In the forth coming article we will discuss the issue that the right to avail the input tax credit is to be seen as on the date of the credit availment and not otherwise .The main intent of the this article is that whether ITC can be called upon to pay back by revenue officers once it is availed in accordance with the law. The answer to this is “No” and which was succinctly settled by the Ahmedabad bench of the CESTAT in the case of Alembic Ltd. Vs. Commissioner of Central Excise & Service Tax, Vadodara-I  101 taxmann.com 461 (Ahmedabad – CESTAT)
The brief summary of this laudable judgment is as under :
Summarised Background :
1. The assessee is registered as work contractor under the provisions of erstwhile service tax act and engaged in the development of real estate projects .
2. The assessee during the course of the business has paid due service tax liability and claimed the input tax credit accordingly .
3. The assessee on 24-02-2014 obtained the completion certificate from the relevant authority .
4. The unsold 35% inventory remained as unblocked as on the date of the completion certificate and upon which no service tax has been payable .
5. This fact was duly intimated to the service tax authorities by the assessee that it was availing only proportionate input tax credit upon the eligible inventory on the basis of square feet area.
6. In the meanwhile CERA auditors audited the books of accounts of the assessee and asked it to reverse the proportionate credit availed from 2010-11 to till the date of obtaining completion certificate on the ground that after receipt of Completion Certificate, the property had become immovable property and in case of future sale thereof, no service tax would have been payable.
7. The assessee has paid the said amount under protest and no show cause notice has been issued by the revenue in this regard . After wards claimed refund of the same .
8. In the line of the above said proceedings the revenue has issued separate show cause notice demanding the 8/10 % service tax upon the inventory sold after obtaining completion certificate on the contention that the assessee has not maintained separate books of account for taxable and exempt services it has provided and adjusted the amount paid under protest by it which was subsequently claimed as refund by the assessee. Such demand has been confirmed against the assessee under Rule 6 of Service Tax rules vide the impugned order passed by the commissioner.
9. The appeal made to adjudicating authority claiming refund has also been rejected and finally appal has been made to the tribunal.
Important Points of the Judgement of the CESTAT:
1. While the law does not intend to allow any undue benefit to a service provider in terms of cenvat credit of service tax paid on input services used in providing non-taxable output activity, cenvat credit is a vested right. Once it is legally and validly availed, the same cannot denied and/or recovered unless specific provisions exist for the same.
2. It has been a consistent judicial view that credit entitlement is on the date of receipt of inputs when the output activity was wholly dutiable. Merely because the finished goods eventually is being exempted later on, the credit availed on inputs which were contained in semi-finished/finished goods form was held as not deniable.
3. That the eligibility/entitlement to credit has to be examined only at the time of receipt of input service and once it is found to be availed at a time when output service is wholly taxable and the said credit is availed legitimately, the same cannot be denied and/or recovered unless specific machinery provisions are made in this regard.
4. From a bare reading of rule 4(7), it is clear that the assessee is not required to wait till output service is sold to the service recipient. The assessee can take the credit immediately after the day on which bill/challan of input service is received. In the instant case, there is no dispute that the assessee has availed the credit after receipt of bill, challan in respect of input service. Therefore, the assessee was legally entitled to take the credit on the date after the receipt of service bills/challans. Therefore, the availment of cenvat credit by the assessee is absolutely legal and correct in accordance with rule 4(7).
5. From a reading of sub-rule(4) of rule 11, it can be seen that even if an output service provider avail the credit and output service becomes exempted; in such case the credit only in respect of inputs lying in stock or is contained in taxable service is required to be paid, whereas there is no provision for payment of cenvat credit equivalent to the input services used in respect of exempted service. Therefore, the cenvat credit availed in respect of input service is not required to be paid back under any circumstances.
6. Therefore, the assessee was not legally required to reverse any credit which was availed by it during the period 2010 till obtaining Completion Certificate, i.e., during the period when output service was wholly taxable in its hands, merely because later on some portion of the property was converted into immovable property on account of receipt of Completion Certificate and on which no service tax would be paid in future.
7. As submitted by the assessee, even CERA authorities, while raising objection and making the assessee reverse cenvat credit availed during 2010 till obtaining of Completion Certificate, adopted the same basis of square feet area which attracted service tax as compared to square feet area which was converted into immovable property after receipt of Completion Certificate. This basis is, therefore, acceptable to revenue authorities. It was such basis which was adopted by the assessee in availing only proportionate credit after receipt of Completion Certificate.
8. The assessee can be said to have ‘maintained proper separate accounts’ as required under rule 6 having availed credit only to the extent input services in taxable activity, on the scientific basis after obtaining Completion Certificate
Legal Provisions under GST
Section 16 of the CGST Act talks about the eligibility and conditions of taking input tax credit . This section only prescribes that what is eligible for claiming credit and what are the conditions to be met for availment of input tax credit .
Further Rule 42 prescribes the manner in which the input tax credit can be taken in case of business is providing taxable as well as exempt supply.
Rule 37 prescribes the manner of reversal of cenvat credit in case of non payment of consideration.
Rule 43 prescribes for the reversal of ITC on capital goods.
Rule 44 prescribes the manner of reversal of cenvat credit in special circumstances.
Rule 44 A prescribes the manner of reversal of credit of Additional duty of Customs in respect of Gold dore bar.
The point to ponder about that the nowhere in the act or rules it has been mentioned that the input tax credit once legally availed should be reversed back afterwards the supply is being exempted by the government .
Further if so is the intention of the law then certainly a situation will arise where it will be very difficult to do the business in a free and fair environment because not only a great deal of working capital is required to pay off the GST due for which the ITC was claimed in the past but also the interest and other factors will jeopardise the businesses . Also as soon as the ITC becomes ineligible the same will become the cost to the business then how it will be possible to charge a past customer . In so many cases it will not be possible to even trace the customers to whom the sales were made in the past .
Another point is that future changes in the law is not under the control of the assesses. The entire business decision making is done on the basis of current situation of the law . The position of law is always being seen on the date of the event and not otherwise. In my humble opinion it may also some way affects the right given by the Article 300A of the constitution of India .
Thus at the culmination of the topic what we draw conclusion from the above discussion that the unless and until law specifically provides for such reversal , ITC once availed duly in accordance with provisions of the law then certainly revenue has no right to ask the assessee to reverse it back .
This article is an endeavor to share some learnings obtained. The views expressed are of the author and are intended solely for informational purpose only. Though due care is taken while preparing the document, possibility of errors cannot be ruled out. Expert guidance, where required and reference to the original act, notification, circular, rules etc is highly recommended.
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