2022 (1) TMI 396 - HC - Service Tax

Utilization of CENVAT Credit - payment of service tax for the purpose other than the ones defined under Section 3(4)(e) of the Cenvat Credit Rules, 2004 - recipient of service who is liable to pay the service tax under Section 68(2) of the Finance Act, 1994 - Rule 3(4)(e) of the Cenvat Credit Rules, 2004 - HELD THAT - In the case of COMMISSIONER OF SERVICE TAX VERSUS M/S ARAVIND FASHIONS LIMITED 2011 (9) TMI 852 - KARNATAKA HIGH COURT , the Coordinate Bench of this Court has considered the Cenvat Credit of input services utilized by the assessee towards the payment of service tax, it has been observed that the assessee therein was the recipient of service tax, the service provider was outside the country, in law he has been treated as a service provider and is levied tax, the liability to pay tax on the service which he has received was foisted on such assessee under law. In order to discharge the said liability, he is entitled to use the cenvat credit which was available with him. The special leave petitions preferred by the Revenue against M/s Aravind Fashions and Godavari Sugar Mills, though have been dismissed for low tax effect, we cannot subscribe to the arguments advanced by the Revenue in view of the fiction created under Section 68(2) of the Finance Act, 1994 read with Rules 2(1)(d) of the Service Tax Rules, 1994 and Rule 3(4)(e) of the Cenvat Credit Rules, 2004 - the substantial questions of law are answered in favour of the assessee and against the Revenue - appeal dismissed.

Summary

Issues:
Challenge to CESTAT order allowing appeal regarding utilization of Cenvat Credit for payment of service tax on input services.

Analysis:
The appellant, Revenue, challenged the CESTAT order allowing the respondent's appeal related to the utilization of Cenvat Credit for payment of service tax on input services. The respondent, a manufacturer of Multiutility Vehicles, utilized credit availed on inputs for service tax payment. The dispute arose when the Commissioner of Central Excise issued a show cause notice questioning the validity of utilizing the credit for certain services. The CESTAT allowed the respondent's appeal, leading to the current challenge by the Revenue.

The substantial questions of law considered by the Court included the permissibility of using Cenvat Credit for service tax payment on services not falling under defined categories, entitlement of service recipient to utilize Cenvat Credit, and applicability of Cenvat Credit Rules in the case. The Revenue contended that the CESTAT wrongly allowed the appeal without analyzing the material on record and argued that the credit utilization was invalid for services not constituting output services.

However, the Court noted that the Cenvat Credit Rules allowed credit utilization for service tax on output services, and the disputed period predated the relevant amendment. The definitions of "output service" and "person liable for paying service tax" were crucial in determining the applicability of Cenvat Credit. The Court referred to relevant provisions of the Service Tax Act and Rules to analyze the case comprehensively.

The Court referenced previous judgments, including the case of Aravind Fashions Ltd., where the recipient of service was treated as a service provider for tax purposes, justifying the use of available Cenvat Credit. Additionally, the judgment in Godavari Sugar Mills Ltd. supported the assessee's right to utilize Cenvat Credit for GTA services based on specific provisions of the Finance Act and Cenvat Credit Rules.

Moreover, the Court cited the Union of India v. Kansara Modlers Ltd. case, affirming the Tribunal's treatment of the assessee as an output service provider. Despite the dismissal of Revenue's special leave petitions in previous cases, the Court upheld the assessee's position based on the legal framework and fictions created under relevant laws.

Ultimately, the Court dismissed the appeal, favoring the assessee based on the legal analysis and precedents cited. The judgment emphasized the application of Cenvat Credit Rules, Service Tax Act provisions, and relevant case laws to determine the validity of utilizing Cenvat Credit for service tax payment on input services.