Mccann Erickson (India) Ltd v. Principal Commissioner of Gst & Central Excise,Delhi East

JUDGMENT % i9.6?ioi;9 , D.N. PATEL, CHIEF JUSlCTt^B^io^ALJ^

¶1This appeal, under'$6ction 83 ,of the ; Finance Act, 1994 read with Section 35-G of the Central Excise Act, 1944, is directed against the Final Order, dated 1®' February, 2018, and Miscellaneous Order dated 14"^ September, 2Dl8 :^pas^d bplle'Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as "CESTAT").

¶2The dispute pertains to the period E' April, 2005 to 16"' May, 2008. During the said period, the appellant was engaged in providing advertising and other services through media, television,, radio, websites, newspapers magazines, bilLboards and hoardings and during the period in issue the present cuse, for which it was duly registered » with the Service Tax authorities.

¶3The present dispute emanates from a Show Cause Notice dated th 30 August, 2010, issued to the appellant, proposing two demands of service tax, of Rs. 24,72,677/- and Rs. 1,93,74,146/- respectively. Of these, the former demand, of Rs. 24,72,677/-, stands dropped; ergo, we are not required to concern ourselves therewith. The controversy, in , the present appeal, relates to the sustainability of the second demand, as proposed in the aforesaid Show Cause Notiee and as suceessively confirmed by , the. Commissioner of Central Excise (hereinafter referred to as "the Cbnihiigsii##'^ and the CESTAT.

¶4Qua this.demand, of Rs. f,93;74il46/-, the case of the Revenue - as accepted by the CESTAT In th^, impugned Final Order - is that the appellant erroneously ipaid tlie/3aid amount of service tax by utilization of CENVAT Credit avaii|ble::^ithrit, whereas the amount was required to be paid in cash. TteSMmT has, therefore, affirmed the decision, of the Cornmissioner, requiring the appellant to pay the ® said amount of service taj^ ilf 0|eigpainf|lEiash, with the caveat that, ha.ving done so, the appellant can avail CENVAT Credit of the said amount; in other words, the amount would stand re-credited in the appellant's CENVAT Credit account.

¶5The issue in controversy is, therefore, limited to the question of whether the appellant was entitled to pay the aforesaid amount of service tax of Rs.1,93,74,146/- from its CENVAt Credit account, or was necessarily required to pay the amount in cash.

¶6Vide order dated 14^' January, 2019, the present appeal was admitted on the following substantial questions of law:- "(i) Did Customs, Excise & Service Tax Appellate Tribunal [CESTAT] fall into error in holding that during the. period from April, ,2006 to March, 2008, the Assessee/Appellant could not have discharged its tax liability by utilizing the credit available to it, given that the explanation to Rule 3(4) of the Credit Rules, 2004 was brought into force from E' July, - ^ 2012.

(ii) Did the CESTAT fali^ihtp errorun-holding that.proviso under Section 73(1) was Unwarranted.

(iii) Whether^in the circumstmiGes, the penalty was lawfully imposed." .. .

¶7Having heard learned counsel for. tlie parties and having perused the available record, as well ;as■Iheh^elev^^^tatutory provisions, we are of the opinion that the first^quest|0fiias framed hereinabove is required to be aiiswered in favour of the Appellant and against the respondent. The necessity of adjudicating on Questions (ii) and (iii) Would, ^ thereby, stand obviated. A ; : '

¶8The aforesaid amount of Rs. 1,93,74,146/-, constituting the subject matter of cdritfoversy in the present case, relates to service tax on services provided by various foreign companies. The services, on which, the said amount of service relates to various categories, namely. Advertising Agency Service, Manpower Recruitment Service, Business Auxiliary Service, Management Consultancy Service, SERTA1/2019 Management, Maintenance or Repair Service and On-line Information database Access Service. The provider of the said services was located outside India. The statutory backdrop

¶9Service tax became payable, by the appellant, on the said services, by virtue of Section 66A of the Finance Act, 1994, which reads thus; "66A; Charge of service tax on services received from outside India. -

(1) Where any service specified in vclause

(105) of.Section 65 is,-

(a) provided or to. be proyiilecl by a person who has, established a business Or hasl affixed establishment from which the service is provided or to be provided or has his permanent, address or usual place of residence, . in a country other than India, and

(b), received %ya-.p'erson (hereinafter referred-to as the recipient) who dias his place of business, fixed establishment, permanent address or usual place of residence, in India, such service-shall, for the .purposes , of this section, be taxable service, and such taxable service shall be treated as if the recipient had liimself ^ provided -the ^rvice-irtlndi^jaipi accordingly all the provisions of this Chapter shall apply."

¶10It is also necessary to refer to certain provisions of the CENVAT Credit Rules, 2004 (hereinafter referred to as "CENVAT Credit Rules"). Rule 3(4) of the CENVAT Credit Rules - sans the various provisos thereto, which are of no particular relevance — reads as under; "3. Cenvat Credit. - I . . .] '

(4) The CENVAT credit mav he ntiliyed for iJavment of -

(a) any duty of excise on any final product; or

(b) an amount equal to CENVAT credit taken on inputs if such inputs are removed as such or after being partially processed; or

(c) an amount equal to the CENVAT credit taken on capital goods if such capital goods are removed as such; or

(d) an amount, .under sub-rule (2) of rule 16 of Central Excise .Rules, 2002; or

(e) service tax jpifi dm output service''' . , ,"';n ,;^(Emphasis Supplied)

¶11With effect frpm 1 Julv,.2012.'the following explanatinn added to Rule 3(4) of the CenVat'^rei^f^Mes (supra):- Explanation. - Cenvati cfedit. cdnnot, be used for payment of service tax in i^pe^tld£{?e^dd^wher!e the person liable to pay tax is the service .reGipieht." ' i I' (Emphasis supplied) ^ Clearly, acceptance of fc stati in the present case, would amount to applying the afore-extracted Explanation retrospectively, to a period prior to its introduction,

¶12Rules 3 and 4 of the of Taxation of Services (Provided from Outside India and Received in India) Rules,2006 (hereinafter referred to as "Taxation of Services Rules") are also relevant, and may be reproduced thus: SERTA1/2019 ^ "3. Taxable services provided from outside India and received in India.-Subject to section 66A of the Act, the taxable services provided from outside India and received in India shall, in relation to taxable services -

(i) specified in sub-clauses (d), (p), (q), (v), (zzq),

(zzza), (zzzb), (zzzc), (zzzh), (zzzr), (zzzyX (zzzz) and (zzzza) of clause (105) of section 65 of the Act, be such services as are provided or to be provided in relation to an immovable property situated in India;

(ii) specified in sub-clauses (a), (f), (h),(i), Q), (1),

(m), (n), (o), (s), (t), (u), (w), (x), (y), (z), (zb), (zc),

(zi), (zj), (zn), (zo), (zq), (zr), <zt), (zu), (zv), (zw),

(zza), (zzc), (zzd), (zzf),. (zzg), (zzh),, (zzi), (zzl),

(zzm),. (zzn), (zzo), ,(^),^zzsX (zzt), (zZV)^- (zzw),

(zzx), (zzy), (zzzd)vXzzze)/{(zz^

(zzzp) of clause

(105) of section .65 of the: Act'-fe such services as are .performed in India: , , Provided that where such; taxable service is partly performed in India, it shall be freated as performed in India and. the valiieipffsuGh'.taxable service shall be determined under section 167 tofr the Act and the rules made thereunder;,' I . '. . '

(iii) specified iSielah^, |l|^^'p^e^ion 65 of the Act, but excluding —

(a) sub-clauses (zzzo) and (zzzv);

(b) thbseisppfriedlihi clause (i) of this rule except when the provision of taxable services specified in clauses (d), (zzzc), and (zzzr) does not relate to immovable property; and

(c) those specified in clause (ii) of this rule,, be such services as are received by a recipient located in India for use in relation to business or commerce.

¶4Registration and payment of service tax.- The recipient of taxable services provided from outside India and received in India shall make an application for registration SERTA1/2019 Pagefro.fl? I and for this puipose, the provisions of Section 69 of the Act and the rules made thereunder shall apply."

¶13The expressions "output service", "person liable for paying service tax" and "provider of taxable service" were defined in Clauses

(p), (q) and (r) of Rule 2 of the CENVAT Credit Rules, during the relevant period, which read as under "(p) "output service" means any taxable service, excluding. the taxable service referred to in sub-clause (zzp) of clause

(105) of Section65 of the Finance Act, provided by the provider of taxable service, to a customer, client, subscriber, policy holder or any other person, as the case may be,\and the expressions 'provider' and 'provided' shall be construed accordingly;

(r) . \ "provider of taxable .service''''m!eludes a person Table for paying service tax;

(q) . "person liable for •pa.ying^seryiee tax" has the meaning as assigned to it in clause bf ^-rUle (1) of Rule 2 of the Service Tax Rules, 1994"

¶14Clause (q) of iSectiori; 2 bf tTe:^ Credit Rules refers us, therefore, to the definition of "person liable for paying service tax", as contaihed in Rule 2(l)(d)(iv) of the ServicefjfTax Rules (as it stood then), which reads as under: ^ j "(iv) "person liable for paying service tax" means, in relation to any taxable service provided or to be provided by any person from a country other than India and received by any person in India under Section 66A of the -Act, the recipient of such service;" Orders of the authorities below SERTA1/2019 ,

¶15The reasoning of the Commissioner, as contained in the Order-in-Originalj dated 6"' July, 2012, insofar as it relates to the aforesaid demand of Rs. 1,93,74,146/-, is contained in para 19.5 thereof, which may be reproduced as under: "Rule 3 (1) of the CENVAT Credit Rules, 2004 inter alia allows a provider of taxable service to take CENVAT credit of - the duty of excise and other duties and cess specified therein, the service tax leviable under Section 66 of the Finance Act, 1994; the service tax leviable ® under Section 66A of the Finance Act, 1994, etc. paid on any input or Capital goods received in the premises of the provider of output service, and dny input service received by theprovider of outpm servicefF^ the CENVAT. Credit Rules, 2004 provides that the CENVAT credit may be U0ized0rpayment of service tax on any output service:/It follows, therefrom that CENVAT credit of duty or service tax, Vfci availed on any input or input service etc. may ht utilized towards payment of service tax on any output service. The services received ® by the Noticee from ontsidfMdim^ mn output services for the purpose of utilization of CENVAT credit under Rule 3 of the CENVAT Credit Rules, 2004. Further, Rule 5 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, erases every shadow of doubt in this regard. This rule in clear and categorical items envisages that "the taxable services provided from outside India and received in India shall not be treated as output services for the purpose of availing credit of duty of excise paid on any input or service tax paid on any input services under CENVAT Credit Rules, 2004." Thus, a reading of statutory provisions contemplated in Section 66A(1) of the Act along with Rule 2(l)(d)(iv) of the said Rules, Rules 3(1) and 3(4)(e) of the CENVAT Credit Rules, 2004 and Rule 5 of the Taxation of Services (Provided from Outside India and Received in: India) Rules, 2006, as a whole, ^ clarifies unarnhiguously that the Noticee was not entitiled to utilize the CENVAIT cpedifd^msfpaymerit of service tax on the services receBed)b0tl^mf putside India, the Noticee was required ito pay fihy. service tax on the services received y it from, oMtMe Tndia through cash. This amount as demanded ih the impugned notice is liable to be recovered)fromfffm in cash. The contention of the Noticee that dff^^ejmeneutidl has no merit at all, for that payment of se^icedax-^ihrough cash, in such circumstances, is the mandate of the law. The other ^ ' contention of the NdiwhjeyfhalfWl^I^^ reflected the utilization of CENVAT credit on such services in the ST-3 returns also does not have any merit, for that, in this regard, a clear picture does not emerge from the returns. Moreover, the liability to pay service tax and the assessment thereof is upon the Noticee under self-assessment scheme and not upon the department. Thus, m this argument of the Noticee also does not sustain. Hence, it is rejected."

¶16The CESTAT concurred with the Commissioner, holding/that Section 66-A of the Finance Act, 1994 required service tax payable on reverse charge basis to be paid in cash. It was also held that CENVAT credit was allowable, to the person liable for paying service tax, in such cases only contingent on payment of the service tax in cash. The CESTAT^ however, held that, consequent to payment of service tax under coptending that dhefe had been a mistake. Section 66-A of the Finance Act, 1994, . mvcashj the appellant would be entitled to avail CENVAT crehit^,0^t|^®d amoum, which would, therefore, be re-credited in its' CENVMt cWd^ account.

¶17Contending that there. hati,;;beem, ^ in the aforesaid decision of the CESTAT, the'^dppellant filed ROM Application No. ST/ROM/5046B, 507041018 & 5X/MI5C/50526/2018, for - t - 1 ' rectification thereof. The appellant pointed out, in the said application that it was only with effect from E' July, 2012^That an explanation had ® been appended to. Sectioh^ S^^lf ®^AnvAT Credit Rules, proscribing payment of service tax, by utilization of CENVAT Credit, in cases in which the person responsible for paying service tax was the service tax recipient, i.e., where service tax was required to be paid on reverse charge basis. Per corollary, submitted the appellant in the said ROM Application, prior to E' July, 2012, service tax, even on. reverse charge basis, i.e., under Seetion 66-A of the Finance Act, 1994, was payable from the CENVAT credit account of the assessee.

¶18The aforesaid ROM application, filed by the appellant, wais also dismissed by the CESTAT, vide Miscellaneous Order dated 14^ September, 2018.

¶19Aggrieved by the aforesaid final order dated 1®' December, 2018 of the CESTAT upholding the confirmation, against it, of the service tax demand of Rs. 1,93,74,146/- as well as by Miscellaneous Order dated 14"^ September, 2018 {supra), dismissing the application, filed by the appellant for rectification of mistake therein, the appellant has moved this ,Court, by means :of the present appeal under Section 83 of the Einance Act, 1994: read wtfeSdck^^ 35-G of the Central Excise Act, 1944. . i

¶20We have heard Mr. Karan ■Sachdje^ learned counsel for the appellant and Mr. Amit Bahsdlj/leamdd^^fe Counsel appehrihg for the respondent. • ,

¶21A query was put to Mr. Amit Bansal at the outset, as to how when the Explanation, pfbHibiting paymonf of Service tax, on reverse charge basis, from the CENVAT credit account, was introduced in Rule 3(4) of the CENVAT Credit Rules only with effect from 1®' July, 2012, the Revenue was effectively making the said prohibition applicable to a prior period. Mr. Amit Bansal's response was that the said Explanation was only clarificatory in nature. The response, needless to say, merits submission only to invite rejection. The Explanation to Rule 3(4) of the CENVAT Credit Rules, as engrafted - Page H of 17 , on 1®' July, 2012, created a substantive liability, and a prohibition, on payment of service tax on reverse charge basis from the CENVAT credit, account. It is trite that provisions creating substantive rights, or liabilities, cannot have retrospective application. [Refer State of Punjab V. Bhajan Kaur AIR 2008 SC 2276] It is equally trite that a provision cannot be treated as clarificatory until and unless the provision itself so declares. [Refer Virtual Soft Systems Ltd. v. Commissioner of Income Tax, Delhi (2007) 9 SCC 665] Inasmuch as the Explanation to Rule 3(41 of the CENVAT Credit Rules. 2004 engrafts a prohibition in the CENVAT Credit Rules, resulting in a liability on the - assessee, it cannot, quite obviously^ be accorded retrosjiective effbicfj, or be applied to a period prior to the date of its introduction in-the statute, i.e. 1'- Julv. 2012.

¶22Inasrnuch as the entire period dfidemand. in the present case, i$ prior to Julv. 2012. the appellant is bhtifled\to succeed even on that score. "■

¶23We, however, propose to accord to. the;®spute a more empirical analysis.

¶24Section 66A of the Finance Act, 1994 makes the recipient of any service, specified in Section 65(105) of the Finance Act, 1994 - which would cover all "taxable services" - received by a person located in India, from a service provider located outside India, liable to pay service tax thereon as if he had himself provided the service in India. This, in taxing parlance, is loiown as payment on "reverse charge basis". In the service tax universe, service tax is payable, on reverse charge basis in various circumstances, chiefly in cases of "import of service", i.e. where the service tax provider is located outside India and the service tax recipient is located in India, and where the service provider'is a Goods Transport Agency (OTA).

¶25Rule 2(l)(d)(iv) of the CENVAT Credit Rules defines the recipient of the service, in cases where the service, received by a recipient in India, is provided by a service provider located outside India, as the "person liable for paying service tax".

¶26The issue to be detenhihed: is'whether the appellant, as the person liable to pay the seivicefta)^ion services provided by service providers located outside Indian ebuldipay the said service tax by utilization of CENVAT creditiavailable'wh^ it.

¶27A bare reading of t% CENVAT Credji Rules reveals that the answer to this question has necessarily to be in the affirmative. This may be demonstrated thus:

(i) Rule 3(4) of the CENVAT Credit Rules clarifies that CENVAT credit may be utilised for payment, inter alia, of service tax on any output service.

(ii) "Output service" is defined, in Rule 2(p) of the CENVAT Credit Rules, which envisages that any taxable service, excluding the taxable service referred to in sub-clause (zzp) of I Clause (105) of Section 65 of the Finance Act, 1994 provided by the provider of taxable service, to a customer, is an "output service".

(iii) "Provider of taxable service" is defined, in Rule 2(r) of the CENVAT Credit Rules as including a person liable for paying service tax.

(iv) Rule 2(q) of the CENVAT Credit Rules defines "person liable for paying service: tax" - as having the same meaning, assigned to the expresisi(rai:,dni^^ of the Service Tax Rules, 1994 (hereinafter Jrefefr^ as "the Service Tax Rules"). ' i'T'

(v) In case of serviceSfproyided by a provider located outside India and received by a recipient .located in India, the Indian recipient is, by virt% of^Rule 2(l)(d|(iv) of, the Service Tax Rules, defined as the "person liable-for paying service tax".

(vi) The Indian"'Tlbipilipinfflh^ also, therefore, becomes the "person liable for paying service tax", under the CENVAT Credit Rules.

(vii) The Indian recipient of the taxable - service also, consequently, becomes the "provider of taxable service", as defined in Rule 2(r) of the CENVAT Credit Rules.

(viii) Rule 3 (4) of the CENVAT Credit Rules permits. CENVAT Credit to be utilised for payment of service tax on any "output service". "Output service" is defined, in Rule 2(p) of the CENVAT Credit Rules as service provided, by a provider of taxable service. It has already been pointed out, bereinabove, that the petitioner was, by dint of the definition of the expression, as contained in Rule 2(r) of the CENVAT Credit Rules, the "provider of taxable service". Section 66A of the Finance Act, 1994, holds that, in cases where service, provided by a provider located outside India, is received by a recipient in liidia, the service would berdeemed to. have been provided by the Indian recipient. -

(ix) Resultantly, thefeforej tbe services received in India, by the appellant, from the service.^providers located outside India, were deemed to be oiitp.df es, provided in India, for which the appellant was thiise^e j|o\ ider. .f"

(x) In this scenario, therefore, service tax, on such services, was payable by utilisatiOn^f Credit, by virtue of Rule 3(4) of the CENVAT Credit Rules.

¶28We may also observe, in this context, that this issue has engaged the attention of various High Courts from time to time, including^ inter alia, the High Court of Rajasthan in U.O.L v. Kansara Molder Ltd. 2018 (15) GSTL 255 (Raj), the High Court of Kamataka in in CST v. Aravind Fashions Ltd., 2012 (25) STR 583 ' ======™-—-= Pagel5,ofl7

(Kar) [SLP (C) Diaiy No; 23369/2018, preferred against which, has also been dismissed by the Supreme Court on 3'"'' August, 2018], the High Court of Punjab and Haryana in C.C.E, v Nahar Industrial Enterpnses Ltd, 2012 (25) STR 129 (P & H) and the High Court of Bombay in C.C.E. v. U. S. V Ltd, 2019-V1L-334-BOM-ST.

¶29All these decisions have been digested by the High Court of Bombay in U. S. V. Ltd (supra), para 7 of which reads thus: The view taken by the Tribunal, in respect of.Rule 3(4)(e) of the Cenvat Credit Rules, 2004: now stands concluded against the revenue Ip^ the decision of the :Cujrat High Court inthe case of Commissioner of C.Ex^ :& Custonis vs. Panchmahal Steel Ltdi 2015 (37) S. T.R. 965 J(Gup)i .Delhi' High Court in the case of Commissioner Service fax vs,^4ro Honda Motors Ltd. 2013 (29) S.T.R. 358 and-Punjab and Haryana High Court in Commr. Of C.EX. Chdndigdrh vs. Nahar Industrial Enterprises Ltd., 2012 (25)-S,T.R. 129 (P & H).Tho aforesaid decisions have been, . fpllowed;;-.by, .this Court in The Commissioner of CGST ^^ehPal;%ccise v/s. Godrei & Eoyce Mfg Co. Ltd. ((lentrdl E^m^peal No. 23 of 2019) decided on 24th June]; 2019^3^ yfikm, utilisation of CENVAT credit for payment of service tax on reverse charge basis GTA gjoods Transport Agency). The above decision of Guirat Delhi Md Punjab .High Courts were also,.,followed by us fo ^( mrhissioner of COST; and GjertefM Excise; Belapur Commissionerate vs. M/s. GTL ihfrastructure Limited in (Central Excise Appeal No. 94 of 2019) decided on 25th June, - . In .respect of discharge of service tax obligation on reverse charge basis on import of services Under Section 66A of the. Finance Act, 1994 by utilization of cenvat credit. Thus ttoe is no reason not to follow our Court's decision in GTL Infrastructure Limited (supra)."

¶30In view of the above, kebping in view the statutory provisions and judicial .pronoupeements as referred to hereinabove,- it is dear that PageliSofl? the impugned Final Order, dated February, 2018, of the.CESTAT cannot sustain in law. It is, accordingly, set aside.

¶31The appeal, of the appellant, is accordingly allowed. CMAPPL. 127^/7010

¶32In view of the order passed in this appeal, this Civil Miscellaneous Application is; disposed of. CHIEF JUSTICE C.HARI SlfcrfUCAR, J II ' SEPTEMBER 19, iQ19/r.bar.dfiial I Page 17. of 17

$-13 * IN THE HIGH COURT OF DELHI AT NEW DELHI Date of decision: 19"' September, 2019 + SERTA 1/2019 & CM APPL. 1273/2019 MGCANNERICKSON (INDIA) LTD Appellant Through. Mr, Karan Sachdev, Adv. with Ms. Avisha Khatri, Adv. versus PRINCIPAL COMMISSIONER OF GST & CENTRAL EXCISE,DELHI EAST Respondent Through Mr. Amit iBansal, Adv. with Mr. Aman Rewafia and Ms.Vipasha Mishra:, Advs. CORAM: HON'BLE THlE CHIEF JUStlGE HON'BLE MR. JUSTICE C. HARI SHANKAR