2016 (2) TMI 111 - AT - Service Tax

Cenvat Credit of service tax on reverse charge basis - revenue denied the claim of credit - Held that - . It does not appeal to common sense as to reason why legitimate tax paid on reverse mechanism to the treasury on taxable service shall be denied to be set off against duty/tax liability in India in absence of any statutory bar in that regard. As the scheme of law relating to CENVAT Credit exists, there appears no anomaly in respect of reverse charge tax system - credit allowed - Decided in favor of assessee.

Summary

Issues:
1. Claim of CENVAT credit on service tax paid to foreign commission agent.
2. Discrepancy in payment leading to short payment.
3. Imposition of penalty.

Analysis:

Issue 1: Claim of CENVAT credit on service tax paid to foreign commission agent
The appellant contended that the service tax paid to the foreign commission agent should be allowed as CENVAT credit against the output service tax liability in India. The Revenue, however, denied this claim. The appellant argued that since the tax was paid and there was no statutory bar, the set off should be permitted. The Tribunal agreed with the appellant, emphasizing that there was no reason to deny the set off of legitimate tax paid on reverse mechanism against the tax liability in India. The Tribunal referred to the existing CENVAT Credit Rules and a relevant judgment by the Hon'ble Karnataka High Court to support its decision. Consequently, the appeal was allowed on this ground.

Issue 2: Discrepancy in payment leading to short payment
The Revenue pointed out a discrepancy regarding short payment, which the adjudicating authority was directed to examine. If any difference was found, it was ordered to be realized along with interest. This issue was acknowledged, and the necessary action was instructed to rectify the payment discrepancy.

Issue 3: Imposition of penalty
Considering the confusion in the law regarding the set off of service tax paid to the foreign commission agent, the Tribunal decided not to impose any penalty. The Tribunal recognized the complexity of the legal matter and the lack of clarity, leading to the decision to waive the penalty in this case.

In conclusion, both appeals were disposed of based on the above analysis, with the Tribunal allowing the claim for CENVAT credit and directing the examination of payment discrepancies while refraining from imposing any penalties due to the legal ambiguity surrounding the matter.