In a recent ruling, the Mumbai bench of the Customs Excise and Service Tax Appellate Tribunal ( CESTAT ) allowed the appeal in favor of the appellant Reliance Jio Infocomm Ltd.
In this case, the appellant is Reliance Jio Infocomm Ltd. The company provides taxable telecommunication services, as defined by Section 65(109a) of the Finance Act of 1994. After the introduction of the of Goods and Services Tax (GST) with effect from 01.07.2017, the appellants have shifted from the service tax regime to the GST regime.
Navigate Global Finance: Your Guide to the Foreign Exchange Management Act!
The appellants had availed of Central Value Added Tax (CENVAT) credit before the introduction of GST and filed the required GST TRAN-1 form. The audit wing of the department observed that from September 2016 to March 2017, the appellants provided telecommunication services for free. The departmental authorities interpreted these free services as “exempted services” under Rule 6(1) of the CENVAT Credit Rules (CCR), 2004, and concluded that the appellants were required to pay 7% of the value of these services under Rule 6(3)(i) of the CENVAT Credit Rules. Since the appellants did not comply, a show cause notice was issued, and later on an impugned order was passed confirming a demand of Rs. 9590.95 crore, along with interest and imposed penalties under Sections 77 and 78 of the Finance Act, 1994.
The appellants, being aggrieved by the impugned order, approached the CESTAT for relief.
The counsel on behalf of the appellant contended that Explanation 3 to Rule 6(1) of the CCR 2004, covers activities specifically excluded from the ambit of ‘service’ under Section 65(B)(44) of the Finance Act, 1994, and not activities without consideration.
Navigate Global Finance: Your Guide to the Foreign Exchange Management Act!
The bench observed that there was no justification for ordering for recovery of interest on the amount determined as payable under Rule 6(3)(b) of the CCR 2004, since the appellant had CENVAT credit balances far exceeding amounts determined as payable.
The bench held that in this case, service tax demand is not sustainable.
The bench noted that We also note that the Commissioner was wrong in imposing a penalty on the appellants by invoking the provisions of Rule 15 of the CENVAT Credit Rules. This provision only applies in cases where CENVAT credit has been improperly obtained or used.
The bench, comprising of S K Mohanty and M M Parthiban, allowed the appeal in favor of the appellant and set aside the impugned order.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
