2023 (3) TMI 1441 - AT - Service Tax

CENVAT Credit - amount paid towards technical knowhow under the head of IPR services - denial on the ground that since the appellant paid R D cess on the IPR service, service tax was not payable as per notification no. 17/2004- ST and hence the appellant is not eligible for cenvat credit - reverse charge mechanism - denial of refund claim on the ground that the appellant did not submit evidence to establish that the benefit of notification no. 17/2004- ST was available to them. CENVAT Credit - HELD THAT - From Section 5 A it is clear that the assessee is bound to avail an unconditional (absolute) notification but there is no compulsion to avail a conditional notification. As per the above provision the appellant enjoys the option of availing the conditional notification or not. Therefore, if the appellant have paid the Service tax without availing Notification No. 17/2004-ST the same is not objectionable and the payment of service tax is legal and correct. Consequently, the cenvat credit on such service tax paid Can also not be disputed. In catena of case laws it is held that even though the service tax on any service is not payable but assessee pays the service tax the recipient is entitled for the cenvat credit - reliance can be placed in COMMISSIONER OF CENTRAL EXCISE, CHENNAI-I VERSUS CEGAT, CHENNAI 2005 (1) TMI 125 - HIGH COURT OF JUDICATURE AT MADRAS and COMMISSIONER, C. EX., CUSTOMS VERSUS PURITY FLEXPACK LTD. 2006 (11) TMI 105 - HIGH COURT, GUJARAT . The appellant are entitled for the cenvat credit of the total amount paid as service tax. Accordingly, the impugned order set aside - appeal allowed. Refund claim - HELD THAT - Since the entire amount of cenvat credit of the service tax paid by the appellant is allowed, there is no question of further refund as claimed.

Summary

Issues:
1. Availment of cenvat credit on service tax paid under reverse charge mechanism.
2. Eligibility for refund claim due to erroneous payment of service tax.

Analysis:
1. The appellant deposited Rs. 82,33,666/- as service tax under reverse charge mechanism for technical knowhow under IPR services. They availed cenvat credit but received a show cause notice proposing to deny it, citing payment of R&D cess on IPR service under Notification No. 17/2004-ST. The appellant reversed Rs. 40,57,595/- and filed a refund claim, which was also challenged for lack of evidence on notification benefit. Two appeals were filed: one for the rejected refund claim and the other for denied cenvat credit based on service tax exemption.

2. The appellant's counsel argued that the service tax is refundable as the R&D cess was paid, and the exemption under Notification No. 17/2004-ST is optional. They contended that even if service tax was not payable, cenvat credit should be allowed as per Cenvat Credit Rules. The Revenue supported the impugned order denying both claims.

3. The Tribunal analyzed the conditional nature of Notification No. 17/2004-ST and the appellant's option to avail it. Referring to Section 5A of the Central Excise Act, it concluded that the appellant was not compelled to avail the conditional notification. Therefore, paying service tax without availing the exemption was legal, entitling the appellant to cenvat credit on the tax paid.

4. Citing precedents, the Tribunal affirmed that even if service tax was not due, the recipient could claim cenvat credit. Relying on various judgments, the Tribunal held that the appellant was entitled to cenvat credit for the entire amount paid as service tax. Consequently, the impugned order denying cenvat credit was set aside, and the appeal was allowed. As the cenvat credit was granted, the refund claim became infructuous, leading to its dismissal.

Conclusion:
The Tribunal allowed the cenvat credit for service tax paid by the appellant, dismissing the refund claim due to the credit approval. The judgment emphasized the appellant's right to claim cenvat credit even if service tax was not payable, based on legal provisions and established case law principles.