Designated Committee vs. M/S Jagadish Advertising
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Cause title — parties, addresses and appearances
JUDGMENT
The present writ appeal has been filed by the Designated Committee, Sabka Vishwas (Legacy Dispute Resolution) Scheme and Others being aggrieved by the order dated 19.8.2020 passed by the learned Single Judge in W.P.No.7801/2020 (M/s.Jagadish Advertising vs. Designated Committee, Sabka Vishwas (Legacy Dispute Resolution) Scheme).
The facts of the case reveal that the sole respondent before this Court M/s Jagadish Enterprises is a Partnership Firm engaged in the business of providing Advertising Agency Services and has a Service Tax registration No.AADFJ4108RST001. The sole respondent was paying
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service tax and on account of the Constitutional Amendment introducing GST w.e.f., 1.7.2017, the Central Excise and Service Tax levies came to an end under the GST regime.
A show cause notice was issued on 7.9.2018 by the Director General of GST Intelligence, Bengaluru Zonal Unit and in the show cause notice, it was stated that the respondent has not paid the service tax, he has failed to file the half yearly service tax returns in Form ST-3 and hence, he was directed to show cause as to why he is not liable to pay a sum of Rs.13,06,07,137/- as service tax.
The facts further reveal that in the show cause notice, the respondent was also called upon to show cause as to why a sum of Rs.91,87,632/- which has been paid by him earlier be appropriated towards the above mentioned payment and it was further directed in the show cause notice as to why a total CENVAT credit of Rs.4,15,14,081/- as per ST-3 returns filed in July, 2018 and August, 2018 for the period from October 2012 to June 2017, should not be denied.
The Parliament enacted a Scheme called Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS for short) vide Finance (No.2) Act, 2019 and the object of the
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scheme was to provide one time measure for liquidation of past disputes of service tax. The Scheme came into force vide notification dated 21.8.2019 and it provided that in case the duty involved is more than Rs.50 lakhs, the assessee on payment of 50% of the demand would be eligible to receive a discharge certificate and it was a Ministerial Scheme to bring litigation to an end.
The facts on record further reveal that the respondent submitted an application in the prescribed format as provided under the Scheme on 28.12.2019 by applying electronically filled declaration in Form SVLDRS-1 vide Application Reference Number LD2812190006666 in respect of the aforesaid show cause notice 109/2018-19 dated 7.9.2018. The following details were keyed in, in the aforesaid application; i. Tax Dues + Rs.13,38,22,524 i.e., the sum of (a) Rs.13,06,07,137 as specified at Sl.No.(i) of SCN. (b) Rs.32,15,387 as specified at Sl No.(vii) of SCN.
ii. Pre-deposit = Rs.5,23,24,181, ie., the sum of (a) Rs.91,87,632 as specified at Sl.No.(ii) of SCN. (b) Rs.4,15,14,081 as cenvat credit as specified at Sl.No.(iii) of SCN.
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(c) Rs.15,02,468 as specified at Sl No.(viii) of SCN. (d) Rs.1,20,000 as specified at Sl.No.(xiv) of SCN.
The respondent submits that the relief u/s 124 (1)(a) of the Scheme was sought to be made available in respect of the declaration and the gross amount payable was Rs.6,69,16,262/- (i.e., 50% of Rs.13,38,22,524/-). The said amount was reduced by the pre-deposit of Rs.5,23,24,181/- and the final tax dues less tax relief payable by the declarant was reflected in Form SVLDRS-1 Rs.1,45,87,081/-. The said amount was auto-generated in Form SVLDRS-1 on the portal.
The respondent submits that, thereafter, the 1st appellant issued Form SVLDRS-2 on 12.02.2020 (vide ARNL120220SV200280), indicating that the amount estimated by the 1st appellant (i.e., designated committee) to be payable by the respondent was Rs.5,62,21,162/- as against Rs.1,45,87,081/- declared by the respondent.
The respondent submits that the 1st appellant had arrived at the said amount by disallowing the pre-deposit of Rs.4,15,14,081/- (i.e., the amount of CENVAT credit as specified at Sl.No.(iii) of show cause notice). Further, Rs.1,20,000/- (ie., the late fee as specified at Sl No.(xiv) of the
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show cause notice) was also disallowed. Therefore, the amount of Rs.6,69,16,262/- was reduced by the pre-deposit of only Rs.1,06,90,100/-. Consequently, the 1st appellant estimated the final tax payable by the respondent as Rs.5,62,21,162/-.
The respondent submits that pursuant to the above, the respondent attended the personal hearing on 14.2.2020 and made written submissions in support of his claim. The respondent also filed Form SVLDRS-2A electronically on 17.2.2020 requesting for a personal hearing.
The respondent submits that on 29.2.2020, the 1st appellant issued a statement in Form SVLDRS-3 confirming the estimate made in Form SVLDRS-2 and indicating the final tax payable by the respondent as Rs.5,62,21,162/- as against Rs.1,45,87,081/- declared by the respondent.
The respondent being aggrieved by the statement issued in Form SVLDRS-3, dated 29.2.2020 came up before this Court by filing a writ petition and the issue involved before the learned Single Judge was, whether the respondent (petitioner) was entitled to take advantage of CENVAT credit on input tax amounting to Rs.4,15,14,081/- and whether the same has to be treated as pre-deposit under the Scheme or not.
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Another important aspect of the case is that after issuance of show cause notice on 7.9.2018, the respondent did file service tax returns and claimed CENVAT credit amounting to Rs.4,15,14,081/-.
The learned Single Judge after hearing the learned counsel for the parties at length, in paragraphs 28 and 29 has held as under;
The only bone of contention between the parties is, as to whether the petitioner could contend that he was entitled to take advantage of Cenvat credit on input services amounting to Rs.4,15,14,081/- and consider the same as a pre-deposit under the scheme.
It is not in dispute that after the SCN was issued,the petitioner had filed service tax returns and in the said returns, it claimed the Cenvat credit amounting toRs.4,15,14,081/-. It is pertinent to state here that the Revenue does not dispute the entitlement of the petitioner to avail of this Cenvat credit. The contention, however, of the Revenue, is that the petitioner became disentitled to Cenvat credit for the reasons stated at paragraph 17.2 of the SCN, which reads as follows:
“17.2 In this connection, it can be seen from the provisions of Rule 3(1) and first proviso to Rule 3(4) of the Cenvat Rules, 2004 that a provider of output service is allowed to take credit of service tax paid on input service received by him, only on or after the date of receipt of the invoice, bill or, as the case may be, challan referred to in Rule 9; to retain the Cenvat credit and subsequently to utilize to the extent of such credit is available on the last day of the month or quarter, as the case may be, for payment of service tax on any output service or for payment of an amount determined under Rule 6(3) of Cenvat Credit Rules, 2004 relating to that month or the quarter, as the case may be. Second proviso to Rule 4(7) of the Cenvat Rules, 2004 stipulates that payment of the value of input
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service and the service tax paid or payable as indicated in the invoice, bill or, as the case may be, challan referred to in Rule 9, is made within three months of the date of the invoice, bill or, as the case may be, challan. In case the payment of the value of input service and the service tax paid or payable as indicated in the invoice, bill or, as the case may be, challan referred to in Rule 9, is not made within three months of the date of the documents, the said proviso mandates that the service provider pays an amount equal to the Cenvat credit availed on such input service and once the said payment is made, the output service provider is entitled to take the credit of the amount equivalent to the Cenvat credit paid earlier subject to the other provisions of these rules. However, fifth proviso to Rule 4(7) of the Cenvat Credit Rules, 2004 lays down a condition that no Cenvat credit is allowed to be taken after one year of the date of issue of any of the documents specified in Sub-rule (1) of Rule 9 of Cenvat Credit Rules, 2004. It is pertinent note that with effect from 01st July, 2017, the Cenvat Credit Rules, 2004 have been superseded and replaced with new Cenvat Credit Rules, 2017 vide Notification No.20/2017 C.E. (NT) dated 30.06.2017 as per which the provider of output service is allowed to transfer the credit of service tax paid on input services under the negative list regime only to the extent of such credits whose details are declared in TRAN-1 or TRAN-2 filed in accordance with Section 140 of Central Goods and Services Tax Act, 2017 read with Rule 15 of the Cenvat Credit Rules, 2017.”
Learned counsel for the appellants has vehemently argued before this Court that the respondent/assessee was not entitled for CENVAT credit because he became disentitled to avail the input tax credit on account of the fact that the requisite forms were not filed within the prescribed period and his right to claim input tax credit had lapsed. In fact, the
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revenue has disputed the availment and utilization of CENVAT credit of Rs.4,15,14,081/-. It has been vehemently argued before this Court that the learned Single Judge has erred in law and in facts by deciding the matter in favour of the respondent keeping in view Section 52 of the Frequently Asked Questions computed by the CBIC at paras 41 and 42 of the impugned order and by no stretch of imagination the CENVAT credit could have been directed to be adjusted keeping in view Rule 6 of the CENVAT Credit Rules, 2017. He has also argued that the invoices were pertaining to the year 2013-14 and the service tax in Form ST-3 and he was directed to show cause as to why he is not liable to pay a sum of Rs.13,06,07,137/- as service tax.
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The facts further reveal that in the show cause notice the respondent was also called upon to show cause as to why a sum of Rs.91,87,632/-, which has been paid by him earlier be appropriated towards the above mentioned payment and it was further directed in the show cause notice as to why the total CENVAT credit of Rs.4,15,14,081/- as per ST-3 returns filed in July, 2018 and August, 2018 for the period from October 2012 to June 2017 should not be denied.
A Scheme was enacted by the Parliament known as Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 vide Finance (No.2) Act, 2019 and the object of the Scheme was to provide one time measure for liquidation of past disputes of service tax. The Scheme came into force vide notification dated 21.8.2019 and the respondent/assessee submitted an application in the prescribed format under the Scheme on 28.12.2019 by applying electronically in Form SVLDRS-1. 22. The dispute in the present case is that the appellants have disallowed the pre-deposit of Rs.1,45,87,081/- i.e., amount of CENVAT which is the subject matter of the show cause notice while considering the application preferred in the SVLDR Scheme. The learned Single Judge has allowed the writ
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petition and has directed the Designated Committee to accept the declaration filed by the petitioner/respondent in the prescribed format as final and issue a modified Form No.SVLDRS-3 giving credit to the sum of Rs.4,15,14,081/- as deposit and collect the remaining sum as tax dues and on payment of the said dues, issue a discharge certificate under the Scheme. A statement has been made on affidavit by the appellants that the learned Single Judge in paragraph 29 of the impugned order has observed that the revenue has never disputed the entitlement of the respondent to avail CENVAT credit of Rs.4,15,14,081/- and in para 30 the learned Single Judge has observed that one of the subject matter of the show cause notice was, as to whether the petitioner was entitled to CENVAT credit and therefore, the contention of the appellants is that two contradictory observations have been made by the learned Single Judge.
The record of the case reveal that there is a total non compliance of Rule 6 of the CENVAT Credit Rules and the respondent has submitted the invoices pertaining to the year 2013 in the year 2019 which is not during the regime of CENVAT Credit Rules, but during the regime of GST.
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Rule 6 of the CENVAT Credit Rules, 2017, reads as under; “Rule 6. Conditions for allowing CENVAT credit – (1) The CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the job worker, in case goods are sent directly to the job worker on the direction of the manufacturer:
Provided that the manufacturer shall not take CENVAT credit after one year of the date of issue of any of the documents specified in sub-rule (1) of Rule 11.”
In the considered opinion of this Court, the learned Single Judge has not at all considered the impact of Rule 6 of the CENVAT Credit Rules, 2017 as invoices were of the year 2013-2014 which is much beyond the period of one year and therefore, the claim of the respondent could not have been appropriated in respect of the amount of Rs.4,15,14,081/-.
Another important aspect of the case is that the Designated Committee under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 does not have any authority to modify the SVLDS-3 at all. When once the appellants have adjusted the claim of respondent as the CENVAT credit of Rs.4,15,14,081/- availed by the respondent and subsequently, in paragraph 42 has held as under; “42. The decision of the Supreme Court in the case of Collector of Central Excise, Pune v. Dai Ichi Karkaria Ltd., MANU/SC/0467/1999; 1999 (112) ELT 353 (SC) cited by the petitioner refers to MODVAT credit and in deciding a co- relation of the raw material and final product. The Apex Court held that it is not as if the credit can be taken only on the final product manufactured out of a particular raw material in which the credit is related. It was held that the credit may be taken on a final product on the very day it has become available. It is in this context, the nature of MODVAT credit was held to be indefeasible. The learned Additional Solicitor General has rightly distinguished this decision by pointing out that this decision does not consider the contingency of time limit on availment of credit, and also not in a transitionary provision. Under the impugned Rule, the input credit has been denied per se, but a time limit has been placed on its availment.”
In the considered opinion of this Court, in light of the aforesaid judgments, the CENVAT credit is a concession and not a vested right and it has to be claimed keeping in view the
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CENVAT Credit Rules 2004 and therefore, the learned Single Judge has erred in law and in facts in allowing the writ petition by directing the Designated Committee to adjust the amount which was the subject matter of CENVAT credit.
Learned counsel for the respondent has placed reliance upon a judgment delivered in the case of Thought Blurb vs. Union of India and Ors., reported in 2020-TIOL- 1813-HC-MUM-ST. Heavy reliance has been placed upon paragraphs 51 and 52. 30. This Court has carefully gone through the aforesaid judgment and it is true that the basic thrust of the Scheme is to unload the baggage of pending litigations centering around service tax and excise duty. But at the same time, the statutory provisions as contained under the CENVAT Credit Rules, 2017 cannot be given a complete go-bye. The claim of CENVAT credit which has become time barred cannot be adjusted in the matter in the manner and method it has been done by the learned Single Judge.
Learned counsel for the respondent/assessee has input tax credit and there cannot be any adjustment on pre- deposit as the respondent has not filed GST TRAN-1. Therefore, the CENVAT credit cannot be transformed into input tax credit. It is an undisputed fact that the respondent has not filed ST-3
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returns till the intervention of the department and the assessee however filed a declaration in the year 2019, after introduction of GST. As the respondent has not filed the GST TRAN-1, he is not eligible on account of Rule 6(1) of the CENVAT Credit Rules, 2017. The Designated Committee was justified in passing the order which was subject matter of challenge in the writ petition and therefore, this Court is of the opinion that the order passed by the learned Single Judge deserves to be set aside and is accordingly set aside.
Writ appeal stands allowed accordingly.
Pending IAs, if any, stand disposed of. JUDGE JUDGE
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Reproduced from the public record of the Karnataka High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.