2019 (7) TMI 567 - HC - Central Excise

Utilization of CENVAT Credit - utilization of credit for payment of tax on input services, even when Rule 3(4)(e) of Cenvat Credit Rules, 2004 was very much in existence - period prior to 20.06.2012 - import of service under reverse charge basis under section 66A of the Finance Act of 1994 - HELD THAT - The restriction provided in Rule 5 of the above rules is that the taxable service received from outside India shall not be treated as output services for availment of tax paid on any input services. However, there is no bar to utilizing of cenvat credit already availed to discharge service tax obligation on the import of services on reverse charge basis - This view is further supported by the fact that on 20th June, 2012 the Cenvat Credit Rules, 2004 were amended so as to introduce an explanation which bars utilization of cenvat credit to meet oblilgation of tax on output service on reverse charge basis. No substantial questions of law arise in the present facts - appeal dismissed.

Issues:
1. Interpretation of Cenvat Credit Rules for payment of service tax on reverse charge basis.
2. Entitlement of service recipient to utilize cenvat credit for service tax liability on import of services.
3. Application of Rule 5 of Taxation of Services Rules in utilizing cenvat credit for service tax obligations.
4. Effect of Rule amendments on cenvat credit utilization for tax payment.

Analysis:
The primary issue in this case revolves around the entitlement of the Respondent to utilize cenvat credit for discharging service tax liability on import of services under reverse charge basis. The revenue contests this entitlement, arguing that the Respondent, not being a provider of output services, should not be allowed to use cenvat credit for tax payment. Additionally, the revenue relies on Rule 5 of the Taxation of Services Rules to support its position that the Respondent cannot utilize cenvat credit for service tax obligations. However, the Tribunal's decision, supported by precedent, emphasizes that a person liable to pay service tax becomes a provider of taxable service and is entitled to utilize cenvat credit for tax payment on reverse charge basis.

The Tribunal's decision is further reinforced by the interpretation of Rule 3(4)(e) of the Cenvat Credit Rules, 2004. The Tribunal, citing previous judgments, establishes that prior to the amendment introducing a prohibition on cenvat credit utilization for tax payment on reverse charge basis, there was no such restriction. This interpretation aligns with the decisions of various High Courts, including Gujarat, Delhi, and Punjab and Haryana, which have allowed cenvat credit utilization for service tax obligations on reverse charge basis.

Moreover, the Tribunal clarifies that Rule 5 of the Taxation of Services Rules does not bar the utilization of cenvat credit for discharging service tax obligations on import of services under reverse charge basis. The Tribunal highlights that the amendment to the Cenvat Credit Rules in 2012 introduced an explanation prohibiting cenvat credit utilization for tax on output services under reverse charge basis, but this does not affect the Respondent's entitlement to use cenvat credit for import of services.

Ultimately, the Court dismisses the revenue's appeal, emphasizing that the issues raised have been conclusively addressed by previous decisions, and no substantial questions of law arise in the present case. The Tribunal's decision, supported by legal precedents and rule interpretations, stands firm in allowing the Respondent to utilize cenvat credit for service tax obligations on import of services under reverse charge basis.

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