2023 (9) TMI 135 - AT - Service Tax

Denial of utilization of the CENVAT credit for discharging service tax liability - Import of Service - services qualify as output services or not - Denial of inter-adjustment of amount paid within various heads against the liability - Rule 3(4)(e) of the Cenvat Credit Rules, 2004. Denial of utilization of the CENVAT credit for discharging service tax liability in relation to Import of Service - HELD THAT - The interpretation of Rule 3(4) of the Cenvat Credit Rules, 1994 by the Ld. Commissioner in the impugned order is legally not tenable - an Explanation has been added to Rule 3(4)(e) of the Cenvat Credit Rules, 2004, w.e.f.01.07.2012, to the effect 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 . Thus, it is amply clear that there was no such restriction in the Cenvat Credit Rules, 2004, prior to 01.07.2012. The period involved in the present dispute is 2009, which is prior to insertion of the Explanation to Rule 3(4)(e) w.e.f., 1.7.2012. Hence we, hold that such restriction of utilization of Cenvat credit was not applicable for the period under dispute - the utilization of Cevat Credit for payment of service tax on 'import of service' by the Appellant is legally tenable. Denial of inter-adjustment of amount paid within various heads against the liability - HELD THAT - The Appellant has paid the total tax payable during the disputed period correctly. If the adjustment is allowed between the excess service tax paid and the short paid Education Cess/SHE Cess and vice versa, then there was short payment of Rs. 895,160/- only in the month of January 2008, which has already been paid by them on 5th May 2008. Thus, the contention of the Appellant is that if the adjustment is permitted then there won't be any short payment overall. Accordingly, they contended that the demand confirmed in the impugned order is not sustainable. Thus, the issue to be decided in this case is whether excess /short paid amount under the service tax head can be adjusted for payment of excess/short paid amount in Education Cess or not. A similar issue under Central Excise came before the Hon'ble High Court of Guwahati in the case of UNION OF INDIA VERSUS KAMAKHYA COSMETICS PHARMACEUTICAL PVT. LTD. 2012 (7) TMI 902 - GAUHATI HIGH COURT , where Hon'ble High Court has held that Cenvat credit of Basic Central Excise duty can be utilzed for payment of Education Cess/SHE Cess and vice versa. The same analogy is applicable for service tax also. Following the decision of the Hon'ble Guwahati High Court, it is held that excess amount paid in service tax can be adjusted against the short payment in Education Cess/SHE Cess. After adjustment, there was a short payment of Rs.8.95.160/- only in the month of January 2008, which has already paid by the Appellant. Accordingly, the demand confirmed in the impugned order on this count is not sustainable. Since both the issues involved in the present appeal are decided in favour of the Appellant, the entire demand along with interest confirmed in the impugned order is liable to be set aside. As the demand is not sustainable, there is no penalty imposable on the Appellant. Accordingly, the impugned order is set aside - appeal allowed.

Summary

Issues Involved:
1. Denial of utilization of the CENVAT credit for discharging service tax liability in relation to Import of Service.
2. Denial of inter-adjustment of amount paid within various heads against the liability.

Summary:

Issue 1: Denial of utilization of the CENVAT credit for discharging service tax liability in relation to Import of Service

The Appellant contended that Rule 3(4)(e) of the Cenvat Credit Rules, 2004, allows the utilization of CENVAT credit for payment of service tax on any output service. They argued that the restriction under Rule 5 of the Taxation of Services (Provided from Outside India and received in India) Rules, 2006, is limited to availing credit of duty/tax paid on input and input services, and does not extend to the utilization of CENVAT credit for service tax payment. They cited several judicial precedents, including the Tribunal's decision in Kansara Modler Ltd. and the Hon'ble Supreme Court's dismissal of the Revenue's petition against the Rajasthan High Court's judgment, which supported their stance.

The Tribunal observed that the restriction on utilizing CENVAT credit for payment of service tax on import services was introduced only with the Explanation added to Rule 3(4)(e) of the Cenvat Credit Rules, 2004, effective from 01.07.2012. Since the period in dispute was 2009, the restriction was not applicable. The Tribunal also referenced the decision in Kansara Modler Ltd., which had attained finality in favor of the Appellant. Thus, the Tribunal held that the utilization of CENVAT credit for payment of service tax on import services by the Appellant was legally tenable and set aside the demand on this count.

Issue 2: Denial of inter-adjustment of amount paid within various heads against the liability

The Appellant argued that they had short paid service tax, education cess, and secondary and higher education cess in some months but made excess payments in other heads. They relied on Circular No. 58/7/2003-S.T., which clarified that wrong accounting codes should not necessitate re-payment of service tax. They cited judicial precedents, including the Hon'ble High Court's decision in Devang Paper Mills Pvt. Ltd., which upheld that payments made with wrong codes should not result in penalties or additional liabilities.

The Tribunal observed that the Appellant had correctly paid the total tax payable during the disputed period. They referenced the Hon'ble High Court of Guwahati's decision in Kamakhya Cosmetics & Pharmaceuticals Pvt. Ltd., which allowed the utilization of CENVAT credit of Basic Excise Duty for payment of Education Cess/SHE Cess and vice versa. Applying the same analogy to service tax, the Tribunal held that the excess amount paid in service tax could be adjusted against the short payment in Education Cess/SHE Cess. After adjustment, the short payment of Rs. 895,160/- in January 2008 had already been paid by the Appellant. Thus, the demand on this count was not sustainable.

Conclusion:

Both issues were decided in favor of the Appellant, and the entire demand along with interest confirmed in the impugned order was set aside. Consequently, no penalty was imposable on the Appellant. The appeal filed by the Appellant was allowed, and the impugned order was set aside.

(Pronounced in the open court on 30.08.2023)