2015 (2) TMI 709 - AT - Service Tax

Utilisation of Cenvat credit for payment under Sec.73A(2) - Amount collected in the name of service tax on non taxable activity - Sponsorship of sporting events - Held that - It is in this factual and legal scenario, the question whether the appellant could have utilised cenvat credit for payment of the amount envisaged in Section 73A (2) has to be considered. The said section envisaged that where any person who has collected any amount, which is not required to be collected from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government. Further Rule 3 of the Cenvat Credit rules, 2004 did not provide for utilisation of cenvat credit for payment of the amount specified in section 73A (2) of the Finance Act, 1994 or section 11D of the Central Excise Act, 1944. Since in the present case, the appellant was not a provider of any output service, he could not have taken any cenvat credit on the input or input services. Further he could not have utilised the credit for payment of the amount envisaged under section 73A(2). Thus, the discharge of the liability under section 73A(2) utilising cenvat credit was improper and illegal. Consequently, the demand of the department for payment of the liability under section 73A(2) of the Finance Act, 1994, in cash, is correct in law and cannot be faulted. As a consequence, the appellant is also liable to pay interest for the default period during which the amount was not made good in cash. The last issue for consideration is whether the appellant is liable to any penalty. Since the issue related to interpretation of law and there was no intention to evade or avoid payment of tax, there is no warrant to impose any penalty and accordingly, we set aside the penalty imposed on the appellant.Since the appellant has subsequently paid the amount in cash, the appellant would be entitled to restoration of credit which was debited from the cenvat account subject to the condition that the appellant does not claim any refund of the amount paid in cash. Decided against the appellant.

Summary

Issues:
1. Whether the appellant was liable to pay service tax on sponsorship charges collected.
2. Whether the appellant could utilize Cenvat credit for the payment of service tax.
3. Whether the penalty imposed on the appellant was justified.

Analysis:

Issue 1: Liability for Service Tax on Sponsorship Charges
The appellant, a cricket team, collected sponsorship charges for the IPL Series and service tax from sponsors. The department contended that the activity was not taxable, and the tax collected should have been remitted in cash. The appellant argued that the sponsors were liable for service tax, and they remitted the tax collected to the exchequer under protest. The Tribunal analyzed the legal provisions and concluded that sponsorship of sporting events was not a taxable service, making the appellant not liable for service tax on the collected charges.

Issue 2: Utilization of Cenvat Credit
The appellant utilized Cenvat credit to pay the service tax collected, which the department deemed improper. The Tribunal examined the Cenvat Credit Rules and determined that since the appellant was not a provider of any output service, they could not avail Cenvat credit. Therefore, the utilization of Cenvat credit for payment was deemed incorrect. The Tribunal highlighted that the rules did not allow for such credit in this scenario, leading to the conclusion that the demand for cash payment by the department was lawful.

Issue 3: Penalty Imposition
Regarding the penalty imposed on the appellant, the Tribunal found that there was no intent to evade tax, and the issue primarily involved interpretation of the law. As a result, the Tribunal set aside the penalty, emphasizing that no penalty should be imposed in the absence of intentional tax evasion. The appellant was granted restoration of the Cenvat credit utilized, provided they did not seek a refund of the cash payment made subsequently.

In conclusion, the Tribunal ruled that the appellant was not entitled to use Cenvat credit for service tax payment, and the liability had to be discharged in cash. The appellant was liable for interest on the delayed payment. The penalty was overturned due to the lack of intent to evade tax. The appellant could reclaim the Cenvat credit used, subject to refraining from seeking a refund of the cash payment.