2020 (1) TMI 69 - AT - Service Tax

CENVAT Credit - Service rendered or not - recovery of service tax / credit from the Input Service Distributor ( ISD ) - foreign loan arranged by Axis Bank for the appellant was subsequently cancelled on request of the appellant - Reverse charge mechanism - liability to pay service tax under Reverse Charge Mechanism (RCM) of which credit is availed for payment of output central excise duty on final products - foreign remittance made by appellant for availing External Commercial Borrowings - HELD THAT - No amount of service tax has been paid by appellant for which credit has been availed - the Bank has accepted the request of assessee for cancellation of loan facility. However, there is no mention that service tax amount has been refunded back to appellant. In fact, it is specifically stated that the arrangement fee collected by the Bank would not be refunded but may be adjusted when other loan facility is made available to appellant in future. Therefore, the observation made by the learned Commissioner for denial of credit that service tax amount has not been paid by appellant is purely on assumption basis. The fact that processing for loan financing has been done by the Bank is not in dispute. Therefore, the Bank has rendered the service of loan processing which has been duly received by the appellant. Had there been no rendition of service, the question of service tax levy would not have arisen. Duty demand consequent to denial of credit cannot be raised from an ISD Demand of service tax on RCM - HELD THAT - Since the appellant has chosen not to contest the issue, the demand of ₹ 63,207/- is upheld - Penalty imposed under Section 77 is however set aside by extending the benefit of Section 80 of the Act. Appeal allowed in part.

Summary

Issues:
1. Denial of credit on services received from Axis Bank
2. Demand of service tax on foreign remittances made to International Finance Corporation

Analysis:

Issue 1: Denial of credit on services received from Axis Bank
The appellant, engaged in coal tar products manufacturing, faced a demand for service tax on foreign remittances and Cenvat credit disallowance. The Commissioner's order confirmed some demands but also dropped certain portions. The appellant challenged the denial of credit of ?40,17,000 on services from Axis Bank. The appellant argued that the Bank provided finance services for which service tax was paid, even though the loan was canceled later. The Commissioner's denial was based on assumptions without concrete evidence. The appellant, being an Input Service Distributor (ISD), contended that recovery under Rule 14 of Credit Rules can't be made from an ISD, citing relevant legal precedents. The Tribunal concurred, citing a CBEC letter and previous decisions, setting aside the demand as legally unsustainable.

Issue 2: Demand of service tax on foreign remittances
The second issue involved a demand of ?63,207 on foreign remittances to International Finance Corporation. The appellant did not contest this demand but disputed the imposition of a general penalty under Section 77, citing Section 80 of the Act. The Authorized Representative supported the Commissioner's findings, stating that since credit was availed by the Registered Office and not utilized by the appellant, no service receipt occurred. The Tribunal upheld the demand due to non-contestation by the appellant but set aside the penalty under Section 77, providing relief under Section 80.

In conclusion, the Tribunal partially allowed the appeal, setting aside the demand on services from Axis Bank due to the appellant's ISD status and upholding the demand on foreign remittances. The penalty under Section 77 was annulled, granting relief under Section 80.