2010 (11) TMI 174 - AT - Service Tax

Appellant not liable for service tax pre-2005, entitled to cenvat credit, penalty set aside.

The Tribunal held that the appellant was not liable to pay service tax before 1-1-2005 and was entitled to cenvat credit for the amount paid under the ... Cenvat credit - appellant received and availed the taxable services, namely, consulting engineering services from the foreign consultants during the period from 2002-03 to 2003-05 and paid service tax of Rs. 5,84,233/- vide TR-6 challan No. 21/2005-06 in terms of Rule 2(1)(d)(iv) of Service Tax Rules, 1994 - Hon’ble Bombay High Court in the case of Indian National Shipowners Association v. Union of India (2008 -TMI - 32013 - HIGH COURT OF BOMBAY) wherein it was held that the appellant is not liable to pay service tax at all prior to 18-4-2006, the demand of service tax from the service recipient is not sustainable - decided in the favour of the assessee Issues:Recovery of cenvat credit, imposition of penalty under Cenvat Credit Rules, 2004, payment of service tax for consulting engineering services, eligibility for cenvat credit, applicability of service tax rules prior to 1-1-2005.Analysis:The appellant filed an appeal against an order to recover cenvat credit and impose a penalty under Cenvat Credit Rules, 2004 for availing consulting engineering services from foreign consultants. The appellant paid service tax for the services received prior to 1-1-2005. The lower appellate authority upheld the demand and penalty. The appellant argued that they were not liable to pay service tax before 1-1-2005 and had paid the tax under the persuasion of departmental officers, making it a revenue-neutral situation. The appellant relied on a Tribunal decision to support their case. The Departmental Representative contended that the appellant, not being liable for service tax, could not avail cenvat credit. The Tribunal noted that the appellant was not liable to pay service tax during the period in question, citing a Bombay High Court decision. The Tribunal held that the amount paid by the appellant was not due, and the appellant was entitled to cenvat credit as the payment was made under the advice of departmental officers during an audit. The Tribunal found the appellant not liable to reverse the cenvat credit and set aside the impugned order, allowing the appeal.This case highlights the importance of understanding the applicability of tax rules and the eligibility for cenvat credit. The Tribunal's decision was based on the appellant's non-liability to pay service tax before 1-1-2005 and the circumstances under which the service tax was paid. The Tribunal emphasized the revenue-neutral nature of the situation and the appellant's entitlement to cenvat credit for the amount paid. The reliance on previous Tribunal decisions and legal principles supported the Tribunal's ruling in favor of the appellant.