2006 (4) TMI 32 - AT - Service Tax

Service Tax Appellants entitled for availment of input stage credit of tax even though input and output services do not fall in same category of taxable service

Summary

Issues:
Department's appeal against order setting aside denial of Modvat credit for service tax taken by respondent.

Analysis:
The case involved the Department's appeal against an order setting aside the denial of Modvat credit for service tax taken by the respondent. The respondents were registered for providing online information and database access services and had availed credit on input services for tax paid to BSNL. The issue arose when the authorities issued a show cause notice for reversal of the credit, arguing that input and output services did not fall under the same category. The adjudicating authority confirmed the demand, but the Commissioner (Appeals) set aside the order, leading to the Department's appeal. The key contention was whether the respondents were eligible for availing input stage credit as per the Service Tax Credit Rules.

The Department argued that the input service and output service must fall under the same category of taxable service as per the Service Tax Credit Rules. They contended that the taxable service provided by the respondent differed from the service tax paid to BSNL, thus making the input service ineligible for credit. On the other hand, the respondent's advocate argued that without the input service, they could not provide the output service and cited the definition in the Service Tax Credit Rules and a clarification issued by the Department to support their eligibility for availing input service tax credit.

Upon considering the submissions and records, the Tribunal analyzed the relevant rule stating that two services are deemed to be in the same category if the input and output services fall under the same sub-clause of the Act. The Tribunal noted that the intention of the government was to grant credit of the input service to the output service under the same clause of the Act. The definition of input service mentioned that it is any taxable service received and consumed by a service provider in relation to rendering output service. The Tribunal concluded that denying the credit based on a narrow interpretation of the rules would defeat the government's intention to provide input stage credit of service tax to service providers. Therefore, the Tribunal upheld the order allowing the Modvat credit to the respondent, dismissing the Department's appeal.