Assessee may opt to pay service tax under Notification No.17/2004-ST and claim CENVAT credit; refund denied

CESTAT AHMEDABAD - AT allowed the appeal, holding that an assessee may opt not to avail a conditional notification and lawfully pay service tax; such payment entitles the recipient to CENVAT credit even where tax liability could have been avoided under Notification No.17/2004-ST. The tribunal set aside the impugned order denying credit under the reverse-charge facts and granted CENVAT credit for the service-tax paid on IPR/IPR-related services. Because credit was allowed, the separate refund claim was rejected as not payable.

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Issues:
1. Availment of cenvat credit on service tax paid under reverse charge mechanism.
2. Eligibility for refund claim due to erroneous payment of service tax.

Analysis:
1. The appellant deposited Rs. 82,33,666/- as service tax under reverse charge mechanism for technical knowhow under IPR services. They availed cenvat credit but received a show cause notice proposing to deny it, citing payment of R&D cess on IPR service under Notification No. 17/2004-ST. The appellant reversed Rs. 40,57,595/- and filed a refund claim, which was also challenged for lack of evidence on notification benefit. Two appeals were filed: one for the rejected refund claim and the other for denied cenvat credit based on service tax exemption.

2. The appellant's counsel argued that the service tax is refundable as the R&D cess was paid, and the exemption under Notification No. 17/2004-ST is optional. They contended that even if service tax was not payable, cenvat credit should be allowed as per Cenvat Credit Rules. The Revenue supported the impugned order denying both claims.

3. The Tribunal analyzed the conditional nature of Notification No. 17/2004-ST and the appellant's option to avail it. Referring to Section 5A of the Central Excise Act, it concluded that the appellant was not compelled to avail the conditional notification. Therefore, paying service tax without availing the exemption was legal, entitling the appellant to cenvat credit on the tax paid.

4. Citing precedents, the Tribunal affirmed that even if service tax was not due, the recipient could claim cenvat credit. Relying on various judgments, the Tribunal held that the appellant was entitled to cenvat credit for the entire amount paid as service tax. Consequently, the impugned order denying cenvat credit was set aside, and the appeal was allowed. As the cenvat credit was granted, the refund claim became infructuous, leading to its dismissal.

Conclusion:
The Tribunal allowed the cenvat credit for service tax paid by the appellant, dismissing the refund claim due to the credit approval. The judgment emphasized the appellant's right to claim cenvat credit even if service tax was not payable, based on legal provisions and established case law principles.

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