In a significant case, the Chennai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that cenvat credit is allowable on tax paid under Reverse Charge Mechanism (RCM).
Scope E Knowledge Centre Private Limited, the appellant is a Private Limited Company engaged in providing knowledge process outsourcing. Based on an investigation by the Survey, Intelligence and Research (SIR) Branch of the Service Tax Commissionerate it was alleged that the appellant was receiving various taxable services from overseas companies but had not remitted Service Tax.
The appellant had engaged various individual professors and students for carrying out the work translation from Chinese to other desired languages. It further transpires that the appellant had accounted the above transactions as “Translation Charges” in their books of accounts and made payments to the individuals. It was alleged in the Show Cause Notice that the translation services received by the appellant from the various individuals were taxable with effect from 01.05.2006, under Business Support Services and hence, the appellant was liable to pay Service Tax for the period from 01.05.2006 to 30.09.2010 as covered under Section 65 (104c) and Section 65 (105) (zzzq) of the Finance Act, 1994.
The question before the bench was whether translation services constitute “support services of business or commerce” as defined under Section 65 (104c) of the Finance Act, 1994 and could the Revenue invoke the extended period of limitation.
“support services of business or commerce” means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, 7[operational or administrative assistance in any manner], formulation of customer service and pricing policies, infrastructural support services and other transaction processing.
The expression “infrastructural support services” includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security.
A Coram comprising of Mr P. Dinesha, Member (Judicial) and Mr Vasa Seshagiri Rao, Member (Technical) observed that the tax demand was raised under the reverse charge mechanism and held that when the tax is paid under the reverse charge mechanism, the appellant would be entitled to avail credit of the same, which invariably leads to a revenue neutral situation.
The Tribunal held that there is no scope to allege fraud, suppression, etc., to invoke the extended period of limitation for non-payment of tax and set aside the above demand by agreeing with the contentions of the Learned Consultant for the appellant that the same is hit by limitation. Further remanded the matter to the file of the Adjudicating Authority to the limited extent of working out the demand for the normal period and partly allowed the appeal filed by the assessee.
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