The Hyderabad bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has held that cenvat Credit cannot be disallowed under CENVAT Credit Rules, 2002 ( CCR ) when assessee regularly availed cenvat credit of input service in books of account.
Sri Sai Communications is a partnership firm mainly engaged in the business of providing Cable TV service as Multi System Operator ( MSO ). The appellant receives cable TV signals from various broadcasters providing TV channels like Star TV, Zee TV, ETV, etc., and relays the signals to Local Cable Operators ( LCO ). The appellant buys set-top boxes and cables from various suppliers and sells the same to LCOs. The set-top boxes and cables are required for the transmission of TV signals. The appellant had taken registration under Service Tax on 09.07.2013 as Cable Operators service.
Although the appellants had taken registration, they were not making compliances like filing of returns, etc., as the All India Cable Operator associations had agitated against levy of service tax on cable TV service and the collective representation was pending with the Government for some years.
In the course of enquiry/investigation during 2017-18 in the affairs of the appellant, Revenue found that appellant did not manufacture any set top boxes but were trading in such boxes. It further appeared that the appellant was not filing regular returns ( ST3 ) and/or making compliance.
Summons was issued to furnish Financial Statements, Profit & Loss Statements, Invoices issued, Purchase Invoices, Sales details, etc., for the period 2012-13 to 2017-18. The appellant filed requisite documents vide letter along with copies of sample Invoices, monthly extract of revenue, copy of the Bank Statements for the period 2013-14 to 2016-17.
The appellant was maintaining regular books of accounts and vouchers on tally software in the ordinary course of business. Due to late filing of returns, the appellant had suo moto deposited late fee @Rs.20,000/- each return from 2013-14 to 2017-18.
Revenue verified the value of service on which service tax was paid with the taxable revenues shown in the P & L account and found that appellants have adopted amounts realized in full as taxable values, for payment of service tax. The appellant had also paid the cesses wherever applicable. It further appeared as per the returns filed that appellants have paid service tax by utilizing Cenvat credit availed on the input service tax.
It further appeared to Revenue that the date of filing ST3 return is the date of taking Cenvat credit and accordingly, as required under Rule 4(1) read with Rule 9(1) of CCR, the appellant had to take Cenvat credit within one year from the date of invoice but it appeared that Cenvat credit has been taken later on, as there is no mention of service tax payable account and service tax receivable account in the liabilities or assets side of the balance sheets for the relevant period.
Further SCN was issued invoking an extended period of limitation, proposing to disallow Rs.4,16,32,186/- of Cenvat credit taken and further to demand output service tax of Rs.3,52,94,314/- along with interest. Further, the penalty was proposed of Rs.20,000/- for delayed filing of ST3 returns for the second half of 2012-13 and also penalty under section 77 and 78 of the Act.
The appellant contested the SCN and filed detailed submissions. It was also mentioned that the appellant maintains regular books of accounts which are subjected to audit by the CA and proper audit reports are issued by the Auditor along with the report in the prescribed Audit Form ( Form No. 3CD under Income Tax Act/Rules), which have been filed with the Income Tax department.
It was further urged that once Cenvat credit has been taken legally in the regular course of business on proper input tax invoices, the same can be utilized and has correctly been so utilized towards payment of output service tax. It was further pointed out that Revenue has accepted their books of accounts and has demanded service tax in the SCN on the turnover as disclosed by said books of accounts, as reflected in the balance sheet and P & L accounts.
The SCN was adjudicated by the Commissioner of Central Tax and GST, who was pleased to confirm the demand of disallowance of Cenvat credit as proposed, holding the same to be irregularly availed and utilized in violation of Rule 4 & Rule 9 of CCR. Further, demanded an amount of service tax of Rs.3,52,94,314/- payable on the output services for the period from 2012-13 to 2017-18 along with interest.
The appellant has also maintained a proper journal and ledger account of service tax (input service tax, education cess and SHEC) and such totals at the end of the year have been shown as debit balance in the trial balance under the head ‘duties and taxes’. In the course of the hearing, the appellant also demonstrated some of the entries from the ledger accounts of the service providers with the invoice-wise annexures, year wise, already annexed to the appeal file.
A two member bench comprising Mr Anil Choudhary, Member (Judicial) and Mr A K Jyotishi, Member ( Technical ) observed that the appellant has maintained proper books of accounts in the ordinary course of business in electronic form (tally software), which is permissible under the Service Tax Rules read with Board Circular aforementioned.
The Tribunal observed that the appellant has regularly taken Cenvat credit of input service tax in their books of accounts after making payment to the service providers. Such aggregate input service tax, including cess, reflected in the trial balance, being debit balance as on 31st March under the re-grouped account head ‘duties and taxes’.
The CESTAT held that appellant has taken service tax credit regularly within the prescribed period from the date of invoice as prescribed under Rule 4 read with Rule 9 of CCR, 2004. While allowing the appeal, the CESTAT set aside the impugned order.
Shri T. Ankamma Rao appeared for the Appellant and Shri B. Sangameshwar Rao appeared for the Respondent.
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