Case Law Details
Turner Project Management India Pvt. Ltd Vs Commissioner of Central Tax (CESTAT Mumbai)
Introduction: In the case of Turner Project Management India Pvt. Ltd vs. Commissioner of Central Tax (CESTAT Mumbai), a significant question arises: whether service tax is applicable to contributions made towards the social security of employees, which are considered part of their salary. This article provides an in-depth analysis of the case and its implications.
1. Background: Turner Project Management India Pvt. Ltd, the appellant, incurred service tax under the reverse charge mechanism for contributions made towards the social security of employees from their overseas holding company who worked in India. The appellant paid Rs. 19,67,840/- in service tax between April 2016 and April 2017. The amount was utilized as cenvat credit since it was paid under the reverse charge mechanism.
2. Realization of Overpayment: Subsequently, the Revenue authorities questioned the applicability of service tax on contributions made by the employer as part of the employee’s salary. The argument was that the definition of service, as per Section 65B(44) of the Finance Act, 1994, excludes payments made by employers to employees. Additionally, Rule 2(l) of the Cenvat Credit Rules, 2004, indicated that this amount should not be considered as duty or service tax paid, making it ineligible for cenvat credit.
3. Recovery Proceedings: In response to these concerns, the Revenue initiated proceedings to recover the amount that the appellant had availed as cenvat credit, as it was considered irregular and ineligible. The original authority confirmed the demand and imposed penalties. The appellant then appealed to the learned Commissioner (Appeals), but the Commissioner (Appeals) upheld the original order, leading to the appellant’s appeal to CESTAT Mumbai.
4. Appellant’s Argument: The learned Chartered Accountant representing the appellant contended that although the appellant might not have been legally required to pay the service tax, they had paid it. Furthermore, no official order declared the payment non-mandatory, and neither had Revenue passed an assessment order nor refunded the amount. Therefore, the appellant argued that the paid amount had effectively assumed the character of service tax, even though not legally mandated.
The appellant also cited a relevant ruling by the Hon’ble Bombay High Court, the case of CCE, Pune vs. Ajinkya Enterprises (2013), which they considered highly applicable to their situation. In this case, the High Court held that if an entity had paid central excise duty on a final product that was not legally required, and cenvat credit on input duties had been availed, the credit could be considered regular if Revenue had not reversed the assessment of the final product or refunded the duty.
5. Revenue’s Stance: The learned Authorized Representative (AR) representing the Revenue supported the impugned order-in-appeal and argued against the appellant’s case.
6. CESTAT’s Decision: CESTAT Mumbai conducted a thorough examination of the facts and submissions. It noted that the service tax on contributions towards social security, considered part of an employee’s salary, might not have been legally payable, according to the Finance Act, 1994.
In the appellant’s case, although the service tax payment was not legally required, the Revenue authorities had neither officially declared the amount non-payable nor refunded it. The appellant had also availed cenvat credit of an equal amount, which they utilized to pay service tax on other services. As a result, there was no financial loss to the exchequer.
CESTAT referred to a relevant ruling by the Hon’ble Bombay High Court (CCE, Pune vs. Ajinkya Enterprises) and found it pertinent to the case. The High Court ruling held that if the assessment of a final product was not reversed by Revenue and no refund was paid for duty that was not legally required, the cenvat credit availed could be considered regular.
In the current situation, where service tax had been paid, albeit not legally required, and cenvat credit of an equal amount had been availed and utilized for other services, CESTAT determined that the impugned order-in-appeal was not sustainable.
7. Conclusion: The case of Turner Project Management India Pvt. Ltd vs. Commissioner of Central Tax (CESTAT Mumbai) delves into the complexities of service tax applicability. In this unique case, service tax paid on employer contributions to employee social security, even if not legally mandated, could not be recovered. The absence of any official declaration by the Revenue authorities regarding the non-applicability of this service tax played a crucial role in the final decision. Furthermore, the utilization of cenvat credit for other services ensured a revenue-neutral outcome.
CESTAT’s ruling provides valuable guidance for individuals and businesses navigating the intricacies of indirect taxation in India. It highlights the importance of official orders and assessments in determining the validity of tax payments, even when such payments may not have been legally required.
(Order pronounced in the open court on October 20, 2023.)
FULL TEXT OF THE CESTAT MUMBAI ORDER
Brief facts of the case are that the appellant paid service tax under reverse charge mechanism on the expenditure incurred in foreign currency in respect of contribution towards social security for employees of their overseas holding company. Such employees were working for the appellant in India. Appellant paid an amount of Rs.19,67,840/- towards service tax for the period from April 2016 to April 2017. Appellant has availed cenvat credit of the said amount since they had paid service tax under reverse charge mechanism. It appeared to Revenue that the definition of service provided under Section 65B(44) of Finance Act, 1994 excludes payments made to employees by employer from the definition of service and, therefore, the said amount was not required to be paid by the appellant. It further appeared to Revenue that under Rule 2(l) of Cenvat Credit Rules, 2004, the said amount did not become duty or service tax paid and, therefore, was not eligible to be availed as cenvat credit. Therefore, proceedings were initiated for recovery of the said amount as irregularly availed ineligible cenvat credit. On contest, original authority confirmed the demand and imposed penalties. Appellant preferred appeal before learned Commissioner (Appeals). Learned Commissioner (Appeals) did not interfere with the confirmation of demand and imposition of penalties. Therefore, appellant is before this Tribunal.
2. Heard the learned Chartered Accountant for the appellant. He has submitted that though the appellant was not required to pay the said amount towards service tax, it was paid and Revenue has not held through any order that the said amount was not payable and did not pass any assessment order nor refunded the said amount to the appellant and, therefore, the said amount has attained the nature of service tax though it was not payable by the appellant. He has further submitted that the ruling by Hon’ble Bombay High Court in the case of CCE, Pune vs. Ajinkya Enterprises reported at 2013 (294) ELT 203 (Bom) is squarely applicable in the present case. He has submitted that in the said case, central excise duty which was not required to be paid on the final product was paid by the appellant and the appellant had availed cenvat credit of duty paid on the inputs and Hon’ble Bombay High Court has held that in view of the fact that the assessment of final product was not reversed by Revenue and the appellant before them was not paid the refund of the duty which was not required to be paid, availment of cenvat credit of duty paid on inputs was regular. He has further submitted that the situation is revenue neutral since the amount which was not required to be paid has been paid and equal credit is availed. He has argued that, as a result, there is no loss to the exchequer and, therefore, the impugned order may be set aside.
3. Learned AR has supported the impugned order-in-appeal.
4. I have carefully gone through the record of the case and submissions made. I note that in the present case, service tax was not payable on the contribution towards social security which was part of salary paid by the employer to the employee. I find that though the service tax which was not payable was paid, Revenue has not refunded the said tax paid by the appellant. I also note that the appellant has taken cenvat credit of equal amount. Therefore, I find that there is no loss to the exchequer. I have further gone through the ruling by Hon’ble Bombay High Court in the relied upon case of CCE, Pune vs. Ajinkya Enterprises. I find that it is relevant to reproduce para 10 of the said judgment which is as follows:-
“10. Apart from the above, in the present case, the assessment on decoiled HR / CR coils cleared from the factory of the assessee on payment of duty has neither been reversed nor it is held that the assessee is entitled to refund of duty paid at the time of clearing the decoiled HR / CR coils. In these circumstances, the CESTAT following its decision in the case of Ashok Enterprises 2008 (221) ELT 586 (T), Super Forgings 2007 (217) ELT 559 (T) , S.A.I.L. 2007 (220) ELT 520 (T), M.P. Telelinks Limited 2004 (178) ELT 167 (T) and a decision of the Gujarat High Court in the case of CCE V/s. Creative Enterprises reported in 2009 (235) ELT 785 (Guj) has held that once the duty on final products has been accepted by the department, CENVAT credit availed need not be reversed even if the activity does not amount to manufacture. Admittedly, similar view taken by the Gujarat High Court in the case of Creative Enterprises has been upheld by the Apex Court (see 2009 (243) E.L.T. A121) by dismissing the SLP filed by the Revenue.”
In the present case, Revenue has retained service tax which was not to be paid and the appellant has availed cenvat credit of equal amount and utilized the same for payment of service tax for other services. I, therefore, relying on the ruling by Hon’ble Bombay High Court in the above stated case, hold that the impugned order-in-appeal is not sustainable.
5. I, therefore, without interfering with the service tax already paid and cenvat credit availed of equal amount, set aside the impugned order and allow the appeal.
(Order pronounced in the open court on 20.10.2023)
