Cenvat credit could be used to pay service tax on imported services before the amendment, with interest and penalty falling away.

For the period before the 19-4-2006 amendment, a recipient of taxable services from a foreign service provider was treated as a deemed output service provider and could discharge the service tax liability by utilising Cenvat credit of input services. Once the demand was found unsustainable for that period, the connected claims for interest and penalty also could not survive. The later amendment altered the position prospectively only, so it did not affect the disputed period.

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Issues: Whether, during the relevant period, service tax payable by a recipient of taxable service from a foreign service provider could be discharged by utilising Cenvat credit and whether interest and penalty survived once the demand itself failed.

Analysis: The statutory scheme then in force treated a person liable to pay service tax, though not rendering a taxable service or manufacturing final products, as a deemed output service provider. On that footing, the service tax payable on the received service could be discharged through Cenvat credit of input services. The later amendment with effect from 19-4-2006 changed that position, but the disputed period preceded the amendment. Since the demand itself was unsustainable for that period, the consequential claims for interest and penalty also could not survive.

Conclusion: The utilisation of Cenvat credit was held permissible for the relevant period, and the demand, interest and penalty were set aside, in favour of the assessee.

Final Conclusion: The order confirmed the assessee's entitlement to discharge the service tax liability for the relevant period by Cenvat credit, with the related revenue appeal failing as a consequence.

Ratio Decidendi: Where the statute deems the recipient of specified imported services to be an output service provider, service tax on such deemed output service may be paid by utilising available Cenvat credit for the period before the contrary amendment takes effect.

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