2014 (12) TMI 363 - AT - Service Tax

Appeal dismissed for Cenvat credit use on services, penalty imposed under Finance Act.

The appeal was dismissed, upholding the disallowance of Cenvat credit under Rule 14 of Cenvat Credit Rules, 2003 for Goods Transport Agency services and ... CENVAT Credit - Whether the appellants were legally permitted to utilize Cenvat credit account for paying service tax on the Goods Transport Agency services and Business Auxiliary Services on which they were required to pay service tax as receiver under reverse charge mechanism - Held that:- when the explanation under Rule 2(p) of Cenvat Credit Rule was deleted only the services actually provided by an assessee could be treated as output services and not the services received by him even if he was liable to pay service tax on such received services. in fact the explanation deeming the taxable services received by an assessee as an output services was also applicable to persons who were neither a manufacturer nor a service provider. It was further clarified that even during the period prior to 19.4.2006 also the service tax on the taxable services received by an assessee on which he was liable to pay service tax under reverse charge mechanism, he was required to pay service tax in cash and not by utilising Cenvat Credit Account. prima-facie case is in favour of revenue - Partial stay granted. Issues:1. Disallowance of inadmissible Cenvat credit under Rule 14 of Cenvat Credit Rules, 2003.2. Appropriation of amount in the Government account and imposition of penalty under Section 78 of the Finance Act, 1944.3. Utilization of Cenvat credit account for paying service tax on Goods Transport Agency services and Business Auxiliary Services under reverse charge mechanism.Issue 1: Disallowance of inadmissible Cenvat credit under Rule 14 of Cenvat Credit Rules, 2003:The case involved the disallowance of Cenvat credit by the adjudicating authority amounting to Rs. 42,28,588/- and Rs. 6930/- under Rule 14 of Cenvat Credit Rules, 2003, read with Section 11A of the Central Excise Act, 1944. The appellants had availed Cenvat credit on Goods Transport Agency services and Business Auxiliary Services, which were deemed inadmissible under the Cenvat Credit Rules. The Commissioner (Appeals) upheld the disallowance, citing that the services for which credit was claimed did not constitute valid documents as per Rule 9 of the Cenvat Credit Rules, 2004. The appellants had already reversed the amount in their Service Tax Credit Register, but interest on the inadmissible credit remained unpaid.Issue 2: Appropriation of amount in the Government account and imposition of penalty under Section 78 of the Finance Act, 1944:An amount of Rs. 42,35,518/- was appropriated in the Government account due to the disallowance of Cenvat credit. Additionally, a penalty under Section 78 of the Finance Act, 1944, equivalent to the disallowed credit amount, was imposed on the appellants. The order also directed the recovery of interest on the inadmissible Cenvat credit from the date of credit taking to the date of reversal. The appellants were required to make a pre-deposit of the interest amount to avail the right of appeal, failing which the penalty would remain stayed.Issue 3: Utilization of Cenvat credit account for paying service tax on Goods Transport Agency services and Business Auxiliary Services under reverse charge mechanism:The main issue revolved around whether the appellants were legally permitted to utilize the Cenvat credit account for paying service tax on Goods Transport Agency services and Business Auxiliary Services under the reverse charge mechanism. The Tribunal analyzed previous cases, including Nahar Industrial Enterprise and ITC Vs. CCE Guntur, to conclude that utilizing Cenvat credit for paying service tax on received services was not permissible. Even if liable to pay service tax on such services, the payment should be made in cash and not through the Cenvat Credit Account. The Tribunal emphasized that only services actually provided by an assessee could be treated as output services, and the explanation deeming taxable services received as output services did not apply to those liable to pay service tax under reverse charge mechanism.This judgment underscores the strict adherence to Cenvat Credit Rules, disallowing credit for services not meeting the prescribed criteria, and the requirement to pay service tax in cash for services received under reverse charge mechanism. The imposition of penalties and interest serves as a deterrent against non-compliance with tax regulations.