Service Tax Demand Cannot be Held as Bad in Law merely due to Payment made in Advance: CESTAT Remands Appeal for Redetermination [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Bench at Hyderabad partly allowed an appeal against the demand for Rs.2,44,22,912/- raised by department under four different categories namely - inadmissible Cenvat credit, service tax paid using the alleged wrong credit, service tax on IPR services, and service tax on technical inspection & certification services.

The appellant, Advanta India Ltd, were engaged in the research, development, breeding, producing, conditioning and marketing of various seeds and also provided business development services to M/s UPL Ltd. The appellants did not dispute that they had filed the ST3 return only after taking service tax registration under the category of BAS, although they were otherwise registered under service tax regime.

Mihir Mehta, representing the appellant, presented an argument that there is no such compulsion of taking Cenvat credit within a stipulated time during the relevant period and therefore, they could have taken credit even beyond six months or one year period. Moreover, they were already registered with the department for GTA services and even though it was in terms of section 68(2), they were otherwise covered by all the provisions of the service tax. He further submitted that there is no bar under the Finance Act, 1994 or the Rules and Cenvat Credit Rules, 2004 (CCR) for availing credit of input services received prior to registration.

The Bench, comprising of Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member), found that the appellants were otherwise registered under service tax and the only ground taken in the SCN was that they were not registered for BAS during the time they took credit. In pursuance of this, despite not having registration during the relevant period for any output service, demands no. 1 and 2 for denial or utilization would not sustain and the impugned order is set aside to that extent.

With regard to demand no. 3, the allegation was that the appellants had received certain IPR services from Zeneca Lambda BV, Netherlands on which they had paid royalty of 5% net of tax of their ex-plant sale price. The bench found it fitting to remand this matter back to the adjudicating authority as it needed to be verified if the receipt of services as well as payment were made prior to April 18, 2006, resulting in the demand to not sustain.

Read: Transfer of Technical Know-How falls under IPR Service & Liable to Service Tax only if IPR Registered under Indian Law: CESTAT

With respect to demand no. 4, it was found that the adjudicating authority has not analysed the scope of the heading under section 65(105)(zzi), which essentially covers that service has to be provided by a technical inspection and certification agency. There was no evidence to suggest that they were a ‘technical inspection and certification agency’. Therefore, merely because they were provided certain advice without any certification to the farmers, the said activities could not be brought under the ambit of the service under section 65(105)(zzi). This demand did not sustain either.

In conclusion, the demands 1, 2 & 4 were not sustainable on merit itself. And demand 3 was sent back to the adjudicating authority for ascertaining whether the appellants had received services prior to April 18, 2006 or thereafter.

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