2016 (4) TMI 891 - AT - Service Tax

Denial of Cenvat credit - Initially the assessee was not paying the Service Tax under reverse charge mechanism and on being pointed out by the Audit team have paid the Service Tax and taken credit in their PLA account - Held that - as per Rule 3 of the Cenvat Credit Rules, 2004, the assessee is entitled to take the credit of Service Tax paid. Therefore, the observation of the audit team in subsequent audit is not correct. If that has been taken care of at that time, this allegation was not required. Further, the observations made by the learned Commissioner (Appeals) in the impugned order directing the assessee to reverse the said credit and file refund claim is also not warranted. - Appeal disposed of

Issues:
1. Interpretation of reverse charge mechanism for service tax on input services availed outside India.
2. Entitlement to cenvat credit and refund claim by the assessee.
3. Validity of demand of interest confirmed by the learned Commissioner (Appeals).
4. Revenue's challenge on the entitlement of cenvat credit in the PLA account and the limitation on the refund claim.

Analysis:
1. The case involved a dispute regarding the payment of service tax under reverse charge mechanism for input services availed outside India by the assessee. Initially, the assessee did not pay the service tax but later paid it as directed by the Audit team and took credit in their PLA account. Subsequent audits raised concerns about the eligibility of the assessee to avail cenvat credit on the service tax paid. However, the Tribunal held that as per Rule 3 of the Cenvat Credit Rules, 2004, the assessee was entitled to take the credit of service tax paid under reverse charge mechanism. Therefore, the Tribunal concluded that the assessee was not required to reverse the cenvat credit or file a refund claim as the entire exercise was revenue neutral.

2. The Tribunal addressed the issue of the assessee's entitlement to cenvat credit and refund claim. The learned Commissioner (Appeals) had directed the assessee to reverse the credit and file a refund claim for the service tax paid. However, the Tribunal found that the assessee was entitled to take cenvat credit of the service tax paid under reverse charge mechanism. Consequently, the Tribunal held that there was no requirement for the assessee to reverse the cenvat credit or file a refund claim, as the payment of service tax and availing credit was in compliance with the law.

3. The Tribunal considered the validity of the demand of interest confirmed by the learned Commissioner (Appeals). The appeal filed by the assessee requested the setting aside of the demand of interest confirmed by the learned Commissioner (Appeals) due to the reversal of credit during the intervening period. However, the Tribunal's decision to allow the assessee to retain the cenvat credit rendered the demand for interest invalid, as the assessee was not required to reverse the credit, leading to a revenue-neutral outcome.

4. The Revenue challenged the impugned order on the basis that the assessee was not entitled to take cenvat credit in their PLA account and that the refund claim filed by the assessee was barred by limitation. However, the Tribunal's decision clarified that the assessee was indeed entitled to cenvat credit for the service tax paid under reverse charge mechanism, and there was no need for the assessee to file a refund claim. The Tribunal's ruling effectively addressed the Revenue's challenge and upheld the assessee's right to retain the cenvat credit without any limitation on the refund claim.

In conclusion, the Tribunal disposed of the appeals by confirming the assessee's entitlement to cenvat credit for the service tax paid under reverse charge mechanism and rejecting the demand for interest and the Revenue's challenge on the cenvat credit in the PLA account and the limitation on the refund claim.

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