of only the results of self assessment in the form of return would show that it is the responsibility of the assessee to assess the goods correctly and pay the taxes correctly. In this case it cannot be said that assessee was not aware that for trading activity credit is not admissible. Once the assessee is considered to be aware of statutory provisions relating to availment of credit and his activities, the normal conclusion of an ordinary prudent person is that the assessee had deliberately avoided reversing the credit attributable to trading activity and thereby suppressing/ misdeclaring the fact of availment of credit to the department. Therefore the conclusion of the lower authorities to confirm the demand with interest and imposition of penalty has to be upheld. As regards Shri Javed Shaikh , they held that he was an employee and it cannot be said that he derived any extra benefit because of the lapses it has not been shown that there was any motive on his part. Since penalty has been imposed on the first appellant, they consider it appropriate that penalty imposed on Shri Javed Shaikh has to be set aside. Accordingly, penalty imposed on Shri Javed Shaikh is set aside and appeal is allowed. It is stated that the decision cited relating to invocation of extended period and other issues have not been discussed since none of them were found to be applicable to the facts of this case.

Decision:-Appeals disposed off.

Comment: This decision puts all the service recipients in a very difficult situation because a service recipient availing credit on input services is now also responsible to see that the service tax has been deposited by the service provider to the government or not. But, this decision also sets aside penalty on employee on the basis that he cannot derive any extra benefit by contravening provisions of the Act.

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PJ/ Case Laws/2012-13/1275

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