The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), quashed service tax demand and noted that the utilization of Cenvat Credit for payment of service tax on ‘import of service’ is valid.
Paharpur Cooling Towers Ltd, the appellant is engaged in the manufacture of cooling towers and parts thereof at their factories located at various locations in India. A Show Cause Notice was issued to the Appellant demanding Service Tax of Rs. 58,52,901/- along with interest and penalty. The said Notice was adjudicated by the Commissioner, wherein the duty demanded in the Notice was confirmed along with interest and imposed equal amount of duty as penalty under Section 78 of the Finance Act, 1994, read with Rule 15 of Cenvat Credit Rules, 2004.
The petitioner raised the issue of denial of utilization of the cenvat credit for discharging service tax liability in relation to Import of Service, on the ground that these services do not qualify as output services. The Period involved on this issue is March 2009 and the amount confirmed in the impugned order on this count, is Rs. 41,07,195/-.
The appellant stated that as per Rule 3(4)(e) of the Cenvat Credit Rules, 2004, cenvat credit may be utilized for payment of service tax on any output service. As per Rule 5 of Taxation of Services (Provided from Outside India and received in India) Rules, 2006, taxable services provided from outside India and received in India shall not be treated as output services for the purpose of availing credit of duty of excise paid on any input or service tax paid on any input services under Cenvat Credit Rules, 2004.
Moreover, it was contended that the restriction under the Import Rules is limited only for the purpose of availing credit of duty/tax paid on input and input services and there is no restriction that the said services shall not be treated as output service for the purpose of utilization of cenvat credit. Thus, the restriction provided under Import Rules cannot be extended to the provisions of Cenvat Credit Rules, 2004.
A Two-Member Bench comprising Ashok Jindal, Member (Judicial) and K. Anpazhakan, Member (Technical) observed that “We hold that the utilization of Cevat Credit for payment of service tax on ‘import of service’ by the Appellant is legally tenable. Accordingly, we hold that the impugned order confirming the demand on this count is not sustainable.”
The Bench further noted that an ‘Explanation’ has been added to Rule 3(4)(e) of the Cenvat Credit Rules, 2004, w.e.f.01.07.2012, to the effect that Cenvat credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient. Thus, it is amply clear that there was no such restriction in the Cenvat Credit Rules, 2004, prior to 01.07.2012. The period involved in the present dispute is 2009, which is prior to insertion of the Explanation to Rule 3(4)(e) w.e.f., 1.7.2012.
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