Demand without identifying common inputs used for taxable & exempted service is unsustainable

B.L. Kashyap & Sons Ltd Vs Commissioner of Service Tax (CESTAT Delhi)

CESTAT Delhi held that confirmation of demand without identifying the common inputs used for both taxable as well as exempted services is unsustainable and liable to be quashed.

Facts- The appellant, M/s B.L. Kashyap & Sons Ltd. are engaged in providing Industrial Complex Construction Service and Residential Complex Construction Service, Maintenance or Repair Service, goods Transport Operation Operators and Works Contract Service exigible to service tax.

On scrutiny of the ST-3 returns submitted by the appellant, it appeared to the Department that the appellant was providing taxable as well as exempted services; they have not maintained separate records showing the credit utilized in exempted as well as dutiable services in contravention of Rule 6 (3) of Cenvat Credit Rules, 2004; they have failed to pay an amount equal to 6% of value of the exempted services for the period April 2008 to September 2008 and April 2009 to September 2009.

Accordingly two show cause notices were issued to the appellant seeking recovery of service tax of Rs. 1,32,72,624/- and Rs 6,24,35,382/- respectively. Commissioner (Adjudication), Service Tax, New Delhi confirmed the demands. Being aggrieved, the present appeal is filed.

Conclusion- We find that neither the SCN nor the impugned order identify the specific import services availed both for dutiable and exempted services; they do not qualify the credit availed on common input services. Without doing so confirming the demands on the basis of mere allegations in the SCN is not legally tenable.

We find that it is not correct on the part of the Adjudicating authority to pass an order without going through the contents of the said Chartered Accountant certificate; without causing reasonable verification of the same and without negating in the same with cogent evidence and reasons. We find that the Courts and the Tribunal have time and again held that a certificate issued by a professional cannot be dis-regarded or over-looked without adducing cogent evidence to prove that the said certificate is incorrect.

FULL TEXT OF THE CESTAT DELHI ORDER

The appellant, M/s B.L. Kashyap & Sons Ltd. are engaged in providing Industrial Complex Construction Service¹ and Residential Complex Construction Service², Maintenance or Repair Service, goods Transport Operation Operators and Works Contract Service³ exigible to service tax. On scrutiny of the ST-3 returns submitted by the appellant, it appeared to the Department that the appellant was providing taxable as well as exempted services; they have not maintained separate records showing the credit utilized in exempted as well as dutiable services in contravention of Rule 6 (3) of Cenvat Credit Rules, 2004⁴; they have failed to pay an amount equal to 6% of value of the exempted services for the period April 2008 to September 2008 and April 2009 to September 2009. Accordingly show cause notices⁵ dated 22.10.2009 and 22.10.2010 were issued to the appellant seeking recovery of service tax of Rs. 1,32,72,624/- and Rs 6,24,35,382/- respectively. Commissioner (Adjudication), Service Tax, New Delhi, vide order dated 05.05.2014, confirmed the demands raised by above-cited SCNs and two more SCNs dated 23.04.2009 and 24.04.2009; Adjudicating authority has also imposed penalties under Section 76 and 77 of the Finance Act, 1994 and Rules 15 (3) and 15A of CCR. The appellant assails the order vide Service Tax Appeals No. 54118 of 2014 and 54119 of 2014. As the issue involved in both the appeals is identical covering two different periods, the same are heard together and taken up for decision.

2. Shri R.P. Jindal, learned counsel, appearing for the appellant submits that the SCNs were issued in a mechanical manner without even identifying which were the common inputs for taxable as well as exempted services; the SCN is issued on the basis of the presumption that the applicant was not maintaining separate records merely based on ST-3 returns without even making enquiries with the appellant as to whether they are maintaining any separate records or not. He submits that the appellant is in the business of providing Industrial and Commercial Construction Service, Residential Complex Construction Service and Works Contract Service; they are maintaining site-wise records and are taking Cenvat credit only in respect of projects/sites which are taxable under Works Contract; in respect of Construction Services, they have not availed credit as they were availing abatement under Notification No. 1/2006- ST dated 0 1.03.2006; in respect of Works Contract Services they have opted for payment of service tax under composition scheme; under the scheme the appellant is eligible to take Cenvat credit on input services and capital goods. He submits further that the appellant has produced a certificate issued by Chartered Accountant in respect of the issues raised in the impugned SCNs. Adjudicating authority has passed the impugned order in a casual manner without considering the facts of the case, submissions of the appellants and the Chartered Accountant’s Certificate. He submits that the Commissioner had totally misread the provision of Rule 2 (e) of CCR, which had no mention of partially exempted services; it is only by virtue of Notification No. 28/2012-CE (NT) dated 01.07.2002 concept of partial exemption of value in respect of exempted services has came into existence; the Adjudicating authority applied the legal provisions in an incorrect manner under the presumption that the appellant has availed simultaneous benefit of abatement of 67% as well as Cenvat credit; the appellant have not taken any credit under Construction Services. Lastly, he submits that there is no requirement for any intimation for exercising an option when the appellant is maintaining separate records. He submits that it is a fact that the appellant vide their reply to SCN, vide letter dated 14.02.2011 have submitted some factual inaccuracies, which they have rectified the same by subsequent letter dated 10.09.2012; anyway mistakes in figures cannot be ground for any adverse interference.

3. Shri Rajeev Kapoor, learned Authorized Representative appearing for the Department reiterates the findings of the Adjudicating authority.

4. Heard both sides and perused the records of the case.

5. Brief issue that requires our consideration in the instant case is in a narrow factual matrix, that is, as to whether the appellant has maintained separate records of credit of inputs and input services used by them in the dutiable as well as extra services provided by them as alleged in the SCN. It is also to be decided whether availment of credit of input services utilized in the execution of works contract service is permissible.

6. We find that Commissioner observes that the appellant vide letter dated 10.09.2012 submitted that their averments vide letter dated 14.02.2011 was incorrect and the mistake was due to a clerical error; the claim of the appellant that they have not taken any credit of inputs, input services or capital goods for the sites in respect of which exemption under Notification No. 1/2006-ST has been claimed, is incorrect; contrary to the appellant’s claim that they have not received any amount towards exempted services, other than export, under the category of ICCS and RCCS; ST-3 returns for April – September 2008 show that they have received abated value for ICCS and RCCS and exempted value of WCS; the appellant has not filed any such bills of Cenvat credit to enable to ascertain whether or not they have been providing taxable or non-taxable services; in terms of Rule 9 (ix) of CCR and Rule 7 (ii) of Service Tax Rules, 1994, the appellant is required to file bills of Cenvat credit availed with ST-3 returns.

7. On going through the records of the case, we find that the appellant has filed/submitted ST-3 returns for the period April to September 2009, in which they have certainly shown the amount received towards exempted services other than export in respect of Industrial or Commercial Construction Service and nil in respect of Residential Construction Service and Works Contract Service. However, on going through the ST-3 returns for the period 2009-2010, we do not find any such declaration on the part of the appellant. The appellant claimed that they have not availed Cenvat credit, either on inputs or on input services, in respect of exempted services, in the category of Commercial Construction Service or Residential Construction Service, wherever provided. The appellant does not deny the fact that they have availed credit on input services in respect of Works Contract Service as permitted by the rules. The appellant claimed that they have not availed Cenvat credit of inputs or input services in respect of ICCS and RCCS wherever they are exempt and that they have maintained site-wise records as illustrated in the Chartered Accountant certificate. We find that it is incorrect on the part of the Adjudicating authority to came to a conclusion that the appellant availed Cenvat credit on the basis of ST-3 returns which shows income under exempted services. It is not the case of the appellant that he has not provided any exempted services.

8. The appellant argued that the impugned order was passed in a casual manner without going through the provisions of the rules; the Commissioner has committed a legal infirmity by invoking the concept of partial exemption, which was not prevalent during the relevant time. We find that as claimed by the appellant Rule 2 (e) of CCR in the relevant periods reads as:

“exempted services means taxable services which are exempt from whole of the service tax leviable thereon and include services on which no service tax is leviable under Section 66 of the Finance Act, 1994”;

9. We find that the concept of partial exempted service came into effect from 01.07.2012 by virtue of Notification No. 28/2012. Therefore, we are in agreement with the contention of the appellant that during the relevant time, there was no concept of partial exemption and even after 01.07.2012 such partial exemption was with the condition that the said exemption, if any, should be subject to non-availment of Cenvat credit on inputs and input services. We find that Commissioner finding as follows has no legal basis :

“As contended regarding Notification No. 01/06 dated 01.03.2006, in this regard I find that vide this notification, the government has, interalia, provided exemption of the taxable value partially with regard to ICCS, RCS, WCS with condition that Cenvat credit of inputs, capital goods and input services should not have been taken along with benefit of Notification No. 12/03 dated 20.06.2003. It is observed that assessee has availed exemption of 67/33% as well as Cenvat credit. Both benefits provided by the government cannot be availed simultaneously by the assessee”.

10. We find that the appellant claimed Cenvat credit only in respect of input services used for providing Works Contract Service; Rule 3 (2) of the Works Contract (Composition Scheme) provide :

“The provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004”.

It can be seen that there is no bar under the said rule for availment of Cenvat credit on input services. The bar was only on inputs. Moreover Adjudicating authority erred in holding that the appellant has availed simultaneous benefit of abatement and of Cenvat credit. The appellant submitted that the condition of non-availment of Cenvat credit has been fulfilled in respect of Construction Services and only in respect of Works Contract Service, where there is no express bar on the availment of Cenvat credit on input services, they have availed such credit. To this extent, we find that the appellant’s contention is acceptable. We find that neither the SCN nor the impugned order identify the specific import services availed both for dutiable and exempted services; they do not qualify the credit availed on common input services. Without doing so confirming the demands on the basis of mere allegations in the SCN is not legally tenable.

11. We further find that the appellant has submitted a certificate dated 14.02.2011 issued by M/s Nirbhaya & Associates Chartered Accountant categorically stating that :

“(i) They are maintaining site-wise record of the credit of input services taken by them. The credit has been taken only in respect of the sites for which service tax liability was discharged under the works contract service by availing the benefit in terms of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.

(ii) They have not availed any credit in respect of the sites for which the service tax liability is discharged under the category of commercial or industrial construction service or construction of complex service by availing exemption under Notification No. 1/2006-ST dated 01.03.2006, as amended.

(iii) They have not availed any credit in respect of the sites for which service tax is not applicable under the commercial or industrial construction service, construction of complex service or works contract service”.

12. We find that the said certificate also provides site-wise credit availed by the appellant. We find that the Adjudicating authority has not discussed anything about the said Chartered Accountant certificate. He has not recorded any findings as to why the Chartered Accountant certificate should be dis-regarded. We find that it is not correct on the part of the Adjudicating authority to pass an order without going through the contents of the said Chartered Accountant certificate; without causing reasonable verification of the same and without negating in the same with cogent evidence and reasons. We find that the Courts and the Tribunal have time and again held that a certificate issued by a professional cannot be dis-regarded or over-looked without adducing cogent evidence to prove that the said certificate is incorrect. We find that Tribunal in the case of Monarch Pipes Ltd. versus Commissioner of Central Excise, Tirupati⁶ observed that :

“4.2 We fail to understand how the Adjudicating Authority could have recorded such a finding, when on perusal of the certificate issued by the Chartered Accountant, we find that each and every page has been signed by him. As regards the certificate of the Chartered Accountant, he having given a certificate after verification of the accounts, which should have been considered by the Adjudicating Authority in proper perspective”.

13. In view of the above finding, we find that the impugned order is passed without properly going through the submission of the appellant and without going through the records of the case. Adjudicating authority’s findings in respect of availment of Cenvat credit in respect of ICCS, RCCS are factually incorrect. Adjudicating authority erred seriously in applying the concept of partial exemption which came into existence on 01.07.2012 to the impugned order period which is much before that date. For the reasons cited above, the order is not sustainable and is liable to be set aside. We do so.

14. As a result Service Tax Appeals No. 54118 and 54119 of 2014 are allowed.

(Order pronounced in open court on 26/05/2023.)

NOTES ;- 

1. ICCS

2. RCCS

3. WCS

4. CCR

5. SCNs

6. 2010 (262) E.L.T. 406 (Tri. –Bang.)