2013 (11) TMI 769 - AT - Service Tax

Utilization of CENVAT Credit on capital goods for payment of service tax under reverse charge - Demand of service tax on Intellectual Property Rights Service - Assessee discharged service tax liability by paying major portion of service tax by availing CENVAT Credit - Whether Cenvat credit can be utilized for payment of service tax on Intellectual Property Rights Service received by them or not - Held that - according to Rule 3(4)(e) of Cenvat Credit Rules, 2004, Cenvat credit may be utilized for payment of service tax on any output service. According to provisions of Section 66A(1) of the Finance Act, 1994, for all purpose, when demand are made under Section 66A, the service received has to be treated as output service . Restriction applies for availing credit of duty only in respect of excise duty paid on input or service tax paid on any input services and not capital goods. In such a situation, the appellant has made out prima facie case in their favour for correctness of payment made by them. However, it seen that payment was made after two years from the receipt of services and therefore, the appellant is liable to pay interest - STay granted partly.

Issues:
1. Utilization of Cenvat credit for payment of service tax on 'Intellectual Property Rights Service'.
2. Interpretation of Rule 3(4)(e) of Cenvat Credit Rules, 2004.
3. Application of Rule 5 of Taxation of Service Rules, 2006.
4. Liability for payment of interest on delayed payment.
5. Direction for deposit and stay against recovery during appeal.

Analysis:
1. The primary issue in this case was the utilization of Cenvat credit for the payment of service tax on 'Intellectual Property Rights Service'. The appellant had utilized Cenvat credit on capital goods to pay a significant portion of the service tax demanded. The Revenue contended that Cenvat credit should not have been used for this purpose. The Tribunal examined Rule 3(4)(e) of the Cenvat Credit Rules, 2004, which allows the utilization of Cenvat credit for payment of service tax on any output service. The Tribunal also considered the definition of 'output service' under Section 66A(1) of the Finance Act, 1994, which includes services received. Ultimately, the Tribunal found that the appellant could indeed use Cenvat credit for the payment of service tax on the 'Intellectual Property Rights Service'.

2. Regarding the interpretation of Rule 3(4)(e) of the Cenvat Credit Rules, 2004, the Tribunal emphasized that the rule permits the utilization of Cenvat credit for payment of service tax on any output service. This provision was crucial in determining the permissibility of using Cenvat credit in the present case. By aligning this rule with the definition of 'output service' under the Finance Act, the Tribunal clarified that the appellant's use of Cenvat credit was justified.

3. The Tribunal also delved into the application of Rule 5 of the Taxation of Service Rules, 2006. While the Commissioner had relied on this rule to argue against the appellant's use of Cenvat credit, the Tribunal's analysis revealed that Rule 5 specifically pertains to availing credit of excise duty paid on input or service tax paid on input services. As the appellant utilized Cenvat credit on capital goods, not input services, the restriction under Rule 5 did not apply in this scenario, further supporting the appellant's position.

4. In addressing the issue of liability for interest on delayed payment, the Tribunal acknowledged that the appellant had made the payment after two years from the receipt of services. Consequently, the Tribunal directed the appellant to deposit a specified sum within a stipulated timeframe to cover the interest accrued on the delayed payment, which the appellant agreed to comply with.

5. Finally, the Tribunal issued a directive for the deposit of the specified amount within a set period and granted a stay against recovery during the pendency of the appeal, provided the appellant complied with the deposit requirement. This decision aimed to balance the interests of both parties while ensuring the continuation of the appeal process without immediate financial repercussions for the appellant.

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