CESTAT Chennai Allows ₹3.91 Lakh CENVAT Benefit To HUL, Says Job Workers' Tax Exemption No Bar
On 22 October, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, set aside the denial of Rs. 3,91,207 in CENVAT credit to Hindustan Unilever Limited on service tax paid by job workers, along with the consequential interest and penalty.
A Bench comprising Judicial Member Ajayan T.V. allowed the company's appeal, holding that Section 5A(1A) of the Central Excise Act, 1944, which bars payment of duty on absolutely exempt goods, does not apply to service tax under the Finance Act, 1994. The Tribunal observed:
“Where Parliament has specified with such precision which provisions of one enactment shall govern another, the omission of sub section (1A) must be taken to be deliberate. It cannot be supplied by construction. A provider of a taxable service is accordingly under no obligation to avail an exemption, and tax paid by it in preference to the exemption is not tax paid without the authority of law.”
Hindustan Unilever manufactures products including Ponds moisturising cold cream, Vaseline petroleum jelly, shampoo and talcum powder. During verification of records for December 2012 to February 2013, the Department found that the company had claimed Rs. 3,91,207 in CENVAT credit, including cesses, on service tax paid by several job workers.
The Department contended that Notification No. 25/2012-ST dated 20 June 2012 exempted the job work services from service tax and that they could not qualify as input services under Rule 2(l) of the CENVAT Credit Rules, 2004. The adjudicating authority confirmed the demand with interest and imposed a penalty of Rs. 40,000. The Commissioner of Central Excise (Appeals), Chennai, upheld the order.
Before the Tribunal, Hindustan Unilever argued that the service tax law contained no provision requiring service providers to avail themselves of an exemption corresponding to Section 5A(1A) of the Central Excise Act. It further submitted that the job work was directly connected with the manufacture of its final products and that the Department had accepted the service tax paid by the job workers.
The Tribunal noted that Section 83 of the Finance Act, 1994, specifies which provisions of the Central Excise Act apply to service tax. Although Section 5A(2A) appears in this provision, Section 5A(1A) does not. It held that the omission was deliberate and could not be overcome through interpretation.
It relied on Gandhi Special Tubes Limited v. CCE and ST, Vadodara-II, which addressed the denial of CENVAT credit on service tax paid by job workers despite the availability of an exemption under Notification No. 25/2012-ST.
The Bench noted that the decision also supported allowing credit where the Department had not challenged the service tax payment or assessment at the service provider's end. It observed:
“The second is that where neither the payment of the tax nor its assessment has been questioned by the jurisdictional officer of the service provider, the credit taken by the recipient cannot be questioned either. The decision construes the very notification invoked against the appellant, and both its grounds apply with full force to the facts of this case.”
Further, the Tribunal noted that the show-cause notice did not dispute that the job work was used in or in relation to the manufacture of Hindustan Unilever's final products. It held that Rule 2(l) of the CENVAT Credit Rules, 2004, does not make a service's eligibility as an input service dependent on whether the provider was entitled to an exemption.
It also held that the Department could not accept the service tax paid by the job workers while denying Hindustan Unilever credit of the same tax, particularly when the assessments had not been reopened and the tax had not been refunded.
Accordingly, the CESTAT set aside the order dated 31 March 2016 and allowed the appeal with consequential relief.
Counsel for Appellant: Ms. Mathangi, Advocate
Counsel for Respondent: Mr. R. Govindan, Authorised Representative