2016 (12) TMI 287 - AT - Service Tax

Levy of tax - revenue neutral exercise - availing the services of foreign commission agent - reverse charge mechanism - whether as a recipient of services, appellant was required to pay service tax on reverse charge basis? - Held that - the Tribunal in the case of Kansara Modler Ltd. Vs. CCE, Jaipur-II 2014 (1) TMI 1095 - CESTAT NEW DELHI has held that wherever the service recipient discharges service tax liability on reverse charge basis, he has to be considered as output service provider, thus entitling utilizing the payment of such service tax. It was found that during the period 2008-09 to 2009-10, the appellant did not discharge the service tax liability. On being pointed out, it paid the same from its Cenvat account to the extent of ₹ 61,11,826/-. As regards the balance amount, it contested that it has not paid the commission to its foreign agents and as such the question of payment of service tax does not arise - Held that - As the fact of subsequent payment of service tax is required to be ascertained from records, we deem it fit to set aside that portion of the impugned order for examining and verifying the documents. As regards, penalty, we agree with ld. advocate that the issue was under litigation and was finally settled by Honble Bombay High Court in the case of Indian National Shipowners Assn Vs. Union of India 2008 (12) TMI 41 - BOMBAY HIGH COURT . Otherwise also, we note that whatever the commission was required to be paid by the appellant was available to them as Cenvat credit and as such the entire situation was revenue neutral. In this scenario, any mala fide or suppression of facts with an intention to evade payment of duty cannot be attributed to the assessee so as to invite penal action against them. Appeal disposed off.

Summary

Issues:
1. Service tax liability on reverse charge basis for availing foreign commission agent services.
2. Utilization of Cenvat credit for discharging service tax liability.
3. Payment of service tax on the date of receipt of services.
4. Imposition of penalty on the appellant.

Analysis:

Issue 1:
The appellant, engaged in the manufacture of wire and cable, availed the services of a foreign commission agent and was required to pay service tax on a reverse charge basis. The appellant did not discharge the service tax liability for the period 2008-09 to 2009-10. It paid a portion of the liability from its Cenvat account but contested the payment for the balance amount, claiming that the commission to foreign agents was not paid. The Revenue objected to the partial payment from Cenvat credit and held that the balance amount should be paid in cash, irrespective of the commission payment status. The adjudicating authority opined that the non-payment of commission does not exempt the appellant from paying service tax.

Issue 2:
The Tribunal referred to previous judgments to address the utilization of Cenvat credit for discharging the service tax liability. The Hon'ble Punjab & Haryana High Court and the Tribunal in another case established that Cenvat credit on manufacturing activity can be used for paying the deemed liability on commission to foreign agents under Business Auxiliary Services, considering the appellant as an output service provider when discharging service tax liability on a reverse charge basis.

Issue 3:
The appellant contended that the balance amount of service tax was deposited when the commission was paid to foreign agents, but this fact was not evident from the records. The Departmental Representative argued that as per law, the tax should be paid on the date of receipt of services. The Tribunal decided to set aside a portion of the order to verify the documents regarding the subsequent payment of service tax. It was noted that the appellant had Cenvat credit available for the commission payment, making the situation revenue neutral.

Issue 4:
Regarding the penalty imposed on the appellant, the Tribunal considered the settled legal position and the absence of mala fide intent or suppression of facts by the appellant to evade duty payment. Referring to a precedent from the Hon'ble Bombay High Court, the Tribunal set aside the penalty, as the situation was revenue neutral and did not warrant penal action against the appellant.

In conclusion, the appeal was disposed of by setting aside the penalty imposed on the appellant and directing further examination of records for verifying the payment of the balance service tax amount.