Tribunal Rules in Favor of Appellant: Service Tax Demand Set Aside

The Tribunal set aside the service tax demand against the appellant for the period 1.10.2007 to 31.3.2008, ruling that the appellant was not required to reverse the Cenvat Credit as demanded in the impugned order. The appellant's payment of service tax on exempted services after the show cause notice was considered as a forfeiture of the exemption under Notification No. 4/2004. The Tribunal emphasized the retrospective amendment in the Cenvat Credit Rules 2004, which eliminated the need to reverse Cenvat Credit on services to SEZ units. Consequently, the appeal was allowed, and any consequential relief was granted.

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Issues:
Service tax demand confirmation against the appellant for the period 1.10.2007 to 31.3.2008, restriction of credit utilization to 20% of the tax payable on output services, exemption under Notification No. 4/2004-ST, retrospective amendment in Cenvat Credit Rules 2004, denial of Cenvat Credit, payment of service tax on exempted services, benefit of Notification No. 4/2004-ST, Rule 6(6A) of Cenvat Credit Rules 2004, consequential relief.

Analysis:
The appellant appealed against the order confirming a service tax demand of Rs. 69,44,352/- along with interest and penalties under the Finance Act, 1994 for the period 1.10.2007 to 31.3.2008, restricting credit utilization to 20% of the tax payable on output services as per Rule 6(3) of the Cenvat Credit Rules 2004. The appellant, a Share Transfer Agent (STA) in Registrar to an issue (RTI), provided both taxable and exempted services to SEZ units during the period. The appellant claimed exemption under Notification No. 4/2004-ST but utilized the entire Cenvat Credit on input services towards tax payable on output services, contrary to the 20% restriction. A show cause notice was issued to the appellant, leading to the demand for excess utilization of Cenvat Credit along with interest and penalties.

The appellant contended that after the show cause notice, they paid service tax on exempted services provided to SEZ units, thereby forgoing the exemption under Notification No. 4/2004. The appellant argued that they were entitled to full credit, citing a retrospective amendment in the Cenvat Credit Rules 2004 by the Finance Act, 2012, which eliminated the requirement of reversing Cenvat credit on services provided to SEZ units. The appellant referenced legal precedents to support their position and highlighted that the department dropped a similar demand for a subsequent period due to the retrospective amendment. Additionally, the appellant emphasized that since they paid service tax on exempted services post-show cause notice, Cenvat Credit denial was unwarranted, citing relevant case law.

The Ld. A.R. reiterated the findings of the impugned order, leading to a hearing where both sides presented their arguments. The Tribunal considered the submissions and noted that the appellant paid service tax on exempted services after the show cause notice, indicating a forfeiture of the exemption under Notification No. 4/2004. The Tribunal also highlighted the retrospective amendment through Rule 6(6A) of the Cenvat Credit Rules 2004 by the Finance Act, 2012, which removed the need to reverse Cenvat Credit on services to SEZ units. Consequently, the Tribunal held that the appellant was not obligated to reverse the Cenvat Credit as demanded in the impugned order. As a result, the demands confirmed in the order were set aside, and the appeal was allowed with any consequential relief deemed necessary.

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