2023 (8) TMI 185 - AT - Service Tax

Wrong classification of services availed by the appellant - providing travel facility by air by way of providing its aircraft on charter basis - supply of tangible goods for use (SOTG) service of transport of passengers by air service - non-payment of service tax under the reverse charge mechanism on payments made to foreign vendors for repair works aircraft outside India - Denial of CENVAT credit of Rs. 33,96,323/- as the appellant had not submitted the relevant documents relating to credit availed by it. Wrong classification of services availed by the appellant as the services provided by the appellant would fall under SOTG as defined under section 65(105)(zzzzj) of the Finance Act, 1994 the Finance Act instead of transport of passengers by air as defined under section 65(105)(zzzo) of the Finance Act - HELD THAT - It is not in dispute that SOTG service became leviable to service tax only with effect from 16.05.2008. The service tax, therefore, for the period from 01.04.2008 to 15.05.2008 deserves to be set aside - Though the appellant has asserted that service tax was paid under category of transport of passenger by air services, but this fact needs to be verified. Non-payment of service tax under the reverse charge mechanism on payments made to foreign vendors for repair works aircraft outside India - HELD THAT - Rule 3(ii) provides that subject to Section 66A of the Finance Act, the taxable services provided from outside India and received in India, shall, in relation to the taxable service specified in sub-clause (zzg) of section 65 (105) of the Finance Act be such services as are performed in India. The contention of the learned counsel for the appellant is that it is an admitted fact that the services were provided from outside India and, therefore, would not be leviable to service tax - this submission deserves to be accepted. It is only in a case where such services are performed in India that they would be leviable to service tax. In the present case, it is not in dispute that the services were provided outside India. Service tax, therefore, could not have been demanded from the appellant under the reverse charge mechanism. Denial of CENVAT credit of Rs. 33,96,323/- as the appellant had not submitted the relevant documents relating to credit availed by it - HELD THAT - A perusal of the letter dated 24.05.2016 sent by the appellant to the Principal Commissioner does indicate that during the course of hearing the appellant had offered to produce the entire original record for verification and the Principal Commissioner had assured the appellant that a date for this purpose would be intimated to the appellant. However, as the date was not intimated, the appellant had offered to produce the documents. The Principal Commissioner has stated in paragraph 7.5 of the impugned order that the appellant had not produced all the invoices of all the service providers. It is, therefore, appropriate that the matter is remanded to the adjudicating authority to permit the appellant to produce the records so that a fresh order on this aspect can be passed after examination of the documents. Appeal allowed in part and part matter on remand.

Summary

Issues involved:
The judgment involves issues related to the classification of services, non-payment of service tax under the reverse charge mechanism, and denial of CENVAT credit.

Issue No. I - Classification of Services:
The appellant contended that service tax should not have been confirmed for the period before the service became taxable. The service was correctly classified under SOTG, but verification was required on whether service tax was paid under the correct category.

The service became taxable from a specific date, and any tax paid before that period should be set aside. Verification is needed to confirm if service tax was paid under the correct category.

Issue No. II - Non-payment under Reverse Charge Mechanism:
The demand for non-payment of service tax under the reverse charge mechanism on payments to foreign vendors was contested. The contention was that services provided from outside India should not be levied with service tax unless performed in India.

The demand under the reverse charge mechanism was not justified as the services were provided outside India and not subject to service tax unless performed in India. The provisions of the 2006 Rules were not considered by the Principal Commissioner.

Issue No. III - Denial of CENVAT Credit:
The denial of CENVAT credit due to the appellant not producing relevant documents was challenged. The appellant had offered to provide original records for verification, but the opportunity was not provided by the Principal Commissioner.

The denial of CENVAT credit was based on the lack of production of original records. The appellant's offer to produce documents should be considered, and the matter remanded to allow the appellant to present the necessary records for a fresh decision.

Conclusion:
The judgment set aside the demand of service tax under Issue No. II and for the period before the service became taxable under Issue No. I. The adjudicating authority was directed to verify if service tax was paid correctly and to allow the appellant to produce relevant documents for CENVAT credit under Issue No. III. The penalty and interest were to be modified accordingly. The matter was remanded to the adjudicating authority for a fresh decision.