2018 (10) TMI 1418 - AT - Service Tax

CENVAT Credit - credit denied on the ground that the Input Service received by the appellant does not fall under the definition of Input Service - Held that - The issue of admissibility of input service has been settled in the order-in-original which has been accepted by the Revenue as no appeal has been filed against the said finding. Once it is accepted that input service received by the appellant falling under definition of input service there is no reason to deny the Cenvat credit. Classification of services - Works Contract Service or not - N/N. 30/2012-ST dated 20.06.2012 (Serial No. 8) - liability of 50% of tax - reverse charge mechanism - it was alleged that appellant was not liable to pay service tax therefore credit is not admissible - Held that - No proceeding was initiated against the service provider. If the contention of the Revenue is accepted then there is short payment on the part of the service provider and in such case proceeding for demand of 50% service tax should have been initiated against the service provider. In any case the total service tax paid by either party i.e. by the service provider or service recipient is legally payable on the said service. The actual liability of service tax was discharged though 50% by service provider and 50% by the appellant. Therefore on the service tax paid by the appellant credit is legally available and it cannot be said that amount paid by the appellant is not service tax and on this ground credit cannot be denied. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Denial of Cenvat credit on service tax paid under reverse charge mechanism.
2. Disallowance of Cenvat credit on the grounds that the service provider was supposed to pay 100% service tax.
3. Admissibility of input service under the definition of Input Service.
4. Legal implications of the appellant not being liable to pay service tax.

Analysis:
1. The case involved a dispute regarding the denial of Cenvat credit on service tax paid under reverse charge mechanism by the appellant. The department contended that the service provided did not fall under the category of Works Contract Service, and hence, the appellant was not required to pay 50% of the service tax. The appellant argued that the service received fell within the definition of Input Service under Cenvat Credit Rules, 2004. The Adjudicating Authority acknowledged that the service was an input service, but denied the credit based on the premise that the service provider should have paid 100% service tax.

2. The appellant's counsel highlighted that no proceedings were initiated against the service provider, indicating that the service tax paid by the appellant was accepted by the department as part of the service tax payable by the service provider. The counsel argued that once service tax had been paid, even if not required, the credit should not be denied. Legal precedents from the Hon'ble Gujarat High Court and Hon'ble Madras High Court were cited to support the appellant's position.

3. The Adjudicating Authority's order-in-original confirmed that the service received by the appellant qualified as an input service under the Cenvat Credit Rules. The authority noted that the service providers had paid service tax on 50% of the taxable value, although they were required to pay 100%. It was established that the service did not involve a works contract as no transfer of property occurred. The appellant was found not liable to pay service tax under reverse charge mechanism, and the Cenvat credit was disallowed. The Revenue accepted this finding by not appealing against it.

4. The judgment emphasized that if the Revenue's contention that the appellant was not liable to pay service tax was accepted, proceedings should have been initiated against the service provider for the remaining 50% tax. Since no such action was taken, it was inferred that the total service tax had been paid by both parties. Therefore, the appellant's payment was legally made, and the credit should not be denied. The impugned order was set aside, and the appeal was allowed based on these grounds.