2021 (12) TMI 623 - AT - Service Tax

Utilization of CENVAT Credit - availment/utilization of credit disputed by the department on the ground that as a recipient of service, cenvat credit cannot be used for payment of service tax on the output service - HELD THAT - The period of dispute involved in this case is from April 2015 to March 2017. It is an undisputed fact that in the capacity of recipient of service, the appellant had paid the service tax on the disputed input services under the reverse charge mechanism and that such service tax paid by them was availed and utilized for payment of service tax on the output services. The manner of availment and utilization of cenvat credit is contained in sub-rule (1) and (4) of Rule 3 ibid respectively. Clause (e) in sub-rule (4) ibid provides for utilization of cenvat credit for payment of service tax on any output service. However, an explanation clause was appended in the said sub-rule vide Notification No. 28/2012- C.E. (N.T.), dated 20.06.2012, w.e.f. 01.07.2012, providing the restrictions that cenvat credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient. Since, as a recipient of taxable service, the appellant had utilized the cenvat credit; such utilization was disputed by the department. Since, the period of utilization of cenvat credit is after the amendment of sub-rule (4) ibid, the case of the appellant squarely falls under such amended provisions and the other provisions of the statute cannot be relied upon or referred to for taking a contrary view in favour of the appellant that as a recipient of taxable service, they were eligible to utilize the cenvat credit for payment of service tax on the output services. Appeal dismissed - decided against appellant.

Summary

Issues:
Interpretation of Cenvat Credit Rules regarding utilization of service tax credit by recipient for payment of output service tax.

Analysis:
The case involved a dispute regarding the appellant's utilization of cenvat credit for payment of service tax on output services during the period from 2015-16 to 2016-17. The appellant, engaged in providing taxable services, had paid service tax under reverse charge mechanism and used the cenvat credit for payment of output service tax. The department disputed this utilization, citing an explanation clause in Rule 3 of the Cenvat Credit Rules, 2004, which restricts the use of cenvat credit for services where the service recipient is liable to pay tax. The Commissioner (Appeals) allowed the department's appeal, setting aside the original adjudication order. The appellant challenged this decision before the Tribunal.

The appellant argued that there were no restrictions in the cenvat statute for non-utilization of cenvat credit by the service recipient for output service tax payment. They referred to various statutory provisions and judgments to support their stance. On the other hand, the Revenue supported the impugned order and cited judgments favoring the department's position.

Upon examination, the Tribunal noted that the explanation clause in Rule 3 of the Cenvat Credit Rules, 2004, clearly restricted the utilization of cenvat credit for payment of service tax on output taxable services when the service recipient is liable to pay tax. The Tribunal found no ambiguity in the legislative mandate behind this restriction. The Tribunal distinguished the judgments cited by the appellant, stating that the amended provisions applied to the appellant's case, making them ineligible to utilize the cenvat credit. In contrast, the judgments cited by the Revenue supported the department's position.

Consequently, the Tribunal upheld the impugned order passed by the Commissioner (Appeals), dismissing the appellant's appeal for lack of merit. The decision was pronounced in open court on 10.12.2021.