2020 (4) TMI 200 - AT - Service Tax

CENVAT Credit - input services - supply of tangible goods services - Man Power Recruitment and Supply Agency Service - reverse charge mechanism - motor spirit and high speed diesel oil - demand of interest on reversal of cenvat credit - penalty. Supply of tangible goods service - deemed sale - HELD THAT - Though the owner of the equipment had insured the goods, the effective control was with the appellant and therefore the issue is covered by definition of deemed sale and therefore service tax under the category of supply of tangible goods service‟ is not leviable on the transaction of use of dredgers and other equipments by the appellant - demand set aside. Man Power Recruitment and Supply Agency Service - reverse charge mechanism - HELD THAT - In the present case, the appellants have issued Form-16 series to the said employees as their employer and deducted TDS from their salaries and therefore the appellants were employer and there was employer-employee relationship and therefore, we hold that the said demand of around ₹ 1.65 crores cannot sustain - Demand set aside. CENVAT Credit - input - fuels - penalty - HELD THAT - The appellant could not establish that the goods used by the appellants were eligible to be inputs and therefore, the impugned order is upheld in so far as the same is concerned, with disallowance of cenvat credit of around ₹ 34 lakhs with penalty of ₹ 2 lakhs. Demand of interest on reversal of cenvat credit - HELD THAT - Once the inputs are issued for use, there is no need to reverse the cenvat credit. However, the appellants have voluntarily reversed the cenvat credit and we do not interfere with such voluntary reversal. We hold that on such reversal interest is not payable - the demand of interest is set aside. Appeal allowed in part.

Issues Involved:
1. Demand of service tax under "Supply of Tangible Goods Service."
2. Demand of service tax under "Manpower Recruitment or Supply Service."
3. Cenvat credit availed on fuels.
4. Demand of interest on reversal of cenvat credit.

Issue-wise Analysis:

1. Demand of Service Tax under "Supply of Tangible Goods Service":
The appellants were charged with a service tax demand of approximately ?21 crores under the category of "Supply of Tangible Goods Service" for hiring dredgers, tug boats, and other equipment from overseas companies. The original authority based its decision on the specific period license obtained from the Ministry of Shipping, which allowed the appellant to use the foreign vessels and equipment during their stay in India, concluding that the transaction did not qualify as a "deemed sale." The Tribunal, however, referred to the precedent set in the case of International Seaport Dredging Ltd. Vs CST Chennai, where it was determined that the transfer of right of possession and effective control of the vessel to the appellant constituted a "deemed sale." Consequently, the Tribunal held that service tax under the "Supply of Tangible Goods Service" was not applicable and set aside the impugned order, allowing the appeal with consequential relief to the appellant.

2. Demand of Service Tax under "Manpower Recruitment or Supply Service":
The appellants were also charged with a service tax demand of around ?1.65 crores under the "Manpower Recruitment or Supply Service" for employing skilled personnel from JDN-Pacific, Mauritius. The appellant argued that the employees were paid salaries directly by them, with Form-16 issued in the appellant's capacity as the employer, and TDS deducted accordingly. The Tribunal cited the case of TPSC India Pvt. Ltd. Vs CST Hyderabad, where it was held that such transactions did not fall under the "Manpower Recruitment and Supply Agency Service" category. The Tribunal concluded that there was an employer-employee relationship, and thus, the service tax demand could not be sustained. The appeal was allowed to this extent.

3. Cenvat Credit Availed on Fuels:
The appellants claimed cenvat credit of around ?34 lakhs on fuels, arguing that the goods used were different from motor spirit and high-speed diesel oil, which are disallowed under the Cenvat Credit Rules. However, the Tribunal noted that the appellants failed to establish the eligibility of the goods as inputs. Therefore, the Tribunal upheld the original order, disallowing the cenvat credit of ?34 lakhs and imposing a penalty of ?2 lakhs.

4. Demand of Interest on Reversal of Cenvat Credit:
The appellants voluntarily reversed the cenvat credit on inputs such as parts and spares after their use and subsequent export. They argued that the requirement for reversal of credit upon removal of inputs as such was introduced in 2013, which was after the period involved in the case. The Tribunal agreed that once inputs are issued for use, there is no need to reverse the cenvat credit, and thus, interest on such voluntary reversal is not payable. The demand for interest was set aside, and this aspect was decided in favor of the appellants.

Conclusion:
The Tribunal partially allowed the appeal, setting aside the impugned order except for the disallowance of cenvat credit of ?34 lakhs with a penalty of ?2 lakhs and the uncontested cenvat credit of ?42,536/-. The operative part of the order was pronounced in open court.

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