FULL TEXT OF THE CESTAT JUDGEMENT
This Appeal has been filed from the order dated 28.03.2018 passed by the Commissioner of CGST and Cx.(Appeals-III), Mumbai in Order-in-Appeal No. NA/GST A-iii/MUM/609/17-18.
2. The issue to be decided is Whether the Appellant i.e. the service recipient could utilize Cenvat credit of Central Excise duty paid on inputs, for payment of service tax on services viz.Management, Maintenance or Repair, Copyright and Advertising, received by them from abroad, under reverse charge mechanism?
3. The facts of the case in brief are that the appellants are provider of the services viz. Broadcasting services, Business Auxiliary Service, Renting of immovable Property, Erection Commissioning and Installation Service and Sound recording services. During the course of audit, it was revealed that appellants had incurred expenditure in foreign currency towards the services received from various foreign based service providers and had paid the service tax by way of utilization of Cenvat credit. Therefore, a show cause notice dated 21.11.2013 was issued to them proposing to demand and recover Service Tax amounting to Rs. 5,36,752/- for the period 2008-09 to 2010-11. The Adjudicating Authority vide Order-in-Original dated 30.03.2015, confirmed the demand of Rs. 5,36,752/- along with interest under Section 75 and appropriated the amount of Rs. 86,111/- and imposed equal penalty under Section 78 and also imposed penalty of Rs. 5,000/- under Section 77 of the Finance Act, 1994.
4. The learned Chartered Accountant appearing on behalf of Appellant submits that in terms of Rule 3(4) of CCR, 2004, Cenvat Credit can be utilized for payment of tax on output services and explanation to Rule 2(p) ibid clarified that if a person liable for paying service tax did not provide any taxable service or did not manufacture final products, then the service to which he was liable to pay service tax should be deemed to be the output service and there was no specific restriction on utilization of credit by the person liable for paying Service Tax. On the contrary, provider of taxable service includes person liable to pay service tax as per Rule 2(r) ibid. He also submits that amendment made in Rule 3(4) ibid by inserting explanation w.e.f. 1.7.2012 vide notification dated 20.6.2012 that Cenvat Credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is service recipient, itself make is clear that there was no restriction on the utilization of credit prior to 1.7.2012. He further submits that payment of service Tax u/s. 66A of the Finance Act, 1994 can be made by utilizing Cenvat credit. In support of his submissions, learned Chartered Accountant drew my attention towards the decision of the Hon’ble High Court of Judicature at Bombay in the matter of CCE vs. M/s. U.S.V. Ltd.; 2019(7) TMI 567- Bombay High Court, in which it was held that there is no bar for utilizing the cenvat credit already availed to discharge service tax obligation on the import of services on reverse charge basis. He also raised the issue of limitation as well as penalty under Section 78 ibid. Per contra learned Authorised Representative appearing on behalf of Revenue reiterated the findings recorded in the impugned order and prays for dismissal of Appeal.
5. I have heard learned Chartered Accountant and learned Authorised Representative and have gone through the case records including the synopsis as well as the decisions cited by the respective sides during the course of hearing. I have gone through the decision of the Hon’ble High Court in the matter of M/s. U.S.V. Ltd. (supra) and in my view the issue involved in this Appeal is no more res integra in view of the aforesaid decision of the Hon’ble High Court. The relevant paragraphs of the said decision is extracted as under:-
“6. The view taken by the Tribunal in respect of Rule 3(4) of the Cenvat Credit Rules, 2004 now stands concluded against the revenue by the decision of the Gujrat High Court in the case of Commissioner of C.Ex. & Customs vs. Panchmahal Steel Ltd., 2015(37) S.T.R. 965 (Guj.), Delhi High Court in the case of Commissioner of Service Tax vs. Hero Honda Motors Ltd. 2013 (29) S.T.R. 358 (Del.) and Punjab and Haryana High Court in Commr. Of C.Ex. Chandigrh vs. Nahar Industrial Enterprises Ltd.,2012 (25) S.T.R. 129 (P & H). The aforesaid decisions have been followed by this Court in The Commissioner of CGST & Central Excise v/s. Godrej & Boyce Mfg Co. Ltd. (Central Excise Appeal No. 23 of 2019) decided on 24th June, 2019 to allow utilization of CENVAT credit for payment of service tax on reverse charge basis GTA (Goods Transport Agency).The above decision of Gujrat, Delhi and Punjab High Courts were also followed by us in Commissioner of CGST and General Excise, Belapur Commissionerate vs. M/s. GTL Infrastructure Limited in (Central Excise Appeal No. 94 of 2019) decided on 25th June, 2019 in respect of discharge of service tax obligation on reverse charge basis on import of services under Section 66A of the Finance Act, 1994 by utilization of Cenvat credit. Thus there is no reason not to follow our Court’s decision in GTL Infrastructure Limited (supra).
7. On the above being pointed out, the distinction which is sought to be made out by the Revenue before us for not following the earlier decisions, is, the prohibition found in Rule 5 of the Taxation of Services (provided from Outside India and Received in India) rules, 2006. We note that the restriction provided in Rule 5 of the above rules is that the taxable services received from outside India shall not be treated as output services for availment of tax paid on any input services. However, there is no bar to utilizing of Cenvat credit already availed to discharge service tax obligation on the import of services on reverse charge basis. This view is further supported by the fact that on 20th June, 2012 the Cenvat Credit Rules, 2004 were amended so as to introduce an explanation which bars utilization of Cenvat credit to meet obligation of tax on output service on reverse charge basis.
Similar issue also came up before the Hon’ble High Court of Delhi in the matter of Mccann Erickson (India) Ltd. vs. Pr. Commr. of GST & C. EX., Delhi East; 2019 (30) G.S.T.L. 425 (Del.) and the Hon’ble High Court while deciding the issue in favour of the Appellant therein held as under:-
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26. The issue to be determined is whether the appellant, as the person liable to pay the Service Tax on services provided by service providers located outside India, could pay the said Service Tax by utilization of Cenvat credit available with it.
27. A bare reading of the Cenvat Credit Rules reveals that the answer to this question has necessarily to be in the affirmative. This may be demonstrated thus:
(i) Rule 3(4) of the Cenvat Credit Rules clarifies that Cenvat credit may be utilised for payment, inter alia, of Service Tax on any output service.
(ii) “Output service” is defined, in Rule 2(p) of the Cenvat Credit Rules, which envisages that any Taxable Service, excluding the taxable service referred to in sub-clause (zzp) of Clause (105) of Section 65 of the Finance Act, 1994 provided by the provider of taxable service, to a customer, is an “output service”.
(iii) “Provider of Taxable Service” is defined, in Rule 2(r) of the Cenvat Credit Rules as including a person liable for paying Service Tax.
(iv) Rule 2(q) of the Cenvat Credit Rules defines “person liable for paying Service Tax” as having the same meaning, assigned to the expression, in Rule 2(1)(d) of the Service Tax Rules, 1994 (hereinafter referred to as “the Service Tax Rules”).
(v) In case of services provided by a provider located outside India and received by a recipient located in India, the Indian recipient is, by virtue of Rule 2(1)(d)(iv) of the Service Tax Rules, defined as the “person liable for paying Service Tax”.
(vi) The Indian recipient of the service also, therefore, becomes the “person liable for paying Service Tax”, under the Cenvat Credit Rules.
(vii) The Indian recipient of the Taxable Service also, consequently, becomes the “provider of Taxable Service”, as defined in Rule 2(r) of the Cenvat Credit Rules.
(viii) Rule 3(4) of the Cenvat Credit Rules permits Cenvat credit to be utilised for payment of Service Tax on any “Output Service” is defined, in Rule 2(p) of the Cenvat Credit Rules as service provided, by a provider of Taxable Service. It has already been pointed out, hereinabove, that the petitioner was, by dint of the definition of the expression, as contained in Rule 2(r) of the Cenvat Credit Rules, the “provider of Taxable Service”. Section 66A of the Finance Act, 1994, holds that, in cases where service, provided by a provider located outside India, is received by a recipient in India, the service would be deemed to have been provided by the Indian recipient.
(ix) Resultantly, therefore, the services received in India, by the appellant, from the service providers located outside India, were deemed to be output services, provided in India, for which the appellant was the service provider.
(x) In this scenario, therefore, Service Tax, on such services, was payable by utilisation of Cenvat credit, by virtue of Rule 3(4) of the Cenvat Credit Rules.”
In view of the above decisions, it is settled that once the assessee in terms of Rule 2(q) r/w Rule 2(1)(d)(iv) ibid, is liable to pay service tax then he also becomes a provider of taxable service under Rule 2(r) and consequently becomes a provider of output service under Rule 2(p) ibid and becomes entitle to utilize the Cenvat credit for payment of service tax on reverse charge basis. Rule 5 of the Taxation of Service (Provided from Outside India and Received in India) Rules, 2006 prohibits only for availing of Cenvat credit and not for utilizing the Cenvat credit to discharge its service tax obligation on reverse charge basis. The period involved in this Appeal is from April, 2008 to March,2011 whereas the prohibition as per the notification dated 20.6.2012 regarding the utilization of the Cenvat credit by way of amendment in Rule 3(4) ibid, is effected from 1.7.2012 only, therefore during the period in issue the Appellants i.e. the service recipient were very well within their rights to discharge the service tax liability on reverse charge basis by utilizing the Cenvat Credit. There is no need for me to take up the issues of limitation or penalty since on merits I am convinced and am allowing the Appeal.
6. Accordingly, in view of the discussions made herein above as well as the decisions cited supra the impugned order is set aside and the Appeal is allowed with consequential relief, if any.
(Order pronounced in the open Court on 25.02.2020)