2013 (3) TMI 495 - AT - Service Tax

Service Tax - Cenvat Credit - The appellants during the period 9-7-2004 to 30-9-2006 received services of agents located abroad to promote sale of their goods abroad and not paid service tax for the services which according to Rule 2(1)(d)(iv) of Service Tax Rules, 1994 appellant are expected to pay. Revenue verified the records and found that such tax was not being paid. When the issue was pointed out to them they paid the tax involved. They also took credit of the tax paid in their Cenvat account for the reason that the impugned services were input services for them. Revenue issued Show Cause Notice for demanding the service tax which was initially short paid along with interest and penalty and also for denying the Cenvat credit taken on such services for the reason that these services could not be considered as input services. Held that - Tribunal finds that It is no longer res integra that service tax could not have been demanded from service recipient prior to 18-4-2006. So demand for service tax in this case is not maintainable. Further the argument adopted for denying Cenvat credit also is not correct for the reason that the relevant provision in Cenvat Credit Rules, 2004 as provided in Rule 9(1). Tribunal do not see any merits of the argument of Revenue and hence the appeal is allowed by setting aside the impugned orders of the lower authorities.

Summary

Issues:
- Demand for service tax from 1-1-2005
- Demand for wrong Cenvat credit of Rs. 6,72,290/- for services availed prior to 10-9-2004
- Corresponding interest and penalties

Analysis:
1. The appellants, engaged in manufacturing excisable goods, received services from agents abroad to promote sales of their goods. The issue arose when it was found that they had not paid service tax on these services as required by Rule 2(1)(d)(iv) of Service Tax Rules, 1994.

2. The Revenue issued a Show Cause Notice demanding the unpaid service tax, interest, and penalty, and also challenged the Cenvat credit taken by the appellants on these services. The remaining disputes focused on the demand for tax from 1-1-2005 and the incorrect Cenvat credit of Rs. 6,72,290/- for services availed before 10-9-2004, along with associated interest and penalties.

3. The appellants argued that prior to 18-4-2006, service tax could not be demanded from the service recipient due to the ultra vires nature of Rule 2(1)(d)(iv). They contended that the tax paid should be refunded if Cenvat credit was to be denied.

4. Regarding the denial of Cenvat credit, the appellants asserted that the services provided by the foreign agents extended beyond procuring orders to include post-sale activities. They argued that denying credit based on the date of purchase orders was legally unsound.

5. The Revenue opposed the appellants' claims, stating that Cenvat credit rules came into force from 10-9-2004, and credit could not be claimed for services received before that date. They maintained that since purchase orders were placed before 10-9-2004, credit was rightly denied.

6. The Tribunal considered the arguments and held that the demand for service tax prior to 18-4-2006 was not maintainable. Additionally, they found the Revenue's argument for denying Cenvat credit based on the date of purchase orders to be incorrect. The Tribunal emphasized that the relevant criterion for credit was the date of the invoice, not the date of service provision.

7. Ultimately, the Tribunal concluded that the demand made by the Revenue lacked legal basis and was akin to a "heads I win tails you lose" scenario. As there was no loss of revenue to be recovered, the appeal was allowed, and the impugned orders of the lower authorities were set aside.