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Judgment
Brief facts are that the appellant is engaged in manufacture of goods falling under Chapter 40, 84 and 87 of CETA, 1985. They availed the facility of CENVAT credit on inputs and input services. They availed input service credit on debit notes raised for cost sharing by M/s. Gates India Pvt. Ltd. (GI) which along with the appellant are a subsidiary of Gates Corporation, USA. They had a common corporate office at Gurgaon and had entered into a cost sharing and reimbursement agreement by which both the parties intended to share various office and administrative costs and the appellant reimburses the charges incurred in terms of the agreement. The allegation is M/s. Gates India Pvt. Ltd. raised debit notes on the appellant on monthly basis for cost sharing without details of service received but only showing the payment of service tax at applicable rates. The appellant availed CENVAT credit on such debit notes. It appeared to the department that the credit of service tax on such debit notes taken was ineligible as these are reimbursement of expenses and not consideration paid for taxable service. According to department, Gates India Pvt. Ltd. was neither a service provider nor an input service distributor and the document issued by them were not documents prescribed for the purpose of taking credit as per Rule 9 of the CENVAT Credit Rules, 2004. Show Cause Notice dated 27.2.2017 was issued proposing to demand the ineligible input service credit for the period between 09/2013 to 01/2015 along with interest and also for imposing penalties. Thereafter, Statement of Demand dated 5.6.2017 for the period May 2015 to April 2017 and another Statement of Demand for the period May and June 2017 were also issued. After due process of law, the original authority confirmed the demand in the Show Cause Notice as well as the Statements of Demand along with interest and also imposed penalty. Aggrieved by such order, appellant filed appeal before Commissioner (Appeals) who vide the order impugned upheld the same. Hence this appeal.
The ld. Counsel Shri K. Pawan Pahwa and Shri Manoj Misra appeared and argued for the appellant. He submitted that the appellant had executed a cost sharing agreement with their group company M/s. Gates India Pvt. Ltd. to achieve operational efficiencies. Under this agreement, the companies proposed to share the cost incurred on office space, furniture and fixture, other administrative services. It is argued by him that it is prevalent practice in the industry that group of companies under common ownership rent/lease a common building and avail services commonly for achieving efficiencies in operation such as office space, advertising, home resources, security services, banking, financial and insurance service. Under such agreement, one of the companies will make payments for lease, rent, electricity charges and other administrative charges which are the common service that are shared by them and these expenses are then shared between the group of companies in an agreed manner. The appellant has thus entered into cost sharing and reimbursement agreement dated 1.4.2012. On the basis of this agreement, the appellant is charged for expenses incurred by GI for space, utilities, travel and other administrative overhead charges. As per the cost sharing agreement, the appellant has to pay GI on a monthly basis the arrears of cost incurred by GI on behalf of the appellant. GI being the service provider has collected service tax from the appellant for their claim of the cost sharing from the appellant. As per the cost sharing arrangement, GI will pay the consideration and the appellant reimburses the common cost so raised through a debit note. The appellant has availed credit of the service tax paid on the amounts paid through these debit notes.
The department has sought to deny the credit alleging that GI has not rendered any taxable service to the appellant but that GI is only claiming reimbursement of actual expenses incurred towards administrative and other cost and these cannot be considered as taxable service provided by GI to appellant. The second ground for denying credit is that debit notes cannot be considered as a document for availing credit.
The ld. Counsel argued that the department does not dispute the collection of service tax from the service provider (GI) but has sought to deny the credit availed by the service recipient which is the appellant herein. He submitted that the Hon'ble jurisdictional High Court on the very set of facts had analyzed the issue whether credit is eligible in such cost sharing arrangements. It was held that when the service tax paid by the service provider is not in dispute, the assessment to tax at the hands of the service provider cannot be disputed or denied at the end of the service recipient.
With regard to the issue of availment credit on debit notes, the ld. Counsel submitted that in the case of Shree Cement Ltd. Vs. CCE, Jaipur - 2013 (29) STR 77 (Tri. Del.) it was held that CENVAT credit cannot be denied when the credit is availed on debit notes if such note contains all the mandatory particulars as prescribed in the Service Tax Rules. That there is no scope to deny the credit when the service tax has been actually deposited in the Government. He prayed that the appeal may be allowed.
The ld. AR Ms. T. Sridevi supported the findings in the impugned order.
Heard both sides.
The issue as to whether credit availed on the service tax paid is eligible to the appellant or is merely a reimbursement so as to pass on the cost incurred has been analyzed in the similar set of facts by the Hon'ble jurisdictional High Court in the case of Modular Auto Ltd. Vs. CCE, Chennai in CMA No. 723 and Ors. of 2018 dated 14.8.2018. The relevant portion is as under:-
"11. The short question, which falls for consideration, is whether the department as well as Tribunal could have held what was availed by the assessees as credit is only a reimbursement and it is an attempt of BIL to pass costs incurred by them towards MPLS.
Mrs. Aparna Nandakumar, learned Senior Panel Counsel for the Revenue, produced a lecture on Multi Protocol Label Switching with Quality of Service in High Speed Computer Network to explain as to what is Multi Protocol Label Switching (MPLS) and it has been stated therein that it is a method that directs data from one system mode to the next based on short path labels rather than long network addresses in high-performance tele-communication association. Referring to a chart showing the working methodology, it is submitted that it is facility created and the beneficiary is BIL and no input service is rendered by the BIL to the assessees for them to claim Input Tax Credit.
To test the correctness of the said submission, we give the following illustration, which is broadly the nature of transactions done by the assessees with BIL.
The BSNL/Reliance Communications Pvt. Ltd. have provided the MPLS facility to BIL and assuming the amount to be paid is Rs.100/- towards the cost and Rs.10/- towards the service tax, when the invoice is raised by the BSNL/Reliance Communication Pvt. Ltd. For the said amount and the BIL has paid Rs.110/- to BSNL/Reliance Communication Pvt. Ltd. which includes the cost as well as Service Tax element, the BIL, in turn, has raised an invoice on the assessees claiming proportionately the costs which they have incurred to BSNL / Reliance. By way of illustration, if Rs.20/- has been passed on to one of the assessees, a sum of Rs.2/- is collected as service tax and each of the assesses pays Rs.22/- to BIL, one which Rs.2/- is the service tax paid. The assessees have taken CENVAT credit on the said Rs.2/-paid by it as service tax to BIL. Therefore, the question would be as to whether the department can dispute the nature of transaction at this juncture, more particularly, when the assessment made on the BIL and the collection of service tax on them has not been reopened.
From the reasons assigned by the Commissioner (Appeals), we find that the Commissioner (Appeals) has travelled beyond the scope of allegation made in the Show Cause Notice. By giving a different interpretation to the nature of transaction, which, in our considered view, could not have been done by the appellate authority in the light of the settled position with regard to the service tax liability admitted and paid by BIL. Therefore, unless and until, the assessment on BIL had been reopened, the nature of transaction as referred by BIL has to be held to be wrong and the Commissioner (Appeals) could not have given a different interpretation to the nature of claim made by the BIL from the assessees by interpreting the terminology used in the invoice. The correct test, which ought to have been applied by the adjudicating authority, appellate authority and the Tribunal, is as to what is the character of payment made by the assessees on which they have availed the CENVAT credit.
In the instant case, it is not in dispute that whatever the portion of service tax component which was collected from the assessees by BIL was only the amount on which the CENVAT credit has been claimed by the assessees. Therefore, unless and until the assessment made on BIL was revised, which obviously could have been done, at this juncture, on account of the expiry of the period of limitation, the interpretation given by the Commissioner (Appeals) as well as the Tribunal with regard to the nature of invoice raised on the assessees is unsustainable. Furthermore, we find that the reason assigned by the Tribunal in para 6.2 stating that the activity performed by the BIL for monitoring of production activities of the assessees cannot by any stretch of imagination be considered as an input service or in relation to the manufacture of final products of the assessees, is a statement, which is unsubstantiated by any record. At best, it can be taken as a personal opinion of the Tribunal, which could not have been a reason to reverse the credit availed by the assessees.
What is important to note that the assessees' specific case is that there has been a service by BIL to the assessees in the matter of retrieval of data and service tax has been collected and paid by BIL and the correctness, legality or otherwise of the tax paid by the subject providers cannot be called in question by the Central Excise Officer having the jurisdiction over the assesses availing the credit. This question has not been considered. If the impugned orders are allowed to stand, then it would in effect mean that the jurisdictional assessment officers of the assessees are sitting in the judgment over the assessment made on BIL, over which, they have no jurisdiction.
Thus, for the reasons stated above, we are of the considered view that the order passed by the Tribunal calls for interference. Accordingly, the substantial questions of law framed for consideration are answered in favour of the assessees and the appeals are allowed on the above terms. No costs. Consequently, connected miscellaneous petitions are closed."
(Emphasis supplied)
This decision was followed by the Tribunal in the case of Cholamandalam MS General Insurance Co. Ltd. Vs. CCE, Chennai - 2021 (47) GSTL 263 (Tri. Chennai).
It is evident from the facts that the department does not dispute the payment of service tax on the amounts raised in the debit notes. The Show Cause Notice is issued only to the service recipient (appellant herein) who has availed the credit of service tax collected via the debit notes. If the department holds that the payment of service tax is legal and proper, then the credit availed on the tax cannot be denied alleging that no service is provided.
Further on the issue whether debit notes are valid documents to avail credit, it has to be stated that though Rule 9(1) of CENVAT Credit Rules, 2004 does not mention debit note as a document on which credit can be availed, when all necessary particulars are mentioned the credit cannot be denied for the only that it is a debit note. In Bharati Hexacom Ltd. - 2018 (12) GST 13 (Raj.) the credit availed on debit notes was held to be eligible. In the case of Gabriel India Ltd. - 2017 (48) STR 492 (Tri. Del.) it was held that credit availed on debit notes cannot be denied when the eligibility of credit is not disputed. We hold that the denial of credit on the ground that the document on which credit is availed is a debit note is not legal or proper.
After appreciating the facts and also following the decision of the Hon'ble jurisdictional High Court, which is rendered on identical set of facts, we are of the considered opinion that the demand cannot sustain. The impugned order is set aside. The appeal is allowed with consequential reliefs, if any.
(Operative portion of the order was pronounced in open court)