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Issues involved: Application for waiver of pre-deposit of service tax, interpretation of Rule 5 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.
Interpretation of Rule 5 of Taxation of Services Rules: The applicant sought waiver of pre-deposit of service tax, interest, and penalty amounting to Rs. 21,19,272, which was paid using Cenvat credit for taxable services received from a foreign service provider. The issue arose when a show cause notice contended that Cenvat credit cannot be utilized for tax liability as a recipient of services from a foreign provider under Rule 5 of Taxation of Services Rules. The applicant argued that Rule 5 only prohibits availing credit on input services, not on discharging the liability as a recipient of taxable services. The Tribunal found that Rule 5 specifies that services received from outside India are not to be treated as output services for availing credit under Cenvat Credit Rules. Consequently, the applicant was directed to pre-deposit Rs. 5,00,000 within eight weeks, with the remaining service tax, interest, and penalty waived upon compliance, and recovery stayed during the appeal process. Precedents and Legal Arguments: The applicant relied on a previous Tribunal decision in their favor and a case law to support their contention that Cenvat credit could be used to discharge the liability as a recipient of taxable services from foreign providers. However, the Revenue argued that Rule 5 explicitly prohibits treating services received from foreign providers as output services for availing credit under Cenvat Credit Rules. The Tribunal upheld the Revenue's interpretation of Rule 5, stating that the applicant failed to establish grounds for a total waiver of pre-deposit due to the specific provisions of the rule. Conclusion: In conclusion, the Tribunal found that Rule 5 of the Taxation of Services Rules prohibits treating services received from foreign providers as output services for availing credit under Cenvat Credit Rules. Consequently, the applicant was directed to make a partial pre-deposit, with the remaining amount waived upon compliance, and recovery stayed during the appeal process.
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