Even if Service Tax Not Payable on Detention Charges, Credit Cannot be Denied once Tax is Paid: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), Kolkata Bench, has held that even where Service Tax was not legally payable on detention or demurrage charges, CENVAT credit cannot be denied once the tax has been charged, paid and the services have been used in the course of business.

The appellate tribunal sets aside the demand of ₹4.16 lakh along with interest and penalties, terming the denial of credit as legally unsustainable and time-barred which was initiated against Shyam Ferro Alloys Ltd, the appellant.

The appellant, engaged in the manufacture of excisable goods such as ferro alloys and billets and is also involved in import and export of raw materials and finished goods.

During the operations, the appellant availed services of shipping lines, steamer agents and port authorities. However due to delays in clearance or loading of containers, the appellant was charged additional amounts by shipping lines and port authorities in the nature of detention charges and delayed rent, on which service tax was levied and paid.

The appellant also availed the CENVAT credit of the Service Tax so paid. However the objected to this availment relying on CBEC Circular No. 121/2/2010-ST, which clarified that detention charges are not taxable, and issued a show cause notice invoking the extended period of limitation alleging wrongful availment of credit.

It was contended by the appellant that it had paid the service tax charged by the service providers and disclosed the same in ST-3 returns and availed credit transparently.

It was asserted by the appellant that once the tax was paid and the services were received and used in relation to manufacturing and export activities, credit could not be denied merely on the ground that tax was not required to be paid in the first place.

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With regard to the invocation of the extension of the limitation period, it was submitted that there was no suppression or misstatement, as all details were reflected in returns.

However, the Revenue argued that the correct course for the appellant was to seek refund of wrongly paid Service Tax and not to avail CENVAT credit.

The tribunal after hearing the sides, observed that the entire demand was based on records regularly filed by the appellant and there was no concealment of facts, rendering the invocation of extended limitation unsustainable.

Once duty or tax has been paid and the receipt and utilisation of input services are not disputed, credit cannot be denied, even if subsequently it is found that the tax was not legally payable, said the bench of Rajeev Tandon, the Technical member.

It quoted various cases like Creative Enterprises, to hold that credit is not deniable merely because the levy itself was later found to be not required.

The bench said that “As for the Revenue’s contention, that the rightful course was seeking refund of Service Tax duty paid, it may be just & fair to point out that in any case, such exercise is revenue neutral and in view of the precedent decisions cited having paid the Service Tax charged credit availment thereto is not deniable to the appellant.”

Accordingly, the order was set aside allowing the appellant all the reliefs.

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