By TIOL News Service

MUMBAI, JUNE 28, 2018: THE appellant manufactured Polyester Fabric Yarn (PFY) and exported the same. In the process of manufacturing, they engaged service provider located outside India for the purpose of providing support service to the appellant company.

In respect of the service tax paid under reverse charge mechanism, the appellant availed CENVAT credit and which was denied by the lower authority on the ground that the same is in contravention of rule 3 of CCR, 2004 r/w Rule 9(c) and Rule 2(f) of the POPS, 2012.

In their appeal before the CESTAT, the appellant submitted that they cannot be considered as 'intermediary'; that services provided by the foreign service provider qualify as input service; that revenue had not disputed the credit but merely stated that 'challan' was not a valid document for taking credit; that it is settled principle of law that re-assessment is not possible at the recipient's end and even if it is assumed that appellants are not liable to pay tax and credit is inadmissible, the same credit should be considered as best form of refund of tax by observing a revenue neutral situation.

The AR supported the impugned order and also emphasized that service tax paid incorrectly can only be refunded and the same cannot be adjusted by way of availment of CENVAT credit.

The Single Member Bench inter alia observed –

+ To give a finding as to whether the issue involved in the present litigation is a 'service' given by intermediary outside the taxable limit is not within the jurisdiction of this Single Bench but Service Tax paid on mistaken belief that the same was payable and credit availed on bona fide belief would not cause any loss of the Revenue in making adjustment of such tax paid against demand of Service Tax made for the same period.

Noting that in view of the CESTAT decisions cited as - 2014-TIOL-1540-CESTAT-MUM, - 2011-TIOL-1463-CESTAT-MAD and - 2011-TIOL-195-CESTAT-DEL, the demand does not sustain, the impugned order was set aside and the appeal was allowed.

(See 2018-TIOL-1988-CESTAT-MUM)