2023 (10) TMI 960 - AT - Service Tax

Recovery of irregularly availed ineligible cenvat credit - reverse charge mechanism - expenditure incurred in foreign currency in respect of contribution towards social security for employees of their overseas holding company - HELD THAT - In the present case, service tax was not payable on the contribution towards social security which was part of salary paid by the employer to the employee. It is found that though the service tax which was not payable was paid, Revenue has not refunded the said tax paid by the appellant. It is also noted that the appellant has taken cenvat credit of equal amount. Therefore, there is no loss to the exchequer. On going through the ruling by Hon ble Bombay High Court in the relied upon case of THE COMMISSIONER OF CENTRAL EXCISE, PUNE VERSUS AJINKYA ENTERPRISES 2012 (7) TMI 141 - BOMBAY HIGH COURT it is found that Once the duty on final products has been accepted by the department, CENVAT credit availed need not be reversed even if the activity does not amount to manufacture. - In the present case, Revenue has retained service tax which was not to be paid and the appellant has availed cenvat credit of equal amount and utilized the same for payment of service tax for other services. Demand set aside - Appeal allowed.

Summary

Issues involved:
The issues involved in the judgment are the payment of service tax under reverse charge mechanism on expenditure incurred in foreign currency for social security contribution, eligibility of availed cenvat credit, and the applicability of the ruling by the Hon'ble Bombay High Court in a similar case.

Payment of Service Tax under Reverse Charge Mechanism:
The appellant paid service tax under reverse charge mechanism on the expenditure incurred in foreign currency for social security contribution towards employees of their overseas holding company working in India. The Revenue contended that the definition of service under Section 65B(44) of the Finance Act excludes payments made to employees by the employer from the definition of service, thus the amount was not required to be paid by the appellant. The Revenue initiated proceedings for recovery of the amount as irregularly availed ineligible cenvat credit, which was confirmed by the original authority and upheld by the learned Commissioner (Appeals).

Eligibility of Availed Cenvat Credit:
The appellant availed cenvat credit of the service tax amount paid under reverse charge mechanism. The appellant argued that even though the service tax was not required to be paid, it was paid and had attained the nature of service tax, as Revenue did not hold through any order that the amount was not payable. The appellant relied on a ruling by the Hon'ble Bombay High Court in a similar case involving central excise duty, where the court held that availing cenvat credit of duty paid on inputs was regular when the assessment of the final product was not reversed by Revenue.

Applicability of Ruling by Hon'ble Bombay High Court:
The Tribunal considered the ruling by the Hon'ble Bombay High Court in a similar case and noted that the service tax paid by the appellant, which was not required to be paid, was not refunded by Revenue. The appellant had availed cenvat credit of the same amount, resulting in no loss to the exchequer. Relying on the cited judgment, the Tribunal held that the impugned order-in-appeal was not sustainable and set it aside, without interfering with the service tax already paid and cenvat credit availed.

Separate Judgement:
The judgment was delivered by Hon'ble Mr. Anil G. Shakkwar, Member (Technical) of the Appellate Tribunal CESTAT Mumbai.