Appellate tribunal rules in favor of appellant in service tax dispute, citing Section 66 eligibility.

The appellate tribunal ruled in favor of the appellant, holding that the impugned order demanding payment of service tax under reverse charge mechanism was not sustainable. The tribunal clarified that Section 66 was the charging section for service tax before the introduction of Section 66A, making the appellant eligible for the credit. The tribunal also found that the appellant had acted in good faith by disclosing the credits in their returns, thus disallowing the invocation of the extended period of limitation for penalties. Consequently, the tribunal set aside the order and allowed the appeal, providing consequential relief to the appellant.

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Issues:
Interpretation of CENVAT Credit Rules regarding service tax payment under reverse charge mechanism prior to the introduction of Section 66A.

Analysis:
The case involved a dispute over the Cenvat Credit availed by the appellant for service tax paid under reverse charge mechanism. The appellant, engaged in manufacturing electrical insulators, paid service tax on commission to a foreign commission agent. The department issued a show-cause notice demanding the amount paid, citing non-inclusion of Section 66A in Rule 3 of CENVAT Credit Rules, 2004. The appellant contended that they were entitled to the credit as they paid the tax under the reverse charge mechanism. The appellant argued that prior to the introduction of Section 66A, there was no provision for service tax on services received from outside India. The appellant relied on circulars and judgments supporting their position.

The appellant argued that the impugned order was passed mechanically without considering relevant laws and case laws. They contended that the tax paid was refundable as they were not liable to pay service tax on the commission. The appellant highlighted circulars clarifying the taxability of imported services and emphasized that the tax was paid under Section 66 of the Finance Act, making them eligible for credit. The appellant also challenged the invocation of the extended period of limitation for imposing penalties, asserting their bonafide belief in tax liability.

On the other hand, the respondent reiterated that Section 66A was introduced in 2006, making it the charging section for service tax post-April 2006. The respondent relied on judgments supporting their argument regarding the applicability of Section 66A. However, the appellate tribunal, after considering circulars and judgments, found that Section 66 was the only charging section for service tax. The tribunal emphasized that Section 66A was a deeming provision and not a charging section. It noted that the tax paid by the appellant was admissible under Section 66, and the credit was justified. The tribunal also ruled that the extended period of limitation could not be invoked, as the appellant had disclosed the credits in their returns in good faith.

In conclusion, the tribunal held that the impugned order was not sustainable in law. The tribunal set aside the order and allowed the appeal, providing consequential relief to the appellant. The judgment clarified the interpretation of statutory provisions regarding service tax payment under reverse charge mechanism before the enactment of Section 66A.

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