Blatant Disobedience of Board Instructions and SC Orders by CE field officers - ST paid by Indian recipient of Service from abroad - Is Credit allowed?
CENTRAL Excise officers in the field have time and again demonstrated that they are spoilt princes who have no respect for the Board and with routine regularity flout Board instructions and even Supreme Court orders. The Supreme Court orders that Board instructions are binding on the field officers are binding only on the Supreme Court and the Board, not the mighty Commissioners. Should the Board be silently bearing this humiliating disobedience by minor minions of the Revenue Department?
Services provided from outside India and received in India are subjected to levy of service tax under Section 66A of the Finance Act, 1994 and the liability to pay tax is on the recipient of the service. The question is whether CENVAT Credit is available on service tax paid on these services by the recipient of the services.
As far back as in 2006, Board clarified in F.No. B1/4/2006-TRU- Dated 19 th April 2006 that:
The treatment of the recipient of service, as the deemed service provider under section 66A is only for the purpose of charging service tax on taxable services received from outside the country. Services provided from outside India and received in India, therefore, not treated as taxable service provided by the recipient for the purpose of CENVAT Credit Rules, 2004. However, where such service is used as an input for providing any taxable output, the service tax paid on such service can be taken as input credit.
In F.No. 345/1/2008-TRU dated June 27, 2008, Board reiterated the above instructions and stated,
The recipient of the service is required to pay service tax under Section 66A though the service is actually provided not by the recipient but by a person located in a country other than India. Such taxable services, not being actually provided by the person liable to pay service tax, are not treated as "output services" for the purpose of CENVAT Credit Rules, 2004. However, service tax paid under Section 66A is available as "input credit" under CENVAT Credit Rules, 2004 provided the said services are used as input services by the manufacturer or producer of final products or a provider of output taxable service.
The views communicated by the Board in para 4.2.13. of F.No B1/4/2006-TRU dated 19 th April, 2006 are reiterated.
In F.No.354/148/2009-TRU dated July 16, 2009, the CBEC further clarified:
The matter has been examined. The provisions under section 66A state that in case service is provided from abroad and received in India, such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of Chapter V of the Finance Act, 1994 would apply. Therefore, it is clear that section 66A is not a charging section by itself. In fact, it only creates a legal fiction to deem import of service as provision of service within India so that the provisions of Chapter V of the Finance Act, 1994 can be applied to. The charging section remains section 66 even for the service imported. In other words, the tax collected from the recipient in terms of Section 66A is also tax chargeable under section 66 of the Finance Act, 1994.
In view of the foregoing, it is clear that there is no mistake or omission in the relevant provisions of the CENVAT Credit Rules, 2004 and that credit of tax paid on imported services should be allowed if they are in the nature of input services.
In spite of such clear clarifications by the Board, field officers continue to deny CENVAT credit and issue notices whenever credit is taken.
Recently we have come across a case where the Department was of the view that since the assessee had taken the CENVAT credit of service tax paid on behalf of the foreign service provider, from whom the taxable service had been received by them, they are not to be considered as output service provider, and hence they are not eligible for the service tax credit. A Show Cause Notice was issued for recovery of allegedly wrongly taken service tax Cenvat credit amounting to Rs.47,39,748/- along with interest.
Interestingly in this case, the Additional Commissioner dropped the proceedings - a rare event in Central Excise. But the Commissioner did not keep quiet. He directed appeal to the Commissioner (Appeals) who being a sincere Revenue Officer quashed the orders of the Additional Commissioner.
The matter reached the Tribunal where a stay was granted.
But what happens to the Additional Commissioner who followed the Board directions, the jurisdictional Commissioner and the Commissioner (Appeals) who had no respect for the Board and the DR in the Tribunal who was arguing against the Board instructions? ABSOLUTELY NOTHING!
Babus are insulated. They can get away with anything, even blatant disobedience of their bosses.
Just imagine how much money and time the assessee had to spend just because the field officers have no respect for the Law and/or the Board?
If the Board cannot enforce its directions, it may as well stop giving instructions. If they are serious about their instructions, they should be serious about enforcing them. Let them take this as a sample case and find out how many officers have issued Show Cause Notices on this issue against the Board instructions and award exemplary punishment to those who have disobeyed the Board. Let them do it once and Board will find unquestioned obedience.