2020 (2) TMI 1011 - AT - Service Tax

CENVAT credit - input services received - advertisement service - audit service - appellant providing services to Western Union as their agent in India - HELD THAT - The basic requirement is that the assessee taking cenvat credit of input service should be engaged in providing output service, which is taxable under the provisions of the Finance Act - Admittedly, the services provided by the appellant is taxable as Business Auxiliary Services under the provisions of Finance Act, both before 1.7.2012 and after 1.7.2012. The input service credit is not deniable for the reasons that the assessee is exporting the whole of their output services and thus, is not paying any tax. The show cause notices are mis-conceived and not maintainable - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Entitlement to cenvat credit of input services received by the appellant for providing services to Western Union as their agent in India.

Analysis:
The only issue in this appeal was whether the appellant, acting as an agent for Western Union in India, could claim cenvat credit for input services received, specifically advertisement service and audit service. Show cause notices were issued to the appellant regarding the tax amounts owed for the periods mentioned in the notices. The Revenue contended that the appellant, providing money transfer services for Western Union, earned commission for their services, which were considered export services as they were paid in foreign exchange and received by Western Union outside India. The services provided by the appellant were classified as taxable under relevant sections of the Finance Act, and it was argued that since the appellant did not pay service tax on outward services due to their export nature, they were not entitled to cenvat credit for the input services received.

The show cause notices were contested, resulting in the demands being confirmed along with interest and penalties imposed. The appellant then appealed to the Commissioner (Appeals), who dismissed the appeal citing a case involving similar activities but different circumstances. The Commissioner observed that the appellant was not paying service tax on the commission earned from foreign remittances, which were considered export services. The Commissioner concluded that taking input service credit exclusively for providing these services was not permissible.

Upon hearing the parties, it was noted that Rule 3 of the Cenvat Credit Rules allowed manufacturers or taxable service providers to take credit for taxes paid on inputs or input services. The rule defined "input service" to include services used for providing output services, such as advertisement, sales promotion, accounting, and auditing. The appellant's services were taxable as Business Auxiliary Services both before and after a specific date. Since the appellant exported all their output services and did not pay any tax, the denial of input service credit was deemed incorrect. The appeals were allowed, the orders were set aside, and the appellant was entitled to consequential benefits as per the law.