2012 (4) TMI 386 - AT - Service Tax

Whether the appellant is liable to discharge the Service Tax liability on the commission paid to the commission agents situated abroad for procurement of sales orders under reverse charge mechanism from 09.07.04 to 15.06.05 Held that - As the provisions of Section 66A of Finance Act, 1994 were brought into play w.e.f. 18.04.2006 no liability arises of payment of service tax - issue is decided by Hon ble Supreme Court in the case of Indian National Shipowners Association Vs UoI (2010 - TMI - 78723 - Supreme Court of India) in favour of assessee. Demand of CENVAT Credit on Service Tax on the outward transportation Held that - The judgment of Larger Bench of the Tribunal in the case of ABB Ltd Vs CCE (2010 - TMI - 202803 - CESTAT, BANGALORE) held that the CENVAT Credit on the Service Tax paid on outward transportation is related to the business and is covered under the definition of input services under Rule 2(l) of CENVAT Credit Rules, 2004 ,thus squarely cover the issue in their favour of assessee.

Summary

Issues:
1. Liability of Service Tax on commission paid to foreign parties under reverse charge mechanism.
2. Denial of CENVAT Credit on Service Tax paid on outward transportation of goods.

Analysis:

Issue 1: Liability of Service Tax on Commission Paid to Foreign Parties
The appellant, engaged in manufacturing SAW pipes, was paying Service Tax on transport services since 1.1.2005 under Business Auxiliary Service. An issue arose regarding the non-discharge of Service Tax on commission paid to foreign parties for procurement of sales orders under reverse charge mechanism. The appellant contended that prior to 16.06.2006, Service Tax liability did not arise, citing legal precedents such as Indian National Shipowners Association case. The Tribunal noted that Section 66A of Finance Act, 1994 was applicable from 18.04.2006. Relying on judgments like Indian National Shipowners Association and Bhandari Hosiery Exports Ltd, the Tribunal held that the appellant was not liable to discharge Service Tax on the commission paid during the specified period.

Issue 2: Denial of CENVAT Credit on Outward Transportation Service Tax
The second issue revolved around the denial of CENVAT Credit on Service Tax paid for outward transportation of goods from January 2005 to December 2006. The appellant claimed CENVAT Credit on such services, considering them as input services under Rule 2(l) of CENVAT Credit Rules, 2004. The Tribunal referred to the judgment of the Larger Bench in the case of ABB Ltd, which held that CENVAT Credit on Service Tax paid on outward transportation is related to the business and falls under the definition of input services. This decision was upheld by the Hon'ble High Court of Karnataka. Consequently, the Tribunal set aside the impugned orders, allowing the appeals in favor of the appellant.

In conclusion, the Tribunal ruled in favor of the appellant on both issues, holding that the liability of Service Tax on commission paid to foreign parties and the denial of CENVAT Credit on outward transportation Service Tax were not valid. The judgments cited and the legal framework were crucial in determining the outcome of the case, leading to the setting aside of the lower authorities' decisions.