ST - Bank taking over borrower's factory for loan default & leasing to appellant - on rent, ST paid in name of borrower & appellant taking credit - same denied on ground that Bank should have paid ST - Bank is only deemed owner - prima facie credit admissible: CESTAT
By TIOL News Service
MUMBAI, AUG 07, 2015: M/s Tasgaon SSK Ltd. is the Borrower and Maharashtra State Cooperative Bank was the Lender. As the said borrower had defaulted in repayment of loan, the Bank, in exercise of its powers under Section 13(4) of the SARFAESI Act took over possession of the factory from the said borrower.
Subsequent to the possession, the Bank leased out the factory premises to the appellant for a period of 5 years from 1.10.2007 to 30.9.2012, for the purpose of running the Sugar mill vide Lease Agreement and wherein it is mentioned that the Lender Bank had granted and disbursed loan to the said borrower and the factory premises among others were secured for payment.
The Annual rent prescribed was to be calculated on the basis of per MT of sugarcane to be received for crushing by the lessee (appellant) inclusive of all the Service Tax, Education Cess, Income Tax, etc. Clause 4(a) of the agreement further provided that "the Lessor has and shall continue to have mortgage, charge, hypothecation and encumbrances in or upon the Immovable Properties and the Plant and Machinery, unless and until the entire principal, interest, additional amount towards contingencies, further costs, expenses, interest as provided by SARFAESI Act or otherwise are fully paid, realized, satisfied and received by the Lessor". Clause 4(e) provides "the rent accrued as per the present Lease Deed shall be appropriated and applied towards satisfaction of the dues of M.S.C. Bank on account of the Borrower".
Further fact is that as agreed by the Lessor Bank and the appellant Lessee, as Service Tax was applicable on the amount of lease rent, the appellant deposited the lease rent to the Bank and the challans were deposited in the name of original borrower/defaultee, who was registered under the provisions of Service Tax and who is actual owner of the leased premises.
Vide a SCN, the CENVAT Credit taken by the appellant was objected to by the Revenue as they felt that, firstly,in respect of the property taken over by the Bank and which was independently leased out to the assessee/appellant, the Bank was the person which has provided services and who are liable to pay Service Tax and,therefore, there is error in payment of tax in the name of original borrower/owner and accordingly, the CENVAT Credit availed is ineligible.
The CCE&ST, Kolhapur confirmed the demand of Rs.65,55,017/- relating to the period July, 2008 to December, 2012 and imposed interest and equivalent penalty.
The appellant is before the CESTAT.
It is inter alia submitted that the credit has been taken on the basis of challans and which are CENVATable documents prescribed under clause (f) and (g) of Rule 9. Further, adverting to the provisions of the SARFAESI Act, the appellant submitted that the ownership rights of the borrower did not extinguish and for the time being only the powers of the owners are exercised by the Bank/Liquidator. In this view of the matter, the tax deposited in the name of the original owner/borrower cannot be said to be wrong in the eyes of law. Further, for argument sake, even if it is taken that the tax should have been deposited in the name of the Bank, as a lessor, even on that count deposit of Service Tax has been made and this fact cannot be denied. Inasmuch as the credit has been rightly taken and, therefore, stay be granted.
The AR tried to justify the department stand.
The Bench after considering the submissions observed -
"…, we find that the issue is debatable and prima facie the credit appears to be allowable in the facts and circumstances. We further take notice of the fact that Bank is not the original owner but only is deemed owner in exercise of the power of lessor under the SARFAESI Act. Further, as the tax has already been paid, which is not disputed and were accepted and further that the show-cause notice have been issued invoking the extended period which also needs to be examined at the stage of final hearing. In this view of the matter, we grant waiver of pre-deposit and stay the recovery of tax, interest and penalty till disposal of the appeal."
The stay application was allowed.
In passing: Heads I win, tails you lose - the Revenue mantra
(See 2015-TIOL-1643-CESTAT-MUM)
