2019 (10) TMI 99 - HC - Service Tax

Mode of discharge of service tax - services provided by service providers located outside India - whether the appellant, as the person liable to pay the service tax on services provided by service providers located outside India, could pay the said service tax by utilization of CENVAT credit available with it? HELD THAT - The issue is decided in the case of THE COMMISSIONER OF CGST AND CENTRAL EXCISE VERSUS M/S. U.S.V. LIMITED 2019 (7) TMI 567 - BOMBAY HIGH COURT where it was held that 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. Appeal allowed.

Summary

Issues Involved:
1. Whether the appellant could discharge its tax liability by utilizing the credit available to it before the explanation to Rule 3(4) of the CENVAT Credit Rules, 2004 was introduced on 1st July, 2012.
2. Whether the CESTAT erred in holding that the proviso under Section 73(1) was unwarranted.
3. Whether the penalty was lawfully imposed.

Issue-wise Detailed Analysis:

1. Utilization of CENVAT Credit for Tax Liability:
The core issue pertains to whether the appellant could utilize CENVAT credit for paying service tax on services received from foreign companies during the period from April 2005 to May 2008. The statutory provisions under scrutiny include Section 66A of the Finance Act, 1994, and Rule 3(4) of the CENVAT Credit Rules, 2004. The court observed that the explanation added to Rule 3(4) on 1st July 2012, which prohibited the use of CENVAT credit for payment of service tax on reverse charge basis, could not be applied retrospectively. The court emphasized that provisions creating substantive liabilities cannot have retrospective effect unless explicitly stated. Consequently, the appellant was entitled to utilize CENVAT credit for paying service tax during the relevant period, as the prohibition was introduced only from 1st July 2012.

2. Proviso under Section 73(1):
Given the resolution of the first issue in favor of the appellant, the necessity to adjudicate on the second question regarding the proviso under Section 73(1) was obviated. The court did not delve into whether the CESTAT erred in holding the proviso under Section 73(1) as unwarranted.

3. Lawful Imposition of Penalty:
Similarly, the third issue concerning the lawful imposition of penalty was also not addressed due to the resolution of the primary issue in favor of the appellant. The court's decision on the first issue rendered further adjudication on the penalty moot.

Conclusion:
The court concluded that the appellant was justified in utilizing CENVAT credit for paying service tax on services received from foreign companies during the period in question. The explanation to Rule 3(4) of the CENVAT Credit Rules, introduced on 1st July 2012, could not be applied retrospectively. The impugned Final Order dated 1st February 2018 by the CESTAT was set aside, and the appeal was allowed in favor of the appellant.