CESTAT Sets Aside ₹93.75 Lakh Demand Against HCL, Upholds BPO Works Contract Credit Denial
On 1 September, the Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that CENVAT credit cannot be denied merely because input services were received at premises not included in the taxpayer's centralised registration, while upholding denial of credit on works contract services used for construction or setting up of Business Process Outsourcing (BPO) branches.
A Bench comprising Judicial Member P.A. Augustian and Technical Member Sanjiv Srivastava partly allowed HCL Technologies Ltd.'s appeal against a demand of Rs. 2.06 crore, comprising Rs. 93.75 lakh in CENVAT credit on services received at its Chennai, Hyderabad and Gurgaon premises before their inclusion in the centralised registration and Rs. 1.12 crore on works contract services used at its BPO premises. The Tribunal observed:
“Thus mere non inclusion of these premises in the ST-2 certificate by the appellant cannot be reason to hold that appellant had contravened the provision of Section 69 of the Finance Act,1994 as the appellant was duly registered for provision of taxable services as required by Section 69 ibid.”
HCL had a centralised service tax registration for providing taxable services but had not included its Chennai, Hyderabad and Gurgaon premises in the ST-2 certificate when it received the disputed input services. It nevertheless disclosed the service receipts and CENVAT credit in its ST-3 returns. The Department denied credit of about Rs. 93.75 lakh on the ground that the services had been received at premises not covered by the registration.
Relying on the Allahabad High Court's earlier decision in Samsung India Electronics, the Tribunal held that receipt of input services at premises not included in the registration, by itself, could not justify denial of CENVAT credit. Since HCL held a centralised registration and had disclosed the relevant credit in its returns, the Tribunal set aside the Rs. 93.75 lakh demand on this ground.
The second dispute concerned CENVAT credit of about Rs. 1.12 crore on works contract services used at HCL's BPO premises in Gurgaon, Chennai, Hyderabad and Noida. HCL contended that the services were used for repair, maintenance and modernisation of existing premises. The Department, however, treated them as works contract services used for construction or setting up of BPO branches.
The Tribunal rejected HCL's claim on merits and upheld denial of credit on the works contract services used for construction or setting up of the BPO branches.
The Department had also invoked the extended period of limitation in relation to the demand. HCL had disclosed the disputed CENVAT credit in its ST-3 returns and had filed refund claims involving the input services. The Department had dealt with some of those claims through earlier show cause notices.
The Tribunal found that the relevant facts were therefore already available to the Department and that a subsequent audit, by itself, could not justify invoking the extended period. The Bench held:
“Impugned order fails to specify any such act which could lead to invocation of the extended period of limitation, when the appellant has declared the credit taken in respect of the disputed services in their ST-3 returns.”
While the Tribunal had sustained the denial of the Rs. 1.12 crore credit on merits, it held that the Department could recover the amount only within the normal limitation period. It therefore confined the surviving demand to the period from April 2014 to March 2015 and remanded the matter for re-quantification. It upheld interest on the surviving demand but set aside penalties under Sections 77 and 78 of the Finance Act, 1994.
Accordingly, the CESTAT partly allowed the appeal and directed the adjudicating authority to recompute the demand for FY 2014-15 within three months.
Counsel for the Appellant: Atul Gupta, Advocate
Counsel for the Revenue: N.K. Mohan, Authorised Representative