2023 (6) TMI 702 - AT - Service Tax

Short-payment of service tax - Classification of service - utilization of Cenvat credit for payment of service tax under reverse charge mechanism (RCM) - payments made by the appellant to their foreign service engineers conducted by their associated enterprise and other remittances by the appellant - extended period of limitation - HELD THAT - On examination of primary objection raised by the appellant that the show cause notice does not disclose the classification of the service it seeks to demand service tax on. It is found that this plea of the appellant is not disputed. However, its Revenue s submission that mere non-quoting of the category does not vitiate the proceedings in the matter. She relied on the decision of the Tribunal in the case of GEEDEELON TEXO-TWIST P. LTD. VERSUS COMMR. OF C. EX. CUS., SURAT-II 2009 (3) TMI 111 - CESTAT, AHMEDABAD . The case relates to imported Polyester Filament Yarns found in excess in the factory compared to the last stock balance recorded in the statutory records, where the appellant unit admitted that they had purchased the said goods on cash payment, without having duty paying documents. The present case depends upon the interpretation of law. The exigibility to tax will depend on determining the correct classification of the services. Hence the judgment is distinguished. One of the disputes between the department and appellant in this case relates to the classification of the taxable service related to the deputation of Foreign Service Engineers (FSE) by Mando Korea to their factory premises. Further the appellant states that neither the SCN nor the OIO has specified the category/classification under which tax on technical know-how fees are to be levied - Natural justice requires that the noticee knows the specific charge against him and the reason for it, on the basis of which a decision is proposed to be taken by the proper authority. Hon ble Supreme Court in the case of Commissioner of Central Excise Vs Brindavan Beverages Ltd 2007 (6) TMI 4 - SUPREME COURT has held that the SCN is the foundation on which the department has to build its case and if allegations in the notice are not specific, lack detail etc it would be sufficient to hold that the notice was not given proper opportunity to meet the allegations. It is held that the demand for service tax under RCM must fail on the grounds of natural justice, since the appellant has not been put to notice on the service classification headings under which tax is demanded. Eligibility of the appellant to utilise CENVAT credit for payment of Service Tax under RCM - HELD THAT - Reliance placed upon the Bombay High Court judgment in THE COMMISSIONER OF CGST AND CENTRAL EXCISE VERSUS M/S. U.S.V. LIMITED 2019 (7) TMI 567 - BOMBAY HIGH COURT wherein it was held that for period prior to 20/06/2012 (presumably referring to the date of the notification No 28/2012 CE (NT) inserting the explanation ), there was no restriction to utilise CENVAT credit for payment of tax under RCM. The explanation to Rule 3(4)(e) of CENVAT Credit Rules, 2004, clarifying that CENVAT credit cannot be used for payment of tax when the person liable to pay tax is the recipient, was inserted by Notification No 28/2012 CE (NT) dated 20/06/2012, effective from 01/07/2012. Hon ble Constitution Bench of the Supreme Court in A.V Fernandez v. State of Kerala 1957 (4) TMI 46 - SUPREME COURT , elucidated the principle of strict interpretation in construing a taxing statue - The Apex Court had held that the provisions of a taxing statute must be construed as they stand, adopting the plain and grammatical meaning of the words used. In the present case there was no express provision under the CENVAT Credit Rules, 2004 restricting the usage of CENVAT credit for payment of service tax liability under the reverse charge mechanism until 01/07/2012. Consequently, the appellant was eligible to pay service tax using CENVAT credit till 30/06/2012. Although the issue has been discussed in the impugned order and an amount of Rs. 11,46,058/- is found liable for recovery it has not been confirmed and demanded in the Order . Thus, the issue fails on merits and also because it has not been confirmed and demanded in the impugned order. Extended period of limitation - HELD THAT - As regards invoking the extended period of time / limitation and the imposition of penalties etc, since the demand is found to be unsustainable, the question of time limit or penalties does not arise. Appeal allowed.

Summary

Issues involved:
The issues involved in the judgment are the non-payment of service tax on various charges under dispute, demand of service tax under reverse charge mechanism, classification of services, eligibility to utilize CENVAT credit for payment of service tax, invocation of extended period of limitation, and imposition of penalties.

Classification of services:
The appellant had not paid service tax on charges including salaries paid to foreign service engineers, fees for technical know-how, fees for product testing/product validation, reimbursement of air travel expenses, and service charges for loan guarantee. The demand confirmed by the Commissioner of Service Tax was challenged by the appellant. The appellant argued that the show cause notice did not disclose the classification of services for which service tax was demanded, rendering the demand unsustainable. The Tribunal held that the demand for service tax under reverse charge mechanism must fail due to lack of specific classification headings in the notice.

Utilization of CENVAT credit:
The appellant contested the eligibility to utilize CENVAT credit for payment of service tax under reverse charge mechanism. The Tribunal referred to a Bombay High Court judgment and noted that the appellant was eligible to pay service tax using CENVAT credit until a specific date. However, as the amount in question had not been confirmed and demanded in the order, the issue failed on merits. The Tribunal emphasized strict interpretation of taxing statutes and ruled that the question of penalties did not arise due to the unsustainable demand.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeals, providing consequential relief as per law. The judgment highlighted the importance of specific classification headings in show cause notices for service tax demands under reverse charge mechanism. The decision also underscored the eligibility to utilize CENVAT credit for payment of service tax within the specified period. The Tribunal's ruling focused on upholding natural justice principles and strict interpretation of tax laws in resolving the issues presented in the case.