2015 (2) TMI 1112 - HC - Service Tax

Cenvat Credit - Tribunal held that the respondent shall be deemed to be an output service provider under Rule 2(p) of the Cenvat Credit Rules 2004 (hereinafter referred to as the Rules ) and was therefore entitled to Cenvat credit for the Service Tax paid by it prior to the period 5-3-2004. - Held that - It is an undisputed position that prior to 5-3-2004 the respondent was not an output service provider. It became an output service provider subsequent to that date after it entered into a MOU with M/s. Vallab Steels Ltd. for rendering output service. If prior to the same the Respondent paid Service Tax on the ground that M/s. JFE Engineering Corporation a company incorporated in Japan from whom it received input service was not liable to pay tax and subsequently it was held that the Respondent was not liable to pay Service Tax as a deemed output service provider under the Service Tax Rules its remedy to seek a refund if entitled in the law is a completely separate matter. The Rules having come into force on 10-9-2004 only and not having been made retrospective in operation the Tribunal erred in holding that during the relevant period prior to 5-3-2004 the respondent would be deemed to be an output service provider under Rule 2(p) giving it retrospective effect. The Tribunal therefore erred in ultimately holding that availment of credit was permissible in view of the subsequent extended definition of output service which came into force on 10-9-2004 much after the period in question prior to 5-3-2004. - Credit not allowed - Decided against the assessee - In favor of revenue.

Summary

Issues: Interpretation of Rule 2(p) of the Cenvat Credit Rules, 2004 regarding entitlement to Cenvat credit for Service Tax paid prior to 5-3-2004.

In this judgment, the High Court considered an appeal arising from a Customs, Excise and Service Tax Appellate Tribunal order. The Tribunal had deemed the respondent as an output service provider under Rule 2(p) of the Cenvat Credit Rules, 2004, allowing them to claim Cenvat credit for Service Tax paid before 5-3-2004. The main question was whether the respondent was entitled to claim such credit. The appellant argued that Rule 2(p) was prospective and did not apply to the period before 5-3-2004 when the respondent paid the Service Tax. They contended that any refund due to the respondent would be a separate matter. On the other hand, the respondent's counsel defended the Tribunal's decision, stating that it was based on principles of substantive justice, especially considering the lack of a time limit for availing Cenvat credit. The High Court noted that the respondent was not an output service provider before 5-3-2004 but became one later. The Court found that the Tribunal erred in applying Rule 2(p retrospectively to the period before 5-3-2004. As the Rules came into force on 10-9-2004 and were not retrospective, the Tribunal's decision to allow credit for the period before 5-3-2004 was incorrect. Consequently, the High Court set aside the Tribunal's order, deeming it unsustainable, and allowed the appeal in favor of the appellant.