2017 (9) TMI 421 - AT - Service Tax

CENVAT credit - input/capital goods - Whether the Cenvat credit taken for the input/capital goods used for manufacturing excisable goods could be utilised for payment of service tax on the output services? - Held that - this matter is covered by the Tribunal s decision in the case of S.S. Engineers Vs. CCE, Pune-I 2013 (10) TMI 611 - CESTAT MUMBAI which has held that cross utilisation of credit of Excise and service tax is permissible, as a general proposition - Cenvat credit taken for the input/capital goods used in the manufacture is allowed for payment of service tax on the output services - demand set aside. What is the rate applicable for levying service tax - whether it should be the rate as applicable on the day, when the services were provided or it should be the rate applicable for the day when the debit notes were issued by the service recipient? - Held that - the Tribunal in the case of CST Vs. Lea Associates South Asia P. Ltd. 2014 (8) TMI 456 - CESTAT NEW DELHI has held that service tax is to be charged at the rate prevailing at the time of rendition of taxable service and not the rate in force on the date of receipt of payments for such services - the demand of service tax of ₹ 2,06,000/- against the appellant M/s R.G. Pigments Pvt. Ltd. is sustained - the facts do not indicate any wilful, misstatement or suppression of facts, fraud or collusion with intent to evade payment of service tax on the part of the appellant, the equivalent penalty of ₹ 2,06,000/- imposed on the appellant M/s R.G. Pigments Pvt. Ltd. under Section 78 of the Finance Act, 1994 is hereby dropped. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
1. Whether Cenvat credit for input/capital goods can be used for service tax on output services?
2. Applicability of service tax rate on the day of service or debit note issuance.

Issue 1 - Cenvat Credit Utilization:
The appeal involved two companies disputing Cenvat credit utilization for service tax on output services. The Tribunal referred to a previous case allowing cross-utilization of credit for excise and service tax. Rule 3 of the Cenvat Credit Rules does not mandate separate accounts for manufacturers and service providers. The Tribunal emphasized that cross-utilization is permissible as a general proposition. Further, case law supported the view that a common pool of credit can be used for different purposes without the need for separate accounts. Consequently, the demands against both companies were dropped.

Issue 2 - Service Tax Rate Applicability:
Regarding the service tax rate, one appellant argued for the rate on the payment receipt date, citing Point of Taxation Rules, 2011. However, the Tribunal noted that the demand period predated these rules and referred to a Delhi High Court case emphasizing that the service tax rate should align with the service rendition date, not the payment receipt date. Another Tribunal case reiterated that the tax rate should correspond to the service rendition date, not the payment receipt date. As a result, the service tax demand against one appellant was upheld, but the penalty was dropped due to no evidence of intentional evasion. The judgment favored one appellant and partially allowed the other's appeal.

In conclusion, the Tribunal's detailed analysis and application of legal principles resolved the issues of Cenvat credit utilization and service tax rate applicability, providing clarity on the matters at hand and delivering a balanced judgment based on the relevant legal framework and precedents.