Post-GST service tax credit is available u/s 140. (1)
Facts and Issue of the court
The Revenue questions the propriety of an order passed by the Commissioner of Appeals to the extent that the appellate authority has declined the Revenue’s demand pertaining to a sum of Rs. 2,18,75,232/- for which undue credit, according to the Revenue, was obtained by the respondent assessee.
The matter pertains to the period of transition in 2017 to the goods and services tax regime. The substance of the dispute relates to the payment by the assessee of the service tax component pertaining to manpower and the like services received by the assessee partly for the quarter ending March 31, 2017 and partly for the quarter ending June 30, 2017 long after the appointed date of July 1, 2017 and claiming cenvat credit therefor.
For possible financial constraints on the part of the assessee – and it is unnecessary to go into the reason for the delay – the service tax payment on account of the relevant manpower and like services obtained by the assessee during the aforesaid periods was made on or about October 23, 2017. The service tax due was tendered by the assessee under the applicable reverse charge mechanism, whereunder it is the service recipient, rather than the service provider, which is obliged to deposit the tax directly. There is no dispute as to the receipt of such payment by the Revenue.
The issue that arose and which culminated in a later show-cause notice of July 31, 2019 issued by the Revenue was as to the entitlement of the assessee to claim cenvat credit on the quantum of Rs. 2,18,75,232/- paid by way of service tax, but which was paid long after the appointed date of July 1, 2017 when the goods and services tax regime came to be embraced. The short ground raised by the Revenue in the show-cause notice in such regard was that since such payment of service tax was not made prior to the appointed date and could not have been reflected in the electronic ledger account maintained by the assessee as on the appointed date, in terms of Section 140 of the Central Goods and Services Tax Act, 2017, the assessee was not entitled to obtain any credit therefor.
There were other issues covered in the said show-cause notice of July 31, 2019 and these other aspects have been adjudicated upon, but they are not the subject-matter of the present proceedings. The assessee has accepted the adverse findings pertaining to such other aspects and there is no challenge thereto. The Revenue has only questioned the propriety of the assessee being allowed credit for the aforesaid sum of about Rs. 2.18 crores and Article 226 of the Constitution has been invoked in the absence of the Tribunal being constituted under the Act of 2017. To repeat, the challenge to the appellate order of January 8, 2021 which is assailed in the present proceedings is confined to the assesse availing cenvat credit to the extent of the aforesaid amount of Rs. 2,18,75,232/- and the appellate order permitting the same.
The order-in-original of June 18, 2020, passed by the Joint Commissioner (CGST), Shillong, upheld the Revenue’s demand on such count by agreeing with the show-cause notice that for an assessee to obtain cenvat credit, the service tax corresponding thereto ought to have been received by the Revenue prior to the appointed date of July 1, 2017. The second ground that impressed the Joint Commissioner and is reflected in the order-in-original is that double benefit had been obtained by the assessee; first, in terms of the locational exemption applicable and, later, the cenvat credit.
Observation of the Court
It is necessary to deal with the second ground first, since such ground was also before the appellate authority and the appellate authority found no merit therein, particularly since, on a plain reading of the applicable provision, the assessee was entitled to obtain due credit for the aforesaid sum of Rs. 2,18,75,232/-. There is no doubt that to the extent the assessee availed of the locational exemption, it paid less tax; and, as a consequence, since cenvat credit is relatable to the tax actually paid, it obtained correspondingly lower cenvat credit. There is no merit in the ground and the appellate authority appropriately repelled the same.
Before engaging on the primary issue involved herein, judicial notice has to be taken of the complex and convoluted way in which the law and the procedure are reduced to writing in matters pertaining to revenue, especially GST. There are enactments which are qualified by rules that are modified by notifications which are exempted by periodic instructions handed down by the Department. It appears that there is a concerted attempt to make the matter more complex than it is actually is and for obvious reasons for a lot of the gravy to seep through the cracks. The matter may be emphasised by referring to a 2018 amendment of Section 140 of the Act of 2017 by which the second Explanation to the provision, which was till then confined to sub-section (5) of Section 140, was extended to sub-section(1) thereof. Though the amendment has taken place in 2018, such amendment is to take effect from a day which has to be notified. Such date has not yet been notified, though the effect of the amendment is already found in Rule 117 of the Central Goods and Services Tax Rules, 2017.
Indeed, such rule apparently enlarges the scope of what is contained in Section 140 of the statue when it refers to “eligible duties and taxes” though amended Section 140(1) of the Act confines the matter only to “eligible duties”. Quite plainly, the amendment to Section 140(1) of the Act of 2017 to incorporate the words “of eligible duties” was wholly unnecessary as the preceding expression “cenvat credit” was already self-contained and the incorporation of the amendment sans a reference to the tax component made it somewhat anomalous which Rule 117 of the Rules of 2017 rectifies. However, a rule cannot, ordinarily, rectify or alter any statutory provision. Be that as it may.
The key to the issue, as had to be discerned with a great deal of difficulty from the equally convoluted appellate order, is in the existing law or practice under the previous regime continuing and the rights, obligations and liabilities of both the Revenue and the assesses being saved by the repeal and savings provision in Section 174 of the Act of 2017. Section 2(48) of the Act of 2017 defines “existing law” and the applicability thereof to the manner in which the relevant service tax return in this case was filed by the respondent assessee cannot be questioned. In any event, the operative words in Section 140(1) of the Act of 2017 also refer to “existing law”, if only to emphasise the matter.
In terms of Section 140(1) of the Act of 2017, a qualified registered person is entitled to take the amount of cenvat credit carried forward in the return relating to the period immediately prior to the appointed date as furnished by such person under the existing law. In other words, the essence of Section 140(1) of the Act of 2017 is that if a matter is reflected in the return for the relevant period, due credit therefor may be taken as long as the return has been filed in accordance with the existing law and in the manner prescribed thereby. In this case, the return pertaining to the quarter immediately preceding the appointed date was filed on October 24, 2017, a day after the service tax component pertaining to the payment was tendered by the assessee, together with a GST TRAN-1 form duly filled up.
Since it is evident that the service tax return relating to the quarter ended June 30, 2017, immediately preceding the appointed date, was filed in accordance with the existing law and there is no dispute that it has been filed in the prescribed form since the Revenue has acted thereon, it is now necessary to see the impact of such service return filed in October, 2017 qua the entitlement of the assessee to obtain cenvat credit for the service tax component.
For such purpose, it is Section 140(1) of the Act of 2017 which is the only guiding light. As noticed earlier, the relevant provision pertains to the cenvat credit carried forward in the relevant return. Cenvat credit is qualified in the amended provision by the additional words incorporated therein “of eligible duties” and further qualified by Rule 117 of the Rules of 2017 that refers to “eligible duties and taxes”. A fortiori, if the relevant return of an assessee – irrespective of whether it was filed before the appointed date or not – was furnished in accordance with the existing law and in the prescribed manner, the cenvat credit on account of service tax reflected therein could be availed of in terms of Section 140(1) of the Act of 2017.
The Revenue’s contention that the tax component or duty component for which cenvat credit is sought must have been paid prior to the appointed date, is not supported by the clear words of Section 140(1) of the Act of 2017. In the event the relevant provision or any other incidental convoluted rule required the return to be filed prior to the appointed date, the Revenue’s contention would have held good. However, the eligibility to obtain cenvat credit depends on what is indicated in the return and, as long as the return is in order, the cenvat credit cannot be denied. There is no dispute in this case that the return filed was in order. The eligibility or entitlement to obtain cenvat credit, in terms of Section 140(1) of the Act of 2017, is based on whether the matter is reflected in the return which is filed as per the existing law in the manner prescribed; and not on when the return was filed or whether the duty or tax for which cenvat credit is claimed had been deposited prior to the appointed date.
Accordingly, the Revenue’s limited challenge to the appellate order of January 8, 2021 pertaining to cenvat credit claimed by the respondent assessee to the extent of Rs.2,18,75,232/- fails and the appellate order in such regard is found to be unexceptionable. As a consequence, WP (C) No.86 of 2022 is found to be without merit and the same is dismissed.
Court Dismissed the case of the Revenue.Suryaji-Shriram-Patekar-Vs-ACIT-ITAT-Mumbai