By TIOL News Service

MUMBAI, MAR 10, 2016: THE appellant is engaged in the manufacture & clearance of different types of electrical insulators. They are also registered with the service tax department under the category of 'Business Auxiliary Service' for payment of service tax under reverse charge mechanism in case of services received from foreign party.

The appellant paid service tax of Rs.1,05,03,352/- for the period January 2006 to April 2010 through TR-6 challan on the commission paid by them to the foreign commission agent and availed credit of the same.

The department objected to this availment on the ground that tax paid u/s 66Aof FA, 1994 had not been specified in Rule 3 of CCR, 2004.

The CCE, LTU vide order dated 14.10.2010 allowed Cenvat Credit for the period from 18.04.2006 in view of the retrospective amendment in Rule 3 of the CCR, 2004. However, he denied credit of Rs.14,05,091/- for the period prior to 18.04.2006 citing that Section 66A was brought into the statute book only with effect from 18.04.2006 and there was no charge of service tax on the services received from outside India prior to 18.04.2006.

Aggrieved by this portion of the order, the appellant is before the CESTAT.

It is submitted that the adjudicating authority has not given any reasoning for denying the credit of service tax paid under reverse charge mechanism for the period 01.01.2006 to 18.04.2006. Moreover, Revenue had all along maintained that the appellant is liable to pay Service Tax under the reverse charge mechanism w.e.f01.01.2005 even without any charging provision in the Act and the issue was settled by the Apex Court by holding that service tax liability on any taxable services provided by a non-resident or a person located outside India to a recipient in India would arise with effect from 18.04.2006 i.e. the date of enactment of Section 66A of the FA, 1994. Reliance is placed on the letter F.No. 345/1/2008-TRU dated 27.06.2008 & 354/148/2009-TRU dated 16.07.2009 allowing credit of tax paid under reverse charge. The appellant also submitted that the findings of the Commissioner is beyond the scope of the SCN be cause the only allegation was that credit is not entitled as Section 66A was not mentioned in Rule 3(1) of CCR, 2004 and there was no allegation that credit is not entitled as tax itself is not payable.

A plethora of case laws is cited in support -

+ Ballarpur Industries Ltd. - 2007-TIOL-153-SC-CX

+ Bajaj Allianz General Insurance Co. Ltd. - 2014-TIOL-1540-CESTAT-MUM

+ Glyph International Ltd. - 2012-TIOL-122-HC-ALL-ST

+ MDS Switchgear Ltd. - 2008-TIOL-245-SC-CX

+ Creative Enterprises - 2008-TIOL-784-HC-AHM-CX

+ Deloitte Haskins & Sells - 2015-TIOL-366-CESTAT-MUM

On the issue of availment of credit when the department had accepted the payment of service tax paid, although not payable, the following decisions were relied upon -

+ Ashok Enterprises - 2008-TIOL-312-CESTAT-MAD

+ Super Forgings - 2007-TIOL-2040-CESTAT-MAD

+ M.P. Telelinks Ltd. - 2004-TIOL-77-CESTAT-DEL

+ Heat Shrink Technologies Ltd. - 2007-TIOL-463-CESTAT-MUM

+ Ajinkya Enterprises - 2012-TIOL-578-HC-Mum

The plea of the demand being hit by limitation was also taken by appellant.

The AR justified the confirmation of demand and cited the decisions in Bhandari Hosiery Ltd. - 2008-TIOL-604-CESTAT-DEL, Parle Agro P. Ltd. - 2014-TIOL-2260-CESTAT-AHM to buttress the same.

The Bench after considering the submissions observed -

+ There is only one charging section in service tax i.e. Section 66. Section 66A is merely a deeming provision…. Section 66A is not a charging section and the same has also been made clear by circular 354/148/2009-TRU dated 16.07.2009 and in the said circular CBEC has made it clear that there is no mistake or omission in that relevant provision of CENVAT Credit Rules, 2004 and credit of tax paid on imported services should be allowed if they are in the nature of input services. Further in this case the tax was paid under Section 66 of the Finance Act, and hence the credit is admissible to the appellant.

+ Further though the tax itself was not required to be paid then in that case credit is nothing but a refund of the tax erroneously paid by the appellant in their Cenvat Credit account.

+ In this case extended period cannot be invoked as the appellant have been disclosing the credits in their ER-1 returns and they were under a bonafide belief that they are liable to pay tax in terms of Rule 2(1)(d)(iv) and also entitled to take credit and the issue involved in the present case was with regard to interpretation of statutory provision and moreover the Commissioner has also not given any finding that the appellant have suppressed anything from the department.

Holding that the impugned order is not sustainable in law, the same was set aside and the appeal was allowed with consequential relief.

(See 2016-TIOL-576-CESTAT-MUM)