2015 (2) TMI 785 - AT - Central Excise

Waiver of predeposit - Commission paid to overseas commission agent related to SEZ unit - Irregular availment of service tax credit - Held that - The appellants have paid service tax under reverse charge relating to commission paid to overseas commission agent for sales and other transactions. There is no dispute on the fact that overseas commission agent rendered service to both appellant's unit at Koratty and also to SEZ unit at Kakkanad. The appellants are liable to pay service tax under reverse charge only in respect of value of service of appellant unit. There is no legal provision to pay service tax on value of services pertaining to SEZ unit. Further, there is no service tax liability on the SEZ units as they are covered under exemption, therefore, prima facie , I find that appellants are not entitled to take service tax credit pertaining to the value of services rendered by the overseas commission agent to the SEZ unit. Appellants are liable to pay service tax only on the value of services related to Koratty unit. Therefore, prima facie , I find that the appellants have not made out a case for waiver of predeposit of entire dues. - Stay granted partly.

Summary

Issues:
Waiver of predeposit of tax, irregular availment of service tax credit, penalty imposition, eligibility for cenvat credit distribution, service tax liability on DTA unit and SEZ unit, nexus between service tax payment and unit, exemption for SEZ units, legal provisions for service tax payment.

Analysis:
The appellant filed for waiver of predeposit of tax amounting to Rs. 3,07,965 along with interest and penalty. The case involved the confirmation of duty demand due to irregular availment of service tax credit and imposition of a 50% penalty by the adjudicating authority, which was upheld by the Commissioner (Appeals). The appellant, a LTU with units in Koratty and Kakkanad, had paid commission to an overseas agent for sales, paid service tax under reverse charge, and availed credit for the service tax paid on behalf of the SEZ unit. The adjudicating authority disallowed the cenvat credit related to the SEZ unit.

The appellant's advocate argued that the entire service tax was paid by the DTA unit under reverse charge, and they were eligible to distribute credit as a service tax credit distributor to other units, even if the SEZ unit paid service tax. The advocate cited relevant legal decisions in support of their argument. On the other hand, the respondent argued that the DTA unit was only liable to pay service tax on the value of services related to their unit, not the SEZ unit, as both units were independent and separately registered with the Central Excise Department. The respondent contended that the distribution of credit was not valid for SEZ units exempted from service tax, citing legal precedents.

After considering both sides' submissions and reviewing the records, the judge found that the appellants were liable to pay service tax under reverse charge only for the value of services related to the DTA unit, not the SEZ unit. As SEZ units were exempt from service tax, the appellants were not entitled to take service tax credit for services rendered to the SEZ unit by the overseas commission agent. Therefore, the judge ordered a predeposit of Rs. 1,53,000 within four weeks, with the balance dues waived upon deposit. The recovery of the balance dues was stayed pending the appeal's disposal. Compliance was to be reported on 13.1.2015.