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ST - Refund - Appellant's claim is that by virtue of Sec 68(2) since liability to pay partial ST has been imposed on them, they become service provider is misplaced: CESTAT

By TIOL News Service

MUMBAI, FEB 09, 2018: THE appellants are engaged in the export of non-excisable commodity, namely, "fruits pulp".

They received input services of Manpower Recruitment and Security and claimed refund of the tax paid under rule 5B of CCR, 2004.

The refund claims were rejected by the original adjudicating authority relying on Rule 5B of the CCR, 2004 read with Notification NO. 12/2014-CE(NT).

The Commissioner (Appeals) while concluding that the appellants were not service providers and, therefore, not entitled to refund, short listed the following questions:

"(1) Whether the appellant, who pays service tax under reverse charge mechanism (a recipient of taxable service but liable to pay duty in terms of the provisions of Section 68 (2) of the Finance Act, 1994) can also be called "output service providers?

(2) Whether manufacturer of goods having "Nil" tariff rate of duty is eligible for Cenvat Credit at all?"

The Commissioner (Appeals) also held that the appellants are not entitled to CENVAT Credit as the final products manufactured by them is not excisable.

The appellant is before the CESTAT and submits that they are entitled to CENVAT credit in view of the decisions in Drish Shoes Ltd. - 2010-TIOL-350-HC-HP-CX and Sharp Menthol India Ltd. - 2011-TIOL-490-HC-MUM-CX. Moreover, as regards refund, it is submitted that in view of the provisions of section 68(2) of the FA, 1994, since they are required to pay service tax on reverse charge basis, they become service providers and are entitled for the benefit of notification.

The Bench extracted paragraphs 27 & 28 from the decision in Sharp Menthol (supra) and held that in view of the same, the CENVAT Credit cannot be denied on the ground that the final product "fruit pulp" exported by the appellants is chargeable to Nil rate of duty as per tariff.

As regards the second issue, the CESTAT observed -

"5.1 It is clear from the notification [12/2014-CE(NT) dated 03.03.2014 ] and Rule 5B that the said rule and notification are intended solely for the service provider providing specific services. The appellant's claim is that by virtue of Section 68(2), since liability to pay partial service tax has been imposed on them they become service provider is misplaced. The Act differentiates between the service provider and person liable to pay service tax under different circumstances. It is possible that the person liable to pay service tax may not be the service provider. If the Government intended to provide this facility to service recipient paying service tax on reverse charge basis the Government would have used the word "person liable to pay service tax" and not the word "service provider". Section 68(2) is a special mechanism for shifting part liability to pay service tax from "service provider" to "service recipient" but it does not convert in the "service recipient" into "service provider". In these circumstances, Rule 5B has no application in the appellant's case.

The impugned orders were upheld and the appeals were dismissed.

Quick Reference:

5B. Refund of CENVAT credit to service providers providing services taxed on reverse charge basis. - A provider of service providing services notified under sub-section (2) of section 68 of the Finance Act and being unable to utilise the CENVAT credit availed on inputs and input services for payment of service tax on such output services, shall be allowed refund of such unutilised CENVAT credit subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette.

(See 2018-TIOL-492-CESTAT-MUM)