Reverse charge on foreign services before 18.04.2006 fails, while unsupported Cenvat credit claims remain liable to denial

Service tax could not be demanded from an Indian recipient on reverse charge for taxable services received from abroad before 18.04.2006, so the demand and consequential penalties were set aside. By contrast, denial of Cenvat credit was upheld where the assessee failed to produce invoices or other supporting evidence showing tax payment and the nature of input services, and the appellate challenge was not substantiated. The result was partial relief: the reverse charge demand failed, but the credit-related demands remained in force.

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Issues: (i) Whether service tax could be demanded from the recipient in India on taxable services received from a foreign service provider for the period prior to 18.04.2006 on reverse charge basis; (ii) Whether denial of credit of service tax availed by the appellant was justified for want of supporting documents and evidence.

Issue (i): Whether service tax could be demanded from the recipient in India on taxable services received from a foreign service provider for the period prior to 18.04.2006 on reverse charge basis.

Analysis: The dispute related to services received from abroad during a period anterior to 18.04.2006. The settled legal position, as applied in the order, was that recipient liability in India for such foreign services did not arise for that period. The demand founded on reverse charge mechanism therefore could not survive, and the connected penalties were consequential to that demand.

Conclusion: The demand raised on reverse charge basis was not sustainable and the consequential penalties were set aside, in favour of the assessee.

Issue (ii): Whether denial of credit of service tax availed by the appellant was justified for want of supporting documents and evidence.

Analysis: The adjudicating authority had recorded that the appellant did not dispute the credit-related demand in reply to the show cause notice or during personal hearing, and that the credit had been availed and utilised without documentary evidence of tax payment or specification of input services. In the absence of invoices or other supporting material before the appellate forum, the challenge to the denial of credit was not substantiated.

Conclusion: The denial of credit and the corresponding demands were upheld, against the assessee.

Final Conclusion: The appeals succeeded only on the reverse charge demand and failed on the credit-denial demands, resulting in a partial relief to the assessee.

Ratio Decidendi: For services received from abroad prior to 18.04.2006, service tax could not be demanded from the Indian recipient on reverse charge basis, but Cenvat credit may be denied where the assessee fails to produce supporting documentary evidence establishing entitlement to the credit.

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