2013 (12) TMI 436 - AT - Service Tax

Availment of CENVAT Credit - Intellectual Property Right services - Bar of limitation - Classification of service - Held that - discharge of service tax liability by the service provider was never disputed by the department at all. Shri Kelkar also raised invoices on the appellant, which shows the nature of the services rendered, the amount charged, the service tax liability discharged and all other relevant particulars. On the strength of these invoices, the appellant company has taken credit. Once the appellant has received the services and has borne the incidence of service tax, the appellant is rightly entitled to the service tax credit. The authorities at the service recipient s end has no jurisdiction to question the classification of service and the liability to service tax so long as the authorities having jurisdiction over the service provider s end do not dispute the same. Therefore, the impugned demand holding that the appellant has not received any input service and therefore nor eligible for any service tax credit is unsustainable in law - the entire demand is time barred. As early as in 2007, when the records of the appellant firm were audited by the department the payment of royalty to Shri Kelkar and receipt of service by the appellant was known to the department, and thereafter, on the advice of the department Shri Kelkar obtained service tax registration and discharged service tax liability. The receipt of service and availment to service tax credit was also reflected by the appellant in the monthly ER-1 returns. Therefore, the whole transaction, the payment of service tax and availment of credit thereon was in the full knowledge of the department. In spite of having the information, the show-cause notice has been issued in this case only in January 2011 after a lapse of more than 3 years. Thus, the demand is clearly time barred - Decided in favour of assessee.

Summary

Issues:
1. Availment of service tax credit on Intellectual Property Right (IPR) services provided by an employee.
2. Denial of service tax credit and imposition of penalty under Cenvat Credit Rules, 2004.
3. Confiscation of goods cleared using wrongly availed credit.
4. Time-barred demand for service tax credit.

Analysis:

Issue 1: Availment of service tax credit on IPR services provided by an employee
The appellant, a fragrance manufacturer, availed service tax credit on IPR services provided by the Managing Director, who was an employee. The Revenue contended that services by the Managing Director could not be considered as rendered services, leading to a show-cause notice proposing denial of service tax credit. The appellant argued that the transactions were lawful, with the department's knowledge, and cited precedents to support their claim.

Issue 2: Denial of service tax credit and penalty under Cenvat Credit Rules, 2004
The impugned order denied Cenvat Credit amounting to Rs.1,23,90,991/- and imposed a penalty of Rs.2,000 on the appellant under the Cenvat Credit Rules, 2004. The appellant argued that the department's acceptance of the service tax payments by the Managing Director and the lawful nature of the transactions precluded the denial of service tax credit.

Issue 3: Confiscation of goods cleared using wrongly availed credit
The impugned order proposed confiscation of goods cleared using the wrongly availed Cenvat credit under Rule 25 of the Central Excise Rules, 2002. However, the Tribunal found the impugned order unsustainable in law, setting it aside and allowing the appeal based on the time-barred nature of the demand and the department's prior knowledge of the transactions.

Issue 4: Time-barred demand for service tax credit
The Tribunal held that the demand for denying service tax credit was time-barred, as the department had knowledge of the transactions since 2007, and the show-cause notice was issued in 2011, more than 3 ½ years later. The Tribunal emphasized that the appellant's actions were known to the department, making the demand unsustainable in law.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal due to the time-barred nature of the demand and the department's prior knowledge of the transactions, which precluded the denial of service tax credit.