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2020 (2) TMI 1204 - AT - Service TaxUtilization of CENVAT Credit - reverse charge mechanism - Whether the Appellant i.e. the service recipient could utilize Cenvat credit of Central Excise duty paid on inputs, for payment of service tax on services viz. Management, Maintenance or Repair, Copyright and Advertising, received by them from abroad, under reverse charge mechanism? HELD THAT - It is settled that once the assessee in terms of Rule 2(q) r/w Rule 2(1)(d)(iv) ibid, is liable to pay service tax then he also becomes a provider of taxable service under Rule 2(r) and consequently becomes a provider of output service under Rule 2(p) ibid and becomes entitle to utilize the Cenvat credit for payment of service tax on reverse charge basis. Rule 5 of the Taxation of Service (Provided from Outside India and Received in India) Rules, 2006 prohibits only for availing of Cenvat credit and not for utilizing the Cenvat credit to discharge its service tax obligation on reverse charge basis. The period involved in this Appeal is from April, 2008 to March,2011 whereas the prohibition as per the notification dated 20.6.2012 regarding the utilization of the Cenvat credit by way of amendment in Rule 3(4) ibid, is effected from 1.7.2012 only, therefore during the period in issue the Appellants i.e. the service recipient were very well within their rights to discharge the service tax liability on reverse charge basis by utilizing the Cenvat Credit. The issues of limitation or penalty, need not be looked into, since on merits appeal is allowed. Appeal allowed - decided in favor of appellant.
Issues:
Whether the service recipient could utilize Cenvat credit of Central Excise duty paid on inputs for payment of service tax on services received from abroad under reverse charge mechanism? Analysis: The appeal was filed challenging the order passed by the Commissioner of CGST and Cx.(Appeals-III), Mumbai. The issue revolved around the utilization of Cenvat credit by the appellant, a service recipient, for payment of service tax on services received from foreign service providers under the reverse charge mechanism. The appellant had received various services from abroad and paid service tax using Cenvat credit, leading to a demand notice for recovery of service tax. The Adjudicating Authority confirmed the demand along with interest and penalties. The appellant argued that prior to 1.7.2012, there was no restriction on utilizing Cenvat credit for service tax payment, citing Rule 3(4) of CCR, 2004 and relevant explanations. They also referred to a High Court decision supporting the utilization of Cenvat credit for service tax on reverse charge basis. The Tribunal considered the arguments presented by both sides, including the appellant's reliance on a High Court decision. The Tribunal referred to previous judgments by various High Courts and its own decisions, highlighting that there was no restriction on utilizing Cenvat credit for service tax on reverse charge basis before 1.7.2012. The Tribunal emphasized that Rule 5 of the Taxation of Service Rules only prohibited availing Cenvat credit, not utilizing it for discharging service tax obligations. Citing the definition of 'output service' and 'provider of taxable service' under the Cenvat Credit Rules, the Tribunal concluded that the appellant, as the service recipient liable to pay service tax, could utilize Cenvat credit for service tax payment under the reverse charge mechanism. As the prohibition on utilizing Cenvat credit came into effect from 1.7.2012, the Tribunal held that the appellant was within their rights to use Cenvat credit during the period in question. Consequently, the impugned order was set aside, and the appeal was allowed with any consequential relief. In conclusion, the judgment clarified the applicability of Cenvat credit for service tax payment by a service recipient under the reverse charge mechanism. It emphasized the absence of restrictions on utilizing Cenvat credit before 1.7.2012 and upheld the appellant's right to discharge service tax liability using Cenvat credit during the relevant period. The Tribunal's decision was based on legal interpretations, relevant rules, and precedents, ultimately allowing the appeal in favor of the appellant.
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