Case Law Details
Areva T & D India Ltd. Vs Customs (Madras High Court)
The appellant, M/s Areva T & D India Limited, manufactured relays, control panels, switches and related parts falling under Chapter 85 of the Central Excise Tariff Act, 1985. It availed CENVAT credit on imported components under the CENVAT Credit Rules, 2004. During verification of its records, the Department found that, for the period 2003-2004 and 2004-2005, the appellant had procured software maintenance services under an annual maintenance contract (AMC) with M/s SAP France SA. Service tax on the AMC services was paid belatedly with interest on 23 January 2006, after which the appellant availed CENVAT credit of the tax paid during February 2006 under the category of input services.
A show cause notice dated 5 February 2008 proposed recovery of ineligible CENVAT credit under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944, levy of penalty under Rule 15(2) read with Section 11AC, and interest under Section 11AB. The appellant replied that maintenance of computer software constituted information technology services, that maintenance of computer software became taxable only from 1 May 2006, and that service tax on services rendered before that date was not payable. According to the appellant, the tax had been paid by mistake and was therefore taken as credit instead of claiming refund.
The Assistant Commissioner held that if tax was paid on a service on which no tax was leviable, the payment was to be treated as a deposit and the proper remedy was to seek refund rather than take CENVAT credit suo motu. The authority further held that the contractual obligations between SAP France SA and the appellant had been suppressed from the Department, resulting in availment of ineligible credit, and initiated recovery of the credit together with penalty proceedings.
The appellant challenged the order before the Tribunal, contending that the demand raised after two years was barred by limitation, that services received from abroad prior to insertion of Section 66A of the Finance Act, 1994 were not taxable, and that taking credit of the amount paid by mistake instead of claiming refund was not illegal. The Tribunal rejected these contentions, holding that even where service tax was paid wrongly or in excess, the taxpayer could not take credit suo motu and was required to file a refund claim under Section 11B of the Central Excise Act, 1944. The Tribunal also held that suppression of the contractual obligations justified invocation of the extended period and dismissed the appeal.
Before the High Court, the appeal was admitted on two substantial questions of law: whether the extended period under the proviso to Section 11A(1) could be invoked where there was no intention to evade payment of excise duty, and whether the penalty under Rule 15(2) of the CENVAT Credit Rules read with Section 11AC of the Central Excise Act was valid. The appellant argued that no service tax was payable on AMC for computer software maintenance prior to 1 May 2006 and that the show cause notice issued beyond the prescribed limitation was unsustainable. The Department submitted that there was no provision permitting credit of service tax paid erroneously, such payments were only refundable under Section 11B, and the appellant had wrongly benefited by taking ineligible credit.
The Court referred to Sections 11A, 11B and 11C of the Central Excise Act, 1944 and Rule 15(2) of the CENVAT Credit Rules, 2004. It observed that, during the relevant period, the normal limitation for issuing notice was six months, while the period extended to five years in cases involving fraud, collusion, wilful misstatement, suppression of facts or contravention of statutory provisions with intent to evade payment of duty.
Examining the facts, the Court held that the contractual obligations between SAP France and the appellant had not been disclosed to the Department. It observed that the omission to disclose those contractual obligations was apparent. The Court further noted that the appellant had paid service tax belatedly and had taken suo motu credit instead of seeking refund. Considering the entire transaction, the Court held that suppression and fraud stood established. Consequently, invocation of the extended limitation period and levy of penalty satisfied the legal requirements. Both substantial questions of law were answered against the appellant, and the Civil Miscellaneous Appeal was dismissed without any order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
The brief fact leading to the appeal is, the appellant M/s Areva T & D India Limited is a manufacturers of relays, control panels, switches and parts thereof falling under Chapter 85 of Central Excise Tariff Act, 1985. On import of components for manufacturing the above items, the appellant had availed Cenvat credit facility and utilised credit under Cenvat Credit Rules, 2004. On verification of the records of the appellant, the Department noticed during the period 2003-2004 and 2004-2005, the appellant had procured maintenance of software services contract. For the said purpose, they had placed purchase order for Solaris 2.6 and Oracle database software from M/s SAP France SA vide letter date 21/12/1998. The annual maintenance charges (AMC) to be paid to M/s SAP France in Deutsch Mark, as per their quotation dated 09/12/1998. For the said AMC service rendered during the period 2003-2005, service tax was belatedly paid with interest on 23/01/2006. Thereafter, the amount paid was taken as credit during the month of February 2006, under the category of service tax paid on input services.
2. Under Rule 3(1), a manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit on service tax leviable under Section 66A of the Finance Act, 1994 and paid on any input service received by the manufacturer of final product or by provider of output services on or after 19/09/2004. While so, the appellant has taken input credit to a tune of Rs.2,04,274/- and Education Cess Rs.1,11,333/- being the service tax paid on annual maintenance charges paid to M/s SAP France SA for the period prior to 10/09/2004.
3. On 05/02/2008, Show Cause Notice issued to the appellant with the following imputations as to why:
(a) ineligible Cenvat Credit Rs.2,05,407/- availed and utilised during February 2006 as shown in the annexure, should not be demanded under Rule 14 of the Cenvat Credit Rules 2004 read with Section 11A of the Central Excise Act, 1944.
(b) Penalty under Rule 15(2) of the Cenvat Credit Rules, 2004, read with Section 11AC of the Central Excise Act, 1944 should not be imposed in as much as the fact of the contractual obligations entered between M/s SAP France SA and M/s Alstom (former name of M/s AREVA T&D), thereby avialment of ineligible credit of service tax was suppressed from the knowledge of the Department with an intention to evade payment of duty.
(c) interest at appropriate rate under Section 11AB of the Central Excise Act, 1944 should not be levied on them.
4. For the above imputations mentioned in the Show Cause Notice, the appellant replied on 07/03/2008 contending that the activity of maintaining of computer software would fall under the term “information, technology services” and definition of ‘Business Ancillary Services’ includes information technology services. Further, the definition of ‘technology service’ amended with effect from 01/05/2006. The words maintaining of computer software were deleted. Therefore, the service of maintaining of computer became taxable only from 1st May 2006. Hence, services rendered by M/s SAP, France prior to 1St May 2006 are not liable to service tax. Since tax is not at all payable and due, the tax paid by mistake was availed as credit suo motu, instead of claiming refund.
5. The Assistant Commissioner, after examining the records and the submissions made by the appellant, observed that the service tax and interest were paid belatedly on 23/01/2006 towards the annual maintenance charges (AMC) for the period from 2003 to 2005. The tax paid taken as credit during the month of February 2006, under the category of service tax paid on input services. The appellant having paid the tax if not due and payable, can only seek for refund but cannot suo motu take credit of the said amount. If a person pays duty on the service on which no duty is leviable, it is to be treated as deposit and credit cannot be availed. The fact of the contractual obligations entered between SAP France, SA and Mrs.Alstom (former name of M/s Areva T & D ) were suppressed from the department, thereby resulting in availing of ineligible credit of service tax. Since the said suppression come to knowledge of the department only during the detailed scrutiny of their private records, action under Rule 15(2) read with Section 11 AC was initiated in addition to recovery of ineligible credit taken on the amount of Rs.2,04,274/- under Rule 14 of Credit Rules, 2004 r/w Section 11 A of the Central Act 1944.
6. The Appellant being aggrieved by the order in Original passed by the Assistant Commissioner, challenged it before the Appellate Tribunal on the ground that the demand raised after two years (i.e) in February 2008 for availing credit in February 2006, was barred by limitation. The service rendered for maintaining computer software prior to 1st, May 2006 does not attract service tax. The services received from abroad are taxable only after insertion of Section 66A of the Finance Act, 1994. Therefore, even assuming that the services were taxable, the appellant is not liable to pay service tax for services rendered only from Abroad and received prior to April 18th , 2006. Having paid the tax by mistake, they had not claimed the refund of the same, but have availed it as Credit, which is not illegal.
7. The Tribunal considering the above grounds of appeal, held even if in case of excess payment or wrong payment of service tax, the taxpayer cannot suo-motu take credit. Proper procedure is to seek for refund of the excess tax paid. The remedy is to file a refund claim under Section 11-B of the Central Excise Act, 1944. The appellant, instead of filing refund claim, had taken credit of the amount paid, which is not permissible under the Act and Rules. The demand notice issued after two years during the extended period. Nonetheless, the inspection and verification of the records commenced much prior, which has disclosed the suppression of contractual obligation entered between M/s SAP, France and M/s Alstom ( the former name of M/s Areva T & D ). Suppressing the contractual obligation the appellant had availed credit without any eligibility. Therefore, the demand notice issued during the extended period is valid.
8. The Tribunal dismissed the tax payer appeal upholding the Order in Original reiterating there is no basis for the claim of bona fide belief for taking ineligible credit suo motu. Plea of limitation will not apply to the case of the appellant, since the appellant had claimed input credit suppressing the contractual obligation,
9. In the above said background of facts, the Civil Miscellaneous Appeal
filed under Section 35 G of the Central Excise Act, 1944 admitted to answer the following Substantial Questions of Law:-
(i) Whether extended period of limitation under proviso to Section 11 A (1) could be invoked in a case, where there was no intention to evade payment of Exercise Duty ?
(ii) Whether the levy of penalty is in accordance with the provision of Rule 15(2) of Cenvat Credit Rules r/w Section 11 AC of the central Excise Act, 1944 ?
10. According to the Learned Counsel for the appellant, no service tax is payable on the AMC for computer software maintenance prior to 01/05/2006. On realising that no duty is payable for the annual maintenance charges, the taxpayer has taken credit of the amount paid. Even assuming there is no provision for taking credit and the credit taken without eligibility, action should have been taken within the time prescribed for reversal. The show cause notice issued beyond the period of limitation is bad in law.
11. Whereas, the Learned Senior Panel Counsel for the Department claims that there is no provision claiming credit on service tax paid erroneously. Such payments are considered as deposit and the taxpayer is entitled to claim refund. Section 11 A and 11 B of the Central Excise Act, 1944 and the Cenvat Credit Rules for levy, short levy and refund makes it clear that the appellant in this case had wrongly benefited by taking credit of the amount, which is not WEB eligible under the Rules.
12. For easy reference and appreciation of the rival submission, the relevant Sections and Rules prevailed at that time (2003-2005) are extracted below:-
Central Excise Act, 1944:
Section 11 A:
“11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded — (1)When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, whether or not such non-levy or non-payment, short-levy or short payment or erroneous refund, as the case may be, as on the basis of any approval, acceptance or assessment relating to the rate of duty on or valuation of excisable goods under any other provisions of this Act or the rules made thereunder, a Central Excise Officer may, within [one year] from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:
Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, [as if, [***]] for the words [one year], the words “five years” were substituted.
Provided further that where the amount of duty which has not been levied or paid or has been short-levied or short-paid or erroneously refunded is one crore rupees or less a notice under this sub-section, shall be served by the Commissioner of Central Excise or with his prior approval by any officer subordinate to him;
Provided also that where the amount of duty which has not been levied or paid or has been short-levied or short-paid or erroneously refunded is morethan one crore rupees, no notice under this sub-section shall be served, without the prior approval of the Chief Commissioner of Central Excise.
Explanation-Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of [one year] or five years, as the case may be,
(2) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom notice is served under sub-section (1), determine the amount of duty of excise due from such person (not)being in excise of the amount specified in the notice) and thereupon such person shall pay the amount so determined.
(2A) Where any notice has been served on a person under sub Section (1), the Central Excise Officer:-
(a) in case any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, where it is possible to do so, shall determine the amount of such duty, within a period of one year; and
(b) in any other case, where it is possible to do so, shall determine the amount of duty of excise which has not been levied or paid or has been short-levied or short-paid or erroneously refunded, within a period of six months.
From the date of service of the notice on the person under sub-section (1).
(2B) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person, chargeable with the duty, may pay the amount of duty before service of notice on him under sub-section (1) in respect of the duty and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the duty so paid.
Provided that the Central Excise Officer may determine the amount of short payment of duty, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of “one year” referred to in subsection (1) shall be counted from the date of receipt of such information of payment.
Explanation 1. Nothing contained in this subsection shall apply in a case where the duty was not levied or was not paid or was short-levied or was short-paid or was erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty.
Explanation 2. For the removal of doubts, it is hereby declared that the interest under section 11AB shall be payable on the amount paid by the person under this sub-section and also on the amount of short-payment of duty, if any, as may be determined by the Central Excise Officer, but for this sub-section.
(2C) The provisions of sub-section (2B) shall not apply to any case where the duty had become payable or ought to have been paid before the date on which the Finance Bill, 2001 receives the assent of the President.].
(3) For the purposes of this section, –
(i) “refund” includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;
(ii) “relevant date” means, –
(a) in the case of excisable goods on which duty of excise has not been levied or paid or has been short-levied or short-paid-
(A) where under the rules made under this Act a periodical return, showing particulars of the duty paid on the excisable goods removed during the period to which the said return relates, is to be filed by a manufacturer or a producer or a licensee of a warehouse, as the case may be, the date on which such return is so filed;
(B) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;
(C) in any other case, the date on which the duty is to be paid under this Act or the rules made thereunder;
(b) in a case where duty of excise is provisionally assessed under this Act or the rules made thereunder, the date of adjustment of duty after the final assessment thereof;
(c) in the case of excisable goods on which duty of excise has been erroneously refunded, the date of such refund.”
SECTION 11B:
11B. Claim for refund of duty-(1)Any person claiming refund of any duty of excise may make an application for refund of such duty to [Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise] before the expiry of [one year] [from the relevant date] [in such form and manner] as may be prescribed and the application shall be accompanied by such documentary or other evidence (including the documents referred to in section 12A) as the applicant may furnish to establish that the amount of duty of excise in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty had not been passed on by him to any other person:
Provided that where an application for refund has been made before the commencement of the Central Excises and Customs Laws (Amendment) Act, 1991, such application shall be deemed to have been made under this sub-section as amended by the said Act and the same shall be dealt with in accordance with the provisions of sub-section (2) substituted by that Act:
Provided further that the limitation of [one year] shall not apply where any duty has been paid under protest.
(2) If, on receipt of any such application, the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise is satisfied that the whole or any part of the duty of excise paid by the applicant is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund:
Provided that the amount of duty of excise as determined by the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise] under the foregoing provisions of this sub-section shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to-
(a) rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;
(b) unspent advance deposits lying in balance in the applicant’s account current maintained with the [Commissioner of Central Excise];
(c) refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act;
(d) the duty of excise paid by the manufacturer, if he had not passed on the incidence of such duty to any other person;
(e) the duty of excise borne by the buyer, if he had not passed on the incidence of such duty to any other person;
(f) the duty of excise borne by any other such class of applicants as the Central Government may, by notification in the Official Gazette, specify:
Provided further that no notification under clause (f) of the first proviso shall be issued unless in the opinion of the Central Government the incidence of duty has not been passed on by the persons concerned to any other person.
(3) Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any Court or in any other provision of this Act or the rules made thereunder or any other law for the time being in force, no refund shall be made except as provided in sub-section (2).
(4) Every notification under clause (f) of the first proviso to sub-section (2) shall be laid before each House of Parliament, if it is sitting, as soon as may be after the issue of the notification, and, if it is not sitting, within seven days of its re-assembly, and the Central Government shall seek the approval of Parliament to the notification by a resolution moved within a period of fifteen days beginning with the day on which the notification is so laid before the House of the People and if Parliament makes any modification in the notification or directs that the notification should cease to have effect, the notification shall thereafter have effect only in such modified form or be of no effect, as the case may be, but without prejudice to the validity of anything previously done thereunder.
(5) For the removal of doubts, it is hereby declared that any notification issued under clause (f) of the first proviso to sub-section (2), including any such notification approved or modified under sub-section (4), may be rescinded by the Central Government at any time by notification in the Official Gazette.]
Explanation. For the purposes of this section, –
(A) “refund” includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;
(B) “relevant date” means, –
(a) in the case of goods exported out of India where a refund of excise duty paid is available in respect of the goods themselves or, as the case may be, the excisable materials used in the manufacture of such goods, –
(i) if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India, or
(ii) if the goods are exported by land, the date on which such goods pass the frontier, or
(iii) if the goods are exported by post, the date of despatch of goods by the Post Office concerned to a place outside India;
(b) in the case of goods returned for being remade, refined, reconditioned, or subjected to any other similar process, in any factory, the date of entry into the factory for the purposes aforesaid;
(c) in the case of goods to which banderols are required to be affixed if removed for home consumption but not so required when exported outside India, if returned to a factory after having been removed from such factory for export out of India, the date of entry into the factory;
(d) in a case where a manufacturer is required to pay a sum, for a certain period, on the basis of the rate fixed by the Central Government by notification in the Official Gazette in full discharge of his liability for the duty leviable on his production of certain goods, if after the manufacturer has made the payment on the basis of such rate for any period but before the expiry of that period such rate is reduced, the date of such reduction;
[(e) in the case of a person, other than the manufacturer, the date of purchase of the goods by such person;]
[(ea) in the case of goods which are exempt from payment of duty by a special order issued under subsection (2) of section 5A, the date of issue of such order;]
[(eb) in case where duty of excise is paid provisionally under this Act or the rules made thereunder, the date of adjustment of duty after the final assessment thereof;]
(f) in any other case, the date of payment of duty.]
SECTION 11 C:
“11C. Power not to recover duty of excise not levied or short-levied as a result of general practice. —
[(1)] Notwithstanding anything contained in this Act, if the Central Government is satisfied—
(a) that a practice was, or is, generally prevalent regarding levy of duty of excise (including non-levy thereof) on any excisable goods; and
(b) that such goods were, or are, liable—
(i) to duty of excise, in cases where according to the said practice the duty was not, or is not being, levied, or
(ii) to a higher amount of duty of excise than what was, or is being, levied, according to the said practice, then, the Central Government may, by notification in the Official Gazette direct that the whole of the duty of excise payable on such goods, or, as the case may be, the duty of excise in excess of that payable on such goods, but for the said practice, shall not be required to be paid in respect of the goods on which the duty of excise was not, or is not being, levied, or was, or is being, short-levied, in accordance with the said practice.
(2) Where any notification under sub-section (1) in respect of any goods has been issued, the whole of the duty of excise paid on such goods or, as the case may be, the duty of excise paid in excess of that payable on such goods, which would not have been paid if the said notification had been in force, shall be dealt with in accordance with the provisions of sub-section (2) of Section 11 -B:
Provided that the person claiming the refund of such duty or, as the case may be, excess duty, makes an application in this behalf to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, in the form referred to in sub-section (1) of section 11B, before the expiry of six months from the date of issue of the said notification.
Rule 15(2) of the Cenvat credit Rules, 2004:
“RULE 15. Confiscation and penalty — (2) In a case, where the CENVAT credit in respect of input or capital goods or input services has been taken or utilised wrongly by reason of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of the Excise Act, or of the rules made thereunder with intent to evade payment of duty, then, the manufacturer shall also be liable to pay penalty in terms of the provisions of [clause (c), clause (d) or clause (e) of sub-section (1) of section 11AC of the Excise Act.”
13. During the relevant period (2003-2005) in case of any non-levy or short levy, action to be taken within period of 6 months from the relevant date by serving notice on the person. However, in case of fraud, collision or any wilful statement or suppression of fact or contravention of any of the provisions of the act or rules with intent to evade payment of duty, the period gets extended from six months to 5 years.
14. Hence, the test is whether in this case, the taxpayer falls under anyone of the categories like, fraud, collusion, suppression etc., to invoke the extended period.
15. According to the department, the contractual obligation between M/s SAP France and the taxpayer formerly known as M/s Alstom Ltd., was not disclosed to the department. The terms of the contract were suppressed with intention to evade duty and therefore, the provision of extended period gets attracted. The omission to disclose the contractual obligation is apparent, and therefore, the consequence is the payment of service tax, but without any claim of credit. In this case, admittedly, service tax was paid belatedly by taking suo moto credit instead of claiming refund. The entire transaction taken as a whole, suppression and fraud get established. Hence, invoking extended period and WEB levy of penalty satisfied the legal requirement. Hence, both the Substantial Questions of Law are answered in negative against the assessee/appellant.
16. In the result, this Civil Miscellaneous Appeal stands dismissed. No order as to costs.
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