2012 (8) TMI 560 - AT - Service Tax

Whether Payment of service tax can be made through Cenvat credit or in cash recipient of service from overseas agents for procuring export orders whether it can be treated as their output service Held that - Just because the person receiving a taxable service from an offshore service provider, by virtue of being liable to pay service tax in respect of the same is deemed to be provider of taxable service under Rule 2(r) of Cenvat Credit Rules, 2004, there is no justification for invoking another legal fiction to treat the service so received by him as his output service , more so when the service received by him from offshore service provider having been used for providing some output service or having been used in or in relation to the manufacture of final product is covered by the definition of input service - service tax payment by a service receiver cannot be made by utilising the Cenvat credit - appellant directed to make pre-deposit

Issues Involved:
1. Whether the business auxiliary service of procuring export orders received from overseas agents can be paid through Cenvat credit or must be paid in cash.
2. Whether the appellant can be deemed as "provider of taxable service" under Cenvat Credit Rules, 2004.
3. Interpretation of Rule 5 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.
4. Applicability of penalties under Section 76 and 77 of the Finance Act, 1994.
5. Requirement of pre-deposit for hearing the appeals.

Issue-wise Detailed Analysis:

1. Payment of Service Tax through Cenvat Credit or Cash:
The main dispute is whether the appellant can pay service tax on the business auxiliary service received from overseas agents through Cenvat credit. The department argues that this service cannot be treated as their "output service" and, therefore, the service tax must be paid in cash. The Jurisdictional Deputy Commissioner confirmed the service tax demands under Section 73 of the Finance Act, 1994, along with interest and imposed penalties under Sections 76 and 77.

2. Deemed "Provider of Taxable Service":
The appellant contends that under Rule 2(r) read with Rule 2(q) of the Cenvat Credit Rules, 2004, they are deemed "providers of taxable service" as they are liable to pay service tax on the business auxiliary service received from foreign service providers. They argue that this service should be considered their "output service" and thus eligible for payment through Cenvat credit. They cite several Tribunal judgments to support their claim.

3. Interpretation of Rule 5 of the Import of Service Rules, 2006:
The Commissioner (Appeals) relied on Rule 5 of the Import of Service Rules, 2006, which states that taxable services provided from outside India and received in India shall not be treated as output services for the purpose of availing credit under Cenvat Credit Rules, 2004. The appellant argues that this rule should not restrict their ability to pay service tax through Cenvat credit, as there is no such restriction in the Cenvat Credit Rules themselves. They cite the Supreme Court's judgment in CCE, Jaipur v. Raghuvar (India) Ltd. to argue that no other rule can affect the benefits conferred by the Cenvat Credit Rules.

4. Applicability of Penalties:
The appellant argues that if they are required to pay the service tax in cash, they would still be eligible for Cenvat credit, making the exercise revenue-neutral. Therefore, no penalties under Sections 76 and 77 should be imposed. The department, however, maintains that penalties are justified as the appellant did not comply with the correct method of payment.

5. Requirement of Pre-deposit:
The Tribunal considered whether the appellant had a prima facie case for waiver of the pre-deposit requirement. After reviewing the relevant provisions and previous judgments, the Tribunal concluded that the appellant did not establish a prima facie case. Hence, they directed the appellant to make pre-deposits for the appeals to be heard.

Conclusion:
The Tribunal directed the appellant to pre-deposit specific amounts within eight weeks to proceed with the appeals. The requirement of pre-deposit of the balance amounts of service tax demand, interest, and penalty was waived upon compliance. The Tribunal emphasized that the service received from offshore service providers could not be treated as "output service" for the purpose of Cenvat credit, and the appellant's interpretation was not supported by the existing legal framework. The judgment was pronounced on 4-7-2011.

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