Full Text
Dateofdecision:19"'September,2019
MGCANNERICKSON(INDIA)LTD Appellant
Through. Mr,Karan Sachdev,Adv.with Ms.Avisha Khatri,Adv.
Through Mr.AmitiBansal,Adv.with Mr.Aman Rewafia and
Ms.Vipasha Mishra:,Advs.
HON'BLE MR.JUSTICE C.HARISHANKAR
JUDGMENT
1. This appeal, under'$6ction 83,of the;Finance Act, 1994 read with Section 35-G ofthe Central Excise Act,1944,is directed against the Final Order, dated 1®' February, 2018, and Miscellaneous Order dated 14"^ September, 2Dl[8]:^pas^d bplle'Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as "CESTAT").
2. The dispute pertains to the period E'April,2005 to 16"'May,
2008. Duringthe said period,the appellant wasengaged in providing advertising and other services through media, television,, radio, websites,newspapers magazines,bilLboardsandhoardings and during SERTA 1/2019 Page 1 of17 2019:DHC:7955-DB the period in issue the present cuse,for which it was duly registered » with the Service Tax authorities.
3. The present dispute emanates from a Show Cause Notice dated th 30 August,2010,issued to the appellant,proposing two demands of service tax,ofRs.24,72,677/- and Rs. 1,93,74,146/- respectively. Of these, the former demand, ofRs. 24,72,677/-, stands dropped; ergo, we are not required to concern ourselves therewith. The controversy, in,the present appeal, relates to the sustainability of the second demand, as proposed in the aforesaid Show Cause Notiee and as suceessively confirmed by,the. Commissioner of Central Excise (hereinafterreferred to as"the Cbnihiigsii##'^and the CESTAT.
4. Qua this.demand, ofRs. f,93;74il46/-,the case ofthe Revenue -as accepted by the CESTATIn th^,impugned Final Order-is that the appellant erroneously ipaid tlie/3aid amount of service tax by utilization ofCENVAT Credit avaii|ble::^ithrit, whereas the amount wasrequiredto bepaidin cash. TteSMmThas,therefore,affirmed the decision,ofthe Cornmissioner, requiring the appellant to pay the ® said amountofservicetaj^ilf0|eigpainf|lEiash,withthecaveatthat, ha.ving done so, the appellant can avail CENVAT Credit ofthe said amount; in other words, the amount would stand re-credited in the appellant's CENVAT Credit account.
5. The issue in controversy is,therefore,limited to the question of whether the appellant was entitled to pay the aforesaid amount of SERTA 1/2019 Page2of17 service tax ofRs.1,93,74,146/- from its CENVAt Credit account, or was necessarily required to pay the amountin cash.
6. Vide order dated 14^' January, 2019, the present appeal was admitted on thefollowing substantial questions oflaw:- "(i) Did Customs, Excise & Service Tax Appellate Tribunal [CESTAT] fall into error in holding that during the.period from April,,2006 to March, 2008, the Assessee/Appellant could not have discharged its tax liability by utilizing the credit available to it, given that the explanation to Rule 3(4) ofthe CreditRules,2004 was broughtinto forcefrom E'July,- ^ 2012.
(ii) Did the CESTAT fali^ihtp errorun-holding that.proviso under Section 73(1)was Unwarranted.
(iii) Whether^in the circumstmiGes, the penalty was lawfully imposed."...
7. Having heard learned counselfor.tlie parties andhaving perused the availablerecord,as well;as■Iheh^elev^^^tatutory provisions, we are of the opinion that the first^quest|0fiias framedhereinabove is required to be aiiswered in favour of theAppellant and against the respondent. The necessity of adjudicating on Questions (ii) and (iii) Would, ^ thereby, standobviated. A;: '
8. The aforesaid amount of Rs. 1,93,74,146/-, constituting the subject matter of cdritfoversy in the present case, relates to service tax on services provided by various foreign companies. The services, on which, the said amount of service relates to various categories, namely. Advertising Agency Service, Manpower Recruitment Service, Business Auxiliary Service, Management Consultancy Service, SERTA1/2019 Page[3] of17 Management,Maintenance or Repair Service and On-line Information database Access Service. The provider of the said services was located outside India. The statutory backdrop
9. Service tax became payable, by the appellant, on the said services, by virtue of Section 66A ofthe Finance Act, 1994, which reads thus; "66A; Charge of service tax on services received from outside India.-(1) Where any service specified in vclause (105)of.Section65 is,- (a) provided or to.be proyiilecl by a person who has, established a business Or haslaffixed establishment from which the serviceis provided orto be provided or hashis permanent,address orusual place ofresidence,.in a country otherthan India,and (b), received %ya-.p'erson (hereinafter referred-to as the recipient) who dias his place of business, fixed establishment, permanent address or usual place of residence,in India,such service-shall,forthe.purposes, of this section, be taxable service, and such taxable service shallbe treated as ifthe recipient hadliimself ^ provided-the ^rvice-irtlndi^jaipiaccordingly all the provisions ofthis Chapter shall apply."
10. It is also necessary to refer to certain provisions of the CENVAT Credit Rules, 2004 (hereinafter referred to as "CENVAT Credit Rules"). Rule 3(4) ofthe CENVAT Credit Rules-sans the various provisos thereto, which are ofno particular relevance — reads as under; "3. CenvatCredit.-... SERTA 1/2019 ' Page4of17 (4) The CENVAT credit mav he ntiliyed for iJavment of- (a) any duty ofexcise on any final product; or (b) an amount equal to CENVAT credit taken on inputs if such inputs are removed as such orafter being partially processed;or
(c) an amount equal to the CENVAT credit taken on capital goods ifsuch capital goods are removed as such;or
(d) an amount,.under sub-rule(2)ofrule 16
11. With effect frpm 1 Julv,.2012.'the following explanatinn addedto Rule3(4)ofthe CenVat'^rei^f^Mes(supra):- Explanation.- Cenvaticfedit.cdnnot,be used for payment ofservice tax ini^pe^tld£{?e^dd^wher!ethe person liable to pay tax is the service.reGipieht." ' i ■' (Emphasis supplied) ^ Clearly,acceptanceoffcstati in the presentcase, would amount to applying the afore-extracted Explanation retrospectively,to a period priorto its introduction,
12. Rules 3 and 4 ofthe of Taxation of Services(Provided from Outside India and Received in India)Rules,2006(hereinafter referred to as "Taxation of Services Rules") are also relevant, and may be reproduced thus: SERTA1/2019 ^ Page5of17 "3. Taxable services provided from outside India and received in India.- Subject to section 66A of the Act, the taxable services provided from outside India and received in India shall,in relation to taxable services-
(i) specified in sub-clauses(d),(p),(q),(v),(zzq),
(zzza),(zzzb),(zzzc),(zzzh),(zzzr),(zzzyX(zzzz)and (zzzza) of clause (105)ofsection 65 ofthe Act, be such services as are provided or to be provided in relationto animmovable property situated in India;
(ii) specified in sub-clauses (a),(f),(h),(i), Q),(1),
(m),(n),(o),(s),(t),(u),(w),(x),(y),(z),(zb),(zc), (zi), (zj), (zn),(zo),(zq), (zr), <zt), (zu),(zv),(zw), (zza), (zzc), (zzd), (zzf),.(zzg), (zzh),,(zzi), (zzl), (zzm),.(zzn),(zzo),,(^),^zzsX (zzt), (zZV)^-(zzw), (zzx),(zzy),(zzzd)vXzzze)/{(zz^ (zzzp)ofclause (105)ofsection.65 ofthe:Act'-fe such services as are.performed in India:,, Provided that where such;taxable service is partly performed in India, it shall be freated as performed in India and.the valiieipffsuGh'.taxable service shall be determined under section 167tofrthe Act and the rules made thereunder;,' ■. '.. ' (iii)specifiediSielah^,|l|^^'p^e^ion65 ofthe Act, butexcluding — (a) sub-clauses(zzzo)and(zzzv); (b) thbseisppfriedlihi clause (i) ofthis rule except when the provision of taxable services specified in clauses(d),(zzzc), and(zzzr)does notrelate to immovable property;and
(c) those specified in clause (ii) ofthis rule,, be such services as are received by a recipient located in India for use in relation to business or commerce.
4. Registration and payment of service tax.- The recipient oftaxable services provided from outside India and received in India shall make an application for registration SERTA1/2019 Pagefro.fl? I and for this puipose,the provisions ofSection 69 ofthe Act and therules madethereunder shall apply."
13. The expressions "output service", "person liable for paying service tax"and"provider oftaxable service"were defined in Clauses (p),(q)and (r) ofRule 2 ofthe CENVAT Credit Rules, during the relevant period,which read as under "(p) "output service" means any taxable service,excluding. the taxable service referred to in sub-clause (zzp)ofclause (105) of Section65 of the Finance Act, provided by the provider oftaxable service, to a customer, client, subscriber, policy holder or any other person,as the case may be,\and the expressions 'provider' and 'provided' shall be construed accordingly; (r). \ "provider oftaxable.service''''m!eludes a personTable for paying service tax; (q). "person liable for•pa.ying^seryiee tax"has the meaning as assigned to it in clause bf^-rUle(1)ofRule 2ofthe Service Tax Rules,1994"
14. Clause(q)ofiSectiori;2bftTe:^ Credit Rules refers us, therefore,to the definition of"person liable for paying service tax",as contaihed in Rule 2(l)(d)(iv) ofthe ServicefjfTax Rules (as it stood then),which reads as under: ^ j "(iv) "person liable for paying service tax" means, in relation to any taxable service provided or to be provided by any person from a country other than India and received by any person in India under Section 66A of the -Act, the recipient ofsuch service;" Orders ofthe authorities below SERTA1/2019, Page7of17
15. The reasoning ofthe Commissioner,as contained in the Orderin-Originalj dated 6"'July, 2012,insofar as it relates to the aforesaid demand ofRs.1,93,74,146/-, is contained in para 19.[5] thereof, which may be reproduced as under: "Rule 3(1)ofthe CENVAT CreditRules, 2004inter alia allows a provider of taxable service to take CENVAT credit of- the duty ofexcise and other duties and cess specified therein, the service tax leviable under Section 66 of the Finance Act, 1994; the service tax leviable ® underSection 66A ofthe Finance Act, 1994,etc.paidon any inputor Capitalgoods receivedinthepremisesofthe provider ofoutputservice, anddny inputservice received by theprovider ofoutpmservicefF^ the CENVAT. Credit Rules, 2004 provides that the CENVATcreditmay be U0ized0rpaymentofservice tax on any outputservice:/Itfollows, therefrom that CENVAT creditofduty orservice tax,Vfciavailed on any input or input service etc. may ht utilized towards payment of service tax on any output service. The services received ® by the Noticeefrom ontsidfMdim^mnoutputservices for the purpose of utilization of CENVAT credit under Rule 3ofthe CENVAT CreditRules, 2004. Further, Rule 5 of the Taxation ofServices (Providedfrom Outside India and Received in India) Rules, 2006, erases every shadow ofdoubt in this regard. This rule in clear and categorical items envisages that "the taxable services providedfrom outside India and received in India shall Page8of17 not be treated as output services for the purpose of availing credit of duty of excise paid on any input or service tax paid on any input services under CENVAT Credit Rules, 2004." Thus, a reading of statutory provisions contemplated in Section 66A(1) of the Act along with Rule 2(l)(d)(iv) ofthe said Rules, Rules 3(1) and 3(4)(e) ofthe CENVAT Credit Rules, 2004 andRule 5 of the Taxation of Services (Providedfrom Outside India and Received in:India) Rules, 2006, as a whole, ^ clarifies unarnhiguously thatthe Noticee wasnotentitiled to utilize the CENVAITcpedifd^msfpaymerit ofservice tax on the services receBed)b0tl^mfputside India, the Noticee was requiredito payfihy.service tax on the services received y itfrom,oMtMe Tndia through cash. This amount as demanded ih the impugned notice is liable to be recovered)fromfffm in cash. The contention ofthe Noticee thatdff^^ejmeneutidl has no merit at all,for thatpaymentofse^icedax-^ihrough cash, in such circumstances, is the mandate of the law. The other ^ ' contention of the NdiwhjeyfhalfWl^I^^ reflected the utilization ofCENVATcrediton such services inthe ST-3 returns also does not have any merit,for that, in this regard, a clearpicture does notemergefrom the returns. Moreover, the liability to pay service tax and the assessment thereof is upon the Noticee under selfassessment scheme and not upon the department. Thus, SERTA 1/2019 Page9of17 m thisargumentoftheNoticee also doesnotsustain.Hence, itis rejected."
16. The CESTAT concurred with the Commissioner, holding/that Section66-A ofthe Finance Act,1994required servicetax payableon reverse charge basis to be paid in cash. It was also held that CENVATcredit was allowable,to the person liableforpaying service tax, in such cases only contingent on payment ofthe service tax in cash. The CESTAT^ however, held that,consequent to payment of service tax under coptending thatdhefe had been a mistake. Section 66-A of the Finance Act, 1994,.mvcashj the appellant would be entitled to avail CENVAT crehit^,0^t|^®d amoum, which would, therefore,bere-credited in its'CENVMtcWd^ account.
17. Contending that there. hati,;;beem,^ in the aforesaid decision ofthe CESTAT,the'^dppellant filed ROM Application No. ST/ROM/5046B, 507041018 & 5X/MI5C/50526/2018, for - t - 1 ' rectification thereof.The appellantpointed out,in the said application thatit wasonly with effectfrom E'July,2012^Thatan explanation had ® been appended to. Sectioh^S^^lf®^AnvAT Credit Rules, proscribing paymentofservice tax,by utilization ofCENVAT Credit, in casesin whichthepersonresponsibleforpayingservicetax wasthe servicetax recipient,i.e.,whereservicetax wasrequiredto bepaid on reverse chargebasis. Per corollary,submitted the appellantin the said ROM Application,priorto E'July,2012,service tax,even on.reverse charge basis, i.e., under Seetion 66-A ofthe Finance Act, 1994, was payablefrom the CENVAT credit accountofthe assessee. Page 10 of17
18. The aforesaid ROM application,filed bythe appellant,wais also dismissed by the CESTAT, vide Miscellaneous Order dated 14^ September,2018.
19. Aggrieved by the aforesaid final order dated 1®' December, 2018 ofthe CESTAT upholding the confirmation, against it, ofthe service tax demand ofRs.1,93,74,146/- as well as by Miscellaneous Order dated 14"^ September,2018{supra),dismissing the application, filed by the appellantfor rectification ofmistaketherein,the appellant has moved this,Court, by means:ofthe present appeal under Section 83 ofthe Einance Act, 1994:read wtfeSdck^^ 35-G ofthe Central Excise Act, 1944.. i
20. We have heard Mr. Karan ■Sachdje^ learned counsel for the appellant and Mr. Amit Bahsdlj/leamdd^^fe Counsel appehrihg for the respondent. •,
21. A query was put to Mr. Amit Bansal at the outset, as to how when the Explanation, pfbHibitingpaymonfof Service tax, on reverse charge basis, from the CENVAT credit account, was introduced in Rule 3(4) ofthe CENVAT Credit Rules only with effect from 1®' July, 2012, the Revenue was effectively making the said prohibition applicable to aprior period. Mr. Amit Bansal's response was that the said Explanation was only clarificatory in nature. The response, needless to say, merits submission only to invite rejection. The Explanation to Rule 3(4) of the CENVAT Credit Rules, as engrafted SERTA 1/2019 - PageH of17, on 1®'July,2012,created a substantive liability, and a prohibition,on payment of service tax on reverse charge basis from the CENVAT credit,account. It is trite thatprovisions creating substantive rights,or liabilities, cannot have retrospective application. [Refer State of Punjab V. Bhajan Kaur AIR 2008SC2276]It is equally trite that a provision cannot be treated as clarificatory until and unless the provision itself so declares. [Refer Virtual Soft Systems Ltd. v. CommissionerofIncome Tax,Delhi(2007)9SCC665] Inasmuch as the Explanation to Rule 3(41 of the CENVAT Credit Rules. 2004 engrafts a prohibition in the CENVAT Credit Rules, resulting in a liability on the - assessee, it cannot, quite obviously^ be accorded retrosjiective effbicfj,or be applied to a period prior to the date ofits introductionin-the statute,i.e. 1'- Julv.2012.
22. Inasrnuch as the entire period dfidemand.in the present case,i$ prior to Julv.2012.the appellantis bhtifled\to succeed even on that score. "■
23. We,however,proposeto accordto.the;®spute amore empirical analysis.
24. Section 66A of the Finance Act, 1994 makes the recipient of any service, specified in Section 65(105) of the Finance Act, 1994 which would cover all "taxable services" - received by a person located in India, from a service provider located outside India, liable to pay service tax thereon as if he had himselfprovided the service in India. This, in taxing parlance, is loiown as payment on "reverse SERTA 1/2019 Page 12 of17 charge basis". In the service tax universe, service tax is payable, on reverse charge basis in various circumstances, chiefly in cases of "import of service", i.e. where the service tax provider is located outside India and the service tax recipient is located in India, and wheretheserviceprovider'is a GoodsTransportAgency(OTA).
25. Rule 2(l)(d)(iv) of the CENVAT Credit Rules defines the recipient of the service, in cases where the service, received by a recipient in India, is provided by a service provider located outside India,asthe"person liableforpaying service tax".
26. The issue to be detenhihed:is'whether the appellant, as the person liable to pay the seivicefta)^ion services provided by service providers located outside Indian ebuldipay the said service tax by utilization ofCENVAT creditiavailable'wh^ it.
27. A bare reading oft% CENVAT Credji Rules reveals that the answer to this question has necessarily to be in the affirmative. This may be demonstrated thus:
(i) Rule 3(4) of the CENVAT Credit Rules clarifies that
CENVAT credit may be utilised for payment, inter alia, of service tax on any outputservice. (ii) "Outputservice"is defined,in Rule2(p)ofthe CENVAT Credit Rules, which envisages that any taxable service, excluding the taxable service referred to in sub-clause(zzp)of Page 13 of17 I Clause(105)ofSection65oftheFinanceAct,1994provided by the provider oftaxable service, to a customer, is an "output service". (iii) "Provider oftaxable service" is defined, in Rule 2(r)of the CENVAT Credit Rules as including a person liable for paying service tax.
(iv) Rule 2(q)ofthe CENVAT Credit Rules defines"person liable for paying service:tax"-as having the same meaning, assigned to the expresisi(rai:,dni^^ ofthe Service Tax Rules, 1994 (hereinafterJrefefr^ as "the Service Tax Rules"). ' i'T'
(v) In case ofserviceSfproyided by aproviderlocated outside
India and received by a recipient.located in India, the Indian recipient is, by virt% of^Rule 2(l)(d|(iv) of,the Service Tax Rules,defined asthe"person liable-forpaying servicetax".
(vi) The Indian"'Tlbipilipinfflh^ also, therefore, becomes the "person liable for paying service tax", under the CENVAT Credit Rules.
(vii) The Indian recipient of the taxable -service also, consequently, becomes the "provider of taxable service", as defined in Rule 2(r)ofthe CENVAT CreditRules. Page 14 of17
(viii) Rule 3 (4) of the CENVAT Credit Rules permits.
CENVAT Credit to be utilised for payment ofservice tax on any"outputservice"."Outputservice"is defined,in Rule 2(p) oftheCENVATCreditRulesasserviceprovided,byaprovider oftaxableservice.Ithasalready been pointed out,bereinabove, that the petitioner was, by dint of the definition of the expression, as contained in Rule 2(r) ofthe CENVAT Credit Rules, the "provider of taxable service". Section 66A of the Finance Act,1994,holdsthat,in cases whereservice,provided byaproviderlocated outsideIndia,isreceivedbyarecipientin liidia,the service would berdeemed to.have been provided by theIndian recipient. -
(ix) Resultantly,thefeforej tbe services received in India, by the appellant,from the service.^providers located outsideIndia, were deemed to be oiitp.df es,provided in India,for which the appellantwasthiise^ej|o\ider..f"
(x) In this scenario,therefore,service tax,on such services, was payable by utilisatiOn^f Credit, by virtue of Rule3(4)ofthe CENVAT CreditRules.
28. We may also observe, in this context, that this issue has engaged the attention of various High Courts from time to time, including^ inter alia, the High Court of Rajasthan in U.O.L v. Kansara MolderLtd.2018(15)GSTL 255(Raj),the High Courtof Kamataka in in CSTv. Aravind Fashions Ltd.,2012(25)STR 583 SERTA 1/2019 ' ======™-—-= Pagel[5],ofl[7] (Kar)[SLP(C)Diaiy No;23369/2018,preferred against which,has also been dismissed by the Supreme Courton 3'"''August,2018],the High Court of Punjab and Haryana in C.C.E, v Nahar Industrial EnterpnsesLtd,2012(25)STR129(P&H)and theHigh Courtof Bombayin C.C.E.v. U.S. V Ltd,2019-V1L-334-BOM-ST.
29. All these decisions have been digested by the High Court of Bombayin U.S.V.Ltd(supra),para7ofwhichreadsthus: The view taken by the Tribunal,in respect of.Rule 3(4)(e)of the Cenvat Credit Rules, 2004:now stands concluded against therevenueIp^the decisionofthe:CujratHigh Courtinthecase ofCommissioner ofC.Ex^:& Custonis vs. PanchmahalSteel Ltdi2015(37)S.T.R.965J(Gup)i.Delhi'High Courtinthe case ofCommissioner Servicefaxvs,^4roHonda MotorsLtd. 2013(29) S.T.R. 358 and-Punjab and Haryana High Court in Commr. OfC.EX.Chdndigdrh vs. NaharIndustrial EnterprisesLtd.,2012(25)-S,T.R.129(P&H).Tho aforesaid decisions have been,.fpllowed;;-.by,.this Court in The Commissioner of CGST^^ehPal;%ccise v/s. Godrei & Eoyce Mfg Co.Ltd.((lentrdlE^m^pealNo.23of2019) decided on 24th June];2019^3^yfikm,utilisation ofCENVAT creditfor paymentofservice tax on reverse charge basis GTA gjoods Transport Agency). The above decision of Guirat Delhi Md Punjab.High Courts were also,.,followed by us fo ^( mrhissioner of COST;and GjertefM Excise; Belapur Commissionerate vs. M/s. GTL ihfrastructure Limited in (CentralExciseAppealNo.94of2019)decidedon25th June, -. In.respect of discharge of service tax obligation on reverse charge basis on import ofservices Under Section 66A ofthe.FinanceAct, 1994 by utilization ofcenvat credit. Thus ttoe is no reason not to follow our Court's decision in GTL InfrastructureLimited(supra)."
30. In view ofthe above,kebping in view the statutory provisions andjudicial.pronoupeementsasreferred to hereinabove,-itis dearthat PageliSofl? theimpugned FinalOrder,dated February,2018,ofthe.CESTAT cannotsustain in law. Itis,accordingly,setaside.
31. Theappeal,oftheappellant,isaccordinglyallowed. CMAPPL.127^/7010
32. In view of the order passed in this appeal, this Civil MiscellaneousApplication is;disposed of.