2017 (5) TMI 1198 - AT - Service Tax

100% EOU - CENVAT credit - reverse charge mechanism - Business Auxiliary Service - Held that - the appellants have discharged the said liability by debit in their CENVAT credit account - Correctness of such payment of service tax liability by the recipient of service while discharging service tax in terms of Section 66A has been upheld by the Tribunal in similar set of facts - In Paramount Communication Ltd. 2016 (12) TMI 287 (CESTAT-DELHI) held that wherever the service recipient discharges service tax liability on reverse charge basis, he has to be considered as output service provider, thus entitling the utilization of payment of such service tax by credit - the impugned order rejecting the payment of the appellant by CENVAT credit is not legally sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Correctness of utilizing cenvat credit for service tax payment on reverse charge basis.
2. Imposition of penalties on the appellant for using cenvat credit.

Analysis:
1. The appeal addressed the dispute regarding the appellant's use of cenvat credit for paying service tax on reverse charge basis under Section 66 A of the Finance Act, 1994. The appellant, a 100% EOU, engaged commission agents outside India for marketing their products abroad, resulting in service tax liability under "Business Auxiliary Service." The Original Authority and Commissioner (Appeals) held the appellant should not have used cenvat credit for service tax payment and imposed penalties. The appellant contended that the authorities exceeded the show cause notice's scope and questioned the payment method, arguing they can use cenvat credit for service tax liability under BAS on reverse charge basis.

2. The appellant's consultant cited precedents supporting the use of cenvat credit for service tax payment when liable, asserting the payments were correct. The Tribunal referenced cases like Paramount Communication Ltd. and Shree Rajasthan Syntex Ltd., where it was established that service recipients discharging tax liability on reverse charge basis can utilize cenvat credit. Relying on legal precedents, the Tribunal concluded that the appellant's payment method using cenvat credit was valid. Consequently, the penalties imposed on the appellant were deemed unsustainable, and the appeal was allowed, upholding the tax liability but setting aside the penalties.

This judgment clarifies the legality of using cenvat credit for service tax payment on reverse charge basis and emphasizes adherence to established legal principles in tax liability disputes.