2014 (3) TMI 227 - AT - Service Tax

Denial of CENVAT Credit - Tax paid on reverse charge mechanism - Consulting engineer services - Waiver of pre deposit - Held that - during the relevant period, the Revenue itself was insisting on payment of service tax on reverse charge basis in terms of the provisions of Rule 2(1)(d)(iv) - no Service Tax was payable before the introduction of Section 66A w.e.f. 18-4-2006. As such, the payment of Service Tax by the appellant prior to the said declaration of law and taking of credit of the said service tax so paid cannot be held to be against the law so as to deny them the credit - said proposal of denial of credit in the show cause notice was on altogether different ground, which, in any case stand accepted by the Adjudicating Authority. He cannot move from the allegation made in the notice and cannot adopt a different ground for denial of the credit, according to the well settled law - Decided in favor of assessee.

Summary

Issues:
1. Denial of credit of Service Tax paid on reverse charge basis.
2. Disallowance of credit for service tax paid prior to the introduction of Section 66A.
3. Adjudication on the grounds of denial of credit.
4. Prima facie assessment of the revenue-neutral situation.
5. Interpretation of relevant legal provisions and court judgments.
6. Validity of the grounds for denial of credit in the show cause notice.
7. Stay on the recovery of Service Tax and penalties during the appeal process.
8. Fixing the appeal for final decision due to the involvement of significant revenue.

Analysis:
1. The appellant was discharging Service Tax liability for consulting engineer services from foreign countries on a reverse charge basis and availing credit. The issue arose when the Revenue proposed denial of credit citing Section 66A of the Finance Act and Rule 3, leading to the initiation of proceedings against the appellant.

2. The Commissioner adjudicated in favor of the appellant, allowing credit for service tax paid to the Revenue but disallowing credit for payments made before the introduction of Section 66A. This decision resulted in the confirmation of a substantial Service Tax demand and the imposition of a penalty.

3. The Tribunal noted that the situation was revenue neutral as the appellant had paid the service tax in question, and the Revenue did not dispute the payment. The Tribunal highlighted that the law was clarified by the Bombay High Court, stating that no Service Tax was payable before the introduction of Section 66A, supporting the appellant's position.

4. It was emphasized that the proposal for denial of credit in the show cause notice was based on different grounds than those accepted by the Adjudicating Authority. The Tribunal held that the Authority cannot shift from the allegations in the notice to adopt a different ground for denying credit, following established legal principles.

5. Considering the significant revenue involved and the straightforward issue at hand, the Tribunal decided to dispense with the pre-deposit condition for Service Tax and penalties, staying the recovery during the appeal process. The appeal was scheduled for a final decision to be made promptly.

This detailed analysis of the judgment addresses the various issues involved, the legal interpretations applied, and the Tribunal's decisions regarding the denial of credit for Service Tax payments made by the appellant.