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CX - Since 'Technology Development' did not yield any result, service provider returned amount but same was shown as 'unsecured loan' - transaction of 'input service' is suspect, 'sham transaction' and, therefore, credit rightly denied: CESTAT

By TIOL News Service

NEW DELHI, SEPT 28, 2016: THE appellant is engaged in the manufacture of P.P. Medicaments and for manufacture of 'hard gelatine capsule by filling liquid' services of M/s Piramal Pharmaceutical Development Services Pvt. Ltd. were hired. However, the development of capsule was not successful.

The CENVAT credit of service tax paid on the 'Input services of technology development' received from M/s Piramal Pharmaceutical Development Services Pvt. Limited was denied to the appellant along with imposition of an equivalent penalty of Rs. 61,80,000/-.

Before the CESTAT, the appellant relies on the following decisions to justify the availment of credit viz. M/s Cadila Healthcare Ltd. - 2009-TIOL-1585-CESTAT-AHM, Indswift Laboratories Ltd. - 2015-TIOL-372-CESTAT-DEL, Coca Cola India Pvt. Ltd. - 2009-TIOL-449-HC-MUM-ST.

After considering the submissions the Bench observed -

++ it is on record that the appellant paid to the service provider Rs.6,61,80,000/- on account of technology development service, which the appellant is claiming as input service.

++ however, there is on record that the said amount of Rs.6,61,80,000/- was returned back by the service provider to the appellant as unsecured loan.

++ the Revenue has submitted that neither the subject input services were used in or in relation to the manufacture of final product as the project didn't yield any result and secondly, the service provider has returned back the same money as unsecured loan; consequently, the provisions of Rule 4(7) of CCR, 2004 have not been fulfilled.

++ considering the facts of repayment by the service provider of service charges of Rs.6,61,80,000/- as unsecured loan to the appellant; mention of a third party namely MERCK in the agreement; and the fact on record that this project of technology development for liquid filled hard gelatine capsule didn't give any result makes this full transaction of input service a suspect and put it in the category of 'sham transaction'. Consequently, this is our considered view that Revenue has rightly confirmed the demand of Rs.61,80,000/- (alongwith interest) relating to cenvat credit wrongly availed by the appellant.

++ we find that there has been wilfulmis-statement and suppression on the part of the appellant with intention to wrongly claim the ineligible credit and Revenue could notice this fact only through their audit.

Holding that the Revenue had rightly confirmed the demand by invoking extended period and imposed penalty and interest, the impugned order was upheld and the appeal was dismissed.

(See 2016-TIOL-2547-CESTAT-DEL)


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