2016 (10) TMI 241 - AT - Service Tax

Appellants Liable for Service Tax on Foreign Services: Penalties Waived, Cenvat Credit Upheld

The Tribunal held the appellants liable to pay service tax on services received from foreign entities on a reverse charge basis from 18.04.2006 onwards. ... Import of services from non-resident associate group company situated in Netherland - Reverse charge - Held that:- when the services are provided by a foreign service provider having no office in India, we find the legal position has been settled by the Hon 'ble Bombay High Court in Indian National Shipowners Association [2008 (12) TMI 41 - BOMBAY HIGH COURT] which has been affirmed by Hon'ble Supreme Court. [2009 (12) TMI 850 - SUPREME COURT OF INDIA]. The appellant is liable to pay service tax on services received from foreign entity on reverse charge basis with effect from 18.04.2006. Penalties levied on the appellants are waived in terms of Section 80 of the Act. Cenvat Credit availed on the basis of duty paid documents TR-6 Challans for the eligible period is upheld. - Decided partly in favor of assessee. Issues:1. Liability to service tax on reverse charge basis for services received from foreign entity.2. Imposition of penalties under Sections 76, 77, and 78 of the Act.3. Denial of cenvat credit of service tax paid on reverse charge basis.Issue 1: Liability to Service Tax on Reverse Charge BasisThe appeals addressed the liability of the appellants on reverse charge basis for services received from a foreign entity. The Tribunal referred to the legal position established by the Bombay High Court in Indian National Shipowners Association and affirmed by the Supreme Court. It was noted that the demand of service tax for the period before 18.04.2006 was not valid as service tax on reverse charge basis became payable from that date with the introduction of Section 66A in the Finance Act, 1994. The Tribunal emphasized that no mala-fide intent was evident in the non-payment of service tax, considering the complex legal interpretations surrounding service tax liability involving foreign service providers. The appellants were also entitled to credit for any tax paid on reverse charge basis, leading to the waiver of penalties under Section 80.Issue 2: Imposition of PenaltiesRegarding the imposition of penalties under Sections 76, 77, and 78 of the Act, the Tribunal found merit in the appellant's plea against the penalties. It was observed that there was no malicious intent demonstrated in the case, and the legal complexity surrounding service tax liability on reverse charge basis was acknowledged. Consequently, the Tribunal deemed it appropriate to waive the penalties imposed on the appellants in the appeals related to service tax liability on reverse charge basis.Issue 3: Denial of Cenvat CreditThe third appeal dealt with the denial of cenvat credit of service tax paid on reverse charge basis. The Tribunal examined Rule 9(1)(a) of the cenvat credit Rules, 2004, and cited a previous decision by the Tribunal in JSW Steel Ltd, emphasizing the availability of cenvat credit for service tax paid on input services. The Tribunal disagreed with the reasoning of the Commissioner that the decision had not attained finality due to a pending appeal by the department. It was highlighted that the appellants had paid service tax as service recipients, and the TR 6 challans served as primary documents evidencing payment of duty, allowing for cenvat credit. Consequently, the impugned decision was set aside, affirming the availability of cenvat credit for the eligible period based on TR-6 Challans.In conclusion, the Tribunal held the appellants liable to pay service tax on services received from foreign entities on a reverse charge basis from 18.04.2006 onwards. Penalties imposed on the appellants were waived under Section 80, and the cenvat credit availed based on TR-6 Challans for the eligible period was upheld. The appeals were disposed of accordingly.