By TIOL News Service

MUMBAI, FEB 20, 2015: THE appellant is a firm providing services of practising Chartered Accountant and Management Consultancy Services to clients in India and abroad. The appellants were operating from various locations in Mumbai, each with a separate Service Tax registration number and the accounting operations were carried out from Worli address.

Demand notices came to be issue to the appellant alleging wrong availment of CENVAT credit on account of the following -

+ Providing exempted services as well as taxable services but not maintaining separate records;

+ Credit availed on input services on the strength of invoices raised on the registered unit at Worli whereas the credit was taken in another registered unit at Mafatlal House, Mumbai.

The CCE, Thane-I confirmed the demands and imposed penalties and interest.

The Bench after hearing both sides observed -

++ The first issue is whether the credit of input Service Tax is available on basis of invoices which were addressed to the Worli office but the credit thereof was availed in the Mafatlal House office. We find that in similar cases, credit has been allowed. [DNH Spinners - 2009-TIOL-1216-CESTAT-AHM, Modern Petrofils Vs. CCE - 2010-TIOL-1204-CESTAT-AHM relied upon] Following these decisions, we hold that credit cannot be denied for the procedural infraction that the addressee in the invoices was another office of the appellant. We allow the CENVAT credit on principle, but remand the case to the Commissioner for verifying that the inputs services in respect of these invoices were actually used in the Mafatlal House office and not in the Worli office.

++ The second matter to determined in this case is whether the appellant had provided taxable and exempted services so as to fall under the restrictive clause of Rule 6(3)(c) which allows credit only to the extent of 20% of the Service Tax payable on output services. Although they were providing services of Chartered Accountant, they did not avail the exemption under Notification No. 25/2006 dated 13.07.2006 and were paying tax on all Chartered Accountant services provided by them.

++ The invoices indicate that some of the services are in the nature of service rendered as regular follow-up with the income-tax authorities, appearing before the Assessing Officer. They are composite invoices.

++ Essentially the argument of the appellant is that the invoices do not represent only the fees relating to representing the client before a statutory authority but also include fees for other services provided. This contention is acceptable because it does not appear that activities such as ‘review of an Order' or professional services rendered in respect of Sales Tax Act may not be covered under exemption Notification as they do not relate to representing the client before any statutory authority in the course of proceedings initiated under any law by way of issue of notice . We find that the fees relating to activities covered by exemption under Notification No. 25/2006 are not segregated from the fees relating to jobs which are not exempted. In the absence of specific breakup of the total amount in the invoice for each job undertaken, it cannot be concluded that the appellants availed the exemption under Notification No. 25/2006.

++ The second aspect is the claim of the appellant that Notification no. 04/2004 dated 31.03.2004 under which they had provided services to SEZ units is a conditional notification. We appreciate the appellant's contention that it is not in their control to ensure that the service receiver maintains proper records. Hence, they paid Service Tax on such services correctly. Reliance is placed on the case of Sobha Developers - 2011-TIOL-1170-CESTAT-BANG in which it was held that Notification No. 4/2004 read with Rule 25 of SEZ Act, 2005 is a conditional exemption and, therefore, the restriction under Rule 6 of the CENVAT Credit Rules would not apply.

++ The Commissioner simply states that the appellant devised his own way of defeating the provisions of Rule 6 (3)(c) by paying Service Tax on their own volition in respect of exempted services. We cannot appreciate this finding of the Commissioner in view of the legal frame work in which the Notification No. 25/2006 and 04/2004 operate. We reject this finding. Rather we do agree with the argument about the lack of provisions in Service Tax law which are akin to Section 5(A)(1A) of the Central Excise Act. It was held in the case of Crown Products Pvt. Ltd. - 2012-TIOL-975-CESTAT-MUM that there is no law barring an assessee from paying tax on exempted services and claiming refund thereafter.

++ Thus it is clear that under Service Tax law, the assessee is not prohibited from paying tax on services exempted under a notification. Having held so, we find that the appellant had not provided exempted and taxable services in terms of Rule 6(2) of the CENVAT Credit Rules and, therefore, the restriction of availment of CENVAT Credit up to 20% of the value of taxable services provided would not apply.

Holding that the demand does not sustain the O-in-o confirming demands of Rs. 1,92,10,120/-&of Rs. 2,78,23,485/- were set aside.

The demands of Rs. 31,25,737/- and Rs. 5,65,600/- on account of allegedly wrongly addressed invoices were also set aside and CENVAT credit was allowed but the matter was remanded only for purpose of verification that the input services were used in Mafatlal House Office for providing the output services.

The appeals were allowed.

(See 2015-TIOL-366-CESTAT-MUM)