Case Law Details
Chanakya Communication Network Pvt Ltd Vs CCE (CESTAT Chandigarh)
Introduction: The Central Excise, Service Tax Appellate Tribunal (CESTAT) in Chandigarh recently delivered a judgment in the case of “Chanakya Communication Network Pvt Ltd Vs CCE.” The case delved into the technicalities of the CENVAT Credit system and the entitlement of cable operators to claim credit for the service tax paid on invoices by broadcasting agencies.
Detailed Analysis:
Backdrop and Core Issue: The appeal emerged from the order passed by the Commissioner of Central Excise, Rohtak, dated 03.05.2011. It confirmed a demand of Rs. 84,71,295/- under provisions of the Finance Act, 1994. The core dispute revolved around whether the appellant company (a cable operator) was entitled to avail CENVAT Credit of the service tax paid on invoices raised by broadcasting agencies.
Audit Observations: During an audit of records from 2004-2009, officials observed that the appellant operated as a distributor for M/s Wire and Wireless (India) Ltd. Although they had agreements for running the cable network, the audit raised concerns about the appellant availing CENVAT Credit meant for Wire and Wireless (India) Ltd.
Appellant’s Stand: The appellant, during the proceedings, argued that the impugned order did not understand the intricate facts, laws, and existing judicial precedents. The Counsel emphasized on Rule 2(1) of Cenvat credit Rules, 2004 and pointed out that services they received were for output services, making them entitled to the CENVAT credit.
Reliance on Judicial Precedents: The appellant’s counsel cited various judicial precedents to reinforce their claim. Key cases included:
1. The Commissioner Of Gst & Central Excise, Chennai Versus M/S. Dymos India Automotive Private Limited
2. RMZ Infotech Pvt. Ltd. v Commr. Of Central Tax, Bengaluru East
3. Navaratna Sg. Highway Prop. (P.) Ltd Versus Commissioner of Service Tax, Ahmedabad
Analysis of ‘Input Service’: Diving deep into the definition of ‘Input Service’ as provided under rule 2(l) of CCR, three primary conditions emerged that solidified the appellant’s claim:
1. Existence of a service
2. Service utilization by the output service provider
3. Service used for rendering the output service
The appellant met all three criteria, making them eligible for CENVAT credit.
Time Limitations and Demand: The appellant pointed out that a substantial portion of the demand was time-barred due to the delayed issuance of the show cause notice.
Conclusion: After meticulous examination of submissions, facts, and established laws, CESTAT Chandigarh concluded that the impugned order denying the CENVAT credit to the appellant wasn’t sustainable in law. Consequently, the tribunal set aside the order, ruling in favor of the appellant, thereby recognizing the entitlement of cable operators to CENVAT Credit under specific conditions.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
The present appeal is directed against the impugned order dated 03.05.2011 passed by the Commissioner of Central Excise, Rohtak wherebay the demand to the tune of Rs. 84,71,295/- was confirmed under the provision 73 (1) of the Finance Act, 1994 and also imposed equivalent penalties under Section 78 of the Finance Act, 1994.
2. Briefly the facts of the present case are that the appellant are registered with the Central Excise Department, Rohtak under Service Tax Rules 1994 for providing taxable output services of ‘Business Auxiliary services’. During the course of Audit of its records by the Audit officers of Central Excise Commissionerate Rohtak (Haryana) for the period 2004-2009, it was observed that the appellant were the distributor of M/s Wire and Wireless (India) Ltd (Formerly known as Siti Cable Network Ltd) and had entered into an agreement with them to manage and run the cable television network business owned and within the prescribed jurisdiction of Rohtak. The Appellant Company under the said agreement were also required to provide all other related and ancillary services that may be required to attend the main business of Wire & Wireless India Ltd. In consideration for carrying on its obligation under the said agreement, the appellant company was eligible for a consideration of 90% of the revenues generated by Wire & Wireless (India) Ltd in the appellant company’s jurisdictional area during the relevant period. During the course of Audit, it was observed that the appellant company were availing /utilizing CENVAT Credit of the service Tax paid on the invoices raised by various Broadcasting agencies such as ZEE, star etc on it but the Cable TV Networking business including cable operator connectivity and cable network used for transmission/ retransmission of cable TV signals exclusively belongs to M/s Wire and Wireless (India) Ltd and thus M/s Wire and Wireless (India) Ltd and not the appellant company are entitled for availing CENVAT Credit of the service tax paid on the invoices raised by various Broadcasting agencies such as ZEE, star etc. On these allegations, a show cause notice dated 09.04.2010 was issued to the appellant demanding Rs 84,71,295/ wrongly availed and utilized by them under Rule 14 of the CANVAT Credit Rules 2004 read with section 73 of the finance Act, 1994 by invoking the proviso to the said section along with interest and penalty.
3. After following due process, the Ld. Commissioner has confirmed the demand for recovery of irregularly availed CENVAT Credit of Rs. 84,71,295/ under Rule 14 of the CANVAT Credit Rules, 2004 read with section 73 of the Finance Act, 1994 along with interest and also imposed equivalent penalty under Rule 15 of the CENVAT Credit Rules, 2004 read with Section 78 of the Act. Hence the present appeal.
4. Heard both the parties and perused the case records.
5. Ld. Counsel for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts and law and the binding judicial precedents. She further submitted that the demand has been confirmed on the ground that the appellant had wrongly availed the Cenvat credit of the tax paid to the broadcasting agencies as the same is not the input service for the Appellant and rather the input service of WWIL. She further submitted that the services received by the appellant are its input services which are used for rendering the output services of WWIL. She referred to Rule 2(1) of Cenvat credit Rules, 2004 which defines input service as any service used by a provider of output service for providing an output service. She also submitted that the appellant has fulfilled all the conditions prescribed under the definition of ‘Input service’. She also submitted that as per the Agreement, the appellant renders the services of managing the cable network of WWIL in the Rohtak jurisdiction which is the output service of the appellant and for the purposes of rendering the said services, the appellant was also required to obtain the broadcasting rights from various broadcasters. For the services rendered by the appellant, the appellant raises invoices on WWIL for 90% of the total revenue with applicable service tax and discharges the same under BAS. Further, the appellant also enters into agreement with various broadcasting agencies pursuant to which appellant is receiving broadcasting services. For the said services, the broadcasting agencies are issuing invoices in the name of appellant charging applicable service tax which shows that the appellant is receiving the broadcasting services on which service tax was paid to the broadcasting agencies. Further, the broadcasting services received by the appellant are necessary for managing the cable network of WWIL which is evident from the Agreement entered into by the appellant with broadcasters for performing the services to WWIL. She further submitted that the appellant is utilising the broadcasting services for rendering the output service i.e., BAS. She also submitted that there is no agreement between WWIL and the broadcasting agencies and the agreements between appellant and various broadcasting agencies makes no reference of the Agreement between WWIL and the Appellant and therefore as per the Ld. Counsel, the agreements entered with the broadcasting agencies were not on behalf of WWIL but on its own account by the Appellant. She further submitted that the invoices issued by the broadcasting agencies were in the name of the appellant and not in the name of WWIL. Further, the Appellant raises the invoice on WWIL for rendering the ‘BAS’. She also referred to Rule 3 of CCR which provides that the provider of taxable service is allowed to take credit of the service tax paid on any input service received by the provider of output services and the said Cenvat credit can be utilized for payment of service tax on any output service. She also submitted that the broadcasting service were utilised by the Appellant for rendering the BAS to WWIL as service provider and once the services have been utilised by the service provider in furtherance of fulfilling the obligations for rendering the output service, the credit pertaining to the same cannot be denied. For this submission, she placed reliance on the following decisions:-
> The Commissioner Of GST & Central Excise, Chennai Versus M/S. Dymos India Automotive Private Limited 2018 (9) TMI 1135 – Madras High Court
> RMZ Infotech Pvt. Ltd. v Commr. Of Central Tax, Bengaluru East 2022 (64) G. S. T. L. 599 (Tri- Bang)
> Navaratna Sg. Highway Prop. (P.) Ltd Versus Commissioner of Service Tax, Ahmedabad 2012 (7) TMI 316 – CESTAT, Ahmedabad
6. She also submitted that the demand is time barred for the period 10.09.2004 to 30.09.2008 as the show cause notice for the same was issued on 09.04.2010 i.e after the expiry of normal period of limitation of one year from the date of filing the return. She relied upon the decision in the case of Bharat Hotels Limited vs Commissioner Central Excise (Adjudication), 2018 (2) TMI 23 – Delhi High Court.
7. As far as the interest and penalties, the Ld. Counsel submitted that when the demand of cenvat credit under the Act is unsustainable, no interest and penalties can be imposed.
8. On the other hand, the Ld. AR reiterated the findings in the impugned order.
9. After considering the submissions of both the parties and perusal of material on record, we find that the appellant has entered into an agreement dated 01.04.2005 with Wire and Wireless India Ltd. (WWIL) to manage and run the cable television network on behalf of WWIL within the jurisdiction of Rohtak and for such services the appellant would be receiving 90% of the revenue generated by WWIL as consideration on which the appellant has discharged the Service tax under the category of BAS. Further, it is also a fact that for carrying out the obligations under the Agreement, the Appellant also enters into agreements with various broadcasting agencies for receiving the broadcasting signals for retransmitting the same to subscriber cable operator of WWIL. We find that the broadcasters have issued the invoices in the name of the Appellant with applicable service tax which was duly paid by the Appellant. These broadcastings services were received by the Appellant as an input service for providing the taxable output service of managing the system network of WWIL. We also find that the Ld. Commissioner has not properly gone through the agreements between the appellant and the WWIL and the broadcasting agencies and has wrongly come to the conclusion that the WWIL was the service provider of cable network and they were entitled to avail cenvat credit on the invoices issued by broadcasting agencies and not the appellant. In this regard, it is pertinent to reproduced the definition of ‘Input Service’ as provided under rule 2(l) of CCR which is herein below:-
“input service” means any service, –
(i) used by a provider of output service for providing an output service; or
(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal”
If we analyse the definition of ‘Input Service’ as provided (supra), we find that the following conditions needs to be satisfied in order to fall within the ambit of the input services:-
(a) There shall be a service;
(b) The service is utilised by the output service provider;
(c) The service shall be utilised for rendering the output service
We also find that all three conditions are fulfilled as prescribed under definition of ‘Input Service’ and therefore as per Rule 3 of CCR, 2004, the appellant who is a provider of output service of BAS is entitled to cenvat credit under Rule 3 of CCR, 2004. The Ld. Commissioner has not considered the material on fact that there is no agreement between WWIL and the broadcastings agencies and the agreement between the appellant and various broadcasting agencies makes no reference of the agreement between WWIL and the appellant. Therefore, the agreements entered with the broadcasting agencies were not on behalf of WWIL, but on its own behalf by the appellant. Further, perusal of the invoices issued by the broadcasting agencies to the appellant on which the appellant has paid the service tax gives him a right to claim the cenvat credit on input services. As far as limitation is concerned, we find that the substantial demand is time barred because the show cause notice was issued on 09.04.2010 for the period from 10.09.2004 to 30.09.2008 by invoking the extended period of limitation in the absence of any malafide and suppression of facts on the part of the appellant. The appellant has been filing the ST-returns with full disclosure of the cenvat credit amount availed on the services and the department was already aware of the fact about the availment of cenvat credit of tax paid on broadcasting services. Hence, the extended period in such cases cannot be invoked as held in the case of Bharat Hotels Limited cited (supra).
10. In view of these circumstances, we are of the considered view that the impugned order denying the cenvat credit is not sustainable in law, hence, we set-aside the same by allowing the appeal of the appellant.
(Pronounced on 17.08.2023)
